Author Topic: Am I ready to buy a primary residence?  (Read 3671 times)

Murse

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Am I ready to buy a primary residence?
« on: March 13, 2017, 12:56:11 PM »
I need some advice from some financial savages, so naturally I came here.

Current situation- I live in a 700 square foot two bedroom apt with my girlfriend, a roommate and my dog. My split of rent is $400/month.

I am emotionally ready for more space, interest rates are shooting up and living a half an hour from the Portland Oregon real estate market prices are expected to increase 6-7% this year.

All things considered, the lowest end possible is a 1 bed one bath posted at 180k, on the high end of course around 1 million. I am wanting to shoot around 300k (although bigger then I currently need) for a home I could live in for the next 10-15 years until I hit FIRE.


The financial side-
I have maxed out my Roth IRA, putting $1500 in per month into my 457, after that I net a little over 4K/month. I have up to 30k in my brokerage I could use to throw at this, but that is nearly 100% of my liquid funds, I am looking to do 5% down. Speaking with my lender Current rates are around 4.375% and I would have to wait a minimum of two years to get rid of PMI. I would be buying a3-4 bedroom for space for future children, but don't fret mustachians because I would be bringing my girlfriend and roommate who I would likely be charging 5-600$/month to rent rooms while I pay for all utilities. I would also be open to renting the additional room/rooms in the future.

All this to say, what do you think and feel free to ask more questions, thanks.

ketchup

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Re: Am I ready to buy a primary residence?
« Reply #1 on: March 13, 2017, 01:16:14 PM »
Just hand-waving the numbers a bit, it looks like from a strict financial perspective your market looks like it favors renting over buying.

I would also not buy a house "for future children," but that's just me.  Extra space in the meantime will cost a lot.  If you do go through with this, definitely rent out the remaining rooms to make some of that cash back and put the space to work.

prices are expected to increase 6-7% this year.
Do not hang your hat on "expected"s.  It could also go down, and in such a high-priced market, it could go down by a lot.  Especially if you're only putting 5% down, could you stomach a real estate market drop of 10% after you buy?  20%?  You don't want to get stuck.  Maybe hope for 5%, plan for 0%, and have a plan B for down to -20%.

It also sounds like you have very little spare liquid capital.  If you move in, the market tanks, you lose your job, and you find out the house has foundation issues (or insert other scary-expensive-problem X), what do you do?  Can the two of you live off just your girlfriend's income (or just yours) if it came to that, while accounting for a house?

I'm not trying to scare you; I just want you think of all the permutations and possibilities.  If you walk through the worst-case scenario and survive that, you can be much much more comfortable making your decisions.

frugaliknowit

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Re: Am I ready to buy a primary residence?
« Reply #2 on: March 13, 2017, 01:18:35 PM »
Too many moving parts to give intelligent advise.  All we know is you are willing to put 5% down, leaving you virtually no cash.

What's your income, so we can look at % of income?  What are the assesments and taxes on the units you are interested in, so we can calculate total monthly cost?  What other debt do you have?  What kind of overhead do you have besides the proposed condo (transportation costs, etc.)?  How sure are you about living with roommates?

Maybe do a "case study".  Good luck.

marielle

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Re: Am I ready to buy a primary residence?
« Reply #3 on: March 13, 2017, 01:26:16 PM »
I would just keep renting. It's so much more flexible and your rent is very cheap. Just because you're "emotionally" ready for a bigger place doesn't mean you need it. Maybe rent a bigger apartment but give a roommate the bigger bedroom so you pay less. Now you have more living space for all your stuff and the dog while paying the same price.

Murse

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Re: Am I ready to buy a primary residence?
« Reply #4 on: March 13, 2017, 01:33:55 PM »
Too many moving parts to give intelligent advise.  All we know is you are willing to put 5% down, leaving you virtually no cash.

What's your income, so we can look at % of income?  What are the assesments and taxes on the units you are interested in, so we can calculate total monthly cost?  What other debt do you have?  What kind of overhead do you have besides the proposed condo (transportation costs, etc.)?  How sure are you about living with roommates?

Maybe do a "case study".  Good luck.

Income last year was 83k, I expect to get a 5ish% raise in May, taxes around $3600-$4000 annually, no other debt, transportation around $300/month, the dog is probably around $100/month. Currently I live on around $1000/month of my $4000 take home. For the roommate question, yes I am sure on my current roommate and girlfriend, future other roommates I am unsure of. My girlfriend (who I totally intend on marrying) has told me she would want to live in a house when children come into the picture. That does not mean I need to buy a house today.

My thought process is with houses appreciating 5-6% annually (conservative) mortgages on their way up and a roommate that could offset some monthly costs, it is only going to get more expensive from here.

Vindicated

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Re: Am I ready to buy a primary residence?
« Reply #5 on: March 13, 2017, 01:41:43 PM »
I wouldn't buy in an area so HCOL right now.  You expect it to keep increasing, but it may not.  Take the "buying is an investment" idea out of the equation.  It's like putting $300k into a single company that could bottom-up.  You wouldn't take out $300k mortgage to invest in a start-up would you?

You do need a place to live, and the current place is reeeeallly small for 3 people and a dog, so I can understand the desire to upgrade.  Can you look into other areas?  Maybe rent out a room in someone else's house closer to work?  Then you can still have your lower housing cost, but not have to take the risk on the purchase.

ketchup

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Re: Am I ready to buy a primary residence?
« Reply #6 on: March 13, 2017, 02:26:52 PM »
Income last year was 83k, I expect to get a 5ish% raise in May, taxes around $3600-$4000 annually, no other debt, transportation around $300/month, the dog is probably around $100/month. Currently I live on around $1000/month of my $4000 take home. For the roommate question, yes I am sure on my current roommate and girlfriend, future other roommates I am unsure of. My girlfriend (who I totally intend on marrying) has told me she would want to live in a house when children come into the picture. That does not mean I need to buy a house today.
It also doesn't mean you have to buy a house at all.  You can rent a house too.  I've lived in a few rental houses (with roommates, and dogs).  It can be great.
My thought process is with houses appreciating 5-6% annually (conservative)
Again, that's *not* a conservative estimate.  Conservative would be 0%, maybe even slightly negative.  Do not count on appreciation to bail you out of an otherwise-suboptimal choice.  It can be a nice extra if it happens, but don't buy with that as a tentpole of your plan.

marielle

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Re: Am I ready to buy a primary residence?
« Reply #7 on: March 13, 2017, 02:36:38 PM »
The rent vs. buy calculator may help for perspective.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Don't buy into the mindset that buying a house is a great investment. A lot of times it's not (such as in a HCOL) unless you get lucky and the house appreciates.

Are you even sure you're going to work at the same job for the next 10-15 years? Or will you look for jobs close by no matter what?

Saving in Austin

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Re: Am I ready to buy a primary residence?
« Reply #8 on: March 13, 2017, 10:11:10 PM »
I didn't buy a house until I had enough for 20% down and 8 months worth of expenses.

Maybe that is too conservative for many here but it worked for me.

JLee

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Re: Am I ready to buy a primary residence?
« Reply #9 on: March 13, 2017, 10:53:32 PM »
If I could rent for $800/mo and buying was $300k, I would rent.

For reference, I bought a house when renting an equivalent place would've been around $1100/mo and the house was $140k.

Murse

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Re: Am I ready to buy a primary residence?
« Reply #10 on: March 14, 2017, 07:22:14 AM »
I appreciate all of the responses and I truly am trying to take them to heart. I don't know why I suggested 5-6% to be conservative, I do believe it will continue going up for the next 5-10 years aggressively I would call 2-3% conservative for my market. If you look up "Portland housing crisis" you will begin seeing what I am talking about.

If I were to rent a house I would find a 2/1 rather than a 3/1 or 3/2. One of the houses I looked at priced at 300k is currently renting for $1600/month.

Yes I am positive I will still have my job as long as I want it, I am in a high demand field in a specialty most don't want to work in. I plan to stay in this job until I FIRE. Frankly if I am not buying I would rather continue living in my 700 SF apt, I view renting a house as as the worst of both worlds- likely more expensive than buying (unless there is catastrophic maintenance) but none of the upside.

I doubt it will change the conversation much but my savings rate is very high, I am confident I could survive a catastrophic maintenance issue however you are right I may have a worse financial outcome but I think I have more to lose than gain by waiting. If I waited 3 years from now and tried to buy then and the interest rates were >5% I likely would just continue to rent.

I think the crux of the issue for me is I am imagining Portland Oregon being the next San Fransisco. You are right, I have no way of knowing for sure but I would be willing to take a slightly worse outcome financially to live in a house and know the majority of my expenses are fixed. If I had a crystal ball and saw owning would require I work an additional 2 years to FIRE again I would likely continue renting.

ketchup

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Re: Am I ready to buy a primary residence?
« Reply #11 on: March 14, 2017, 07:45:01 AM »
If I were to rent a house I would find a 2/1 rather than a 3/1 or 3/2. One of the houses I looked at priced at 300k is currently renting for $1600/month.

Yes I am positive I will still have my job as long as I want it, I am in a high demand field in a specialty most don't want to work in. I plan to stay in this job until I FIRE. Frankly if I am not buying I would rather continue living in my 700 SF apt, I view renting a house as as the worst of both worlds- likely more expensive than buying (unless there is catastrophic maintenance) but none of the upside.
It sounds like renting for $1600/mo would be a bargain.

The last house I rented (few years ago with roommates) was for $1650/mo and was probably worth about $150-180k.  The house I live in now, I bought for $99k and could rent for about $1300/mo.  No way in hell would we have bought if those were my options (300k vs. $1600/mo).

radram

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Re: Am I ready to buy a primary residence?
« Reply #12 on: March 14, 2017, 08:07:39 AM »
My advice is to treat this as a sole purchase until your intent to marry becomes a reality. If it was just you, would you buy the house?

You said girlfriend you intend to marry, not fiance. Is that distinction due to financial reasons?

+1 on the saving 20% before purchase.

Play here:
http://usmortgagecalculator.org/


Assuming:
4.375% rate
30 year mortgage
March 2017 start date
10% down payment
$300,000 home
1.25% property tax
.625% PMI
.35% home insurance

I understand you see the $400 rent per month as wasted. According to my calculations, it would be June of 2019 before you reduce your monthly principle payment to more than $400 per month. The rest of your payment ($1888.70 total per month) will go to interest, PMI, insurance, taxes, maintanance, etc.).

Your numbers are saying you want to spend $1500.00 per month for three years in order to try to recoup that lost $400.00 rent. It would be the year 2035 before your payment would reduce your principle by more than $800.00 per month.

Financially, it is not even close. You still might want to do it, and love every minute of it. I am a home owner, and love it.

Keep us posted!

Brick

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Re: Am I ready to buy a primary residence?
« Reply #13 on: March 14, 2017, 09:38:29 AM »
I can see why you're concerned: http://www.oregonlive.com/front-porch/index.ssf/2016/06/will_the_portland_housing_mark.html

Have you read JL Collins' article "Why your house is a terrible investment" yet? http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

Until you've got that 20% down and a really solid emergency fund set aside, I'd recommend putting off the house purchase, even at the risk of getting priced out of your market for a while. But don't forget, builders make the most profit when prices are high, so they're going to be chomping at the bit to get a piece of this action. As long as there are no restrictions in place on building permits, the market will correct. And even if there are, it's possible that Trump will help boost the economy, and that means that interest rates will increase. Increased interest rates mean fewer people getting mortgages, and we all know what happens when demand decreases and supply remains the same.

In the meantime, Spring is starting up there, right? Or at least maybe thinking about it. If you spend more time outside with the girlfriend and the dog, you can make your house feel like a less important part of your life since all your time is spent sightseeing in your own town!




JustGettingStarted1980

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Re: Am I ready to buy a primary residence?
« Reply #14 on: March 14, 2017, 09:47:02 AM »
My advice is to treat this as a sole purchase until your intent to marry becomes a reality. If it was just you, would you buy the house?

You said girlfriend you intend to marry, not fiance. Is that distinction due to financial reasons?

+1 on the saving 20% before purchase.

Play here:
http://usmortgagecalculator.org/


Assuming:
4.375% rate
30 year mortgage
March 2017 start date
10% down payment
$300,000 home
1.25% property tax
.625% PMI
.35% home insurance

I understand you see the $400 rent per month as wasted. According to my calculations, it would be June of 2019 before you reduce your monthly principle payment to more than $400 per month. The rest of your payment ($1888.70 total per month) will go to interest, PMI, insurance, taxes, maintanance, etc.).

Your numbers are saying you want to spend $1500.00 per month for three years in order to try to recoup that lost $400.00 rent. It would be the year 2035 before your payment would reduce your principle by more than $800.00 per month.

Financially, it is not even close. You still might want to do it, and love every minute of it. I am a home owner, and love it.

Keep us posted!

Great Analysis! Radram did not include increased cost of electricity, A/C, water, garbage, "sewer maintenance", and unexpected housing maintenance costs (which you will find once you live there). I live in a 90 year old house that I bought for 300K with 20% down. It was the right decision to wait. I would have been tight for a couple years otherwise. Paying PMI is a joke, run from that entirely.

I would also recommend buying a fixer-upper if you have the stomach for it. Your property taxes will stay lower for much longer time, and you will get to live in a 300K house paying 150K valued home property taxes.

JGS

TreesBikesLove

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Re: Am I ready to buy a primary residence?
« Reply #15 on: March 14, 2017, 12:20:01 PM »
Thank you, everybody for your extremely helpful responses. I am not the OP but it appears we are in a very similar situation and might even live in the same area.

Based on my research on Zillow, houses here have appreciated 12% year over year since 2009 and most sellers are adjusting their price to reflect continuous, infinite appreciation. Crappy, mass-produced 3bd/2ba 1990s homes are selling for over $400k. We, of course, know that this assumption is completely wrong and are unwilling to pay more than $300k for our first family home. Thanks to the calculators and articles you all have linked, we will continue renting until my fiancee graduates, gets a job, we pay off her debt, and we are both stable in our careers. In the meantime we are looking into convincing a mutual friend or two to commit to moving into a rental house so that we can all have more space (I want a garage!) and maybe even save money on rent, utilities, and shared expenses.

edited to add: If you would like to spend your entire morning learning why the Portland, OR market is interesting, here is a great series by Charles Marohn of Strongtowns.org.
https://www.strongtowns.org/journal/2016/12/9/best-of-2016-portland-housing-series
« Last Edit: August 03, 2017, 11:38:47 AM by TreesBikesLove »

Lanthiriel

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Re: Am I ready to buy a primary residence?
« Reply #16 on: March 14, 2017, 12:53:14 PM »
I would be VERY surprised if you can find a 3+ bedroom house for $300k within half an hour of Portland. I just moved here, and my coworker provided me with a bunch of information on the current market. Every house or townhome he has looked at in that price range has gone for $25-50k above asking. If you look at the numbers, $300k is below the median price for the BOTTOM 25% of what's on the market. That is, probably only 20% of the market is currently in your price range, and that's not factoring in the size that you seem to be looking for.

Also, I bought a house in 2015 in Anchorage before I moved back to Portland. I put 5% down. Buying and selling within a two year window cost me $30,000 plus about $8,000 in improvements (my husband lost his job, and we were not expecting to move for 10+ years). I only BARELY broke even in this scenario because of rapid appreciation on the property (I sold it for $35k more than I bought), and definitely lost money on a monthly basis over renting because having to pay for utilities wiped out the difference of what was going to principal (a measly $400/mo). Having low equity in a house, especially when you aren't sitting on a large pile of cash to bail you out, can be a recipe for financial disaster. When we buy again, it will be with 20% down.

Cwadda

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Re: Am I ready to buy a primary residence?
« Reply #17 on: March 14, 2017, 01:13:11 PM »
What is the availability of apartment buildings in your area? As a real estate investor, I hesitate to buy something because I think it will appreciate. If I buy something it's because it's producing income from day 1. If it appreciates along the way, nice. That's a bonus. You could consider buying a duplex and renting one side, living in the other?

Murse

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Re: Am I ready to buy a primary residence?
« Reply #18 on: March 15, 2017, 11:28:52 AM »
My advice is to treat this as a sole purchase until your intent to marry becomes a reality. If it was just you, would you buy the house?

You said girlfriend you intend to marry, not fiance. Is that distinction due to financial reasons?

+1 on the saving 20% before purchase.

Play here:
http://usmortgagecalculator.org


Assuming:
4.375% rate
30 year mortgage
March 2017 start date
10% down payment
$300,000 home
1.25% property tax
.625% PMI
.35% home insurance

I understand you see the $400 rent per month as wasted. According to my calculations, it would be June of 2019 before you reduce your monthly principle payment to more than $400 per month. The rest of your payment ($1888.70 total per month) will go to interest, PMI, insurance, taxes, maintanance, etc.).

Your numbers are saying you want to spend $1500.00 per month for three years in order to try to recoup that lost $400.00 rent. It would be the year 2035 before your payment would reduce your principle by more than $800.00 per month.

Financially, it is not even close. You still might want to do it, and love every minute of it. I am a home owner, and love it.

Keep us posted!

Thank you for this evaluation, my intent is to marry her, I plan on propose this May. The calculator appears to me that it will cost around $2200/month+ utilities and + maintenance. lets call it $3200/month. That is 2800 more per month then I am currently paying, the roommate and girlfriend would bring this down to 1800/month more then I'm currently paying. In exchange for that I have a yard, double the space, a garage, an extra room I could rent and I never have to worry about rent increases ect. I also take on the risk of prices decreasing but the reward of possible appreciation.

My monthly savings to my brokerage would decrease from around $3000/month to $1000/month, at 5 years and 7% interest that would be close to a 150k liquid difference from my current situation. It's possible i would have that in equity but also possible I wouldn't. Am I doing this analysis correctly?

ketchup

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Re: Am I ready to buy a primary residence?
« Reply #19 on: March 15, 2017, 11:59:36 AM »
Thank you for this evaluation, my intent is to marry her, I plan on propose this May. The calculator appears to me that it will cost around $2200/month+ utilities and + maintenance. lets call it $3200/month. That is 2800 more per month then I am currently paying, the roommate and girlfriend would bring this down to 1800/month more then I'm currently paying. In exchange for that I have a yard, double the space, a garage, an extra room I could rent and I never have to worry about rent increases ect. I also take on the risk of prices decreasing but the reward of possible appreciation.

My monthly savings to my brokerage would decrease from around $3000/month to $1000/month, at 5 years and 7% interest that would be close to a 150k liquid difference from my current situation. It's possible i would have that in equity but also possible I wouldn't. Am I doing this analysis correctly?
If it's $3200/mo to own, and you said earlier $1600/mo to rent a similar house, how is that coming out ahead?  If girlfriend and roommate kick in a grand a month total like you're saying, your rent goes to $600/mo and you get the bigger place you want.

Don't compare buying a big house to renting a small apartment, compare buying a house to renting a similar house.  You've already figured out you want more space.

joonifloofeefloo

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Re: Am I ready to buy a primary residence?
« Reply #20 on: March 15, 2017, 12:02:13 PM »
Following, per very similar market, needs, etc.

TreesBikesLove

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Re: Am I ready to buy a primary residence?
« Reply #21 on: March 15, 2017, 12:23:54 PM »
Don't compare buying a big house to renting a small apartment, compare buying a house to renting a similar house.  You've already figured out you want more space.

This is the important part of this debate. If living in a house is a given, you must compare renting the bigger house to mortgaging the bigger house. In this market, renting seems better. A $50 rent increase is nothing compared to replacing a roof, appliances, deck, siding, plumbing, electrical, etc. of home ownership.

Murse

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Re: Am I ready to buy a primary residence?
« Reply #22 on: March 15, 2017, 12:29:14 PM »
Thank you for this evaluation, my intent is to marry her, I plan on propose this May. The calculator appears to me that it will cost around $2200/month+ utilities and + maintenance. lets call it $3200/month. That is 2800 more per month then I am currently paying, the roommate and girlfriend would bring this down to 1800/month more then I'm currently paying. In exchange for that I have a yard, double the space, a garage, an extra room I could rent and I never have to worry about rent increases ect. I also take on the risk of prices decreasing but the reward of possible appreciation.

My monthly savings to my brokerage would decrease from around $3000/month to $1000/month, at 5 years and 7% interest that would be close to a 150k liquid difference from my current situation. It's possible i would have that in equity but also possible I wouldn't. Am I doing this analysis correctly?
If it's $3200/mo to own, and you said earlier $1600/mo to rent a similar house, how is that coming out ahead?  If girlfriend and roommate kick in a grand a month total like you're saying, your rent goes to $600/mo and you get the bigger place you want.

Don't compare buying a big house to renting a small apartment, compare buying a house to renting a similar house.  You've already figured out you want more space.

Because 1600/month in rent is not the only expenses of renting, you have utilities as well as some of the maintenance costs (maintaining the lawn, cleaning products ect..) still probably brings the total to around 1800-1900/month but then you are still under the landlords thumb i.e. Rent increases (have been greater than 5%/year at my complex, I heard closer to 10% for houses) landlords may choose to sell (which they are doing to one of the houses I looked at, currently occupied by tenants but landlords want to sell.)

Yes, I do agree that assuming 0 inflation you would be better off financially renting but there are intangibles that can not be ignored. On the flip side I have to also take into account selling costs if I did have to sell would likely be around 20k if not greater.

JLee

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Re: Am I ready to buy a primary residence?
« Reply #23 on: March 15, 2017, 12:42:08 PM »
Thank you for this evaluation, my intent is to marry her, I plan on propose this May. The calculator appears to me that it will cost around $2200/month+ utilities and + maintenance. lets call it $3200/month. That is 2800 more per month then I am currently paying, the roommate and girlfriend would bring this down to 1800/month more then I'm currently paying. In exchange for that I have a yard, double the space, a garage, an extra room I could rent and I never have to worry about rent increases ect. I also take on the risk of prices decreasing but the reward of possible appreciation.

My monthly savings to my brokerage would decrease from around $3000/month to $1000/month, at 5 years and 7% interest that would be close to a 150k liquid difference from my current situation. It's possible i would have that in equity but also possible I wouldn't. Am I doing this analysis correctly?
If it's $3200/mo to own, and you said earlier $1600/mo to rent a similar house, how is that coming out ahead?  If girlfriend and roommate kick in a grand a month total like you're saying, your rent goes to $600/mo and you get the bigger place you want.

Don't compare buying a big house to renting a small apartment, compare buying a house to renting a similar house.  You've already figured out you want more space.

Because 1600/month in rent is not the only expenses of renting, you have utilities as well as some of the maintenance costs (maintaining the lawn, cleaning products ect..) still probably brings the total to around 1800-1900/month but then you are still under the landlords thumb i.e. Rent increases (have been greater than 5%/year at my complex, I heard closer to 10% for houses) landlords may choose to sell (which they are doing to one of the houses I looked at, currently occupied by tenants but landlords want to sell.)

Yes, I do agree that assuming 0 inflation you would be better off financially renting but there are intangibles that can not be ignored. On the flip side I have to also take into account selling costs if I did have to sell would likely be around 20k if not greater.

You're not responsible for major repairs to a rental property, either. Furnace, AC, water heater, and typically appliances too. Need a new roof? Not your problem.

$1900/mo you say, vs $3200 owning. I highly doubt rental increases are continually 10%/year -- otherwise how exactly is rent only $1600/mo?  Regardless, let's take the ridiculous assumption that your rent will increase by 10% every year for the next ten years and see how it turns out.

Keep in mind this is also completely ignoring closing costs, down payment, and every other cost associated with owning a home that is not wrapped up in your $3200/mo estimate (including rising property taxes).  This is also ignoring investment gains on the potential savings.


« Last Edit: March 15, 2017, 12:48:19 PM by JLee »

Murse

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Re: Am I ready to buy a primary residence?
« Reply #24 on: March 15, 2017, 01:05:22 PM »
Thank you for this evaluation, my intent is to marry her, I plan on propose this May. The calculator appears to me that it will cost around $2200/month+ utilities and + maintenance. lets call it $3200/month. That is 2800 more per month then I am currently paying, the roommate and girlfriend would bring this down to 1800/month more then I'm currently paying. In exchange for that I have a yard, double the space, a garage, an extra room I could rent and I never have to worry about rent increases ect. I also take on the risk of prices decreasing but the reward of possible appreciation.

My monthly savings to my brokerage would decrease from around $3000/month to $1000/month, at 5 years and 7% interest that would be close to a 150k liquid difference from my current situation. It's possible i would have that in equity but also possible I wouldn't. Am I doing this analysis correctly?
If it's $3200/mo to own, and you said earlier $1600/mo to rent a similar house, how is that coming out ahead?  If girlfriend and roommate kick in a grand a month total like you're saying, your rent goes to $600/mo and you get the bigger place you want.

Don't compare buying a big house to renting a small apartment, compare buying a house to renting a similar house.  You've already figured out you want more space.

Because 1600/month in rent is not the only expenses of renting, you have utilities as well as some of the maintenance costs (maintaining the lawn, cleaning products ect..) still probably brings the total to around 1800-1900/month but then you are still under the landlords thumb i.e. Rent increases (have been greater than 5%/year at my complex, I heard closer to 10% for houses) landlords may choose to sell (which they are doing to one of the houses I looked at, currently occupied by tenants but landlords want to sell.)

Yes, I do agree that assuming 0 inflation you would be better off financially renting but there are intangibles that can not be ignored. On the flip side I have to also take into account selling costs if I did have to sell would likely be around 20k if not greater.

You're not responsible for major repairs to a rental property, either. Furnace, AC, water heater, and typically appliances too. Need a new roof? Not your problem.

$1900/mo you say, vs $3200 owning. I highly doubt rental increases are continually 10%/year -- otherwise how exactly is rent only $1600/mo?  Regardless, let's take the ridiculous assumption that your rent will increase by 10% every year for the next ten years and see how it turns out.

Keep in mind this is also completely ignoring closing costs, down payment, and every other cost associated with owning a home that is not wrapped up in your $3200/mo estimate (including rising property taxes).  This is also ignoring investment gains on the potential savings.



Thank you for this, I just lost this debate with a single post. I will speak to the roommates about looking for a bigger place to rent.

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Re: Am I ready to buy a primary residence?
« Reply #25 on: March 15, 2017, 01:40:14 PM »
*Slow Clap*

startbyservingothers

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Re: Am I ready to buy a primary residence?
« Reply #26 on: March 15, 2017, 03:50:50 PM »
1.  Buying is only beneficial if you plan to live there at least 5-10 years.  Otherwise you may as well rent.  How likely are you to relocate?

2.  Buying a  "House for future needs" is not a good idea.  First: It's tough enough to understand what present day "You" needs, much less the "You" from 10-20 years from now. **  Second: Utilities and interest are likely to off-set any potential gains. ***

*** Our house is smaller than I (originally) would have liked to buy.  Now I wish I had bought something even more economical.  I quickly learned that utilities do often scale with square footage.  I went from 300 to 1300 square feet.  Can you guess what happened?  My utilities went up by a multiple of 4.  An extra $200-$300 per month toward utilities adds up quickly.   The reference to heating/cooling your stuff / unused space really fell into place when I read it.  (Early Retirement Extreme).

-Buy something with good energy efficiency.  - I prefer not to have vaulted ceilings.



** Just a few examples: 
Do you already know which neighborhoods have the "Best Schools?"
Do you know where you'll be working in 10-20 years?
Will you be single, married, or divorced?
How many kids will you have?
how much time will you spend outdoors vs. indoors?
Will you or anyone have medical conditions that impact where you will want to live?


It's tempting to skip the "Starter Home"  step in ownership.  But the starter home 'gets your feet wet' and figure out what your priorities are.


- Why do so many people believe  something you have to heat, cool, and maintain is such a good "investment?"

Another vote for 20%  down.  Other loans are for suckers. 

Edit to add:  Post like this one remind me how 'fortunate' I am to live in a low cost of living area.  Our mortgage is $550 per month ($350 principle / interest + $100 taxes + $100 insurance).  While it's great to own a nice house since you'll likely spend some time there,  it has always amazed me the huge portion of their lives so many people spend paying for one.
« Last Edit: March 15, 2017, 04:04:20 PM by startbyservingothers »