Author Topic: Standard Rent or Buy dilemma  (Read 1140 times)

StashingAway

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Standard Rent or Buy dilemma
« on: November 14, 2018, 11:29:24 AM »
Hello all!

I'll be moving here in January/February to Aurora, IL. Looking for advice or opinions on things I haven't thought of.

I'm 32 years old.

I'm moving for a job that will pay about $4,500/mo before taxes. Wife owns her own online business that is bringing in about $3K/month (it's been growing like crazy but we're unsure of how much it will drop after holiday season).

I don't plan on us living there forever. Maybe 3-5 years. We've never owned a house before. We were trying to get to a 20% down payment on something in the 200K range but had some medical issues that will mean that we either buy at 10% down payment or have to sign a one year lease to save up enough again.

So, we're deciding between renting and buying. It looks like in the area, renting anything we want to live in for a long time will be in the 1300-1500/ month range. We have a dog and work from home, so will likely be looking at 3br houses with a yard. It looks like with a standard 30yr mortgage and escrow we'd be at about 1500/mo as well.

I'm quite handy and looking for projects, so we'd really like to get a fixer upper in the 150K range and do some renos. That might make it worth buying. If we know we like working on houses, but only plan on being there for 3-5 years, is there a prominent reason to rent or buy? If we get caught in a housing crash or something it's not a huge deal if we live there longer.

What am I missing?

merryt

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Re: Standard Rent or Buy dilemma
« Reply #1 on: November 14, 2018, 11:38:35 AM »
Congrats on the move and your wife running a growing business!

A few gut checks:
- There are always some hidden costs to consider when owning a home, you can read about some of them in https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
- There is a difference in between "fixing a broken appliance" and 4/5ths of your weekends are spent working on a fixer upper. So if you head down the buy path, consider how much time you want to spend long term.
- House hacking is very underrate as far as potential income is concerned... Renting a room or a guesthouse on Airbnb can be huge.

 


frugaliknowit

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Re: Standard Rent or Buy dilemma
« Reply #2 on: November 14, 2018, 11:52:31 AM »
My $.02:  Aurora, IL for 3-5 years, rent.  It's almost like an "ex-burb", being at end of the Chicago Metra commuter line.

StashingAway

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Re: Standard Rent or Buy dilemma
« Reply #3 on: November 14, 2018, 11:55:25 AM »
- There is a difference in between "fixing a broken appliance" and 4/5ths of your weekends are spent working on a fixer upper. So if you head down the buy path, consider how much time you want to spend long term.
- House hacking is very underrate as far as potential income is concerned... Renting a room or a guesthouse on Airbnb can be huge.

Yeah, if it's a fixxer-upper it would be my main "project". My job will have a sizeable amount of downtime for things like research and cheap materials sourcing, and likely many 3-day weekends for renovations. I get antsy without a project; Most of my previous hobbies haven't had too much ROI (motorcycles, cars, boom boxes, sewing, etc), so I figure I might as focus my effort on something that can more significantly increase our value. The only reason I would really hesitate is that we're heavily considering having a kid... I hear those things take up a little time, ha!

Swish

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Re: Standard Rent or Buy dilemma
« Reply #4 on: November 14, 2018, 11:59:46 AM »
- House hacking is very underrate as far as potential income is concerned... Renting a room or a guesthouse on Airbnb can be huge.

This - we now rent the spare room in basement out with a separate bathroom for $600/mo. It has been easier to find good prospective people to live with than I thought. We also have alternating schedules and rarely see each other. We have 3 young kids and noisy house so it helped finding someone who would be home mostly after they were in bed.

StashingAway

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Re: Standard Rent or Buy dilemma
« Reply #5 on: November 14, 2018, 12:04:49 PM »
- There are always some hidden costs to consider when owning a home, you can read about some of them in https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

Wow, that's a rabbit hole! See in you on the other side!

catccc

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Re: Standard Rent or Buy dilemma
« Reply #6 on: November 14, 2018, 01:32:24 PM »
For short time frame, I suggest renting.  But I'm a lifelong renter and like it that way.

StashingAway

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Re: Standard Rent or Buy dilemma
« Reply #7 on: November 14, 2018, 04:31:44 PM »
My $.02:  Aurora, IL for 3-5 years, rent.  It's almost like an "ex-burb", being at end of the Chicago Metra commuter line.

"Ex-Burb" meaning bad for mortgage? I'm not sure I'm reading into this correctly... I've been to Chicago many times but not really familiar with the area and real estate.

chemistk

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Re: Standard Rent or Buy dilemma
« Reply #8 on: November 16, 2018, 06:13:59 AM »
Have you taken a peek into the NYT Rent vs. Buy Estimator? https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?action=click&module=RelatedLinks&pgtype=Article

Throwing in your numbers and making a bunch of assumptions, I was able to get it to ~$1250 - meaning that if rentals for the type of house you're looking for are less than that, it's better to rent. If rentals cost more, it's better to buy. You need to put your specific numbers in to find out for certain though.

That being said, why the heck do you need a 3 BR House!?! You don't have kids, but do you plan on it? How often are you really entertaining guests? You may be able to come out on the other side of this a lot better with a 2BR.

Regardless, make sure your wife is on board with living in a weekend project. I can tell you, as someone who grew up in a house that was constantly one project, there is a lot of tension at times because a project is consuming part of the living area (or worse, putting a functional part of the house out of commission - the sink/toilet/heat/etc.)

StashingAway

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Re: Standard Rent or Buy dilemma
« Reply #9 on: November 16, 2018, 08:05:22 AM »
Have you taken a peek into the NYT Rent vs. Buy Estimator? https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?action=click&module=RelatedLinks&pgtype=Article

That being said, why the heck do you need a 3 BR House!?! You don't have kids, but do you plan on it? How often are you really entertaining guests? You may be able to come out on the other side of this a lot better with a 2BR.

Regardless, make sure your wife is on board with living in a weekend project. I can tell you, as someone who grew up in a house that was constantly one project, there is a lot of tension at times because a project is consuming part of the living area (or worse, putting a functional part of the house out of commission - the sink/toilet/heat/etc.)

Thanks for the calculator! We'll look into it!.

We might be able to get by fine with a 2br. I was thinking 3br because the wife works from home and needs an office, and we're 95% sure we'll be trying for a kid in our near future. We're doing fine in a 2br right now, but have found that it's tough separating work from living without a separate office. But it's been years since we've tried and might have better luck going in with more awareness of the drawbacks.

As far as project house I think my wife is all in. We traveled around the country in a camper van for a couple of years so she's quite hearty when it comes to putting up with discomfort.

frugaliknowit

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Re: Standard Rent or Buy dilemma
« Reply #10 on: November 16, 2018, 08:29:26 AM »
My $.02:  Aurora, IL for 3-5 years, rent.  It's almost like an "ex-burb", being at end of the Chicago Metra commuter line.

"Ex-Burb" meaning bad for mortgage? I'm not sure I'm reading into this correctly... I've been to Chicago many times but not really familiar with the area and real estate.

It is near the outside of the Chicago Metropolitan area, that's all.  It does not affect getting a mortgage.

Jon Bon

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Re: Standard Rent or Buy dilemma
« Reply #11 on: November 16, 2018, 09:49:38 AM »
I would say rent or slow flip.

What is the delta between a rundown 3 bedroom house and a updated one? If its more then 50k or so I would definitely go for the slow flip.

What is a slow flip you ask? Basically a term when you buy a run down house as your primary residence, fix it up and sell it 2-5 years.  The fun part about all of this is that all gains will be tax free.

I did this with my first two houses and did well, YMMV.

ketchup

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Re: Standard Rent or Buy dilemma
« Reply #12 on: November 16, 2018, 10:03:27 AM »
I'm nearby.  Your read on the Aurora market seems pretty accurate.  If rent and PITI are that similar, I'd rent.  A slow flip could make sense but I'd only pursue it if it's an excellent deal (and your wife's ok with living in a construction site at times).  Outside a slow flip and excellent deal, 2-5 years probably would not make sense to buy.

Another option (similar to what I'm doing actually) would be to buy a house with renting it out later as your exit strategy, and run the numbers ahead with that in mind.  You may not want to be a landlord, but just tossing it out there.

StashingAway

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Re: Standard Rent or Buy dilemma
« Reply #13 on: November 16, 2018, 10:18:21 AM »

Another option (similar to what I'm doing actually) would be to buy a house with renting it out later as your exit strategy, and run the numbers ahead with that in mind.  You may not want to be a landlord, but just tossing it out there.

I wouldn't mind being a landlord, but if/when we move it would be out of state again, and I don't think I'd want to manage a property that far away. But it's worth considering.

I would say rent or slow flip.

What is the delta between a rundown 3 bedroom house and a updated one? If its more then 50k or so I would definitely go for the slow flip.


Seems to be above that from what I can tell. I can see a couple of run down houses for 170K that are in neighborhoods of similar houses going for 230K. But I'm only looking a real estate website (not in person) right now.
« Last Edit: November 16, 2018, 10:25:41 AM by StashingAway »

Dr.Jeckyl

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Re: Standard Rent or Buy dilemma
« Reply #14 on: November 16, 2018, 11:30:02 AM »
There are a ton of nice properties in Aurora that can be had for reasonable money. If you are looking for even more up and coming/reasonable look into Plainfield as well.

Swish

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Re: Standard Rent or Buy dilemma
« Reply #15 on: November 21, 2018, 02:46:19 PM »
That being said, why the heck do you need a 3 BR House!?! You don't have kids, but do you plan on it? How often are you really entertaining guests? You may be able to come out on the other side of this a lot better with a 2BR.

I have found it is always far easier to resell a 3 BR 2 BA home vs trying to sell a 3/1, 2/1, 2/2.  I have also found they are much easier to rent out. This may not hold true for all areas but in our location the extra cost is usually well spent. It also gives options like renting out the spare room or basement if it is laid out properly.