When should I stop renting and a buy a house? (lots of details in post)

[Leros]

I've been debating as to whether I should buy a house or not.

Here is my situation:
- I'm 27
- I make $130k + $50k in bonuses
- I just finished paying off my student loans and only have $50k in the bank, not counting my 401k.
- I only have $10k in debt (a 2% auto loan)
- My rental house costs me $1550/mo
- If I were to buy a house, it would be in range of $300-500k
- I'm single. No plans to move, but I have very little tying me down.

If I were to buy a house, I have no idea how long I would live there. I may move in 2 years. I may get married in 4 years and want to buy a new house. I might live there for 10 years. I have no idea what my future holds. This uncertainty is the part of the reason I'm considering the option of continuing to rent.

I used to make significantly less money up until a few years ago and I was paying off massive student loan debt, which is why I only have $50k saved. I can now start saving $50k+ a year. If I were to buy a house today, I'd be straining my finances using my entire $50k saving for a meager downpayment. If I wait a few years, I could make a larger down payment and have more financial cushion.

That being said, it doesn't feel good to throw away $18,600 a year on rent, but I also don't want to strain myself financially by buying too early or lock myself down too much by buying a house. I make myself feel better about spending all that money on rent by pretending I make $18k less than I do, which is a salary I'm still pretty happy with. But what am I losing in terms of investment? The housing market in Austin is crazy right now.

My current thoughts are to wait another 2-3 years so that I can make a larger down payment. This also lets me push off the decision and see if I can gain any more certainty about long term life plans.

Any thoughts or advice on what I should be doing?

 

[Hugo Drax]

I would save up more. 50K is not really much, you really want after buying the house having a good cash position so you never have to worry about a liquidity crunch in the future.

The last thing you want to be is house poor. Also if you plan on moving within 7 years, buying a house is not a good idea.

What you should do is open up a brokerage account, start dollar cost averaging into SPY and also save cash as well. Also open up a Roth IRA as well.

You should live way below your means and save and invest right now. Be smart, your goal should be financial freedom so you don't have to be a slave to the man and be able to live on your terms.

 

[soulcougher73]

#firstworldproblems

 

[Imp]

If you're moving in two years, calculate the moving costs (e.g. commission, lawyer, real estate transaction taxes, etc.).

 

[NikolaeVarius]

The idea that renting is throwing away money is quite possibly one of the dumbest ideas ever.

Renting gives you a ton of non monetarily quantifiable benefits.

 

[Imp]

The idea that renting is throwing away money is quite possibly one of the dumbest ideas ever.

Renting gives you a ton of non monetarily quantifiable benefits.

Are you sure you're Asian?

 

[Leros]

The idea that renting is throwing away money is quite possibly one of the dumbest ideas ever.

Well, I see two costs:
1) There is the obvious $18,600 in rent I'm throwing away (yes, it is actually less than that due to property taxes, maintenance, etc).
2) There the is loss of investment opportunity in that the housing market here is going crazy. I have friends who bought $300k houses a few years ago that are now worth $400k. The house I'm renting has increased value by 25% in the past two years.

I have no idea what I'm talking about, but I can see how I'm maybe truly wasting $10k a year on rent, but I could also be losing $20k-30k a year on potential increases in house value. Of course, the housing market could crash, but I don't see that happening for a while.

Renting gives you a ton of non monetarily quantifiable benefits.

I totally agree. I'm just weighing the costs of those against the benefits of owning a house.

 

[destrekor]

That would be a very healthy down payment, and don't think that you're blowing your savings. Buy a modest house but scope out the right neighborhood for valuation to grow if at all possible.

I don't know the area, but I suspect you should be aiming for a house that costs well under your $300-500k range. That screams too high a price for a bachelor, especially when your future isn't certain. (when is it ever? but there can be more certain and less certain, and you seem to fit the latter)

If you stick to a modest house, with a healthy down payment, your mortgage payment should be well under your current rent. That means you can still save, perhaps at a rate less than desired but it is still something.

But all is not lost, because if you do only stick around for a 5 years, and you did your homework about location, you should be able to get your money back, bringing back your down payment cash that will then be able to transfer easily toward a new mortgage.

Your savings will have grown in that time, and thus you could increase your down payment on your next place, assuming that once you wish to move out of that modest house, you'll be in an even better situation in life, which would help you move into a new more expensive house and, thanks to the larger down payment now possible, keep your mortgage payment around what you'd pay now for the modest house.

Quick and dirty math:
Assume you choose a $200k house (I'd suggest lower for your situation, but again, I don't know your community's average and I don't care to poke around with that right now ). $50k down payment = $150,000 mortgage (let's say all this is after all closing costs and whatnot).

I'll assume you have excellent credit, and if not, first get that fixed because you sure as hell should in your situation. You can boost it quickly with your situation if you are smart about it.

So that puts a 15yr mortgage with excellent credit at about $1100/month. From your current rent, squirrel away that roughly $500 into savings, in addition to whatever else you plan on saving (50k/year? Sounds fantastic!). If you look at only what the $500/month in savings is, let's say you only end up, or even plan on only staying at this modest house for 5 years. That is $30k is savings right there.

Once you sell the house, if you sell for what you bought it for, the cash left over after the mortgage balance should be only a little less (interest would not have accrued crazy high on a 15 year mortgage after 5 years) than the down payment. If you scoped out well and/or sell earlier, you'll have more back.
So, assume you sell higher and can manage to get back $50k... now, without touching your other $50k/yr savings additions, you now have $80k to start off (thanks to the 30k that came from squirreling away the difference from the rent). Plus you'd have 250k in savings, though I'd assume it would be less unless you are also still able to keep a healthy checking account for any emergencies without tapping into that 50k/yr pool set aside.

As I said, quick and dirty math... but you'll get hurt more by choosing to get a more premium house now, when, as a bachelor, do you really need that much?
But as you said, getting something still valuable today is a better investment than throwing away rent. At least now it goes toward your property, and if you did well for yourself, you'll recoup closing costs and all other associated fees from both the initial purchase and from the sale a few years down the road.

Which means instead of just throwing it away, you could actually get a majority of that back to be put into an even better house when the time is more logical.

That's what I would do - but I can't follow my advice at all at this time, as my finances are still shit because the employment front hasn't work out nearly as well for me as it has for you. Take advantage of that now, I say, but scale back your initial dreams. IMHO, it makes zero sense for a bachelor at 27 to have a $400k house - that may be within your means, but as you said, it'd hurt your savings ability.

Hell, depending on what it gets you - I'd even suggest lowering your aim to $150k. That lets you save far more, and if it's not already feeling like a premium house inside, you can invest in it with the extra money available and really build it up: premium kitchen remodels and finished basements (if those are common in your area?) go a long way toward increasing the potential sale value.


edit: as others have said, if you truly feel you may only be sitting still for 2 years... don't buy, at all. That's a stupid idea because all the costs and fees involved with make it a losing proposition, almost guaranteed, because it is highly unlikely the valuation could change much in that amount of time, and it is likely not enough time to do any remodeling, be it interior or exterior, that would increase the property value.

But if you can remotely plan on staying at least five years, perhaps seven, it's a better value proposition.

Renting has its perks, very true, but if you have the means and will stay in one place for a decent amount of time, investing in property would definitely be the better way to go.

 

[zCypher]

Definitely don't buy if you might be move in 2 years, that would be an unnecessary hassle and expense. If you aren't spending more in rent than you would be spending in unrecoverable home ownership related expenses, there is little financial incentive for you to go from renting to owning. The rest is really up to you in terms of personal preference and what kind of lifestyle better suits you.

How much is the total annual mortgage interest + property/school/etc taxes, maintenance/services/additional utilities that you may have to pay for vs when renting, compared to what you're paying in rent? If the number is comparable to or more than your rent, you really aren't "throwing away" anything at all in your renting situation, since there's always a certain amount you're never getting back in home ownership too.

Is your desire to buy driven strictly by financial reasons?

 

[88keys]

If you are unsure of your direction in life in regards to where, how and who you want to live with, renting and saving money is probably the best choice. With that in mind you would wait out until the next recession hits and housing prices will fall and you should be able to get a much better deal.

Not to mention that you're still in your 20's (late 20's but still) and I've noticed how alot of our sensibilities change right about the time we hit 30. It's at that point when most of us really figure out what we want out of life and how we'll get it.

For that reason I recommend keeping your options open.

 

[bbhaag]

Why does a 27yo guy who is single need a 300-500k house? Especially in Texas were housing is considerably cheaper than other parts of the country.
Why don't you consider lowering your standards just a pinch and then you could continue to save like you have been while still owning a home.

Then if you meet the right girl or decide to move in a few years it won't be as big of financial burden.

 

[88keys]

Ill bet the Austin, Houston or Dallas areas can be quite pricey if you want to live decent.

 

[debian0001]

That much for a house? Sounds like you just want to be a mortgage slave.

 

[theeedude]

Housing prices are inflated due to low interest rates. Get a house you are comfortable living in for at least ten years. If interest rates go up, you may be stuck in it if you want to keep your low mortgage payment and not get hosed on equity. So get something that you are happy with.

 

[theeedude]

BTW, 500K is peanuts. We are looking here in Silicon Valley, and $1M is the price of admission. Pay is higher here, so to some extent it's the employers eating the extra cost, but still.

 

[bbhaag]

That's San Francisco though. Prices there have always been insane since the tech boom took off.
Here's an example of listings in Austin in the 200-250k range. Well under what the OP determined and while granted I don't know the specifics of Austin all that well there seem to be nice homes in that price range.

A 1500-2000 sq. ft. home for a single guy seems more then adequate but again I don't know all the specifics.

Anyway, onto the realtor . com link for Austin.
http://www.realtor.com/realestateandhomes-search/Austin_TX/price-200000-250000

 

[s0me0nesmind1]

I've been debating as to whether I should buy a house or not.

Here is my situation:
- I'm 27
- I make $130k + $50k in bonuses
- I just finished paying off my student loans and only have $50k in the bank, not counting my 401k.
- I only have $10k in debt (a 2% auto loan)
- My rental house costs me $1550/mo
- If I were to buy a house, it would be in range of $300-500k
- I'm single. No plans to move, but I have very little tying me down.

If I were to buy a house, I have no idea how long I would live there. I may move in 2 years. I may get married in 4 years and want to buy a new house. I might live there for 10 years. I have no idea what my future holds. This uncertainty is the part of the reason I'm considering the option of continuing to rent.

I used to make significantly less money up until a few years ago and I was paying off massive student loan debt, which is why I only have $50k saved. I can now start saving $50k+ a year. If I were to buy a house today, I'd be straining my finances using my entire $50k saving for a meager downpayment. If I wait a few years, I could make a larger down payment and have more financial cushion.

That being said, it doesn't feel good to throw away $18,600 a year on rent, but I also don't want to strain myself financially by buying too early or lock myself down too much by buying a house. I make myself feel better about spending all that money on rent by pretending I make $18k less than I do, which is a salary I'm still pretty happy with. But what am I losing in terms of investment? The housing market in Austin is crazy right now.

My current thoughts are to wait another 2-3 years so that I can make a larger down payment. This also lets me push off the decision and see if I can gain any more certainty about long term life plans.

Any thoughts or advice on what I should be doing?

Seriously? You want your first house to be $300-500k? You have the wrong mentality. You need to start off smaller and move up after you build some equity. Do you plan on having a $60k - $100k down-payment for your home? No? Then DONT DO IT.

You could be canned tomorrow and what would you have to pay your house bill? Doesn't sound like you have a wife working as back-up...

I'm all for home ownership, but I've started off small with a $140k house on 2 incomes that we are now down to $90k. Hell, our combined net income for the year tops our home value, but we have no problems with it. You're in Texas, so there is plenty to find for under that amount.

Ill bet the Austin, Houston or Dallas areas can be quite pricey if you want to live decent.

I'm in Houston and live out of 3 bedroom 2.5 bathroom with 1st/2nd floor on $140k. Hands down the best market for homes if you don't do something stupid like try to buy near downtown areas.

 

[DaveSimmons]

I still rent, a nice downtown apartment. It's a great location, there is on-site maintenance staff and a concierge at the front desk.

No HOA fees or meetings, no property taxes, no maintenance headaches.

I put the difference between my rent and a mortgage into stock index ETFs, so I look at my brokerage account balance and don't feel like I've thrown anything away.

I can also get at all of that account any time I want, in a couple of days. In many locations it can take months to sell a house.

So don't feel like you "have to" buy a house as part of becoming an adult.

 

[Leros]

Housing in Austin is crazy expensive. Houses are going for well over asking price here.

Looking at 3 bedroom houses in the parts of town I'm interested in (i.e. in the actual town), prices start at $300k, but most are at least $350k. I've gone with friends to look at some $300-350k houses and they're not great. They often don't have central A/C and need renovations.

If I wanted to spend $200k, I could either get a 1-2 bedroom condo or move 20-30 minutes out of the city, neither of which interests me.

For those that think Texas is cheap, it's because the rest of Texas is cheap. My dad recently bought an almost new 1600 sqft 3 bedroom house for $110k.

 

[Leros]

So don't feel like you "have to" buy a house as part of becoming an adult.

I don't care about owning a house at this point. I'm just thinking about what makes the most sense financially.

 

[Leros]

That's San Francisco though. Prices there have always been insane since the tech boom took off.
Here's an example of listings in Austin in the 200-250k range. Well under what the OP determined and while granted I don't know the specifics of Austin all that well there seem to be nice homes in that price range.

A 1500-2000 sq. ft. home for a single guy seems more then adequate but again I don't know all the specifics.

Anyway, onto the realtor . com link for Austin.
http://www.realtor.com/realestateandhomes-search/Austin_TX/price-200000-250000

I filtered out non-houses and < 3 bedroom places and moved the map to the areas I'm interested in living in (these are the areas where almost everyone I know lives). Nothing in that price-range: http://www.realtor.com/realestatean...-30.3330802160818/lng--97.8319261059571/zl-13

For what it's worth, just about everyone I know (including people in similar positions to me) live in that area in $300-600k houses.

 

[s0me0nesmind1]

I filtered out non-houses and < 3 bedroom places and moved the map to the areas I'm interested in living in (these are the areas where almost everyone I know lives). Nothing in that price-range: http://www.realtor.com/realestatean...-30.3330802160818/lng--97.8319261059571/zl-13

For what it's worth, just about everyone I know (including people in similar positions to me) live in that area in $300-600k houses.

If someone tells you to jump off a bridge, do you?

If someone tells you to buy an overpriced shit house just so you can be within 3 minutes of driving vs 5-10 minutes of driving, do you?

 

[Wreckem]

Why does a 27yo guy who is single need a 300-500k house? Especially in Texas were housing is considerably cheaper than other parts of the country.
Why don't you consider lowering your standards just a pinch and then you could continue to save like you have been while still owning a home.

Then if you meet the right girl or decide to move in a few years it won't be as big of financial burden.

The major metro areas, being DFW, Houston, Austin, and San Antonio, are not exactly cheap.

The DFW areas has RECORD high prices right now. As a whole the area is up 30% over the last 6 years. Much of that in the last two. We are still cheaper than the coasts, but more expensive the most of the midsection of the country. Its the non metro less than desirable places(places that are currently showing population declines) in Texas that are cheap and even then many of those are ungodly priced(west Texas) because of oil.

Dallas proper has especially had a hot real estate market as people are tired of commuting. My wife and I have been looking at 1700-2000sq remodels in North Oak Cliff, Midway Hollow, and other parts of Dallas proper and well most properties are snapped up instantaneously. Prices for said properties go for $300-600k. Some have 1/8 acres, some up to 1/4acres.

I can show you a beautiful $325k remodeled 1600sqft 1920's bungalow in North Oak Cliff. It is surrounded by rental homes that need torn down or gutted to the studs and remodeled(like said $325k bungalow).

Because the sub $400k housing market is so tight in terms of resales. It is next to impossible to land a house without the 1. right connections to land it before it hits the market, which is extremely rare as most houses are going above list and 2. all cash offers. Not to mention the desirable homes in the sub $400k range are on the market for less than a week. We went to an open house today that already had a contract on it by time we got there(30 minute after it started). So my wife and I are looking at a $349-$379k new build in pre-existing neighborhood.

 

[Leros]

If someone tells you to jump off a bridge, do you?

If someone tells you to buy an overpriced shit house just so you can be within 3 minutes of driving vs 5-10 minutes of driving, do you?

I'm not interested in spending 60-90 minutes round-trip to drive to work every day. I'm not interested in spending 20 minutes to drive to to meet a friend. If I can afford a house in an area that supports the lifestyle I want, why is that a bad idea? My mortgage rate would be higher, but it's not like I'm losing that money.

 

[Wreckem]

If someone tells you to jump off a bridge, do you?

If someone tells you to buy an overpriced shit house just so you can be within 3 minutes of driving vs 5-10 minutes of driving, do you?

The commute times would be more like 30-45 minutes more not 5-10.