Buying a place vs renting... argh.

[vi edit]

You must remember the three most important rules of real estate: LOCATION LOCATION LOCATION.

If I was to rent out my house, I'd be able to get about $1200 a month for it. I refinanced my house just recently and I'm paying $650 a month (very little down too) + insurance and property taxes. I'm ahead already....and I haven't even figured in the tax savings or the equity I'm building.

Location location location.

 

[rahvin]

Originally posted by: flot
Hey guys -

Here is a _rough_ breakdown of where my $1600 figure comes from. Sorry I wasn't more clear on this in the beginning - but I think it's a pretty reasonable estimate.

$900 = $160,000 mortgage @ 5.5%
$200 = monthly condo fees (insurance, trash, maintenance, possibly water)
$100 = mortgage insurance (pretty much required unless you put 20% down)
$200 = property tax (about $2220 a year actually)
$200 = generic # I threw in for "improvements and repairs" - for instance, the place immediately needed new carpet and paint, which would set me back about a year worth at this estimate, plus the condo association implied that their average improvement assessment is somewhere between $500-1000 a year.

So right there = $1600 a month is the total cost of ownership vs $950 a month for what I'm renting now - which does not need the carpet replaced, has its own insurance, trash, maintenance, the building owners pay the property tax, and of course there's no mortgage or related insurnace because I don't own it. This also doesn't count the $3000-4000 which is lost money just for the closing costs to BUY it and then another $3000-4000 for the closing costs to SELL it. (although if you don't like my generic improvement number above, you can stick these costs in instead)

Actulaly working out the $$s was pretty depressing. Basically I think I figured the place would have to appreciate at least $10,000 a year (7%) for me to break even - and even then I'd have to stay in it for at LEAST 2 or 3 years, and I'd have to sell it immediately - because every month it sits empty would lose me $1500.

I'd like to keep my down payment as LOW as possible, 5% would make me happy but I could potentially swing 10%. Again, that's $$$ that I don't have to cough up when renting, which could be appreciating in other investments.

A $200 a month condo fee is outrageous. Unless you are in a small complex with huge maintenance costs that should be much much lower otherwise you have severly misguided management.

If the condo association is planning on making $500-$1000 in additional assesments per year they are fvcking insane.

If they sell the apartments as condo's immediately without repainting, carpeting and refurbishing all appliances and major fixtures you should walk away very very quickly. The owner is SCREWING all future owners.

Your realator fees are way to low. You should assume 6-8% of home value.

I've got a nifty spreadsheet I used 5 years ago to see if I should buy or rent, PM me with your email address if you would like a copy.

 

[Jzero]

Actulaly working out the $$s was pretty depressing. Basically I think I figured the place would have to appreciate at least $10,000 a year (7%) for me to break even - and even then I'd have to stay in it for at LEAST 2 or 3 years, and I'd have to sell it immediately - because every month it sits empty would lose me $1500.

It's hard to break even if you aren't going to stay for at least 5 years. If you are going to move in less than 3 years, owning may not be the best choice for you at this point in your life.

 

[flot]

rahvin - around here, condo fees of $150-250 a month are totally normal. Ditto with the assesments. One place I looked at buying is getting a $12,000 assessment this year. How's that for high? As for the apartment->condo conversion, that's a seperate case - yes they are totally renovating all the units. However, a "renovated" unit is still not worth almost twice as much as my non-renovated one.

Linflas - I have definitely looked at the tax advantages. And with low interest rates, I figure I will get an additional $1000 back per year on my taxes. ?? Doesn't seem like a big deal? Everyone throws around the fact that you can deduct all your mortgage interest - but they forget that your personal deduction is $4700 anyway. So everything PAST $4700 is an improvement... but if you're only paying $8000 in interest over the year... ???

 

[Mister T]

I am going to say this one more time:

Don't fvcking pay mortgage insurance !!!!!!!!!!!!!!!!!!

It is possible to get a mortgage without putting down 20%. Many banks will do this if you badger them enough.

Also,

PMI is not tax deductible while interest on a second mortgage is

 

[Mister T]

Also, 200 bucks a month in condo fee is nothing...

check out this 1 bedroom condo that I priced in midtown manhattan:

price: $380,000
down payment: $80,000

mortgage payment with 5/1 arm @ 4.0% (I work at a bank and can get a good rate) = $1,430 /month
Condo fee + property taxes = $ 970 /month

(I would get around an 18,000 deduction on my taxes)

Total payment a month would be about 2,400 a month.
Equivalent 1 bedroom condo would be about 2,700 to rent.

I am still renting because I may get fired tomorrow (work on wall street)

 

[Lonyo]

I'm not experienced when it comes to houses, but we sold our old house and decided to rent on instead of buying again (my Dad decided).


Longer term: If you buy, then eventually you have something you can sell, something to show for your outgoings.
If you rent, you have nothing.


Short term: If you rent, generally it's cheaper and you can keep a bit of money back each month
If you buy, then you'll have to make sure you can cover the mortgage, but until yo've paid of the mortgage, you're kinda stuck.


Other stuff: If you plan to move in the next year or 2, then rent because it'll be easier to sort out. If you plan to live there for a lengthy time, buy. If you "need" to personalise the house, then buy, as renting gives you very little scope for things suck as wall shelves/integrated units.
Sometimes when you rent, certain bills are included in rental cost, this can save extra money, also, if you need repairs, usually the land,ord has to pay (new pipes, a problem with the roof etc).

 

[Jzero]

check out this 1 bedroom condo that I priced in midtown manhattan:

Manhattan is an outlier. $200 may be little in comparison to THAT, but compare that to the $60/month my parents pay on their condo in NJ....
Manhattan is one of the most expensive places to live in America.

 

[Mister T]

Originally posted by: Jzero

check out this 1 bedroom condo that I priced in midtown manhattan:

Manhattan is an outlier. $200 may be little in comparison to THAT, but compare that to the $60/month my parents pay on their condo in NJ....
Manhattan is one of the most expensive places to live in America.

yea my point was really to rahvin...

200 is not outrageous depending on the location... flot might be looking into some beachfront property or a luxury condo...

 

[rahvin]

Originally posted by: flot
rahvin - around here, condo fees of $150-250 a month are totally normal. Ditto with the assesments. One place I looked at buying is getting a $12,000 assessment this year. How's that for high? As for the apartment->condo conversion, that's a seperate case - yes they are totally renovating all the units. However, a "renovated" unit is still not worth almost twice as much as my non-renovated one.

If you are paying $200 a month in condo fees and they are still making assessments at that rate then the HOA management is fvcked up, plain and simple. I live in a complex in SLC Utah, I pay $100 a month. There are close to 300 units, this is $30,000 a month is HOA fees the management is recieving. It is actually higher because the condo's with more square footage pay more fee and the average monthly take is around $40,000. Now if an HOA management can't maintain a complex, pay a water bill and insure the buildings for $40,000 a month they are majorly incompetent. This same situation applies even in smaller complexes but living in a complex with less than 50 units is just asking for trouble because there isn't enough people to spread the load of charges out on.

The condo's are worth whatever people are willing to pay for them. You may not agree but that doesn't change the reality that if the condo's are sold at the asking price then that is a fair price for them.

Do not buy unless you plan to stay somewhere 5 years. Realestate can negatively appreciate and we are currently in a housing bubble, when that bubble pops home prices will probably drop.

 

[Corn]

Linflas - I have definitely looked at the tax advantages. And with low interest rates, I figure I will get an additional $1000 back per year on my taxes. ?? Doesn't seem like a big deal? Everyone throws around the fact that you can deduct all your mortgage interest - but they forget that your personal deduction is $4700 anyway. So everything PAST $4700 is an improvement... but if you're only paying $8000 in interest over the year... ???

Actually, you would be paying over 10k a year in interest + the $2700 (may be more) personal deduction you get on top of that. That's almost $13,000 lopped right off the top of your income. That's a heck of a lot more than $1,000 in tax savings vs taking the standard $4,700 deduction.