The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: tracipam on September 29, 2012, 07:35:02 PM
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Hello, oh-wise-MMM-ers!
I discovered the YMOYL/ERE/MMM plan a couple of years ago while still in graduate school and was instantly converted. Unfortunately, grad school doesn't pay well enough to pursue that plan very effectively. Fortunately, I am now free and beginning my first job--yay! Time to start seriously saving!
My goal is to continue living on the equivalent of what I made during graduate school (roughly $1700/month) while saving all the rest--which means I should end up saving roughly 2/3rds of my net salary, based on my back of the envelope calculations. I already have a paid-off car that runs like a dream and averages ~36 mpg for errands, and I'm accustomed to living on not-very-much (thanks to my black-belt graduate student training--always go for the free pizza!)
My question arises around housing. I have to admit that I am LOVING the mortgage rates right now, and I am seriously tempted to buy a house in my new environs. For one thing, there is a sizable <$100K pool of nice housing in the area I just moved into, which by my calculations and the use of a relocation bonus for a downpayment means something around $700/month (30 yr mortgage--~$900 for 15yr) or less for housing, counting taxes, insurance, etc. Rentals near my job appear to be averaging higher than that--more like $800+ if I'm living in an apartment that is more or less functional and in a fairly safe neighborhood (since I'm a female living alone, that's a consideration).
It sticks in my craw to pay more to rent than buy... BUT, this being a new job, I don't know how long I'll be here. Maybe 1 year, maybe 2, maybe forever!
So, first question: rent or buy?
Second question (depending on the answer to the first). I have the option of many lovely neighborhoods to buy in, all with different characteristics.
My decision is boiling down to:
1) buy a slightly more expensive house (~100K) in a easy-to-sell (and rent!) neighborhood that appears to be appreciating rather rapidly, but is 5-6 miles from work. I figure that if I decide to move a few years into my job, this will facilitate the move.
OR
2) buy a more-bang-for-my-buck house in the 75K range in a more residential, less desirable, longer-time-to-sell, harder-to-rent neighborhood that is ~2-3 miles from work (for reasons involving what I'm willing to pay, closer than 2 miles isn't going to happen, but no worries! I have (and am accustomed to using) a bike--I just need to chart out bike paths in a unfamiliar and bike-unfriendly city!) Regardless of the rent/buy decision, I do of course always have the option of splitting the costs with a roommate, but for now to keep the numbers simple I'll assume it's just me. =)
Please, oh knowledgeable ones--can you give me the benefit of your experience on this decision? I'd rather start things off right and start barreling down the path to financial independence as quickly and painlessly as possible!
Thank you so much for your advice and accumulated wisdom!
Tracy
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I'd go for option 2, then turn it into a rental when you want to move. Reselling within a few years means you should probably just rent, with closing costs on both ends, and the rent to mortgage ratio not that far off.
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I would go for option #1 myself. Assuming it's fairly level, 5-6 miles is just enough of a bike ride for good exercise, and the improved marketability of the area will help if you later need to sell, rent, or take housemate(s).
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Thanks, both of you! I'm glad that there wasn't an obvious answer that I was missing, and that you both lean towards buying and then renting if I move--my feeling was that with mortgage rates and values so low, it would be pretty easy to cover the mortgage plus extra, even if I have to deal with a manager at some point.
Tracy
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In your shoes, I would rent for 6 months to a year. Once I had an idea about whether the job was going to be long term and I knew the areas, then I would look seriously at buying. If you want to keep the house as a rental, go with option #1. If you move out of the area, you will need a property manager. You state the less expensive neighborhood is harder to rent ot sell. Property managers like what is easy to manage and won't put any extra effort into a property in a marginal area, if they will even take on the property. Slow renting areas have higher vacancy and collection losses. Go for what the market wants and buy in the more desirable area. If, as you say, that neighborhood is appreciating more rapidly and is easier to rent, it's a no-brainer for me.
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...and that you both lean towards buying and then renting if I move...
I wouldn't say that I lean towards renting. That's more of a personal thing. I wouldn't want to deal with it, but if you would be ok with it, it's better to have the rental in a more marketable area.
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Rent for a year or so, and then look at buying. I'd buy in neighborhood #1, because it's not all about money and that's the kind of neighborhood I'd probably like to live in. If you like your house and neighborhood, I bet you'll stay home more, which is cheaper than traveling.
If you rent for a while....
- You'll have more money saved up for a down payment, which will save you money on interest.
- You can see what your bike route would be like if you lived in neighborhood #1. 5-6 miles would be a very pleasant bike commute, if the route is nice.
- You'll have a better idea of how long you're likely to stay at the job.
- You can look at houses at your leisure, and wait for the right one to be available at the right price.
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Thanks everyone! I appreciate all your advice!
I'm currently rooming with some friends--a temporary situation only, due to the life changes that they're making--but it gives me a place to hang out and look around the city for a couple of months while I figure out what to do longer-term.
I am fettered by the fact that I *hate hate hate* moving; currently my heavy belongings (bed, kitchen table, etc) are in storage and in a perfect world I've love to move everything into one place--rental or bought home--and never move again for as long as I live here. Still deciding whether that's reasonable. =)