Author Topic: Renting vs. Buying in NOVA?  (Read 7235 times)

Don Voice

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Renting vs. Buying in NOVA?
« on: May 20, 2013, 09:53:31 AM »
Hi all,

New here. I know there are several DC folks on the forum so I wanted to get their take on my living situation. My wife and I recently moved to northern Virginia (Fairfax) and have been renting a place for about the past year. The idea was to rent for a while, get a feel for the area and where we actually wanted to live, and then buy a place. Our lease term is coming to an end soon and we've been thinking about where to go next.

We'd like to buy a house because we just don't like the idea of spending money on rent and then having nothing to show for it later (Kind of like leasing a car. Who does that?). My thought was that if we ever move again, which is a real possibility, then we could keep the house, rent it out, and let it continue to build equity. However, I think I've seen on this forum that in some localities it is not worth buying a rental property as you just can't charge enough rent to cover expenses. I was surprised by this and I'm not sure I understand why this would be the case. Is this a real phenomenon and is it true for DC/NOVA?

If we think we'll only be in DC for a few more years, would I be better off renting the whole time? Some details:

Net Income: ~105k (Wife is in residency, income expected to increase significantly in a few years)
Savings Rate: ~44% (Maxed 401k and Roth IRAs)
Stash: A few hundred k
Debt: zero

Looking at the numbers it seems like it would be hard to find any place to buy that is within our budget given how much we make, but my calculations show a mortgage payment vs. rent (what we pay now) are comparable for a house in the $350k price range.

Thanks for the input. Let me know if you want more info.


foobar

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Re: Renting vs. Buying in NOVA?
« Reply #1 on: May 20, 2013, 10:55:50 AM »
In a lot of big cities, renting is much cheaper short term than buying.  For example I used to rent an 800k house for 3k month when interest rates were 7%. My mortgage and taxes would have been almost 5k plus I would have locked up 160k. Was the landlord losing money? Probably not. They had purchased the property for 350k, 10 years ago. The rental payment was more than enough to pay the mortgage and other expenses and they got the bonus of appreciation and the tax write offs. Now the market has corrected somewhat (house prices are down and rents are up) but there is still a gap.

I expect renting to be a win for you if you are only in the area for 3 years.  If you don't mind losing money for a couple of years afterwards, I expect that you would make money as a rental.

The whole rent is throwing money away is BS. You are getting a good (i.e. a place to live) for that money. You can do math and decide if renting is cheaper or more expensive for you.


Hi all,

New here. I know there are several DC folks on the forum so I wanted to get their take on my living situation. My wife and I recently moved to northern Virginia (Fairfax) and have been renting a place for about the past year. The idea was to rent for a while, get a feel for the area and where we actually wanted to live, and then buy a place. Our lease term is coming to an end soon and we've been thinking about where to go next.

We'd like to buy a house because we just don't like the idea of spending money on rent and then having nothing to show for it later (Kind of like leasing a car. Who does that?). My thought was that if we ever move again, which is a real possibility, then we could keep the house, rent it out, and let it continue to build equity. However, I think I've seen on this forum that in some localities it is not worth buying a rental property as you just can't charge enough rent to cover expenses. I was surprised by this and I'm not sure I understand why this would be the case. Is this a real phenomenon and is it true for DC/NOVA?

If we think we'll only be in DC for a few more years, would I be better off renting the whole time? Some details:

Net Income: ~105k (Wife is in residency, income expected to increase significantly in a few years)
Savings Rate: ~44% (Maxed 401k and Roth IRAs)
Stash: A few hundred k
Debt: zero

Looking at the numbers it seems like it would be hard to find any place to buy that is within our budget given how much we make, but my calculations show a mortgage payment vs. rent (what we pay now) are comparable for a house in the $350k price range.

Thanks for the input. Let me know if you want more info.

27Jennifer

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Re: Renting vs. Buying in NOVA?
« Reply #2 on: May 20, 2013, 06:22:36 PM »
How close are you to the metro? In other words, how rentable is the area you'd be looking to buy? Generally what I've found is the smaller the place, the easier it is to rent in DC area. And the lower the maintenance, the better it is for you as a landlord and for your likelihood of finding a renter.

Do the NYT rent vs buy calculator for some perspective. Look at craigslist for rental ads for your neighborhood to see what's renting and at what price. If I were you I'd only consider buying if you're looking at a 1-bedroom (maybe 2) condo. Houses and larger places will be harder to rent--this is a YOUNG, SINGLE city.

Good luck!

 

amicableskeptic

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Re: Renting vs. Buying in NOVA?
« Reply #3 on: May 20, 2013, 08:50:31 PM »
I grew up in the NOVA area but don't live there any more.  I own a condo situated directly above a metro and am currently renting it out.  I make money on the place but not nearly as much as I would if I had just invested the same money in an REIT (see all the details in another thread where I tried to think this through http://www.mrmoneymustache.com/forum/real-estate-and-landlording/should-i-refinance-my-rental-property/msg17873/#msg17873 with other board members help).

If you're only going to be there 3 years you are not going to get much "living there" time to offset the closing costs on your mortgage so buying a place right now is really buying it as a rental property and not a home.  With the high cost of homes and relatively low rent in NOVA I would say you are very unlikely to find a place there that will have a good enough price to rent ratio to buy as a rental.  Rent for 3 years then maybe you'll move to an area more favorable for land lording and be able to invest in a rental property there?

jamccain

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Re: Renting vs. Buying in NOVA?
« Reply #4 on: May 20, 2013, 11:40:53 PM »
Don I am familiar enough with NOVA and cash flow RE investing to give an opinion...  You leave out one big variable.  Do you want monthly cash flow or is this an inflation hedge and equity investment?

Simple truth, you cannot buy and rent out a place and make positive cash flow in some high cost areas.  People in these areas generally invest outside of their area for cash flow.  NOVA is a high cost, high rent area and it's going to be very tough sledding for someone to make cash flow there...even an experienced investor.  In the $350K range you may get the illusion of cash flow positive in a perfect world calculation.  What do I mean by that?  You may be able to cash flow $200-300 a month on paper, but after you take into account vacancy, property management, maintenance you are really losing money month to month.  If you want the inflation hedge and equity maybe this is worth it to you. 

I agree with amicableskeptic and foobar this isn't an attractive RE investment.  I own investment property and rent the place I live...because I live in the beach cities of Los Angeles short term.  Renting is not "throwing money out the window".  That's just a marketing pitch from "the establishment" for buying a home that many people parrot and is not necessarily reality.  As foobar said, you get something in return for your rent, like a $1M house for half the payment.  Also, you get the FREEDOM to move on whenever you want, no maintenance costs, etc. 

I know most of us want to own the home we live in and if that's the priority maybe you do buy, but buy to live in the place and not just to rent it in the future. 

Don Voice

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Re: Renting vs. Buying in NOVA?
« Reply #5 on: May 21, 2013, 07:02:34 AM »
Thanks everyone. You've given me something to think about.

twinge

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Re: Renting vs. Buying in NOVA?
« Reply #6 on: May 22, 2013, 01:29:59 PM »
+1 for renting over buying in NOVA. 

When there was a chance we were going to move out of state from NOVA after living in our house for a few years, we found the rental value of our house would be slightly cash flow negative even though we had bought at the bottom of the market, had a low interest rate, and our house appraised for 90K more than we paid for it by the we were looking at the decision to rent vs. sell.  This is for a SFH in a popular family-oriented neighborhood with good schools etc. However, friends who have condos in DC proper have found it profitable to rent after moving so it depends on the location and kind of property.   In our case, I  think it was due to the local rental market being dominated by people who had bought their house 20-30 years ago and were renting it out once they moved somewhere for retirement--they didn't need as much money to make it cash flow positive. 

If you're worried about "throwing your money away to rent" look at the amortization calculators on how much equity you'll build in the short time you're planning to live in the house---throw in maintenance, property taxes, time spent maintaining the house--and especially given that the market has already rebounded quite a bit in NOVA you're not likely to win out.

2527

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Re: Renting vs. Buying in NOVA?
« Reply #7 on: May 22, 2013, 05:29:23 PM »
If I read correctly, it's just the two of you, you will live in DC for a couple years and then move elsewhere, and if I am right, you will have a higher income at that time.

I think the best thing, from the perspective of money  and ease of life, is to rent the least expensive place you can, and save any difference for investments or a downpayment on a house in the future.  When you move you won't have the stress of simultaneously finding a tenant, and who wants to be stuck managing a rental in DC if you're not living there? 

Good luck!
« Last Edit: May 23, 2013, 04:12:43 PM by Jeff L »

HawkeyeNFO

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Re: Renting vs. Buying in NOVA?
« Reply #8 on: May 24, 2013, 08:59:00 AM »
In your situation, I strongly recommend rent. 

We bought a townhouse in the area described above near Grosvenor Metro.  Parkside is to the east, and Grosvenor Park is to the west, where we bought in 2003.  I've been renting that out since 2008, but at the current prices and rent being charged, it would lose money.  I make money because we bought at the much lower 2003 prices and charge the 2013 rent price.   Currently living in McLean, and have seen the SFH prices going up, especially since new year.  On your timeline, save money and rent.

ep114

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Re: Renting vs. Buying in NOVA?
« Reply #9 on: June 09, 2013, 03:55:56 AM »
Also, housing prices are really high in the area now. A friend of mine tried to buy a house, but was one of 23(!) bids and lost out. Do you really want to be the winner of 23 bids? Probably won't be getting a bargain now. I would rent.  The area also has so many sublets, since the residents are so mobile, you might be able to get a really good deal.