rent vs buy?

[burningashes]

I'll try to keep everything concise and to the point.

 

Background info:

My boyfriend got a call from another city (his hometown, which is across the country way east) that they want him to work for them. He has to finish his 18 month probation here as a police officer before he can even apply, which is in March at the earliest- which is IF they hire him right away. He wants to move back there eventually at some point. We've had discussions about this and I'm pretty much in the mindset that this relationship will turn into a LDR at some point as I am trying to finish my degree of which I have 2 years left to complete. So if he has to leave, I have to stay behind to finish school- I told him that I couldn't go anywhere until I got my degree and I wasn't going to stop him from moving for his job. We've come to an understanding and sort of have a plan so far for this.

 

Current situation:

 

He's been living in a condo that he has to pay 1100 a month, with neighbours that party all the time and he absolutely hates it because they keep him up when he needs the sleep. He works night and day shifts, so it's necessary for him to find a house. He's been on the fence about renting or buying- I'm going to move in with him either way, in fact, we are looking at places right now. We both need more space and we've decided we're going to get a house either way (if he decides to buy a house, it'll be his own mortgage, we won't be sharing that.)

 

My question is that, with his possibly moving in mind, which is better? He already has a bit of equity from his last house and he wants to build that up when he can. He hates the idea of his money going towards someone else's mortgage, especially if it costs the same or less to buy a house than renting and I agree with him. He's not sure because if he decides to buy a house, and ends up having to move- he may have a hard time selling the house due to the economy if it doesn't recover in the next few years. Plus, if he ends up not getting hired there, he'll have wasted the time he could have been building up his asset.

 

Due to the lowered rates at the bank, it's a good time to get a house right now with the house values being lower. He's afraid of missing out on the opportunity to get a house when it's cheaper, but at the same time getting screwed over trying to resell the house for possibly less for what he paid for.

 

Worst case scenario is that if he moves, he'd get me or someone to rent it. Some people say renting is the better option, but it's generally more expensive and the money would be going to someone elses mortgage. What's more realistic? Is this too crazy to even consider? Is there something else we should be considering if he decides to buy a house or rent? Any advice or ideas would be great!

[norajane]

Does he own the condo he's living in? If so, I'd suggest he gets a good set of earplugs or noise-canceling headphones (like the ones people wear on airplanes), get a white noise machine, and stay where he is.

 

Not only is he going to have a hard time selling his condo now in this market, he will also have to pay closing costs and loan fees when he buys the new house. It's not worth it to incur those costs for a house he won't be in very long because he won't recoup those costs when he sells (market value will not have gone up much, if at all, in a year, so all that money is lost).

 

If he doesn't end up moving cities, then he'll have built up a little more equity in his condo, which will give him the option to buy a little more house than he can now. And he'll be in a better position then - off probation - so he'll know that his job is secure, and I imagine he'll be making more money then, too, through a raise, both of which will make getting a mortgage easier.

 

If he's renting now, then just get another apartment. It will be much easier logistically. And everything I said about the costs of buying a home still applies. He won't be in the place long enough to build up much equity if he moves to another city in a year or so. During the first year, mortgage payments are mostly interest. Very little goes to pay off the actual loan.

 

Plus, he has to pay property taxes. So, at best, he's paying off maybe $100 per month during the first year. That's only $1200 of equity the first year, and he will have paid much more than that in closing costs just to buy the house.

 

If he were certain he was staying, he should buy. But since he's not, he should wait and buy when he's certain of his future plans. The housing market is going to take a very long time to bounce back and prices are not going to increase the way they used to. Waiting a year or so to buy a house is not going to mean he'll be paying prices that are much higher than today - they'll be about the same or only slightly higher.

[mental_traveller]

How to deal with problem neighbours in apartment blocks:

 

1. Buy Nile's album "Among The Catacombs Of Nephren Ka", and some industrial strength earplugs

2. At 2am on Monday morning, put a cheap but loud ghetto blaster outside the door of your neighbours, turn the volume up to maximum, press play, and then hurry back to your room after leaving a note saying "this happens each night until you learn to keep the noise down"

3. Wear the earplugs and get some sleep.

4. Repeat until your neighbours cave in.

[burningashes]

Oh geez, I posted a reply and my post never went online :/

 

NJ, thank you for your reply. No, he does not own a condo. Everything you said makes sense, and I'm leaning towards renting especially because he doesn't know for sure whether he's going to move or not. I talked to him recently and he's decided to buy, despite all this. I still don't think it's a good idea and his lease is up in September. So I'm not sure what he plans on doing now, whether he's going to renew his lease for a few more months and look to buy or if we're going to rent a place once his lease is up. I really don't know how else to convince him NOT to buy a house right now because he is convinced he doesn't want his money going towards someone elses mortgage regardless.

 

In my other post, I asked if getting a rent-to-own house is similiar to buying a house? What is the difference between that, because I've seen some of those in ads and was wondering.

 

Mental- That would be totally funny and that certainly would make him swallow his own medicine

[kahn2154]

It depends, but I think that you have to live in the same house on average for 17 years or longer for it to be better to own than rent.

 

So basically if he is ready to settle down and live in same house for 20 or so years it would be better to buy.

 

But if its like a few years or even shorter term renting is better.

 

I used to think renting "was throwing money away" too due to a college professor who I found to be quite wrong about everything after I graduated, but look at it this way.

 

If you buy a house you have to pay your mortgage which is the house value and interest. On top of that maintenance/repairs/upgrades etc. etc. all come out of your pocket. Also, I don't know if it is cheaper in other parts of the country but property taxes is essentially throwing your money away.

 

My dad owns a $200k-$300k house (don't know in todays market) He pays between $11-$14k a year in property taxes (NY). So in most places that would cover most of your yearly rent.

[norajane]

Google is your friend. Google "rent or buy calculator" and you'll get a bunch of hits that will let you plug in financial data and show you how much it would cost to buy a home at the price/loan amount you are considering vs renting.

 

The calculators should include things like estimated property taxes in your area, home insurance, closing costs, how long you expect to be in the home, down payment, etc.

 

Let the numbers show him that paying $6000 - $7000 in closing costs and a year's worth of mortgage interest will not be worth it for a house he's only in for a year. He won't be building up hardly any equity, maybe $1200 in the first year, if he's lucky. Subtract the closing costs and he's LOSING money, a lot of it.

[lovestruck818]

Buying is always better, IMO. A lot of people are going to disagree with me and that's fine...but with renting you are 100% going to lose money, with buying there's a 50/50 chance...and if you hold onto the property for a while, most of the time you will make money on it.

[norajane]

Buying is always better, IMO. A lot of people are going to disagree with me and that's fine...but with renting you are 100% going to lose money, with buying there's a 50/50 chance...and if you hold onto the property for a while, most of the time you will make money on it.

 

That's just it. He may not be holding on to the property for a while. He may only be in it a year. In which case, yes, he will lose money if he buys.

[kahn2154]

Buying is always better, IMO. A lot of people are going to disagree with me and that's fine...but with renting you are 100% going to lose money, with buying there's a 50/50 chance...and if you hold onto the property for a while, most of the time you will make money on it.

 

But the money you lose on renting you would most definitely lose buying anyways. Also, the spare money you save from not buying could always invest, and the market historically has a better return than real estate.

 

But for one year, buying is just burning money.

[burningashes]

Wow, you guys, I don't know why I'm not getting email notifications for the replies I'm getting for this thread :/ Well, I told him he probably would be better off saving up and putting that money towards the down payment (he already has 30k saved up) while he figures out what's going on with his career. I suggested that we move into a condo together and with my shouldering half the rent, he'd be paying a lot less than he'd be on his own. We found a nice 2 bedroom condo that's a lot bigger than his current one for only $995 a month with utilities included. The whole idea is for him to either pay off his truck or put the extra money he's saving toward the down payment while he waits to reach a more solid decision. I thought this would produce a better return on his money rather than buying right away.

 

He agreed with me so we're moving at the end of August and I can't wait The best part is that after the 6 month lease, it can be on a monthly basis so we can move out at a short notice if he does decide to buy a house down the road.

 

Was this a good suggestion? I hope it was, because we were running out of time

[carhill]

We found a nice 2 bedroom condo that's a lot bigger than his current one for only $995 a month with utilities included.

 

IMO, considering the dynamic, and dependent on the solidity of the prospective job offer, this is a good strategy.

 

Otherwise, I might have suggested the lease-option sublet control strategy, which allows you to control the property price and assign the option while subletting if job issues cause a move. IOW, lock in the low price in the current market with little money, garner rent credits and a build up equity, while still having the flexibility to assign the option and sublet the property if you move.

 

As things are, sounds like a good deal. Hopefully it'll be quieter

[Sam Spade]

RENT

 

Quite frankly, I feel that buying a home before it is absolutely necessary (i.e. almost never ) is one of the dumbest decisions that a person could make .

It is a poor investment, and a poor financial decision - always has been, because:

1) Homes barely appreciate above the rate of inflation

2) they come with huge expences in tow, in addition to the mortgage:

- the property taxes

- the home insurance

- the alarm system

- the mortgage insurance (if putting less than 20% down)

- the responsibility to pay for anything that goes wrong with it

- the closing costs all these expenses

- the stress of trying to sell the house when deciding to move

- it is typically more expensive than rent, which means that it ties more of your dispisbale income, which could be invested and generate some actual (and liquid) returns

And even if your house is completely paid in full, you still keep paying and paying (the taxes, the insurace -and that's if you're lucky)

 

3) paying rent is not throwing money away - it is paying for a valuable pretty tangible service --> having a place to live, with a lot of peace of mind too.

[carhill]

IDK. Long-term home ownership has helped me finance business opportunities and fund rental acquisitions. I see it as an earthy savings account.

 

I'm happy to be your landlord.

[Sam Spade]

IDK. Long-term home ownership has helped me finance business opportunities and fund rental acquisitions. I see it as an earthy savings account.

 

I'm happy to be your landlord.

 

But the key word here is "long term", as opposed to casually buying. norajane's math is pretty accurate

[carhill]

Hence why I suggested that renting is a good pursuit for *now*

[norajane]

Wow, you guys, I don't know why I'm not getting email notifications for the replies I'm getting for this thread :/ Well, I told him he probably would be better off saving up and putting that money towards the down payment (he already has 30k saved up) while he figures out what's going on with his career. I suggested that we move into a condo together and with my shouldering half the rent, he'd be paying a lot less than he'd be on his own. We found a nice 2 bedroom condo that's a lot bigger than his current one for only $995 a month with utilities included. The whole idea is for him to either pay off his truck or put the extra money he's saving toward the down payment while he waits to reach a more solid decision. I thought this would produce a better return on his money rather than buying right away.

 

He agreed with me so we're moving at the end of August and I can't wait The best part is that after the 6 month lease, it can be on a monthly basis so we can move out at a short notice if he does decide to buy a house down the road.

 

Was this a good suggestion? I hope it was, because we were running out of time

 

Yes, that was an excellent suggestion. I'm glad he agreed with you. In a year's time, you'll be in a much better position to decide to buy if he's staying in the area.