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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: EsLin on April 30, 2015, 04:23:21 PM

Title: HCOL area: continue renting or buy?
Post by: EsLin on April 30, 2015, 04:23:21 PM
Urgh! My rent just went up to $1,600 for my two bedroom. I could stay here or buy a little one bedroom condo with a patio area on the other side of my town for about $210k. Input and thoughts on this would be appreciated.

More details? By little, I mean 700 sq ft. for me and my daughter. I think it is doable. There is also a two bedroom condo in the same community for $290k but no patio area. I plan to live in this little area for awhile. My daughter, now 3.5 years old, will attend the local public dual language school and I think it will be a great place for her. My current apartment is very close to a metro which would be good if I should change jobs (I hope!) and have to commute to the city each day. The potential place would be near my daughter's future school, close to my current work, not too bad by bike to the metro if I need it eventually and if they build a metro stop like they keep talking about doing the property value may go up more than average increase in a few years.

A 2005 Toyota Corolla no money owed
$4k my little savings account at Capital One
$32k at Vanguard
$43k Roth IRA at Vanguard
$78k in my old workís pension soon to rollover to Vanguard
$4,240 owed in student loans with an awesome interest rate of 1.625%

Monthly breakdown
Pre-tax deductions: $150 into the 401k
Net Salary/Wages: 3,692

Current expenses
- Rent $1,600 for a 2 bedroom approx 920 sq ft. Before you say anything, I will ďHoly crap thatís a lot!Ē Sadly, it is quite reasonable for my area. (No but seriously, I just looked at a basement level 1 bedroom plus den place for $1,100 a month not too far from me but not close to a metro like I am now Ė total Crap Hole! Plus the rent didnít include even sewer so much of my savings would be eaten up by utilities)
- Groceries $425 I know, this is really bad, fortunately, Iím working on it and getting better each month (thanks budget bytes and MMM)!
- Bills & Utilities $138 the breakdown $35 electric, $70 cell (will be switching when contract is up in a few months and saving $$ here!), $33 shared internet.
- Student Loan $113 loan info is above. I should probably lower this given my very low interest rate.
- Auto & transport $90 most months it is just one tank of gas and insurance but I keep it higher in my budget to account for the other fees and repairs that come up. Is that how people manage their Mint? Thatís my current thinking.
- Health & Fitness $95 this covers my yoga studio membership $80 (it is my sanity I swear and I use it all the time) plus any medicines, co-pays, deductibles etc.
- Personal Care $50 this should come down I know - it covers everything from shaving cream and acne wash to makeup and my super discount kitchen sink hair care.
- Home Supplies $25 detergents, soaps, TP etc. Last month I blew this budget on Brita water filters. Seems unnecessary but the water from the tap tastes nasty (no but really, this is the first place Iíve ever lived outside of developing countries where I can honestly say that the water from the tap tastes too gross to drink)
- Kid stuff $20 clothes & shoes, occasional babysitting, and other odds and ends specifically for the little one
- Entertainment $20 this is mostly for that once a week coffee with a friend any excess builds up and is used to go out with my sisters at some point.
- Gifts & Donations $15 UNICEF plus my niece and nephews school fund raising drive
- Misc $25

Title: Re: HCOL area: continue renting or buy?
Post by: Mother Fussbudget on April 30, 2015, 04:58:51 PM
Continue renting, while saving in a non-retirement account toward a down payment. 
$4,000 down is not nearly enough on even a $210K condo. 

20% down is the standard amount to avoid monthly PMI insurance (ex:  $58,000 on a $290K condo). 
PMI is best avoided - it usually runs several hundred dollars a month, and is money you'll never see again.
However, owning can be thought of as buying a 'bond' with a long-term "return" rate of whatever your mortgage interest rate is.

And on the expenses side, do you have monthly childcare expenses?
Title: Re: HCOL area: continue renting or buy?
Post by: tb43 on April 30, 2015, 05:00:51 PM
Give the Ny times rent vs buy calculator a try (you can find easily on google).However from the very limited info I have in the post buying is a no brainer if you plan to stay mid-long term. I don't think the numbers will even be close. Try your best to save up the 20%!
Title: Re: HCOL area: continue renting or buy?
Post by: srouen on April 30, 2015, 06:21:38 PM
Have to disagree with Mother Fussbudget. Assuming that the $32k at Vanguard is a taxable account that you would use as the downpayment, you would already have about 15% down (or a little less for capital gains taxes and closing costs). Running the numbers through a PMI calculator, PMI would only be in the $80-$100/month range. And running all of it through the NYT Rent vs. Buy calculator (assuming you are in a 25% tax bracket and that your investment return is 7%), it looks like buying is much better deal for you.

(Also, not sure if you happen to live in NoVa (near the planned silver line perhaps?), but if so, and if you are open to relocating within the DMV, you might want to look next door in Montgomery County, which has a lot of great programs for first-time homebuyers and also has really great schools and tons of great parks.) Good luck!
Title: Re: HCOL area: continue renting or buy?
Post by: frugaliknowit on May 01, 2015, 02:16:58 PM
My concerns:

... buy a little one bedroom condo...By little, I mean 700 sq ft. for me and my daughter... plan to live in this little area for awhile.

Are you sure you can live in a 1 BR with your daughter, especially long term?  What do you mean by "awhile" (2 years, 15 years?  If it's under 10, I wouldn't do it).  It's hard for me to imagine living with your daughter for 10 years in 700 SF.  I live in 600 SF, but it's only me...
Title: Re: HCOL area: continue renting or buy?
Post by: Jeremy E. on May 01, 2015, 02:18:26 PM
Title: Re: HCOL area: continue renting or buy?
Post by: Mother Fussbudget on May 01, 2015, 04:48:31 PM
+1 to Jeremy E's post.