Buy or Rent

Just rented a nice farmhouse with garage for $550/month. I love the location. Alot to mow though. I'm getting married next month. We have a decent amount of money saved up. I know mortage rates are at a all-time low. Some say homes will get even cheaper. The economy doesn't look likes it's getting better anytime soon and we are in debt up to our eyeballs. We have no contract on the house. I know the family somewhat. An older lady owns it and lives in Florida. We are in Ohio. I'm concerned rates will climb sometime soon. Homes in my county are still somewhat high and there's not much to choose from. Nobody can make money off cash right. What do you guys think? Rent as long as I can or try to find something to buy while rates are low?

When you say "we are in debt up to our eyeballs", do you mean you personally or we as a nation?

I would try to get into something while rates and prices are still down, but I would NOT buy something that doesn't fit both budget and long-range goals just to take advantage of the situation. I also would think carefully about your personal job security, etc. How is that looking?

Even with interest costs from borrowing, owning is better than renting if it is done sensibly. Look at shorter-term mortgages - you'd be surprised just how little the difference is in the monthly between say a 15- or 20-year mortgage and the standard 30-year number, because A) you usually get a better rate, and B) there's 10 fewer years' interest amortized into it.

Duke wrote: When you say "we are in debt up to our eyeballs", do you mean you personally or we as a nation? I would try to get into something while rates and prices are still down, but I would NOT buy something that doesn't fit both budget and long-range goals just to take advantage of the situation. I also would think carefully about your personal job security, etc. How is that looking? Even with interest costs from borrowing, owning is better than renting if it is done sensibly. Look at shorter-term mortgages - you'd be surprised just how little the difference is in the monthly between say a 15- or 20-year mortgage and the standard 30-year number, because A) you usually get a better rate, and B) there's 10 fewer years' interest amortized into it.

We are not in debt, the country I mean. Not having to pay for taxes and maintenance is great. But I still don't want to pass up the low rates. They will go back up eventually of course.

Don't buy a house just because you think you're supposed to, or are afraid that somehow you won't be able to later. That's just plain stupid.

How stable are you in life? A lease lets you pick up and move easily. That's darn valuable if you're looking around for work on the other side of the country.

A $550 monthly rental would be darn cheap around here, and about half of what a mortgage starts at. Can you afford the higher monthly expenses of a mortgage?

Are you so stable in your job that you can handle a decades long commitment to make a very expensive payment each and every month without fail?

Can you find a house you actually like, and be able to afford it? Owning a house you hate to escape a rental you like is not necessarily a good thing.

No matter what happens with the market and interest rates, you will be able to buy a house later on in life. Maybe a better house than you can afford now, maybe not. But you will be able to do it.

If you figure on staying where you are now (jobwise and location-wise) for 7 or 8 years, buy!

That is, of course, assuming you have good credit, steady income, and a manageable amount of debt.

My job seems stable. I'm the only one who can do what I do and the company HAS to have this position. We have no desire at all to move away. We want to stay close to our family. The only debt we have is $8,000 on her car. I have none. If rates do go way up, we could make money off that to pay alot of the rent.

My position is do it, property can only go up again.......eventually, but buying now and a $550 mortgage sounds pretty do-able, even if you job went south you would need that much for rent and there is no asset at the end of it.

I would have a back-up job plan though. I also would get several months payments ahead, not extra money on top of the payment ( extra money is off the principle but not extra months) but complete extra payments, that puts you months ahead and if you hit bad times it buys you some time to recover.

Check the counties property tax rolls and see what the property is going for then look at comparable places . Make the old lady an offer and see if she will finance with a balloon payment after 5 years this way you could be putting money towards principle or walk away in 5 years . Maybe you could mention to her how much work the place needs and this is bad ect ,,,, maybe she makes you a deal you can't refuse .

Would the elderly owner consider renting to own? She holds the mortgage, gauranteed income for her; almost like a reverse mortgage.

Dan

Pros and cons baby! renting means you can pretty much leave whenever, don't have to do a lot of maintenance and other hassles associated with home ownership. If you're young and think you might move to another area, it makes sense to rent.

Ownership requires a downpayment and a committment to pay a mortgage for 30 years. It's a decent investment, but just like any investment there's a chance it might decrease in value.

I'm a home owner and it was a wise choice in my situation, but it's not for everyone.

I'm certain that 90% of people would be better off financially renting vs owning. Think of the cost of property taxes, interest, maintance not to mention big repair bills that will occur over time; roof, water heater, furnance, siding, etc.

Take the money you would have spent on the house and stick it in some sort of investment (like an S&P 500 index fund or CD or whatever else you like). Renting rules from a purely financialy perspective. I own because of our animal collection (3 dogs, 4 cats, 2 horses) not because I think its a good idea.

play with this: http://www.nytimes.com/interactive/business/buy-rent-calculator.html

If renting truly rules, then why is it that often you can have a mortgage for less per month than a rental? If it were cheaper to rent, people wouldn't buy houses to rent out. Do you think landlords do this sort of thing for free?

My wife and I are planning on staying in this area for at least 10 years. She's a teacher (on an annual contract). I'm a substitute teacher, which means money comes and goes for me. I do a good bit of side work, but I haven't been able to since I crashed my truck.

We're trying to save up about $10,000 for a down payment on a house. Right now in our area, $50,000 buys a not too shabby house with an okay bit of land. I'm a handyman at heart, and my father has worked nearly all phases of construction, so remodeling wouldn't be an issue.

If you are able to do some minor remodeling, you can score a good deal on a foreclosure. I've seen some houses that would go for $125,000 on the market for less than $75,000 because they were beaten up foreclosure homes. If you can hang your own drywall and install your own flooring, you can save a bundle and end up with equity in your newly purchased house fairly quickly.

laz wrote: play with this: http://www.nytimes.com/interactive/business/buy-rent-calculator.html

I've seen this. According to this, renting is better even after 30 years. I only put in $120,000 for home price at 5.5% rate. + 1% annual home price change (of course that's hard to guess).

Underlying question: how stable is the company you work for? What's its competition doing? Are you really sure you're not replaceable? Sorry to be depressing, but, been there...and 6 months unemployed...

Fletch1 wrote: I'm the only one who can do what I do and the company HAS to have this position.

We have that too. Federal law requirement. We abolished the legally required position and let the guy go. Don't count on the notion that you're in a job a company really has to have and you are immune from job insecurity.

If renting truly rules, then why is it that often you can have a mortgage for less per month than a rental?

Because you haven't figured out how to use room mates for cheap living? Yes, renting a house often times is comparable to a mortgage payments, but not to a small apartment, efficiency, room, etc. And none come with the maintenance expenses of home ownership.

If it were cheaper to rent, people wouldn't buy houses to rent out. Do you think landlords do this sort of thing for free?

Depreciation, expense writeoffs, etc. It's not simply rental income in, mortgage payment out. There's a lot more to it that makes it profitable even if the rental income is less than the mortgage payment.

Fletch1 wrote:

laz wrote: play with this: http://www.nytimes.com/interactive/business/buy-rent-calculator.html

I've seen this. According to this, renting is better even after 30 years. I only put in $120,000 for home price at 5.5% rate. + 1% annual home price change (of course that's hard to guess).

That's you answer right there from a financial point of view.

Now the question is: Are you willing to spend more money in exchange for the non-financial benefits of owning such as having more freedom with renovation, pets etc.

I've been thinking a lot about the same topic since I would like to be able to paint walls, have a dog, put in a lift in the garage etc. But the monetary cost of owning would just be too great for me. In my case the calculator says buying will be better than renting in 22 years.

A quick way to explain why this calculation will be different for different people on this board is to think about rent ratios. Basically the ratio of the purchase price to the annual rent. It's pretty different in different parts of the country. See here:

http://www.nytimes.com/interactive/2010/04/20/business/20100420-rent-ratios-table.html

I'm in San Francisco at a whopping 28...

Don't listen to these meatballs telling you renting is as good as owning financially. Once you have a reasonable nest egg, throw every spare dollar at the mortgage and pay it off in less than 30 years. Shoot for 15 years. Then you will own the house free and clear and the other schmoes will still be paying rent with nothing to show for it. The key is to be sensible and buy just enough house (or a little less). Most people want to live in the Taj Mahal and pay through the nose to get close.

When I bought my first house, my father who used to sell real estate, got me a book called "a mortgage amortization book". Basically, this book tells you how much you need to borrow if you can only pay $XXXX/month if your loan is at SSS% A.P.R.. It also details the "life" of your loan in that it tells you how much longer you will be paying based on the amount of principal that is left on the loan.

This book works on ANY loan, not just mortgages and the book I have starts at 1.5%, and goes up to "loan shark territory" If you are paying $550/month now, adding taxes and insurance will add maybe $200-$300 to that monthly payment....is it still affordable for you? Based on what I am paying, I would say that with no money down on this farmhouse, to keep your mortgage payment NEAR $700-$750/month, you will need to borrow at least $55,000. It the owner isn't selling for anything near $55,000-$60,000....well, it's all moot, unless you win the PowerBall.

My 2 cents: 20% down on a 15 year loan.

The house we're in now we financed 96.5% on a 30 year loan because "we could have a house for the same price as our rent". If we had saved up a little money we could have made a bigger down payment and had the same payments on a 15 year loan and saved a ton in interest.

I choose to own rather than rent because it's MY space not someone elses.

That said, I am also very anti-debt and am working toward paying of my house as quick as humanly possible. If you OWN the house it's definately cheaper than renting.

Having been a mortgage payer since '96 or so... I am of the mind that it is an absurd thing to do. No matter how I slice the math I lose. Maintenance, upkeep, insurance... all add up to much more than the tax break. If I could, I'd roll back the clock and rent. I'd rather have the money in-pocket than the vested value of a non-liquid asset.

I think "Buy a Home" is advice that is repeated by govt & wall street to maintain a level of long term debt. Its a way to guarantee a certain predictable amount of money in the system and keep a work force engaged.

I live in Vancouver B.C.

The rent here is half what a mortgage payment on a house of equal size would be.

When something breaks I just pick up the phone.

House prices here are WAY overinflated. $3000 per month mortgage for a 2500sq ft house is NOT reasonable.

Shawn

I can see both sides of the argument. I guess it all depends on your situation. My brother had the amish build him a very nice (very small) house in 2004 for around $95,000, including water/sewer hookup. He put 30% down and pays less than $300 a month. Since it's new, he shouldn't have too much to go wrong anytime soon. Of course you never know about that stuff. My dad gave us each an acre of land so that helped. My acre happens to be behind two acres of commercial which he owns. It's an odd location to build there. I'm in no hurry to buy. We planned on 1-3 years of renting.

integraguy wrote: "a mortgage amortization book". Basically, this book tells you how much you need to borrow if you can only pay $XXXX/month if your loan is at SSS% A.P.R..

There is a basic version of this loaded as part of Excel. The fun part is the amortization table that shows how many months get lopped off when you pay a little extra each month.

Renting vs. owning... There really isn't a perfect answer for everyone... I own, but there are times when I wish I didn't... like when I'm staring at the mile-long to-do list of maintenance and repair tasks that I've been neglecting...

There are tax advantages, but that can depend some on the mortgage length and local taxes.

I advise renting. In 2002 I was working as a chief pilot for a charter company, doing some contract work with a repo man(picking up Lear jets). I was doing very well financially. I had to move out of my brothers place as he was getting married. So I listened to everyone tell me to buy a house. Six months later the charter business is bankrupt, the people that aquired it are 500 miles away and the repo man didn't need me very often. My income dropped by 2/3rds and I am stuck with a house that takes every nickle I earn. I have yet to recover from this financially. If you know that you will live there for many years and have a guaranteed income , buy the house.