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Kaboom | Buy or rent a $450k house??? |
I have an opportunity to rent a house that is worth about $450k for about 1900/month. Agent telling me i should just buy one instead but my math says otherwise.
1900/month X 12 = 23k yearly out the window
mortgage on $450k at 5.5% = 25k in early years
taxes on 450k hom = 4.5k
regular maintenance (no improvements) estimate about 2.5k annually.
So with buying i would be spending about 32k yearly out the door.
Why spend 32k every year, when i can get the same thing for 23k, AND i don't have to tie up all my finances and debt in the process, or wait to have to sell place at good price if i ever decide to move?
Am i missing something obvious??
And i do know that i lose the appreciation value of the home i would be owning, but i'd have to live there a long time to make it viable, and i can also invest the spread i am saving each month and have that grow on the side without having to tie myself up in a house.
Constructive feedback or analysis appreciated! |
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George Kaplan
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How long do you plan on staying in the home?
If you're buying it because it's a good opportunity AND you plan on staying in the area for 7 -10 years, then now is a good time. But if you're hoping to make a quick profit by flipping it in the next couple of years then I'd pass.
Owning a home is a great investment for the long term, but it's risky in the short term. You want to make sure you are committed to owning this home. That means keeping up on all the required maintenance and upkeep - lawn mowing, snow removal (if applicable), landscaping, leaky toilets, etc... also staying in it if the value market hasn't rebounded.
It sounds like you'd be better off renting and investing the difference, but you have to make sure you invest it and don't spend it. The best way to do that is set up an automatic plan so the money is invested before you have a chance to spend it. |
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W
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One day you will have it paid for. I spend about $3000 a year on my home for taxes, insurance, and maintenance. You spend that in 45 days. |
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Sandy
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Don't forget that you can also write off the interest you pay on your mortgage. That will give you a good tax refund and will close the gap a little. Your calculations are definitely correct. I would say that if you only plan to stay in the house for a few years then renting would be better. Where I live, it is definitely a buyers market. Houses are selling below the assessed value so if you think you are getting a good deal then now might be the perfect time to buy. |
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Ron B
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You are not taking two things into consideration.
One is the tax effects. Mortgage interest is deductable so in the early years on the home, you will be getting about a fourth of your payment back in less taxes.
Second, and most importantly you are neglecting the time value of money. Every year to two years or so, your rent will be evaluated, and most likely raised in a never ending cycle. Your mortgage would stay the same and eventually (hopefully by retirement) disappear. Just as people who bought thier homes in the 80s are paying a couple hunderd on a month, in twenty years, you would be the one paying almost nothing. compared to the ten grand that others will be paying. |
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CT in Cali
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As with any smart investment, buy low and sell high. If you have good credit and 20% down payment, your investment will pay off in the end. It is not money out the door. Just make sure you get comparable sales in the area to prevent paying too much. How long do plan to live in or own the home? Even if the market continues to drop, it will come back in time for you to make a profit if you don't plan to sell right away. |
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lepr0kan
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Just a few things your monthly payment would be $2550 to purchase at 5.5% making your yearly total $30,660, not to mention you would never get 5.5% with such a high loan amount even with perfect credit and you'd need at least 10% down payment. i know you've probably calculated with an Arm or interest only but those probably wouldn't be available with a jumbo loan. you also aren't counting insurance which would be at least $100 a month on such a home. |
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richard t
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unless you are SUPER DISCIPLINED, you will just spend the difference..........
Currently a house in not a good buy..........prices going down..........but you can haggle about the price,,,about 10% off the price....
And you don't have to live there forever.you can sell it when the market turns up...........Hope this is some help |
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tinkerbel
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Buying a home is always a better deal than renting.
Your money goes into something you own..instead of in a landlords pocket.
Good Luck! |
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dma
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owning builds equity. you have an asset. you build credit. it is good. you can sell it down the road and make a profit or at least get some money back.
renting does not get you equity. you still own nothing. when you move you do not sell anything so you gain nothing.
with a mortgage you are investing. renting you are throwing away money....of course you have a roof over your head and dont have to worry about maintainence so owning is certainly not for everyone. |
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tattered.teddy
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Although it may be finantially more binefitial to own vs. rent you have to consider your willingness to take on the responsibility of owning a home. When you rent you have the luxury of calling a land lord. If you own it is on you. Sometimes it can get pricey and some people find they get in over there heads when there lives are to busy to maintain a home. As others have said though, once you move out you have nothing when you rent. When you own you are investing in something that you will make money on in the end if you spend quite a bit of time there. If you are not planning on staying in one place for a while buying might not be the best idea. With the housing market the way it is right now you may get stuck in a house you cannot get out of. But if you want to settle in a place for 5+ years buying might be something to consider |
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Cornporto
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You're assuming the value of the house will appreciate over the next several years. In 2 years it's likely the price of that house will be at least 10% less than what it is today. I'd also be interested to know where you'll get a 100% loan at 5.5% interest. They don't exist anymore. More like 6.5% on the first 80% and 10% on the second 20%. Do the math on that loan, realize that you won't see any appreciation in the next several years, remember that you'll pay property taxes and insurance, and all repairs, and renting looks a lot nicer. |
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