My wife and I have been renting a place in Jersey for the past 7 years but with the kids getting older we've outgrown it. Have started browsing around for a bigger place and am wondering with the way the market is right now if it's best to just find another rental. I've been getting mixed thoughts on both renting and buying and figured I'd see what BBI folk think.
Youre building equity
My friend never lived away from home and took a job out of state and bought a condo. A year into it he hates it and is stuck there in essence.
I wouldn't buy just to buy. If buy if I was 100% sure it's the right home for me and one that I'll be in for the next 5-7 years at an absolute minimum.
Right now I'm on the verge of buying but living in a full service building that has everything I can possibly want at a reasonable price and not having to pay for taxes and upkeep is incredibly attractive. I'm not in a rush though I am looking at 2015 to be the purchase year.
Also for me at least there is something about it being yours. I enjoy owning property and being able to do with it as I like.
And the system does not favor just running away from it there can be severe negative consequences.
So a bit it depends upon your view of the economy. Are things going to be stable within the terms of the loan?
Land taxes in NJ to my dim recollection can be quite heady. That may be a consideration.
A all cash deal would probably circumvent all these considerations. Amount and terms of the loan would make some more or less important.
AS kids grow up we normally go to smaller homes not bigger. Burt if that is as they are teenagers and need rooms for themselves keep in mind that will end in a few years and then you will need a smaller home. It is way way easier to get a different rental than sell or buy a home. YOu may end up stuck in what you buy.
That's all I got.
For my money, it depends more on your familial situation than anything else.
If you have a family, read kids, and a steady job, and like the area you are going to be in, and intend to stay for at least 7-10 years, and have at least a 20% deposit, I would say it is a good idea to buy.
If you don't have any one of those things, I think you're better off renting.
I bought my fist house in 1987 and would still be there if not for a divorce and bought my second house in 2003 and still live there. That'll give you some idea regarding how I look at my living arrangements.
Just my 2 cents, your mileage may vary.
As UConn said, if you find the perfect home in the perfect place and envision staying there for a long time, buying is very likely to work out well for you in the long run. Otherwise, it's going to be a very close call. The closer it is, the more the balance tilts toward renting - a.k.a. kicking the can down the road. My advice would be to trust your gut, don't look back, and focus on making the best of your choice, not on whether you made the right one.
If you get a price that you think is fair, even if you outgrow the house or decide to move, there are options like renting it out, so you don't have to sell it quickly and lose money.
Buying houses is fun if you research it and don't be afraid of thinking outside the box.
Use your down payment money to buy a multi family building. Can be in a place like Jersey City (not sure what state you are in). Then, use the positive cash flow to help pay either your mortgage or rent on a single family home.
So, what you have are tenants paying for your personal living expenses.
So, when you add the above items to the "mortgage payment" and then compare it to the rent payment - now you are getting closer to a true comparison.
* Secondly, the idea that owning is an investment decision, is an ok way to look at things, but most professional investment advisors would warn against that thinking. From a pure investment decision, the bottom line is whether or not you would think it a good idea to purchase the property in question as an investment and not live there but rent it to someone else. That would require a very complex and sophisticated analysis by a professional who does real estate investing for a full time living. Owning versus renting does not mean that you will sell at a profit (after taking into account the interest on the mortgage and all the other costs of ownership over the years.
* IMO, the bottom line is that the decision whether to rent or own should NOT be made upon the basis that it is a better financial decision. Rather, it should be a lifestyle choice. Do you want the freedom of not having anyone control how you live or what you do with your home - and does that outweigh the cost, in dollars and TIME (and PIA things), that home ownership entails - together with the fact that home ownership is an anchor and restricts your mobility. Those are the more important factors than any financial aspects. If there are good reasons to own real estate - then you can decide to own real estate as an investment regardless of where you decide to live (i.e. you can still rent for the lifestyle reasons).
If you're looking at a condo or apartment, I think you could probably look to financial models for advice, but renting seems like it would be probably as good a choice as buying simply based on inventory.
So if you like losing money and feeling trapped, buy.
What my feelings were leading up to me and my wife buying a home, and what I continue to tell people now is this: if you don't have enough saved up to put down 20% towards the home you want, you probably can't afford that house. If you're making enough money now where you think you would eventually save up enough to amount to a 20% down payment, then it's best to wait till you get there. There's nothing wrong with renting, and doing so has plenty advantages versus buying a home.
In the case of a divorce a house is a way way difficult thing to consider. You have to buy out the other party if you want to stay there, whiich amounts to a sizeable amount of cash or another heady loan or you may decide to sell and split the proceeds which is quite a lengthy process. And then she has to agree to the sale. In a bad divorce that can be almost impossible. And who pays whose rent till it is finalized? Who maintains the house until it is? Who makes that payment?
So I know we never think that can happen but it does to about half of us.
I saw mine coming got prepared for it and it still got real real ugly mainly over the house.
A much cleaner easier break is possible without. Harsh to say but it is a fact.
I have purchased homes and lots with options and there are some nice benefits. It locks in the selling price and this does two things for you. If the prices drop you are not committed, but can renegotiate a new price if you want to pursue purchasing. However if the prices appreciate you control the option and can exercise it at any time and will have built in appreciation. This allows you to purchase for yourself at a lower than market price (plus recapture the applied portions of rents) or if there is enough appreciation you could find a buyer (get a deposit and signed contract) for a higher price, exercise your option and purchase and then immediately resell to the buyer and pocket the difference between your option buying price and selling price. I once optioned a lot and then a few years later when prices had escalated quite a bit exercised the option and resold it each transition within five minuets of the other and pocketed $50,000 in doing so.
Anyway you might consider it because leasing with an option as the name implies gives you many options which you control and most of them are to your favor. You aren't forced to do any of them and could simply walk away if you so choose and then you would have essentially just paid rent to live there.
And as an owner, every property tax payment, every HOA payment, every interest payment, every insurance payment, every repair payment also leave you forever.
And in a market that's as likely to go up as well as go down, renting looks to be a better choice for most people. As I say that as a home owner.
Based on what I've shelled out for my current house (taxes, upkeep) vs how much my house has appreciated, I've lost money on the value of my home.
Every month, I donate 500 bucks to the school/local gov't, and that pales in comparison to downstaters or people who have mcMansions. Then there's the new roof and new furnace, new doors, new flooring, and probably a new AC in the spring, and sooner or later new windows.
In areas of low property taxes, owning could be a viable financial decision. In NYS, it's an iffy proposition when comparing apartment to owning. renting a house is fairly limited availability and typically more expensive than a mortgage payment, but you don't have the tax/upkeep angle.
If you do buy, time the market. buying during a peak is a recipe for disaster. Unfortunately, it's often difficult to sell during a lull.
If I move again, I'm definitely investigating rentals. Being in a house has advantages. I'm not so sure owning one is a slam dunk.
And those that suggest buying a multi family unit, that advice isn't practicle. Most people don't want to deal with being a landlord and there's even more downside of being a home owner + a landlord. That's not to say it can't be a good investment, but it applies to almost no one unless it's something they were already considering.
The best advice is be patient, weigh your options, and if you aren't dead set on buying yet, rent for a year with no risk.
Waiting may not be a wise decision if you end up paying more.
Actions in other nations such as the EU and just yesterday Japan will put bond buyers back into our bond market. As interest rates in those places are contiuing to drop in some cases being at a real zero.
So driving them here(the money) will likely keep demand for our rates high and correspondingly our rates low for quite some time.
2 months ago, all were predicting higher rates in the US. Right now not so much so. interest rates here for homes and such being predicated by bond interest rates overall, as you know.
Steve, while timing the market perfectly is tough, there are times when it's obvious it's in a trough or a bubble. We've been at a low for quite a while, so I wouldn't hesitate to buy now. On the other hand, if prices have been rising for a while, I wouldn't buy unless forced to. I think too many people get caught up in the housing fever during a bubble and sell because the getting is good, but then turn around and upgrade buy, and when the market falls they're caught underwater.
Of course, your location may be experiencing different dynamics.
Just as an example - I am sure people have similar stories - when I bought my first house in 2002, the interest rate we got, which was competitive at the time, was 7 1/8 for a 30-yr fixed with 0 points.
I bought my 2nd house in 2013 and our rate was 3 3/8 with 0 points for a 30-yr fixed.
Normally you'd expect prices to go up or down and more or less offset interest rates increasing or decreasing, but we haven't really experienced that here (in the Boston metro area and I suspect other major cities probably haven't either - especially those in the Northeast where inventories are not as plentiful as the south or west where they can just keep building), so while i felt it somewhat when I sold my house after 11 years, I got the benefit of it when buying a house in this market.
== Stan from LA : 3:35 pm : link : reply
Quote:
And as an owner, every property tax payment, every HOA payment, every interest payment, every insurance payment, every repair payment also leave you forever.
And in a market that's as likely to go up as well as go down, renting looks to be a better choice for most people. As I say that as a home owner.==
Stan do you think when you rent your landlord is not factoring the tax, maintenance, insurance into the rental rate? All those said expenses are passed onto the tenant every time. Real estate is a great investment if you have you make good decisions.
A landlord can "factor" anything he/she wants but at the end of the day, the landlord is only going to collect whatever rent the market will bear... and that changes over time ... and has nothing to do with tax, maintenance insurance etc. The bottom line is to buy low enough, keep your costs down, and pray demand stays high.
Real estate is generally not a great investment, it is a career. It is not liquid. It is very difficult to diversify without 10 million dollars to spend. And it generally requires active involvement as a landlord. And - with all of that - real estate has given returns just slightly less than the broad stock market (which is liquid, easily diversified, and doesn't take any personal time).
I bought my first home last year and was scared as hell to do it, but I am damn happy I did now. I didn't get the home I wanted because I was unwilling to spend beyond my comfort zone, but I am happy here and can live here for a while unless I get married and have children (have neither).
There are two factors I used to determine in buying my house. Do I like the house/area? Do I think this house can be sold quickly? I checked yes on both and bought. To rent a house in this area costs the same to own, so its a win IMO when you consider the positive impacts of: tax deduction, equity, and credit.
Nothing wrong with renting, but owning a home had been a goal of mine for the past 3 years. It's also cool learning how to do "man" shit and creating your man kingdom. I bought a hot tub last weekend and will be setting up a projector, screen, and speakers outside to watch Sunday night football and movies in the Winter while getting hammered. Fuck yeah!
Obviously you don't want the property value to decrease on a home you buy, but if you are buying a home with the intent on it being your "forever home" why would you care about short-term fluctuations and liquidity of your home as an asset? or even long(er)-term for that matter.
of course the unforeseen can happen, but if you plan on buying a forever home you can fast forward to 30+ years when your kids which haven't been born yet finish college and move out before you need to be concerned with what the real estate market has done, and the house is very likely paid off by then or has a small mortgage on it left and no one here has any clue what the market will look like then.
If you decide buying is right for you, find the right house in the right location, at the right price and pull the trigger.
If not, and renting is right for you, do the same as above, but with a rental property.
Obviously you don't want the property value to decrease on a home you buy, but if you are buying a home with the intent on it being your "forever home" why would you care about short-term fluctuations and liquidity of your home as an asset? or even long(er)-term for that matter.
of course the unforeseen can happen, but if you plan on buying a forever home you can fast forward to 30+ years when your kids which haven't been born yet finish college and move out before you need to be concerned with what the real estate market has done, and the house is very likely paid off by then or has a small mortgage on it left and no one here has any clue what the market will look like then.
If you decide buying is right for you, find the right house in the right location, at the right price and pull the trigger.
If not, and renting is right for you, do the same as above, but with a rental property.
Excellent advice. If you stay in one home all your life. I'm 62 and haven't met anyone who has lived in one home for 30 years ... that was something people did in 30 or more years ago, but I don't presently know of a single person who has lived in their same place for even 20 years.
And if a person does choose to live in the home past the mortgage payoff and then steadily invests the equal amount of what had been their monthly payments they really start to see some results.
Real estate is a fantastic investment if a person can be conservative, patient and disciplined.
If I remember correctly, the interest payments over the life of my $215,000 mortgage amounted to approximately 45K. The interest payments on a $215,000 30 year mortgage were about three times that, if not more.
I'm not sure about the accuracy of those numbers because the transaction occurred over 10 years ago and I do not have the paperwork any longer, but you get the idea.
I bought a smaller house with few amenities in exchange for the knowledge that I would pay it off well before my son went to college.
I thought it prudent. You might too.
We just got another dog and she wants to move closer to her job as she commutes 80 miles per day, while I only travel about 10... so she wants to get a new place that's about twice as much as my place. I have no problem with that as selling my place would provide the down payment but the place she has fallen in love with is a 3 bedroom, which I already have. Yes, it comes with a yard and pool, but I don't see it lasting more than 3-4 years if we decide to start a family.
I wouldn't mind moving in 4 years if the damn transaction costs weren't so high.... $16k to sell my place, Palm Beach County requires the seller to pay title/deed fees of about $4k, in Broward where the new place is, the buyer pays which is another $4k or so, doc fees, lawyer fees, $8k in closing costs... $30k+ just to move? Not worth it regardless of interest and property tax write-offs.
How is it 60k worth of equity and another 60 if you sell?
Is the original 60k you're talking about just what you've payed down on your mortgage?
Peter... I knew someone would catch that as soon as I hit submit. I just meant it that way because we weren't dating at when I bought the place and only my name is on the mortgage.
If you buy a house, be aware that you are probably looking at two large initial expenses: the down payment AND costs of making the house your own (upkeep, furniture, etc.).
It's really worked out well for my wife and me so far, but it's easy to see how it could be a mistake for some people. The potential pitfalls are numerous...make sure you know what you're looking for in a house and stick to that when house hunting. Give your standards a lot of thought...everybody has different things that are important to them.
gotcha - thought you were implying that things were on shaky ground based on the way i worded it. what i have in the houe is going to pay the down payment so she's putting down the closing costs and that's it, if she even has enough for that (she's 6 years younger than me (i'm about to turn 33), another reason i don't know why she's so eager to basically have a house like this at her age).
and i understand that both are equity, just breaking it down to what's "guaranteed" in terms of what i have invested in the house vs. what is actual profit from increase in value.