Yes and no. Housing prices in non 'crazy' markets are generally very stable, and prices continue to appreciate. I am talking anything not in California or the East Coast. The overall housing market for most Americans is doing just fine. I'm not familiar with Baltimore, though. I live in Dallas area.
The answer depends on how long you intend to live there, and whether or not you would mind becoming a landlord after you move out. If you are buying a house for a 3-4 year period, I would say in most markets this is a bad idea 95% of the time. The other 5% accounts for houses you get on the cheap, do some basic work on, and sell later for a decent profit. Other than that, you lose money to closing costs, realtor fees, and maintenance.
Remember when you own a house, you are responsible for fixing things, unlike renting. You cannot ignore things that break because it will affect your sales price later on. Average repair costs for an average house over a 5 year period will equal roughly 1% of the house value per year.
If you don't mind being a landlord, then the calculation changes. After you move out, you can rent the place. In this case, I would check rents for your area and do some calculations against your expenses, such as P&I, insurance, taxes, and maintenance costs. If you can hold enough rent to cover those, and your local housing market is one in which properties steadily appreciate at an average of 5% a year over a ten year period, then you could have a good deal on your hands. You can take this 5%, add it to the principal being paid every year by your tenant, to figure your total return. Over a 20 year period, this should be 10-12% of your house value. That's not bad, especially when you figure in that your asset is growing at the house value (say 90-100K), and that to make an equivalent yearly return in the market or in the bank, you would have to invest 90-100K in cash instead of just your down payment on the house (15-20K).
Some things to think about...
dullard
Elite Member
- May 21, 2001
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I agree with some of what you posted, but I'll comment on areas where you could be wrong.
Yes, you can rent it out, yes your house can appreciate, yes you can be better off buying. However, in the particular market conditions that most people are in, I think renting would most likely be the better deal.
Housing prices are now going down in the majority of districts. The "prices continue to appreciate" comment may be true for select areas, but it is false for most places.
Agree. Generally a good rule of thumb is that staying there 5+ years, buy. 3-4 years is a maybe. 2 or fewer it is almost always better to rent. The OP specifically mentioned 2-3 years. Thus, I'm going to have to say renting probably is financially better.
One thing to remember, renting is probably against your mortgage agreement. Mortgages where you rent are available, but you'll have to refinance (closing costs again) and a higher interest rate. Or realize that the bank will probably never find out - if you don't mind the ethics of renting against your agreement.
Housing, historically has averaged 2%-3% gains (it is historically a pathetic investment). 5% would definately be a boom market. And from the link above, most are not in a boom market. In fact, we are in a bust/hold market in the majority of districts. Thus to assume 5% may be doing yourself a very bad favor.
Yes, you can rent it out, yes your house can appreciate, yes you can be better off buying. However, in the particular market conditions that most people are in, I think renting would most likely be the better deal.
I would say buy. Not sure where your location is, but there was a post made of a map of the housing market in the US. If your on either coast, the market is terrible right now. However, if you are in the plains then you are probably safe. The housing market did get hit a bit, but it is much more stable. Chances are your house will appreciate in value, and you will make your money back and more.
Then again, i'm not financial advisor, interest may hurt you some. Are you 100% sure you will be leaving? If not, renting is just throwing your money away IMO.
Then again, i'm not financial advisor, interest may hurt you some. Are you 100% sure you will be leaving? If not, renting is just throwing your money away IMO.
- Oct 28, 1999
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For the "renting is throwing money away" champions...how many houses have you bought and sold?
Houses are not the be all end all of fiscal frugalness. As Dullard itemized out, there are many many places that nickel and dime you that don't get figured into the monthly cost.
Closing costs, maint costs, higher utilities, furnishings, higher insurance costs, selling costs, ect.
In this short of a time frame and with the current housing market it's not a wise position to enter into.
Houses are not the be all end all of fiscal frugalness. As Dullard itemized out, there are many many places that nickel and dime you that don't get figured into the monthly cost.
Closing costs, maint costs, higher utilities, furnishings, higher insurance costs, selling costs, ect.
In this short of a time frame and with the current housing market it's not a wise position to enter into.
Typical holding period for a single family dwelling is 5-7 years. If you do not intend on holding the dwelling for at least that long, you probably shouldn't buy.
The housing market is stable in the majority of the country, it's not boom or bust currently. College towns will always have a market
The housing market is stable in the majority of the country, it's not boom or bust currently. College towns will always have a market
Dullard, I won't quote your post so we can keep the thread readable. But I'll address your points here.
I agree that there is a general housing slump, but I didn't want the OP to think that most areas are in a 'bubble' and therefore real estate is not a good investment. Housing prices, like the stock market or any asset, will fluctuate over time. In my area, housing inventories are high so the prices have lowered a bit, but most analysts think this is a short term deal and appreciation will go back to normal levels once the inventory has shrunk. Builders in the area are already cutting back on developments. So for example in Dallas, there is no RE bubble and returns are expected to be normal over the long term horizon.
For mortgages, I agree. Most have a clause stating you have to stay in the house as a primary residence for at least 1-2 years. However, Countrywide allowed me to rent after 1 year, as will most lenders. I simply requested a letter and they sent it. The actual mortgage document specified 1 year anyway, so the OP shouldn't have a problem if he lives in his property for 3-4 years. I did not have to refinance, as Countrwide was happy to have my business.
For your housing numbers, I disagree. Dallas housing averages 5% gains over time. There have been periods of more and less, and even certain neighborhoods will differ from this number. But overall, it has been a very steady growth rate and as ranked by CNN, is the best rental market in the country. Other areas are also good markets for investment properties.
The renting vs buying is a very complex calculation once you factor in all the potential factors. To keep it simple, though, we will assume he doesn't want to be an investor. And in that case, you are right, renting for him is the better answer than buying in the short term.
I agree that there is a general housing slump, but I didn't want the OP to think that most areas are in a 'bubble' and therefore real estate is not a good investment. Housing prices, like the stock market or any asset, will fluctuate over time. In my area, housing inventories are high so the prices have lowered a bit, but most analysts think this is a short term deal and appreciation will go back to normal levels once the inventory has shrunk. Builders in the area are already cutting back on developments. So for example in Dallas, there is no RE bubble and returns are expected to be normal over the long term horizon.
For mortgages, I agree. Most have a clause stating you have to stay in the house as a primary residence for at least 1-2 years. However, Countrywide allowed me to rent after 1 year, as will most lenders. I simply requested a letter and they sent it. The actual mortgage document specified 1 year anyway, so the OP shouldn't have a problem if he lives in his property for 3-4 years. I did not have to refinance, as Countrwide was happy to have my business.
For your housing numbers, I disagree. Dallas housing averages 5% gains over time. There have been periods of more and less, and even certain neighborhoods will differ from this number. But overall, it has been a very steady growth rate and as ranked by CNN, is the best rental market in the country. Other areas are also good markets for investment properties.
The renting vs buying is a very complex calculation once you factor in all the potential factors. To keep it simple, though, we will assume he doesn't want to be an investor. And in that case, you are right, renting for him is the better answer than buying in the short term.
jimbob200521
Diamond Member
- Apr 15, 2005
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It sounds like financially you should go for it, as well as personally wanting it as well. I'd go for it if I were in your place (as long as you know your job is steady 
)
)
funboy6942
Lifer
- Nov 13, 2001
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I paid $49.5K for my home paid in full but if you had to do a loan on that you talking less then $300 a month and mine was one of the more expensive liviable ones. You can get them as cheap as $15,000 for a house down here. Pay everything off and work for BK or McD and still have money in your pocket.
Or go work for one of the many hiring factories for hight education skills or forklift jobs and not only will it all be paid off but so will your boat, jet ski, and Harley
Or go work for one of the many hiring factories for hight education skills or forklift jobs and not only will it all be paid off but so will your boat, jet ski, and Harley
I have a buddy that does that. He bought a home for around $165K and rented out 2 of the 3 bedrooms, for when combined, almost covered his mortgage payment. He's been doing that for about 3 years now. Personally, it's not the lifestyle for me (having roommates in my 30's) but it's a good way to live cheap, while also paying off your mortgage.
As far as the OP goes, I agree with the others in that with this situation, you're probably better off renting it out. You'd have to stick around there several years to make it worth your while to buy it. And even then, you just never know what the market will be like.
dullard
Elite Member
- May 21, 2001
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The housing numbers I gave are verifiable facts for nationwide averages. I don't have the time to search for it, but read my housing thread here. The links are buried in there. Local areas may be better than the nationwide average. But, 5% is quite difficult to achieve. Especially when the time span is just 2-3 years in this thread and the initial period is flat or even negative.
I agree, 5% is average over 10-15 years. Sorry for confusion. Short term they can fluctuate quite a bit. But don't let national figures obscure your view of local rates. Real estate is a very regional business.
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