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Buying vs. Renting...if only for a short time?

Discussion in 'The Lounge' started by ridetoofast, Oct 8, 2005.

  1. ridetoofast

    ridetoofast scarred, broken and drunk

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    just wondernig what the opinion is out there is it worth it to buy a house
    considering all the purchase/sell expenses vs renting when you are only going occupy it for a short period of time, say as little as a 1-1.5 years?
     
    #1 -   Oct 8, 2005

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  2. binary visions

    binary visions The voice of reason

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    Lots of people point out how renting doesn't build equity, it's "wasted money" blah blah blah, but there are a lot of benefits to renting. You don't have to upkeep the place, first of all. Also, when things go wrong (plumbing problems, electrical problems, etc.), you just call your landlord and they deal with it - for free.

    If you're not in a really secure financial situation and are looking for short-term, renting can sure save you a lot of headaches.
     
    #2 -   Oct 8, 2005
  3. ridetoofast

    ridetoofast scarred, broken and drunk

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    the reason i ask is because my mother just got relocated and is only going to be there the minimum amount of time that her employer requires before she is going to put in for a transfer. this will amount to a year to 18 months tops. when you consider all the costs associated with buying and then subsequently selling again in such a short time (points, loan origination fees, realtor fees, etc) i find it difficult to believe that the equity that would be established in a such a short time would offset that...

    edit...thanks for the input though :thumb:

    im sure there are some real estate savy :monkey:s out there

    que cheesy x files music (the truth is out there)
     
    #3 -   Oct 8, 2005
  4. jebfour

    jebfour Turbo Monkey

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    BV makes really some good points. Where is she going to be located? If the housing market in the area is appreciating quickly, it may be a good move to purchase something small (say, a condo or something along those lines) and roll it over when it is time to leave.

    We have been in our place around 1 1/2 years. I thought that the amount of money that I paid for it was asinine and wondered how I was ever going to make the payments.....If I sold it tomorrow my equity would be more than enough to cover fees, taxes, etc.

    Of course this can always change if the market drops....and is dependant upon many factors. Perhaps have a look at the appreciation in the area over the last 3-4 years...and then have a look and the length of market appreciation before the market in that area took a dive last time around (there usually seems to be a cycle). You never know, it could be a good opportunity to build capital....FWIW
     
    #4 -   Oct 8, 2005
  5. Reactor

    Reactor Turbo Monkey

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    I guess the real question is after all the loan fees to buy and real estate comissions to sell, what are you going to end up with? Are you going to get sizable tax break? And is it worth the hassle?

    From what I've seen loan origination fee, title insurance, and other misc fees run about 3% or so of the amount of the loan. When you go to sell real estate agents charge commissions of about 6%, unless you sell the home yourself (www.byowner.com). A lot is going to depend on the real estate market.

    Here's an simple example:

    House $160,000
    loan fees 4,800
    commission 9,600 (agent when you sell)
    Payments 21,600 (mortage, ho insurance, tax)
    total cost $196,000

    tax benefit $ 3,000 (you'll need to adjust)
    sell price $179,200 (assuming 8%/yr adjust for your market)
    Total $182,200

    Cost of owning $196,000 -182,200 = $ 13,800 for 1.5 years
    Cost of renting $1500 * 18 = $ 27,000 for 1.5 years

    Assuming all these figures are correct (they are guesses) you'll come out $13,200 ahead after 1.5 years. You'll need to subsitute your rent costs, your area's housing appreciation rate, and your tax benefits.

    Of course this is all built on assumptions, and things are subject to change, real estate markets can go down instead of up. For example if your housing market stagnates, it would cost more to own the home than to rent a home. Or you gould get a screaming deal on rent and it would be close.

    I think in general you'll come out ahead of renting at the 1.5 year mark. At the one year mark I think it would be close, very close. And you have to put up with tha hassle of selling your home.
     
    #5 -   Oct 8, 2005
  6. DirtyDog

    DirtyDog Gang probed by the Golden Banana

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    In a market where homes sell for 160,000, there is no way in hell rent is going to be 1,500. 800 sounds about right.
     
    #6 -   Oct 8, 2005
  7. douglas

    douglas Chocolate Milk Doug

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    dont forget, when you buy its your $$ when the fridge, hot water heater, etc breaks
     
    #7 -   Oct 8, 2005
  8. Velocity Girl

    Velocity Girl whack-a-mole

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    And with buying, you also have to go thru a lot more headaches/paperwork when purchasing and selling. And you have to hope the house sells quickly when you're ready to move on.
     
    #8 -   Oct 8, 2005
  9. Reactor

    Reactor Turbo Monkey

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    That's about $400 less than a mortgage payment. People renting houses must be stupid.
     
    #9 -   Oct 8, 2005
  10. DirtyDog

    DirtyDog Gang probed by the Golden Banana

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    Uh, It's only 400 less if you didn't put a down payment on the home. And no, in most markets you don't get to rent your home out for what your mortgage payment is. In 5 or 10 years you may be able to get as much or more than your payment which is why homes can be good long term investments - they start paying you monthly dividends at some point.
     
  11. Reactor

    Reactor Turbo Monkey

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    Anyway the example was just that, an example. I pointed out the need to replace most of the numbers with real market values. Here in the Phoenix area my house went up almost 30% last year, Rent is high in my area because of ASU college students. Here it would be a no brainer. Buying a median value house would probably put you up about 30-50K in a year in and a half. If the mythical housing bubble doesn't burst.
     
  12. beestiboy

    beestiboy Monkey

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    Well one thing you did forget Reactor is that if you sell the house before living in it for a minimum of 2 years you also will have to pay Federal Capital Gains tax. So if you turn it over in 18 months with a $50,000 profit, your on the hook for $14k at 28% tax bracket. Its still a good investment, but renting will allow greater cashflow and more flexiblity in the future. I would doubt that she would profit much if she sold in less that 15-18 months anywhere except the hottest of real estate markets.

    I would suggest renting and not getting a long lease term 6 mo or less. You never know she could move and fall in love with the new location and want to stay or an opportunity to move on could come up to bail sooner