Fresh Graduate, making $71,000, looking for BEST housing option

[Texan]

So, I live in Houston. I plan to live very close to work, like 3-5 miles. I am very frugal. (No current debt)

I have noted a number of apartments around the area which have good reviews and are around 700-900 a month in rent.

I plan on living and working in this area for at least 6 years, with that said, what is the BEST option? Renting for 6 years or buying a home?

I have seen a couple $100k homes in the area, I am willing to spend like 1200-1500 a month towards a mortgage, with a fixed rate, I could pay off the house in like 5 years (I think)...Not including maintenance etc... I have access to a LOT of tools and my father is very handy..

What is the best option?

Thank you

[ShoulderThingThatGoesUp]

It's pretty hard to beat $700/month rent. I don't think buying a house this early in your career, without long-term decisions like spouse lined up, makes sense.

[bobechs]

The best option is to use the NYT rent vs. buy calculator to see where you stand.

I know, Houston is the anti-New York, but trust me: the calculator still works there.

[ooeei]

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

I also live in Houston.  I don't know what your background is, so it's hard to make a recommendation one way or the other.  If you have already lived in Houston before, have lived on your own before, and are already familiar with your upcoming job, and plan to stay put for 5 years, buying might be a good option.

If, on the other hand, you're moving from another place (even another part of Houston), haven't lived on your own or in a house before, haven't worked at this job and with these coworkers for at least 6 months, or don't know you'll be in this same place for 5 years, I'd recommend renting for a little while.

As far as buying a house with the intention of having roommates, it CAN work out well, but often doesn't.  For 1, you're a landlord now and have to fix everything, deal with late rent payments from friends, vacancies, people moving out early without notice, etc etc.  Also, you'll probably end up buying a bigger house than you need, and once you hit 25 or so people stop wanting roommates as often, so you'll be stuck in a huge house with nobody to help pay for it.

[Dee18]

While running the numbers is important, keep in mind other factors.  Are you in a long term relationship?  If not, and as I'm guessing you're young given the "fresh graduate" label, renting gives you more flexibility. 

[Jack]

Buy a 2-4 unit building (with a 30-year-fixed mortgage that you don't pre-pay) and rent out the units you aren't living in.

[AlwaysLearningToSave]

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

I also live in Houston.  I don't know what your background is, so it's hard to make a recommendation one way or the other.  If you have already lived in Houston before, have lived on your own before, and are already familiar with your upcoming job, and plan to stay put for 5 years, buying might be a good option.

If, on the other hand, you're moving from another place (even another part of Houston), haven't lived on your own or in a house before, haven't worked at this job and with these coworkers for at least 6 months, or don't know you'll be in this same place for 5 years, I'd recommend renting for a little while.

As far as buying a house with the intention of having roommates, it CAN work out well, but often doesn't.  For 1, you're a landlord now and have to fix everything, deal with late rent payments from friends, vacancies, people moving out early without notice, etc etc.  Also, you'll probably end up buying a bigger house than you need, and once you hit 25 or so people stop wanting roommates as often, so you'll be stuck in a huge house with nobody to help pay for it.

+1.  If I were you, I would rent for at least a year.  It will give you some time to consider options, find out if the job is a good fit for you, and allow you to focus more on getting your career off to a good start.  You can take retirement and investment accounts with you wherever life takes you.  Not so much with real estate. 

[2Birds1Stone]

So, I live in Houston. I plan to live very close to work, like 3-5 miles. I am very frugal. (No current debt)

I have noted a number of apartments around the area which have good reviews and are around 700-900 a month in rent.

I plan on living and working in this area for at least 6 years, with that said, what is the BEST option? Renting for 6 years or buying a home?

I have seen a couple $100k homes in the area, I am willing to spend like 1200-1500 a month towards a mortgage, with a fixed rate, I could pay off the house in like 5 years (I think)...Not including maintenance etc... I have access to a LOT of tools and my father is very handy..

What is the best option?

Thank you

If you are willing to put in the elbow grease to buy a fixer upper, do the work yourself, get a room mate or two.......you could be sitting pretty after 6 years with a house that is paid off largely by tenants, and has appreciated due to your renovation efforts.

The question is, do you want to do home repair/maintenance on weekends and deal with tenants? If the answer is yes, I think it is a financially sound decision to buy something below market value and take on some room mates.

[patrat]

If you are single, roommates. I did this fresh out of college (kept living like college) and was able to stash away cash like crazy.

Scenarios:
You are somebody elses roommate (I did this, $350 a month utilities included was too sweet to pass up)
You are a primary lease holder with right to sublet (Your name is on a lease, but you are allowed to rent out to roommates) Done this way, you could potentially have close to zero cost if you are savvy.

You own, and sublet to roommates. The person I rented from (and also the place I lived before that) did this. Since mortgage payments are less than rent payments for the same size home, it is even easier to come out ahead as the owner-occupant-roommate. This also can work if you are not single, but have extra rooms. I believe in both cases the mortgage costs were fully covered when the homes had all rooms occupied (2 room mates renting from owner in 3 bed home).

Roommate law is generally more friendly to the occupant-landlord. You can choose who to live with, and generally can evict with a month notice if the sublet lease or roommate agreement says so. Older students/graduates generally make reliable roommates.

[ooeei]

Also keep in mind that while your job may be great for someone straight out of college, you will very likely hit a point in 2-3 years where moving to another company will give you a substantial raise or upward mobility.  Tying yourself to a single zip code is going to shrink your job pool immensely. 

That being said, if you're the type who has already lived in the area, and are willing to sacrifice your career to stay local, a house may be a good option.  I had some coworkers at my last job in Austin like that, one of them bought a house and got roommates and I think is doing quite well.  Granted, he lived in Austin his whole life and would never leave regardless of the job, and is a very social partier so roommates are easy to come by.  Also, Austin is smaller than Houston.  You may get a great job offer at a place still in Houston that is over an hour away from your house. 

I come down strongly on the "rent for awhile" camp, as I've seen more than one friend get burned with buying houses and then getting a new job, losing their current job, or having roommates bail.

[JLee]

Also keep in mind that while your job may be great for someone straight out of college, you will very likely hit a point in 2-3 years where moving to another company will give you a substantial raise or upward mobility.  Tying yourself to a single zip code is going to shrink your job pool immensely. 

That being said, if you're the type who has already lived in the area, and are willing to sacrifice your career to stay local, a house may be a good option.  I had some coworkers at my last job in Austin like that, one of them bought a house and got roommates and I think is doing quite well.  Granted, he lived in Austin his whole life and would never leave regardless of the job, and is a very social partier so roommates are easy to come by.  Also, Austin is smaller than Houston.  You may get a great job offer at a place still in Houston that is over an hour away from your house. 

I come down strongly on the "rent for awhile" camp, as I've seen more than one friend get burned with buying houses and then getting a new job, losing their current job, or having roommates bail.

Funny that you mention that possibility -- that happened to me. I bought a house, and now 3 years later I'm on the other side of the country for a career opportunity.  One of my previous roommates is still in my house, and now the master suite is rented to a mutual friend.  I'm not earning as much as I could had I just rented the entire property, but it's covering the mortgage and I was able to move with a one-way ticket, since all my tools, furnishings, home theater stuff, and kitchen stuff stayed with the house. :)

I'm now renting a furnished room in a HCOL area, and my house will sit there and pay for itself until I'm ready to move back.

[AlwaysLearningToSave]

Also keep in mind that while your job may be great for someone straight out of college, you will very likely hit a point in 2-3 years where moving to another company will give you a substantial raise or upward mobility.  Tying yourself to a single zip code is going to shrink your job pool immensely. 

That being said, if you're the type who has already lived in the area, and are willing to sacrifice your career to stay local, a house may be a good option.  I had some coworkers at my last job in Austin like that, one of them bought a house and got roommates and I think is doing quite well.  Granted, he lived in Austin his whole life and would never leave regardless of the job, and is a very social partier so roommates are easy to come by.  Also, Austin is smaller than Houston.  You may get a great job offer at a place still in Houston that is over an hour away from your house. 

I come down strongly on the "rent for awhile" camp, as I've seen more than one friend get burned with buying houses and then getting a new job, losing their current job, or having roommates bail.

Funny that you mention that possibility -- that happened to me. I bought a house, and now 3 years later I'm on the other side of the country for a career opportunity.  One of my previous roommates is still in my house, and now the master suite is rented to a mutual friend.  I'm not earning as much as I could had I just rented the entire property, but it's covering the mortgage and I was able to move with a one-way ticket, since all my tools, furnishings, home theater stuff, and kitchen stuff stayed with the house. :)

I'm now renting a furnished room in a HCOL area, and my house will sit there and pay for itself until I'm ready to move back.

One thing to consider would be the ease of maintaining the property as a rental if you end up needing to move.  You said your dad is handy and you have access to lots of tools.  Does this mean your dad lives close enough that he could be your "property manager" if you end up needing to move? 

Even if you are in the position to buy, I still suggest renting for one year, preferably with a roommate.  Use the year to get your career off to a good start and to plan for your next living arrangement.  Then, if all is well one year from now and you still see yourself staying with this company for several years, pull the trigger to buy. 

In hindsight it may not be the "best" decision in strictly financial terms, but there are whole lot of question marks at your stage of life and preserving flexibility is important. 

[ooeei]

I'm now renting a furnished room in a HCOL area, and my house will sit there and pay for itself until I'm ready to move back.

Or until your friends move out :P

That sounds like a great situation, and I'm glad it's working out for you.  I do want to caution OP that this sort of outcome is far from typical. 

To give a personal example on the opposite end of the spectrum, I have a friend right now who bought a house straight out of college.  He had roommates for the last 3 years, until around 8 months ago when he couldn't find anyone he wanted to live with who wanted to live there, we've all moved on and live with SOs or on our own.  He's now at a point where he is going back to school, all of the roommates moved out (he bought it 3 years ago), and he's currently trying to sell.  Unfortunately not too many people are looking to buy a house in Houston right now, and the first week he put it on the market an upstairs toilet tank cracked and destroyed the downstairs ceiling.  3 months later the repairs were finished ($1000 deductible for insurance), and while he was out of town for a weekend the AC leaked water upstairs and again ruined the ceiling.  3 months later repairs are finished, and he's got it on the market.  He's been on the hook for ~2700/month for mortgage/tax/insurance + utilities for almost a year now with no roommates, and no job for the last 6 months.  He's hemorrhaging money and still trying to sell, and is commuting more than he would in an apartment near school.  Basically, his "getting roommates to pay for my house" worked out really well for 2.5 years, then completely demolished any gains he had in 6 months.

[GizmoTX]

Usually renting gives you much more freedom & you won't have the hidden expenses of home ownership: property taxes, maintenance, yard equipment, more furniture.

DH & I rented for our first 6 years straight out of college, 1.5 years in Austin & then Dallas, where we've been ever since, but not at the same workplace. Our years of renting let us save for the down payment & ultimately pay cash for furniture, lawn mower, etc., while figuring out where we wanted to be. 

[JLee]

I'm now renting a furnished room in a HCOL area, and my house will sit there and pay for itself until I'm ready to move back.

Or until your friends move out :P

That sounds like a great situation, and I'm glad it's working out for you.  I do want to caution OP that this sort of outcome is far from typical. 

To give a personal example on the opposite end of the spectrum, I have a friend right now who bought a house straight out of college.  He had roommates for the last 3 years, until around 8 months ago when he couldn't find anyone he wanted to live with who wanted to live there, we've all moved on and live with SOs or on our own.  He's now at a point where he is going back to school, all of the roommates moved out (he bought it 3 years ago), and he's currently trying to sell.  Unfortunately not too many people are looking to buy a house in Houston right now, and the first week he put it on the market an upstairs toilet tank cracked and destroyed the downstairs ceiling.  3 months later the repairs were finished ($1000 deductible for insurance), and while he was out of town for a weekend the AC leaked water upstairs and again ruined the ceiling.  3 months later repairs are finished, and he's got it on the market.  He's been on the hook for ~2700/month for mortgage/tax/insurance + utilities for almost a year now with no roommates, and no job for the last 6 months.  He's hemorrhaging money and still trying to sell, and is commuting more than he would in an apartment near school.  Basically, his "getting roommates to pay for my house" worked out really well for 2.5 years, then completely demolished any gains he had in 6 months.

Sure, that's possible.  In my case, the chances of three people (two close friends and my brother) all moving out simultaneously is incredibly small, and even if that were to happen my mortgage payment is $818/mo.

I don't intend to imply that my outcome is likely in all situations, but given certain circumstances it can work out favorably.

In the OP's case (fresh out of college) it would likely be prudent to rent a room somewhere and save for a year and if the desire to own/stay is still strong, reevaluate.

[Jack]

Basically, his "getting roommates to pay for my house" worked out really well for 2.5 years, then completely demolished any gains he had in 6 months.

That's why your mindset shouldn't be "get roommates to pay for my house" in the first place. Instead, it should be "buy an investment property and treat it like a business... and incidentally live in part of it." That's also why an n-plex with completely separate units is better than a roommate situation with shared living space.

[JLee]

Basically, his "getting roommates to pay for my house" worked out really well for 2.5 years, then completely demolished any gains he had in 6 months.

That's why your mindset shouldn't be "get roommates to pay for my house" in the first place. Instead, it should be "buy an investment property and treat it like a business... and incidentally live in part of it." That's also why an n-plex with completely separate units is better than a roommate situation with shared living space.

Not only do you end up with more income that way, you are still able to have your own space (I've had excellent roommates, but sometimes it's nice to not have any). That may be my strategy when I eventually move back to AZ.

[DebtFreeBy25]

Buy a 2-4 unit building (with a 30-year-fixed mortgage that you don't pre-pay) and rent out the units you aren't living in.

+1

Your best option is one that you can make money on. Renting will never make you money. (Although I acknowledge that it can be the best- and often the only- option in HCOL areas.) I bought a foreclosure for $37.5k in 2010 when I was 23. I renovated that home while living in it and sold it for $60k in 2013. You seem like a very competent person, regardless of age. Your goal should be to make money on your housing situation.

I did the rent a room in a house for $300-350 scenario when I was in my early 20s. Looking back I wish I had been in a financial position to buy sooner because that's all money that I'm never getting back. In addition to the sunk costs, most of my renting years were spent in less than desirable living situations.

When I was exploring whether to buy my first house, I came up with my own calculation. Take the average rent for a minimally viable housing situation (for me it was $500/month) and multiply it by the minimum amount of time that you believe you will be living in this place (for me it was 24 months). That number is the price to beat. If you lose less than that amount on your home purchase, you net yourself a win. By my calculations if I lost less than $12,000 (factoring in labor as a cost) on my first house, I would have come out ahead. Considered in those terms, it was an easy choice. Obviously your goal should be to make money either through renters or resale, but it's important to consider worst case scenarios.

Buying isn't for everyone. You need to be rational, financially savvy and able to handle responsibility.You don't need to have a crystal ball or a mapped out 10 year plan for yourself. Whatever you decide, I definitely recommend doing your research on the price, neighborhood and any renters or roommates and not renting from or to friends without a signed contract. 

[ooeei]

Basically, his "getting roommates to pay for my house" worked out really well for 2.5 years, then completely demolished any gains he had in 6 months.

That's why your mindset shouldn't be "get roommates to pay for my house" in the first place. Instead, it should be "buy an investment property and treat it like a business... and incidentally live in part of it." That's also why an n-plex with completely separate units is better than a roommate situation with shared living space.

I agree that not being a good mindset.  There's certainly merit in your plan, IF the person is interested in being a landlord and taking on the extra risk/work.  Many people aren't interested or cut out for it, but the rewards can be significant.

When I was exploring whether to buy my first house, I came up with my own calculation. Take the average rent for a minimally viable housing situation (for me it was $500/month) and multiply it by the minimum amount of time that you believe you will be living in this place (for me it was 24 months). That number is the price to beat. If you lose less than that amount on your home purchase, you net yourself a win.

Also important to include is the money you pay toward the mortgage interest, repairs, transaction costs, and insurance.  I'm sure you calculated those in when you did it, but just want to point that out for OP.  The NYT calculator basically does that for you.
 

Buying isn't for everyone. You need to be rational, financially savvy and able to handle responsibility.You don't need to have a crystal ball or a mapped out 10 year plan for yourself. Whatever you decide, I definitely recommend doing your research on the price, neighborhood and any renters or roommates and not renting from or to friends without a signed contract. 

Very much agree with this.  It has a lot of potential upside, but there is definitely possible downside there too. 

[clarkfan1979]

At your age, the best thing to do is rent so you are flexible and can make more money. The cheapest way to go is rent a 4 bedroom house with 3 other people. MMM claims to have done this at least 3 separate times with 3 separate houses. Do a 1 year lease. However, it would still need to be relatively close to work to make it worth it.

Buy the house when you know you are going to stay at a job for a long time.

The other alternative is to buy a 4 bedroom house close to work and try to find 3 roommates. If you get a hiring paying job farther away, then you need to transition into renting out the whole house. If you don't want to be a landlord, then just renting with 3 others is probably best.