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Need Advice: Rent a Townhouse or Buy one ?

G

gsethi

Diamond Member
Hello People

I just need some advice before I go and talk with my accountant this week. Basically, we are planning to move soon and here is the situation.

The rent is ~1800 for a 3bd/1.5ba Townhouse (or 3bd/2.5ba).
A slightly better Townhouse in the same area is available for ~525000.

What do you guys suggest ? With a ~10% down payment, I assume that my mortgage payments will be ~3000/mo + property tax (~7500/yr). Affording these payments is not a problem.

City name: Alameda, CA in SF Bay Area
Approximate Location: Bay Farm island
the area is known to have pretty good schools.

EDIT: Sorry, we are looking at a Townhouse, not a Condo. The townhouse is 2-story (bedrooms on 2nd floor)
 
condos are the first ones to get hit when there is a downturn.. and I am already seeing a lot of condos in socal flood the market
 
Originally posted by: z0mb13
condos are the first ones to get hit when there is a downturn.. and I am already seeing a lot of condos in socal flood the market
Click to expand...


yea, i know that but there is a difference of only ~1500/mo between owning and renting. Note that when we rent, we are giving away that $$$ and not building any equity.

And I know that the market is taking a downturn lately but no one can predict what will happen in the future.
 
Originally posted by: gsethi
Originally posted by: z0mb13
condos are the first ones to get hit when there is a downturn.. and I am already seeing a lot of condos in socal flood the market
Click to expand...


yea, i know that but there is a difference of only ~1500/mo between owning and renting. Note that when we rent, we are giving away that $$$ and not building any equity.

And I know that the market is taking a downturn lately but no one can predict what will happen in the future.
Click to expand...

how long are u planning to stay in the condo? if you are staying for more than 5 years, I would say go buy it.. but if you are thinking more short term.. think of the possible downturn

You can invest the extra 1500 a month..
 
You could be putting that $1,500 a month into a nice set of stock index mutual funds instead, and be much better off when the CA bubbles start to pop.
 
also dont you find it interesting you can rent the prop for HALF the monthly payments on what it costs to own? a clear sign the house prices are too high

 
Sorry guys, we are looking at townhouses, not a Condo.

Eventually in few years, our plans are to purchase a decent single family house (~4-5bd etc) but they are little out of our price range right now. Father has his own business, Just bought another business for mother and I will be looking for a job after the business that we just bought is completly setup so that my mother can run it solo (I just graduated from university).

For staying in the townhouse, we were looking for atleast 3-4yrs and then moving on to a bigger house.

What we were thinking was that we can purchase this townhouse now and then when we move later on, instead of selling this townhouse, we can rent this townhouse. Current rental price is ~1800-2000/mo in the area and mostly all townhouses get rented within a month (due to location and excellent school district in the neighborhood).

I am also aware of the CA housing bubble and have a feeling that it might crash soon, and thats on the back of my mind and that is why I was looking for more opinion.

What I was thinking was rent for another year or so and then look to purchase a house but my dad was why not purchase a townhouse now and later just rent it when we purchase a bigger house (that way, we will have another property while the rent will pay for ~60-70% of the mortgage at the time)
 
Originally posted by: gsethi
Sorry guys, we are looking at townhouses, not a Condo.

Eventually in few years, our plans are to purchase a decent single family house (~4-5bd etc) but they are little out of our price range right now. Father has his own business, Just bought another business for mother and I will be looking for a job after the business that we just bought is completly setup so that my mother can run it solo (I just graduated from university).

For staying in the townhouse, we were looking for atleast 3-4yrs and then moving on to a bigger house.

What we were thinking was that we can purchase this townhouse now and then when we move later on, instead of selling this townhouse, we can rent this townhouse. Current rental price is ~1800-2000/mo in the area and mostly all townhouses get rented within a month (due to location and excellent school district in the neighborhood).

I am also aware of the CA housing bubble and have a feeling that it might crash soon, and thats on the back of my mind and that is why I was looking for more opinion.

What I was thinking was rent for another year or so and then look to purchase a house but my dad was why not purchase a townhouse now and later just rent it when we purchase a bigger house (that way, we will have another property).
Click to expand...


10% down without piggybacking a second loan requires PMI meaning more $. Your scenario of renting out the townhouse (by your math) means you will have a net loss of $1625 per month because the mortgage + prop tax are still much more than the rental income.

It sounds like the decision has already been made to purchase a house so I don't think anything anyone says will change your mind or your father's.
 
With mortgage interest and property taxes, I figure your tax deduction benefit from buying will be about $1000/mo. Meanwhile, buying will impact your cashflow more than renting by at least $1800/mo. So in order for buying to make sense financially, you will need to see appreciation at a rate of at least $800/mo. plus the amount of your transaction fees (on both ends, buying and selling) and maintenance costs.
 
Originally posted by: chowderhead

It sounds like the decision has already been made to purchase a house so I don't think anything anyone says will change your mind or your father's.
Click to expand...

Actually not, the final decision of rent vs own is not made yet. We are still trying to weigh both sides.

I am leaning more towards the rental for now but my dad is more towards owning the townhouse. His idea is that although we will have to pay almost double, atleast it will start building the equity for the house.

Restricting our cash flow is not a problem. The extra $$$ that we save just sit in the savings bank account.

Heres a simple math that him and I came up this evening:

RENT: $1800/mo (simple math 🙂 )

OWN: (these are just rough calculations for now) Will discuss with our accountant before making a final decision
Mortgage: ~3000/mo (including PMI) on a ~450k-470k loan (if i am wrong, pls correct)
Property tax: ~7500/yr or ~625/mo
Maintenance: ~175/mo
TOTAL monthly: ~3800/mo
Tax Deduction Benefit: ~1000/mo
Total NET for owning a home: ~2800/mo (which is ~1k/mo more than renting)

What my dad was saying (and makes sense) was that the payments that we will be making will be actually building our equity.

Again, this is just a thought for now and we havnt made final decision yet.

Notes:
Making a 20% down payment is not a problem for us also as the $$$ are sitting in a Fixed Deposit account for now.
Right now, the only income is the dad's business and he says that he can afford the ~4k/mo payments
We just bought another exisiting Franchisee business for mom and will be taking over that business next month.
I will be starting working full time by this summer (after the new business is all set up)
 
Originally posted by: OdiN
hahaha

I was gonna come in and say $1800?? WTF? Where do you live, San Fran? 😛
Click to expand...

yep, in the SF Bay area and housing is pretty expensive here 🙁

Right now, we are paying ~1200/mo for a 2bd/1ba apt and that is when we are just on the north corner of the sf bay area.

We now need to move to the center of the SF Bay area and a townhouse/condo/apt in a decent location is in the range of ~1600-2200 depending on number of rooms and exact location within the city.
 
Originally posted by: gsethi
Originally posted by: chowderhead

It sounds like the decision has already been made to purchase a house so I don't think anything anyone says will change your mind or your father's.
Click to expand...

Actually not, the final decision of rent vs own is not made yet. We are still trying to weigh both sides.

I am leaning more towards the rental for now but my dad is more towards owning the townhouse. His idea is that although we will have to pay almost double, atleast it will start building the equity for the house.

Restricting our cash flow is not a problem. The extra $$$ that we save just sit in the savings bank account.

Heres a simple math that him and I came up this evening:

RENT: $1800/mo (simple math 🙂 )

OWN: (these are just rough calculations for now) Will discuss with our accountant before making a final decision
Mortgage: ~3000/mo (including PMI) on a ~450k-470k loan (if i am wrong, pls correct)
Property tax: ~7500/yr or ~625/mo
Maintenance: ~175/mo
TOTAL monthly: ~3800/mo
Tax Deduction Benefit: ~1000/mo
Total NET for owning a home: ~2800/mo (which is ~1k/mo more than renting)

What my dad was saying (and makes sense) was that the payments that we will be making will be actually building our equity.

Again, this is just a thought for now and we havnt made final decision yet.

Notes:
Making a 20% down payment is not a problem for us also as the $$$ are sitting in a Fixed Deposit account for now.
Right now, the only income is the dad's business and he says that he can afford the ~4k/mo payments
We just bought another exisiting Franchisee business for mom and will be taking over that business next month.
I will be starting working full time by this summer (after the new business is all set up)
Click to expand...

This will make it simple.

If you pay rent you are giving that money to someone else.

If you buy the house - you are basically paying yourself. If you pay the house off, if you move you will be able to sell it and have likely enough to buy another house outright. (This is assuming you don't move to somewhere else in the bay area 😛)

Even if you do move to somewhere in the bay area you will have a large amount for down payment and will drastically reduce any monthly payments still required.
 
...and to summarize:
1. it is always best to buy in the long run
2. decision depends on your current financial situation (ie what you can afford on a monthly, what you can afford as a down payment, cash cushion, etc)
3. how long you plan on keeping the property before flipping it
4. location of the property (as they say in real estate: its all about location, location, location)
 
Originally posted by: OdiN
This will make it simple.

If you pay rent you are giving that money to someone else.

If you buy the house - you are basically paying yourself. If you pay the house off, if you move you will be able to sell it and have likely enough to buy another house outright. (This is assuming you don't move to somewhere else in the bay area 😛)

Even if you do move to somewhere in the bay area you will have a large amount for down payment and will drastically reduce any monthly payments still required.
Click to expand...

that is exactly what my dad was thinking and he was the one to come up with the idea of owning the place instead of renting it (ofcourse, i didnt know before how much monthly payments he could afford 🙁 well...atleast he told me tonight 😀)

and yes, for now and for the foreseeable future, we will be staying in the bay area 😛 (none of us are willing to leave the beautiful weather that we have here)

my only worry right now is about the housing bubble popping in the near future 🙁
 
Originally posted by: PhoenixOrion
...and to summarize:
1. it is always best to buy in the long run
2. decision depends on your current financial situation (ie what you can afford on a monthly, what you can afford as a down payment, cash cushion, etc)
3. how long you plan on keeping the property before flipping it
4. location of the property (as they say in real estate: its all about location, location, location)
Click to expand...

IF WE BUY:

1) We will be keeping this location mostly forever. Even when we move to a bigger house, we will rent this location and that rent will go towards the mortgage payments. But thats looking ~3-4 yrs down the road.

2) Current financial situation is ok. We can even afford a 30-40% downpayment along with monthly payments of 6k but we dont want to go overboard and stay within the limits. Thats why i said ~10% down payment and ~4k monthly payments.

3) Most probably, will never sell it. Will move to a better location in few years but wont sell existing locations. The more the merrier 🙂

4) As i said, location is pretty good. The school district is excellent and most houses/condo/townhouses/apts get rented pretty fast. When looking for a rental place, there were ~5 townhouses available for rent last week and this week, we are down to 1 (the remaining are taken now). Also, there is a golf course and a beach/view of the SF City and the entire bay withing 1 min driving/10min walking distance). I am just talking about the general area for now and not just particular location.
 
Originally posted by: gsethi
Originally posted by: OdiN
This will make it simple.

If you pay rent you are giving that money to someone else.

If you buy the house - you are basically paying yourself. If you pay the house off, if you move you will be able to sell it and have likely enough to buy another house outright. (This is assuming you don't move to somewhere else in the bay area 😛)

Even if you do move to somewhere in the bay area you will have a large amount for down payment and will drastically reduce any monthly payments still required.
Click to expand...

that is exactly what my dad was thinking and he was the one to come up with the idea of owning the place instead of renting it (ofcourse, i didnt know before how much monthly payments he could afford 🙁 well...atleast he told me tonight 😀)

and yes, for now and for the foreseeable future, we will be staying in the bay area 😛 (none of us are willing to leave the beautiful weather that we have here)

my only worry right now is about the housing bubble popping in the near future 🙁
Click to expand...

The housing bubble will pop here in CA. HOWEVER I don't think it will be as bad in San Fran because housing there has ALWYAYS been high.

Even so, I doubt you would lose as much as $1800/mo. * n-Number of months when/if the price did drop. I dunno though.

The secret for you may be to build the equity in that home and then sell before the price drops in order to move into a more permanent location for your family. Hard to say though.
 
Originally posted by: gsethi
Hello People

I just need some advice before I go and talk with my accountant this week. Basically, we are planning to move soon and here is the situation.

The rent is ~1800 for a 3bd/1.5ba Townhouse (or 3bd/2.5ba).
A slightly better Townhouse in the same area is available for ~525000.

What do you guys suggest ? With a ~10% down payment, I assume that my mortgage payments will be ~3000/mo + property tax (~7500/yr). Affording these payments is not a problem.

City name: Alameda, CA in SF Bay Area
Approximate Location: Bay Farm island
the area is known to have pretty good schools.

EDIT: Sorry, we are looking at a Townhouse, not a Condo. The townhouse is 2-story (bedrooms on 2nd floor)
Click to expand...


If you can afford it, buy it definately. after 10 years you already payed almost half the purchse price in rent. And if you can afford a $3000 motgage you really should be able to afford more than 10% down payment - deacreasing your mortgage. Here I think banks want you to have at least 20% before you get the credit.
 
if you take roughly 5% as the cost of capital, that 1800 per month works out to only $432k of capital.
if you buy the same house, you are looking at paying, in addition to the +$500k of cost,
- transaction costs (to get in and out in 3-4 years)
- propoerty taxes
- maintenance and any appliances etc that break down

if in addition you think the market could take a dip in the next few years, as I think it will, it sounds like a very bad time to buy

 
Originally posted by: OdiN
Originally posted by: gsethi
Originally posted by: chowderhead

It sounds like the decision has already been made to purchase a house so I don't think anything anyone says will change your mind or your father's.
Click to expand...

Actually not, the final decision of rent vs own is not made yet. We are still trying to weigh both sides.

I am leaning more towards the rental for now but my dad is more towards owning the townhouse. His idea is that although we will have to pay almost double, atleast it will start building the equity for the house.

Restricting our cash flow is not a problem. The extra $$$ that we save just sit in the savings bank account.

Heres a simple math that him and I came up this evening:

RENT: $1800/mo (simple math 🙂 )

OWN: (these are just rough calculations for now) Will discuss with our accountant before making a final decision
Mortgage: ~3000/mo (including PMI) on a ~450k-470k loan (if i am wrong, pls correct)
Property tax: ~7500/yr or ~625/mo
Maintenance: ~175/mo
TOTAL monthly: ~3800/mo
Tax Deduction Benefit: ~1000/mo
Total NET for owning a home: ~2800/mo (which is ~1k/mo more than renting)

What my dad was saying (and makes sense) was that the payments that we will be making will be actually building our equity.

Again, this is just a thought for now and we havnt made final decision yet.

Notes:
Making a 20% down payment is not a problem for us also as the $$$ are sitting in a Fixed Deposit account for now.
Right now, the only income is the dad's business and he says that he can afford the ~4k/mo payments
We just bought another exisiting Franchisee business for mom and will be taking over that business next month.
I will be starting working full time by this summer (after the new business is all set up)
Click to expand...

This will make it simple.

If you pay rent you are giving that money to someone else.

If you buy the house - you are basically paying yourself. If you pay the house off, if you move you will be able to sell it and have likely enough to buy another house outright. (This is assuming you don't move to somewhere else in the bay area 😛)

Even if you do move to somewhere in the bay area you will have a large amount for down payment and will drastically reduce any monthly payments still required.
Click to expand...

You're paying your lender if you buy.
 
Originally posted by: chuckywang
You're paying your lender if you buy.
Click to expand...
Yes, but the interest is tax deductible which, at today's still relatively low rates, makes the net interest amount not much greater than the rate of inflation.

If the OP's intention is to keep the property permanently, and he believes he will have no problems making the payments, then he should most definitely and without question BUY. If he has no intentions of selling ever, then he has nothing to worry from the threat of any possible housing "bubble" and the investment will certainly pay for itself in the long run.
 
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