Author Topic: To buy or not to buy  (Read 3218 times)

2bor!2b

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To buy or not to buy
« on: September 09, 2013, 03:13:06 PM »
Hello fellow Mustachians,

I had a question regarding whether to buy or to continue renting an apartment in the overpriced Northern California (Silicon Valley) area.

We are currently renting a 1BHK flat for 2000 bucks. We have about 200k to put down for a house. We are thinking of a small 3 BHK house in the 800k range. We have been looking at houses for around 6 months now.

Do you think it will be a wise decision to move fast and buy a house since the interest rates are at a historic low(and speedily rising) or should we wait to increase the downpayment amount  and hope that the house prices will fall since the houses in this area are at historic highs now?

Any advice is highly appreciated. Thanks!!!

matchewed

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Re: To buy or not to buy
« Reply #1 on: September 09, 2013, 04:11:11 PM »
http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

Run the calculator and figure out which is better from a financial standpoint.

2bor!2b

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Re: To buy or not to buy
« Reply #2 on: September 09, 2013, 04:25:36 PM »
Thanks for the reply matchewed!!

The math always comes out in favor of renting, but that is without taking into account the  house appreciation costs and the appreciation in this area is deadly! Also, the rent is not fixed and keeps increasing at the rate of 10-15% per year. Only 2 years back I was paying 1700 for the same 1 BHK. Next year we will be moving into a 2BHK, rent is around 2350 bucks.

Most of the 800k houses that I am talking about were 700k last year. If it keeps increasing at this rate, I would never be able to own a home in this area, which is where I want to stay for multiple reasons.

What are the other factors I should be considering? Also, I would like to get a feel of the real estate market in the San Francisco south bay area from mustachians in the bay area..
Thanks!!


KS

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Re: To buy or not to buy
« Reply #3 on: September 09, 2013, 05:42:13 PM »
I'm in a very similar boat, same area, same ballpark home budget (although of course we'd want to buy cheaper if it were remotely possible here) actually it's daunting to know some of our competition is equally mustachian I was hoping most people house-hunting out here don't have as good of a down payment as us. ;)

Anyway, we debate the same thing over and over as well, with prices as they are it feels ridiculous to purchase, but if they keep going up then there will never be any hope. (Our rent is cheaper than yours but also goes up repeatedly and our place is a dump we really would like to move out of in the next year or so one way or another.) All I will say is, don't let yourself get too caught up in the "they will for sure keep going up" mentality. If you take a look at the leadup to ~2005 it probably looked very similar to now, and yet here we are 8 years later and most places are only just barely back to being above what they were worth at the peak of the bubble. So do make sure the place is somewhere you'll be staying LONG term, and don't assume you'll necessarily even "get your money back" when you do sell. We put an offer on a place where the people had bought right at the peak and then put another $90k of upgrades in. They listed at a semi-reasonable price based on market conditions, but were actually not willing to accept any offers less than how much they paid for the home and ended up taking it back off the market when they realized nobody was going to pay them for their bad decision.

I could go on and on but need to go back to work. Good luck! (unless you're bidding on a place we are... mostly kidding :))

StarryC

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Re: To buy or not to buy
« Reply #4 on: September 09, 2013, 05:44:29 PM »
Seriously, that NY times calculator is powerful stuff.

It takes into account, and allows you to adjust the increases of rent and value of your house.  You can adjust the settings to take into account different tax rates, condo fees, down payment, utilities paid by a landlord etc.  If that doesn't have all of the financial factors, I don't know what does!

2bor!2b

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Re: To buy or not to buy
« Reply #5 on: September 09, 2013, 06:05:44 PM »
KS, Thanks for the reply. We would love to buy a house that is cheaper too...but can't seem to find a decent sized home in a good school district below 800k :(.

What is it that compels you to buy a house since it seems like a bad investment any which way? Owning/More space?

I am kind of hoping for/expecting a housing bust in the bay area. If the interest rates increase, will that not lead to a minor bust?

Also, how does the school district figure in your buying plans?

KS

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Re: To buy or not to buy
« Reply #6 on: September 10, 2013, 02:01:10 PM »
Yeah it's brutal out there, and then at least for the past few months during peak buying season (supposed to quiet down now that school has started so families with kids are less likely to be looking) the places that were listed around 800k were selling for over $1M because people got crazed about it. Or in some cases the homes should have been priced that high to begin with but realtors priced them lower on purpose to get more people looking at it and add to the frenzy.

And yeah, it's mostly the intangible stuff that makes us want to own, although I know it does come with headaches too. Just knowing it's "ours," having at least a small yard, the feeling of permanence knowing that's where we'll be for a while. And we've been in our lovely little dump a long time now, would like to think about starting a family in the next few years at the latest but would NOT want a baby in our current place... but since we've stuck it out this long we don't want to move unless it's into "our home" rather than just a nicer apartment. 

We're rooting for a bust too! It's already cooling down a bit, homes are staying on the market for a week or two rather than a day or two, and selling much closer to asking price. (The place we bid on  a few months back, we bid 10k under list price, their counter offer was 25k OVER the price they listed at!! the nerve... but that really was what was happening in that neighborhood at the time so I'm not surprised they were hoping for it. Was a bit out of our comfort zone to begin with so we were more than happy to walk away.) I think whenever interest rates rise more it will help cool off the frenzy even more, although who knows for sure.

And yeah we do think about school districts to some extent, even though there are no kids yet so school is a bare minimum of 5-6 years out. I will say though a friend of mine just left her job as a teacher at a high school with a rating of 8 on the greatschools, and she had some things to say about the quality of the administration/teaching staff there... she'd been happier at a less highly rated school in LA because the teachers genuinely cared about reaching out to each and every student. And some of the top schools are now having parents pull their kids out because they are way too intense and cut-throat with students stepping on each-other and cheating to get to the top, and the stress levels are killing the kids. (My high school is one of the worst offenders, although thankfully it wasn't that bad when I was there). So, scores aren't the whole story!

annod

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Re: To buy or not to buy
« Reply #7 on: September 10, 2013, 09:36:52 PM »
Seriously, that NY times calculator is powerful stuff.

It takes into account, and allows you to adjust the increases of rent and value of your house.  You can adjust the settings to take into account different tax rates, condo fees, down payment, utilities paid by a landlord etc.  If that doesn't have all of the financial factors, I don't know what does!

KS, we are in the same boat, but we are looking in the East Bay. I used the ny times calculator, good stuff. The only problem is when I put the projected annual increase in housing prices, just 1% makes the difference between whether it is cheaper or more expensive than renting. How am I supposed to know what the annual increase in housing prices would be in the next 8 years (the number of years I can see myself committing to the Bay Area) ? 
On one hand, this feels like a bubble, but housing prices can go even higher...Not sure if we should wait either.

The painful thing is that we have $300K down payment, and still losing out to the all-cash offers, or the 20%+ over asking with no contingencies...