To buy or not to buy

[somebody8198]

I've recently been bit by the home-ownership bug. I have rented all my life in big cities where buying a house didn't make much sense, but I recently moved to the Austin, TX area where there are more affordable options.

Houses here are really overvalued but rent is also climbing. I could pay $1500+ for an apartment or pay $1700-1800 in mortgage + taxes to have a house with a yard. I would prefer a small MMM-esque bungalow house, not a massive new property, which is good because those big new houses tend to go for $450k+. I've decided my absolute maximum would be $300k.

I have never really seriously considered buying a house before, but here is my cost/benefit analysis:

In favor of renting:

• Very easy to pick up and move if I decide I don't want to stay in the area or I hate my neighbors or prices spike.
• Currently I live walking/biking distance of work, which is almost unheard of in Texas. My current company may be moving somewhere that will require a driving commute, but I've got a good relationship with the higher ups and they'll easily let me work remotely 2-3 days a week. Being close to downtown, I can also bike to groceries and walk to make entertainment options, like events in the park, bars (for when I rarely go out on a date), etc.
• I never have to do any maintenance or improvements on the place, the landlord just does it for me. This is an obvious pro, but worth mentioning.
• Proximity to work is easier to maintain because you can always move to an apartment closer to work. I have somehow managed to never drive to work in my whole adult life (except during a short internship), in part because I lived in big cities before where there was a real light rail system.

In favor of buying a house:

• Being in charge of my destiny a lot more. Never have to worry about the apartment next door having a party or AirBnb rentals. Not sharing a wall with anyone means more privacy and in Texas there seem to be very few if any zoning restrictions on house color, style, etc., so I could do whatever crazy stuff I want to the house and nobody could stop me.
• Gardening! Major pro. I don't actually know a lot about gardening, but I really like the idea of growing some portion of my own vegetables and herbs during the year. I did some gardening when I was a kid and I think I could get into it.
• Relatively safe from price fluctuations as your mortgage payment is set. Granted, you still have to contend with crazy Austin property taxes, which would account for about 30-35% of my total monthly housing cost if I owned a home. Property taxes here are legally capped at 10% increase a year. That's still huge though...
• More room to do other lifestyle improvements / DIY solutions. Today I pay a gym membership, but if I had a garage or some extra space inside I could easily put in a squat rack and kettlebells and never have to pay for the gym again.
• Better for hosting friends, cooking big dinners, hanging around a fire pit, and doing other things that are just really hard to do if you're in an apartment.
• Could be considered an investment rental property should I move away or decide to move back into an apartment closer to work.

Part of me feels like I'm just about done with apartment rentals, but I need to make the math work out before I would consider buying. Putting down $50-60k is also a major blow to my 'stache. I am about to hit $400k on my net worth and it makes me sad to think of having to take a big bite out of that progress.

Thoughts? Perspectives?

[Simple Dad]

Is there a significant other?  Age?  Good credit?  How long of a mortgage?  What kind of interest rate can you get?  Consider cost of insurance, property taxes, maintenance, repairs like replacing roof, water heater or another of several things that go wrong with houses.

[Simple Dad]

If you are single and did buy a house, could you take in a roommate to share utilities and have them pay rent? 

[somebody8198]

I'm 33, single and assume I will be single indefinitely. I've thought about going the roommate route but I've been living alone for 4-5 years and I don't know I could go back to random Craigslist roommates now. I have excellent credit, zero debt, and I'm currently maxing out my retirement accounts while also saving 2000-3000 on top of that. I like the area I live but I'm a little hesitant to lock myself into a "tech city" housing market when there are much cheaper cities in Texas an hour away.

[kms]

What part of Austin are you looking at, any neighborhoods you want to / need to focus on? Since you've been here for a while I guess you are aware of the crazy traffic and will be very aware of how important it is to be close to work since a 15 minute commute can quickly turn into a 60 minute smashing-hour-head-repeatedly-against-the-wheel-congesteion-on-Mopac during peak hours.

Prices have been on the rise in Austin for a long time, and since the city is booming there's currently no end in sight. The longer you wait, the more you'll have to spend. Appreciation is crazy right now, a house that cost $250,000 ten years ago sells for more than $350,000 today, and average appreciation is somewhere between 4-10% depending on neighborhood. On the other hand, rents have been rising even faster reportedly.

Property taxes are getting out of hand in the Austin area. We pay almost $500 per month in property taxes alone for our house, and they can be upwards of 5% of your property's appraised value per year depending on what county you end up in. And the county office increases those amounts each year, this year's appraisal for our house was 3% higher than last year's just because. And while you can protest it we tried to no avail. Long story short they claimed that our house was no worth more because our neighbor's house was worth more, and our neighbor's house was worth more because ours was worth more. FML. When you do the math don't forget to take the Homestead exemption into account as it reduces the appraised value of your primary residence by 25k or more.

Another thing that is slowly getting out of hand are HOA fees. There are some big companies here that run these properties and seem to have a death-grip on them, and once they do they start charging insane amounts. We're lucky as we live in a self-governed community and only pay $67 per month (we were specifically looking for a house in a self-goverened community with low HOA fees) but friends of ours in the Rundberg/Burnet area just north of 183 are paying more than $250 per month in HOA fees alone, and short of selling and moving there's nothing they can do. And that's not even the worst we've seen, when looking for a house to buy last year we saw fees upwards of $300 per month.

Long story short: If you are willing to put in some money, and you find a property that doesn't have crazy HOA fees, and are fine with paying upwards of $500 in property taxes per month I would still recommend buying.

[whywork]

Put your home price in the NY Times buy vs rent calculator (adjust the property taxes for Austin) and see what would be the rent equivalent price. Now subtract the rent of a single bed or studio from that and that's the amount you will be losing going the home route.

I personally don't like being tied up to a place and a fixed house. If I really want to buy a home for more space, I would try renting homes instead of apartments and pay the extra few hundred bucks and keep changing them as and when I like. If I have to buy a home, the price is important; something less than 200k

If you really want to save money and reach FIRE faster, I would suggest a studio or even sharing an apartment with a roommate

[austin944]

I faced the same decision when I first moved to Austin 25 years ago, when I was age 31 and indefinitely single.  I have been renting for all of the reasons you list, and I still managed to build up a considerable net worth during that time working in the hi-tech industry.  I currently rent a duplex with a garage and a small yard for $1600/mo. that's about 10 minutes from Downtown. The noise is very minimal compared to an apartment and I could probably plant a small vegetable garden since the landlord is pretty laid-back.  There is plenty of room outside for entertaining, however the season is pretty short for doing that.

When I was younger, the care-free lifestyle was more important to me than the financial advantage of owning and the feeling of permanence.  I wanted to be close to the Downtown area, close to activities so I could walk or bike around instead of driving, and I didn't want to be burdened with a house or condo.  Since I live Centrally, I go the opposite way of commuter traffic and faced few commuting head-aches.  I don't feel any regret about not buying.

I think you could find a smaller older home in East Austin or North Austin for less than 300K, but I don't see many homes smaller than 700 sq ft. on Zillow.  I doubt you could find anything closer in for that money which would not need substantial repair.  Maybe you could rent a duplex/house/garage apt. close to where you want to buy a house, and see if it fits with your lifestyle.   I tried renting a house in North Austin, and I found that I really wanted to be closer in.

I sure wish there were more Tiny Home options, or other alternatives for living MMM-style.  I have heard of one Tiny Home community in East Austin, but it's too far away from Downtown for my liking.

[ender]

Prices have been on the rise in Austin for a long time, and since the city is booming there's currently no end in sight. The longer you wait, the more you'll have to spend. Appreciation is crazy right now, a house that cost $250,000 ten years ago sells for more than $350,000 today, and average appreciation is somewhere between 4-10% depending on neighborhood. On the other hand, rents have been rising even faster reportedly.

Just a comment, $250k to $350k over 10 years is around 3.5%/year... that's not really "crazy" to me.

[TomTX]

Prices have been on the rise in Austin for a long time, and since the city is booming there's currently no end in sight. The longer you wait, the more you'll have to spend. Appreciation is crazy right now, a house that cost $250,000 ten years ago sells for more than $350,000 today, and average appreciation is somewhere between 4-10% depending on neighborhood. On the other hand, rents have been rising even faster reportedly.

Of course, $250k in VTSAX 10 years ago would be $550k now...

[justajane]

I'm sure you're aware that there are rumblings of another housing crash on the horizon. As someone who bought in 2007 and would have done much better if I'd bought in 2009, I wonder about the wisdom of waiting a bit longer to see how things unfold in the next year. That 300K house might drop in price or the market could be flooded with foreclosures. I'm not wishing for a crash, but if it's going to happen, as a current non-home owner, you would be ideally positioned.

I could be totally off base, but it's something to consider, since you don't seem completely sold on buying. 

[somebody8198]

Central east Austin is where I live now. Being so close to downtown in amazing but houses here are crazy expensive. I rented a room in one when I first moved here and the owner was paying $4000+ mortgage for a small renovated house. Lots of big stupid modern houses going to around here too. I'll probably rent for now and look into renting a small older house next year as apartment rents rise. If I'm gong to be paying more I may as well get more privacy out of the deal. In any case I'm talking to some real estate goon tomorrow about a house in north central Austin so we'll see what they have to say.

[kms]

My  bad, I forgot to add that the 250k to 350k in 10 years is far outside the city, around 40 minutes from downtown. The downtown area exploded in the recent years, particularly East Austin. People that have lived in Austin for 20+ years keep telling me it used to be a shithole and look at it now. You've most likely seen that one single house at the end of Rainey - rumor has it that house sold for slightly North of 50k 10 years ago and the property alone is worth upper six digits now. The house itself is worthless and needs to be torn down but imagine having a house smack down on Rainey St.

Either way, what @justajane said makes perfect sense if you're not set in buying right now just yet.

[SunnyDays]

if you do decide to buy, why not consider a slightly more expensive home that has, or has the possibility of, an income suite of some kind, like an basement or granny suite?  The extra income would lower your mortgage now, and if you decided to move in future, then you could have 2 rentals on one property.  (Take this with a grain of salt, because I know nothing about the Texas market, but it's an idea.)  P.S. Had to chuckle about you having a short season for outdoor entertaining.  Come on up to where I live, and I'll show you short!

[Case]

I'm sure you're aware that there are rumblings of another housing crash on the horizon. As someone who bought in 2007 and would have done much better if I'd bought in 2009, I wonder about the wisdom of waiting a bit longer to see how things unfold in the next year. That 300K house might drop in price or the market could be flooded with foreclosures. I'm not wishing for a crash, but if it's going to happen, as a current non-home owner, you would be ideally positioned.

I could be totally off base, but it's something to consider, since you don't seem completely sold on buying.

Isn't this stuff actually unpredictable like the stock market?
I'm interested because I'm likely buying as house soon.

[jlcnuke]

How long are you going to own the house if you buy? That's the first and most important question imo. Length of ownership is directly tied to how likely it is to be a better financial option compared to renting.

[justajane]

I'm sure you're aware that there are rumblings of another housing crash on the horizon. As someone who bought in 2007 and would have done much better if I'd bought in 2009, I wonder about the wisdom of waiting a bit longer to see how things unfold in the next year. That 300K house might drop in price or the market could be flooded with foreclosures. I'm not wishing for a crash, but if it's going to happen, as a current non-home owner, you would be ideally positioned.

I could be totally off base, but it's something to consider, since you don't seem completely sold on buying.

Isn't this stuff actually unpredictable like the stock market?
I'm interested because I'm likely buying as house soon.

Well, in our case there was some indication, since homes were languishing a bit longer on the market than they used to. The prices of the homes, however, hadn't dropped yet. If we'd waited six more months, we could have gotten more for our money.

I don't regret our choice because we have fantastic neighbors, and this house likely wouldn't have been on the market six months later. But in the case of the OP, he doesn't seem to be in that much of a hurry. If you need a home or desperately want a home, by all means, buy a home. But, if not, it at least bears some degree of consideration. Just because the market is unpredictable doesn't mean that you don't make some reasonable guesses about where it's going and time your investments the best you can.

I just know that I'm reading more and more articles discussing the precipitous rise in home prices and how other lending practices remind the authors of the years leading up to 2008 housing crash. Is it clickbait? Perhaps. But these kinds of things tend to be cyclical and, while not entirely predictable (especially the timing), reliably possible.

[Xlar]

If you are single and did buy a house, could you take in a roommate to share utilities and have them pay rent?

This is an excellent suggestion! If you can rent out a room or 2 then buying becomes a lot more appealing.