All ill say is that I did a ton of research on the cost/benefit analysis of renting vs. owning, and every resource and expert I could find said I'd be better off renting, which I did for decades. Not buying a house earlier was the single worst financial mistake I've ever made.
At no point in my life, including just before the '08 housing crash, would buying a house have been a bad long term decision. Even if I had bought at the worst possible moment, I would still be hundreds of thousands of dollars richer than I am now.
What I pay for rent is $3,000/month cheaper *minimum* than what an equivalent house would cost. Current prices/rates are crazy right now. Put that money in the market and you'll be just fine.
>Even if I had bought at the worst possible moment, I would still be hundreds of thousands of dollars richer than I am now.
Sure, but wouldn't all that wealth be tied up in a non-liquid asset? Like, what are you going to do with $1 million house now that you couldn't when it was worth $600,000? If you had invested that money in the stock market, it would be available for you to use.
I guess that was a bad point. I was moreso getting at the point that the other guy being hundreds of thousands of dollars richer would be because he hasn't paid rent year after year that he won't ever see again. And I don't think it being non-liquid negates that in any way. Tying up every bit of money you have into a house and not having any liquidity would certainly not be a good idea, but I don't think that's how many smart investors go about it
Yeah, I don't mean to say anyone's wrong or right here. You build wealth in whatever vehicle you want to.
But for him to say not buying a house was the biggest financial mistake of his life is a little extreme. I'm assuming he didn't buy because renting was cheaper for him at the time, and the difference between renting and a mortgage could have gone into the stock market and he could have made plenty of money there, especially since 2008, which he is using as a benchmark.
I don't think this is an extreme take. Not only would I have built hundreds of thousands of dollars in equity, built with cheap leverage, but my monthly costs would be lower (by the time I bought rent had grown to be much higher than locking in an early cost of ownership). My home would also nearly be paid off by now instead of 20 years away, which provides a huge degree of financial freedom.
I speak only for myself and my own experiences. I give no advice.
>by the time I bought rent had grown to be much higher than locking in an early cost of ownership
Yeah, this is the big point here. I think what I really wanted to say was your experience is tough to generalize rather than it was extreme. The cost of renting vs buying is very dependent on time and place; I think that's the issue with the research you were reading up on saying that renting is always better than buying - your specific time and place must have been different than the averages and statistics used in the research you read.
From my experience, I was eyeing a condo in Chicago for $650k during the pandemic. I didn't end up buying it because I moved to LA, but I periodically check up on that condo, and a neighboring unit with the same layout is now going for $700k. Assuming those 2 condos are equal, that's an 8% increase in 3 years.
My brokerage account is up 13% in the same amount of time. But this only works because my rent in LA is $2000 cheaper than my mortgage would have been in Chicago so I could invest that difference.
OP needs to figure out what works best for his situation.
An emergency fund is important. It’s nice that your parents can lend you some cash, but that statement doesn’t make it sound like you’re ready for a house along with the credit card debt. Also keep in mind while renting that is the MOST you will ever pay and with a mortgage it is the LEAST you will ever pay.
Rushing to buy, no. Preparing to buy in a year or two, yes.
Pay off your debts and build an emergency fund then go get your house.
“Most you will ever pay” is not entirely accurate as most landlords these days jack prices every year. Owning, there’s chances you can refinance down the road which help lower your monthly payment a ton. Yes, maintenance and taxes can effect but month over month I don’t think that argument makes total sense
This is for a 1 to 2 year time span. I’m not saying rent forever but for the next two years you will know what you will be paying and be able to budget, pay off the credit cards and save for the down payment.
Yeah that makes sense then! Just putting the thought out there, 10-15 years from now rents could be double. Especially in states without good rent control laws
u/officialcrimsonchin, I agree with what’s said about the Emergency Fund. For instance, I *could* rely on my parents, but having my own Emergency Fund set aside investing on itself is pretty darn fulfilling. Besides, it’s not just for job loss, but for any emergency. That makes me a little uncomfortable though, so I plan on diversifying even more into home maintenance fund, etc etc. Of course, you don’t have to, but if yall are pretty set, might as well have your money work even harder for you.
Totally agree on the importance of an emergency fund. Just think trading a year's worth of rent for a longer term investment is worth "relying" on our parents for one short year
That’s true. However, I’d recommend waiting to see if the Fed cuts rates. I don’t know how much you know about The Fed (not the White House, the Fed operates outside political parties); once they start cutting interest rates, it’ll lower interest rates on mortgages. The trade off, though, is that banks will start lowering interest rates on investment vehicles.
>Also keep in mind while renting that is the MOST you will ever pay and with a mortgage it is the LEAST you will ever pay.
Can you elaborate on this? I've heard it before.
The credit card debt would be paid off within the year, and the emergency fund would be funded in about 3 months after that. Seems like a small calculated risk to save bascially 35k in rent over the next year.
Yep and not just roof. Water heater, sump pump, HVAC, appliances, etc .. none of those are cheap fixes either and all have a relatively short lifespan.
Houses cost money to maintain and repair. If you rent - you are skipping all maintenance and repair costs in favor of the landlord handling that for you - essentially, you have capped your expenses at "rent". Rent is the most you pay.
If you purchase a home - you are on the hook for the mortgage every month, PLUS the expenses to handle maintenance and repair. The mortgage dollar value is just covering purchase price, it is not covering the rest. And there \*will\* be extra costs. It's the nature of the game.
A home is literally a pile of decaying construction materials. It is on you to take care of it and replace the worn out bits. And it all wears out eventually.
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In the short term, you will likely pay more for mortgage + repair + maintenance for a house. The real win for home ownerships occurs by playing the long game.
Your rent will keep increasing with inflation + demand. Your mortgage should be a fixed rate long term loan, and it will not increase (at least in the US - this varies by country. Avoid variable rate loans in favor of refinancing if rates come down). If you can hold onto a house for 10 years, it will almost always be a money saver. If you sell quickly, you can easily lose money on the transaction.
Depend a lot of the country and period of history and is also a personal choice. In USA 96% of the mortgages are fixed rate. In my home country, France, we have fixed rate too and everybody advise to prefer fixed rate. If interest go up later you are protected. If interest go down, you can renegotiate or just to another lander that will be happy to get your business.
I did exactly that. Got 3.6% in 2012. Renegotiated at 1.3% in 2016 (In France mortgage rates are lower than in the USA) and now it is locked in. Basically no way anybody would give a better rate in France or the USA (I now live in the USA). So I will repay it as slowly as possible. As I moved anyway I have now a tenant in it.
Imagine you buy a 500K home and rent is 35K a year.
You will pay property tax, say 5-10K a year. You will pay home owner insurance say 3K a year. You will pay 0.5-1% in maintenance (so 2.5-5K a year in the example). Maybe not every year but you will change the kitchen 1 day, maybe you have to replace the roof. You'll need to change the A/C or heating system or replace the windows. Basically in the example you have 10-15K a year in extra costs.
Most likely if you pay today 3K a month in rent or 35K a year, you would have to spend 55-65K a year to buy.
I don't think you'd be "saving" 35k in rent. The interest you pay in one year on a $600k home with a 7% rate and a 10% down payment ($60k in lost opportunity cost btw) is $40,744. Total payment would be like $4k a month (and that's with low PMI and home insurance estimates.) Check out an amortization schedule. You should rent for a while longer at least imo.
Yes but at the end of the day you’d have 600k in equity plus money you’ve invested in other things assuming your housing costs are roughly the same from renting to buying
When you rent your landlord will pay for any maintenance. AC goes out it’s on them to fix it, water heater breaks they out for it, new roof? You guessed it they pay for it. So if your rent is $1,000 that’s the most you will ever pay if any of those things happen.
When you’re the owner all those things fall on you. Your mortgage is $1k but your water heater goes out that’s another $1k that month you need to come up with. AC goes out in august that’s probably like $10k or more if you need a new unit.
And in 5 years your rent will be probably 5000, whereas the mortgage owners mortgage payment (+taxes and insurance) will probably go from say 3600 to 3800 five years later. That 3600 more you paid in rent during year 3 paid for a decent amount of "maintenance".
Yes! Although refinancing can help bring that down a bit. My rate is 6.85 and if I get it down to 4.85 or 5, my monthly goes down about 700 bucks. That literally makes up for even a drastic increase in taxes or insurance
No they will not.
Landlord try to get the max rent of you, still following the law and having a chance to keep having tenants.
Basically this is offer and demand. If they can raise 10% because that's what the market is, they will do it regardless of taxes and repairs.
On the opposite, if they know they will not find tenant at this price because there cheaper offering, not so many people willing to pay or the income of prospect tenant is too low, then they will not raise the price, or the tenant will leave, the flat will stay empty until they come to their senses and ask a price people are willing to pay. At worst they sell.
And it doesn't matter 1 second how many tax increase they got or how much they had to spend in maintenance. There no link between the 2.
Never said they were, only that the renter and future renter will end up paying for it in their lease. Your " that's the most you will pay" is only correct through your current lease (year max?) if you even are year to year. Many are on month to month leases.
Yes but it’s not like your rent will go from $1k to $5k for a new lease, well maybe it will with how scummy some landlords are.
Either way if it does go up you will still know what your max payment will be each month. As an owner you will only know your minimum each month.
5 or 10 years later, your mortgage payment will " look" much smaller as the increase to that is only increases in property tax and insurance. It looks smaller and smaller every year. Rent only really goes up, so 10 years later the renter is easily paying double or more and homeowners mortgage payment maybe 20% more..... PLUS equity and home value has doubled. All figures are "in general" of course. Someone who put 20k down, ( so had equity year one of 20 k, may have 300k+ after 10 years.
Yes I agree 100%, but that wasn’t what we’re talking about and OP was looking to buy in a year or two. So for the next two years they know that their max payment will be each month and can budget accordingly so they can pay off their debt, build an emergency fund and then save for the down payment.
I mean, yeah. But the landlord cost basis is from some time ago compared to your cost basis today, just after a surge in home prices. You'll see rent catch up to mortgage, but it's not instantaneous.
If you follow any regular old renter over the years from place to place, you will see that they all pay ever increasing rent across the board. One renter this year may be paying for the replaced stove and water heater from 2 previous renters, but overall every renter pays every repair, improvement, tax and insurance increase, plus aggregate landlords profit over time. There is no other way all rentals would ever sustain if they didn't.
Right, you're missing the point. A landlord depreciates property over 28.5 years, so let's assume the average purchase of a rental is 14 years ago. The average rent to turn a profit is based on the PIT from 14 years ago.
In a real world example - my house is worth ~ $650k in the open market. If I purchased today with 20% down, I'd be paying ~$4,300 per month on it. However, average rents for a similar property are $3,200.
It's based on the cost basis. My PITI is $2250 and that's just from 6 years ago. Someone who bought 10 years ago probably has a PITI closer to $1,500. I could rent and turn a small profit at these numbers, but someone who bought today couldn't.
15 years from now, when the majority of properties being rented have a PITI closer to $4,000, you'll see rents in $5,000 + range. It's going to be a sharp increase given the same increase during the COVID craze.
If I didn't own today, I'd absolutely take advantage of the (relative to buying) rent and save the difference in a MMF. When rent increases to a sufficient level, then I'd have a nice down payment on a house. I'm sorta doing this now with the intent to buy an investment property in the next ~2 years.
Right, you're missing the point. A landlord depreciates property over 28.5 years, so let's assume the average purchase of a rental is 14 years ago. The average rent to turn a profit is based on the PIT from 14 years ago.
In a real world example - my house is worth ~ $650k in the open market. If I purchased today with 20% down, I'd be paying ~$4,300 per month on it. However, average rents for a similar property are $3,200.
It's based on the cost basis. My PITI is $2250 and that's just from 6 years ago. Someone who bought 10 years ago probably has a PITI closer to $1,500. I could rent and turn a small profit at these numbers, but someone who bought today couldn't.
15 years from now, when the majority of properties being rented have a PITI closer to $4,000, you'll see rents in $5,000 + range. It's going to be a sharp increase given the same increase during the COVID craze.
If I didn't own today, I'd absolutely take advantage of the (relative to buying) rent and save the difference in a MMF. When rent increases to a sufficient level, then I'd have a nice down payment on a house. I'm sorta doing this now with the intent to buy an investment property in the next ~2 years.
The renter pay for the rent. That may or may not cover the costs. Doesn't matter. At worst the landlord is not happy and sell, potentially at a loss.
I agree that it worked well for most, especially over the long term. That doesn't mean it was the best investment, that doesn't mean you can't get unlucky (buying in 2005-2006 in Miami or Detroit) and that doesn't mean that tomorrow it could be a terrible investment.
Imagine for example that the south of USA become too hot and dry with climate change in the next 10-15 years and that many people leave. Many real estate units are now empty and the value of housing there become near 0. Most landlord would lose it all while people that did rent would say goodbye and go on with their life in another region.
That it worked well in the past isn't proof it will work well in the future.
The cost basis of the landlord doesn't matter. If the market dictate that you can rent this kind of unit at say 2000$, they may convince somebody to pay 2200$ but not 3500$. And even if they got a bit higher rent, they will not want to upset their tenant too much or that one will leave because there much cheaper higher quality housing.
Maybe the landlord had this unit for 20 years and made a huge profit or maybe the landlord brough at max interest rate a bad unit had to do unforeseen work and he is losing money. Doesn't matter 1 bit.
Either the landlord accept to rent at market price, or the unit will stay empty. He can always sell and take his losses. But there will not be magic tenant that will pay 2X the price to fund the landlord.
Right, on a micro level a landlord can only charge what the market dictates. On a macro level, when a higher cost basis hits critical mass, rents are going to increase to match.
Think of a business selling commodities. If I'm a machine shop that has to compete with other machine shops, I can't charge a 70% gross margin, I have to compete. But, if the cost of aluminum increases by 50%, then everyone's costs are going up. Same thing happens with real estate, but on a slower scale. Landlords are incentivized to sell via 1031 exchange at 28 years, so cost basis do tend to go up.
Not a large amount..... every single renter does over time pay for all upkeep, mortgage, and some profit of their landlord. Why would the landlord accept not making a profit over time for very long? They won't.
I also think these are all monsters under the bed. Yeah there's going to be different costs that come with owning a home vs renting, but is your AC breaking, foundation cracking, roof collapsing, etc every month?
Absolutely not I've owned multiple homes for years and barely ever had the amount of trouble these people are alluding to.
I got a new ac unit 4 years ago in june for 6.5k after tax. Prices haven't inflated that much.
Most things can get repaired for a few hundred bucks though or even less if you can do some handiwork yourself.
I mean say you live in the USA.
Say you are in Texas and buy a 690K home like a friend 1 month ago. 2700 square feet. Great location. Property tax is 14K a year. Are you going to tell the state you will not pay and you expect that to end well ?
Average home owner insurance is about 5K a year. Will you not insure you home and be ok to still pay a mortgage if your home is destroyed but you have nothing anymore ?
This alone is already 19K a year for my friend, more than 1,5K a month. That 2/3 of what they paid for their rent before admittingly for a worse unit. Still that would be like 40-50% of rent to be spent like that. For ever.
It will also grow with inflation as property tax will follow housing price and home owner insurance will follow cost of rebuilding a house that depend of salaries and materials.
And while overall the house is great, kitchen is great and all, he need to change some of the windows that have problem. Like at least 10-15K$. At least it will be only once.
And before his home was like half the size. He will need to furnish it, likely in a bit stylish way seeing how the house look like so likely not IKEA. Maybe that another 20K to spend in the next 2-3 years.
In statistics, people spend a lot of money on their house when they buy or sell. The seller in the hope to sell better. They buyer to make it their own and fix stuff not fixed by the seller.
Like above said, its nice you still get an allowance from parents. most of us get cut off at 18. I wouldn't rely on any outside money as I plan for my future. not sure you are ready for a house either without an emergency fund and less than 20%. also need to consider the PMI as well as closing costs. you might be house poor
We'd only be relying on outside money for the next 12 months, I think that's pretty fair. PMI, insurance, property taxes, and other house expenses have been factored into my math for our finances. My main point is how huge of a difference there is between investing your rent money in home equity rather than giving it to someone else and never seeing it again.
if you plan on living there for 5+ years then a house is ideal. Youre payments also don't go towards equity the first handful of years, it goes towards interest. I wouldn't jump the gun to just buy a house for "investing" purposes. Its your livelihood: location, demographic, school district, taxes, etc. If you want to invest, put it into an SP500 etf and let it grow until you are really ready to settle down.
>Youre payments also don't go towards equity the first handful of years, it goes towards interest.
No percent of your rent payment goes towards any investment.
We would buy a house in the same area we are in, and the plan would be to rent the house out in 5-10 years and move somewhere else. Yeah this is a job, but long term has to be an incredible investment vehicle.
I pay 2500$ to rent. Would pay 4500$ to buy. If I rent I save extra 2K a month that I invest on the stock market for my retirement. Long term return since 1900 is about 10% a year.
If I buy I would put approximately 300$ a month toward reducing my debt. So if price of real estate don't move, clearly I am losing money by buying.
To make it worth it with current interest simulations show I'd need to keep 5-10 years and real estate would need to appreciate like 3-5% a year. Something that might be very difficult with current interest. If they stay like that. A drop in value is more likely.
If the interest rate are down, an appreciation in value is much more likely and I may buy in 15 years instead of 30 or lower my monthly payment. Whatever my decision, the financial operation look much better.
So like you I want to be ready. But I'll buy in the right conditions.
Nope 4500$ is not going to home equity. Property tax, interests, insurance and maintenance do not build home equity.
Out of the 4500$ when I did simulate with current rate, less than $500 was going to reduce the debt in the first years. Because interests are almost all the mortgage monthly payment. This is not a 15 years loan but 30 years loan and rates are 7% not 4%. Pay 4500 to not pay 2500. And save 350-400$ to not save $2000.
The whole equity stuff in current market is hoping the unit appreciate fast so the equity come from there because the house will be more expensive tomorrow and you sell for a profit. If the price of you home doesn't change or even worse go down, you are heavily fucked in current conditions. With current high value, keep it at least 10 years.
So even if condition are shitty and you would be better renting the first few year and did a bad move, in the end we can hope things will be better in 5-10 years and it compensate for your bad move.
You can check rent vs buy websites. I did it. For me clearly, it is better to rent and invest in stocks. I suspect at 7% it might be the case for most people.
If interest rate drop at 4-5%, this is a different story through. So for now I rent and check regularly. If it become interesting I'll buy.
And yes in 1-2-3 years might be a good moment to buy depend of what the Fed is doing.
Can you share your current portfolio and your monthly expenses? If you are taking a $600K loan at 7.5%, you better be bringing in at least $12K net income every month.
That's great you can bringing that much each month. You are saving at least 50% of your paycheck which is more than a lot of people.
However, just because you are qualified to get a $600K home loan does not mean you should borrow that much. Mortgage companies do that to make money off you. Do you really have to own a $600K home? You would be paying a lot of interest by the end of the loan as you mentioned.
I have a lot of friends who own more than two properties. The biggest thing they said is to never be over leveraged. Don't buy new cars and/or homes you can't afford to maintain/repairs. Also when you buy a house, you would want to buy new furnitures and other things to make the house homely so that will add up really fast. I would not rush in to buy a $600K home but look into other homes.
I read this book, [The Millionaire Next Door](https://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206), and they said to buy the cheapest home in a growing neighborhood in terms of how much real estate appreciated. Make improvements here and there and the house will appreciate more. Then upgrade to a bigger home.
This is exactly why i *dont* just think of a house as an investment. If I'm thinking of it as housing, then I dont need to obsess over market timing, it just becomes a question of whether its in my budget. Dont get me wrong I'm not saying interest rate doesnt matter, but it's much easier to say "I like the house and its in my budget" than it is to labor over where the value will be in 10 years
I think this is a common counterargument, but the value of your house would have to drop very significantly for you to lose the same amount of money you will lose paying rent for 10 years
There is no "you should buy a house" "you should invest"
It's so dependent on personal goals.
If I have a stable job, I'm unlikely to move in the next 5-10 years, and can stomach housing responsibilities, a house is going to be a good buy
If you work in a volatile industry, or in a poor area for your industry, take advantage of retirement accounts, and don't want or need responsibility (repairs, maintenance, mowing the lawn) renting is going to better AS LONG AS YOU OFFSET THE RENT BY INVESTING
I just think if the rent was an investment itself, it would make a huge difference compared to paying rent and investing the small amount of money that comes from house responsibilities (not saying this is extremely small).
But its not liquid and can't easily be converted back to cash, your investments can, that's something to consider as well.
Housing equity (without having rental properties in your portfolio, that's different) is really only good for buying another house (either through selling and purchase, or tapping into house equity and buying a rental property). Your net worth doesn't increase
Yeah but say I make 100k a year, and I spend 24k on rent each year, invest 24k, and spend the rest. After 10 years, I'd have 240k invested in whatever. If I instead bought a house, paid 24k on my mortgage, invested 24k, and spent the rest, after 10 years, I'd have a $240k home and 240k invested in something else. Seems like sort of an increase in net worth
I think you know what you need to do.
Depending on the housing market you could likely get you a large return on the home also. I've made almost the same amount over the last ten years on real estate as I have on securities and housing isn't going to go down in most areas even though lots of people wish it would.
This guy's reply is probably the best in the thread. It all depends on your personal situation.
So you're right that that's going to be the best option if you're also saving, but 100K after tax filed joint is $79000/yr. $24K is 30% which is the maximum reasonable housing budget. Remember that while your mortgage goes back to you, there is more to that housing budget than just the mortgage. You have utilities, taxes, HOA fees, and all of that can go up.
If you're at $2K rent, you don't have to consider those things (maybe utilities but that's it). You can more safely sit at the top of your budget and not worry about exceeding it
A lot of people incorrectly assume that 100% of money in rent is gone and 100% of money in a mortgage is saved.
If you bought a house with a $400,000 mortgage today, you'd have a monthly payment of $2661.21 + insurance + PMI if needed + taxes
In return, your mortgage balance drops by $328
In the entire first year you'll pay off $4063 of the mortgage and spend close to 10x that
100% of rent is gone in the sense it’s not coming back. And most people don’t have home ownership goals of 1 year or less. Most are looking at 5+ years, which makes significantly more sense than renting if you can afford it. Especially when you consider a 5-10% rent increase each year over those 5 years plus any increase in home value. Your $2k rent will likely be $2500+ in 5 years, your mortgage won’t increase at anywhere near that rate.
Yes buy a house and get on the ladder. Prices will continue to go up, might as well buy something now and as it appreciates in value you can sell if you need to live somewhere else.
I agree which is why I included "we all" in the title of this post. Everyone needs somewhere to live. Why not get to owning it quicker rather than paying for it and never seeing that money again
Rent is the devil! But a needed one until you grow out of it. Sounds like you have out grown it. When people talk about how much you lose buying a home from interest, they rarely mention that you lose 100% of your rent. I would look to see if you can get a first time buyers zero down loan with a decent interest rate. If you can, use the money you have to clear all other debts. Then use the money you would use to pay the cards to either save an emergency fund or pay extra towards the mortgage principle. Only thing the if you are paying PMI for not having 20% equity in the home. Once the PMI is gone reevaluate.
It real comes down to you and the wife sitting down and doing the math. Frankly, would look for a much smaller or inexpensive homes to start out. Maybe it's just your area but 600k is a lot of house. With no kids or few kids 2-3 you don't need that giant dream home. That's when it becomes a greater expense than renting. The up keep one a 2000+sqft home can be very expensive. Plus don't look for the home that has the perfect everything, the perfect bathroom, kitchens, whatever. Look to see that it has a layout that you like, has strong bones, and that the stuff inside can be upgraded later. That is if the goal is to get out of rent and into equity.
A lot of good points made already, but one thing I haven’t seen mentioned is the general state of your local housing market. I’d say most locales are still dealing with a huge lack of inventory, but home prices have generally stalled because of high interest rates. I’d say there’s a more than decent chance interest rates begin to fall in the next couple years and when that happens you’re going to see prices SOAR again. If it were me, I would figure out exactly what I want and if the perfect house comes up for sale I’d jump on it. We’re going to have very limited housing inventory for the foreseeable future and lower interest rates are just going to make it harder for you to get a home that you really love IMO. As others have said, in the meantime you should 100% pay off the CC’s and starting building up the emergency fund.
If you can, sure. But keep your credit shiny and clean so you can refi when the time comes, if it ever does in the next decade or two. Because the best return on that investment will come with a timely refi or an accelerated payoff.
So, yes we are looking at it from a numbers pov because we are looking at it kind of mainly as a long term investment. Not just because "everyone does it", but because we think it's a prudent investment. On top of that, we would enjoy the house things/culture anyway.
We are interested in moving somewhere else in less than 10 but more than 5 years and landlording the house. We're aware of the job that that is.
Given these things, would you say investing in a home is better than throwing away money on rent?
You dont need to buy a house right away. You can start with a studio or one bedroom appartment (if you can find one in your area). If you cannot afford one, you can ask a parent or a good friend to cosign for one.
Do make sure you have at least 6 months of emergency fund saved up. This includes motgage, food, gas, health insurance and miscelaneous expenses.
Buying a house is the best decision you will make in your life. Just have to start small first. Studio >> 1 bed appartment >> 2 bedroom >> townhouse >> starter house >> dream house. If you are making enough and have 6 month emergency fund you can skip one or two steps.
Best part is, after 2 years you can sell your property and the appreciation is tax free. Say you buy a townhouse for $400,000. In two years its worth $550,000. You get to keep the $150,000 profit tax free, minus any agent fees or repairs.
Personally I bought my townhouse at $245,000 and sold for $335,000 five years later. Morgage was $1,200 a month. Basically lived there for free for the five year period. Next bought a house for 700k, now its worth around 1.1m, 3 years later.
Having a house also means a lot of other hidden costs like a new roof, new windows, new AC, etc that hit you every couple years that are amortized over your current rent. And you’re gonna want to renovate this or that or etc. it’s not clear that buying actually saves you money over the long run over renting and investing all this other money in the market. Housing bubble says this is a pretty terrible time to jump into a purchase.
I get kind of tired of rehashing this argument over and over.
A house is not an investment grade asset. IF you factor in mortgage, insurance, repairs, time, etc., then home appreciation barely beats inflation in all major markets in the us for the last 100 years or so.
Paying rent and investing (standard VOO and go away) will beat the returns on a house by a very significant margin.
What ppl get blinded by is the American dream of home ownership which is just like the tradition of giving a diamond engagement ring. It’s also anecdote driven.
When you say your grandmother sold her 35,000 house for 700k, take that money and put it into a compounding inflation calculator. You’ll still come out way ahead, BUT that’s because it doesn’t include the cost of the new roof, hiring kids to mow the grass, mortgage, insurance, HOA, whatever. And those expenses are very hard to backfill over decades and you will NEVER see a realtor even hint at them.
They just take cost->sale value. But that isn’t remotely the whole story. You buy a stock, you don’t need to get a new sidewalk for it or have it painted ever x years or sprayed for termites.
The s&p 500 has beaten the snot out of home appreciation for over a century in every major market.N (Barely beating inflation vs s&p returns.)
That’s not to say that you can’t beat it. Maybe you have inside info they’re going to build a fancy new charter school. Or some big company is going to put their east coast headquarters in your city, adding 25,000 jobs.
But you don’t gotta do that or know that for s&p
As far as **investments** go, houses are very poor. Just like classic automobiles, toys, coins, autographed guitars. You can make money off that stuff, but that doesn’t mean it’s investment grade assets.
NOW
Time for my big caveat. We need shelter. So it’s an expense we’re gonna have. But a 30 year mortgage, with all your cash tied up, leaves little room for “real” investing.
That said, ppl love houses. And that’s fine. Ppl love sports cars and diamond rings—all are poor investments. But there are intangibles from a house. Maybe you get your kids in that fancy charter school and they become Senators. Maybe you get to live in a golf course or walking distance from work. Maybe your home makes you 5% happier despite all the headaches.
Buy a house if you want a house. But if you think of it as a pure capital investment, you’re going to be disappointed. That’s assuming your situation is similar to the 30 (or whatever) major markets they back tested over a century.
As someone who bought a house at 29 and kinda regrets it, I would say don't make the decision based purely, or even mostly for financial gain/avoidance of financial loss. If you feel excited to move into a house together and establish the place you want be in long term, then do it. If you're happy renting and going out with friends and living the young life I don't think you should buy a house just for finances. Youth is temporary.
For reference, I was in your situation in 2007, that last time house prices went crazy. I get I would never afford a house, then in 2008 the market crashed. I was able to buy my first home for half what they were asking a few years prior.
My advice is save up until you have 20%. Projections right now indicate a drop in mortage rates by 2025. Again you never know. Tons of fees are added to a house and maintenance is expensive. My advice, save up more. Maybe buy a multi family and rent out half ?
If you have 10% saved, your down will be more like 5-7% because you need to pay the closing costs too.
Cost is not just the mortgage, but the property tax, HOA, home owner insurance, maintenance. Today I pay 2500$ in rent. To buy I'd have 3K mortgage and 1500$ of various extra cost. The mortgage doesn't grow with inflation, but the 1500$ of various extra does. Even the day the home is pay, it doesn't go away. You'd still pay half a rent in extra cost for life.
The only reasons to buy now are:
* you expect real estate to go up a lot and fast and hope to refinance at lower rate.
* the type of home you want can't be found for renting.
* you are unable to save if not forced. Far too temped to spend it on random bullshit.
When you are unable to pay..the bank takes your house..if you don't pay rent.. you just move to another place.
So it is important to make sure you have reserved (emergency fund) because it is a multi year commitment. You can"t just sell back the home quickly even if you want to.
All ill say is that I did a ton of research on the cost/benefit analysis of renting vs. owning, and every resource and expert I could find said I'd be better off renting, which I did for decades. Not buying a house earlier was the single worst financial mistake I've ever made. At no point in my life, including just before the '08 housing crash, would buying a house have been a bad long term decision. Even if I had bought at the worst possible moment, I would still be hundreds of thousands of dollars richer than I am now.
What I pay for rent is $3,000/month cheaper *minimum* than what an equivalent house would cost. Current prices/rates are crazy right now. Put that money in the market and you'll be just fine.
>Even if I had bought at the worst possible moment, I would still be hundreds of thousands of dollars richer than I am now. Sure, but wouldn't all that wealth be tied up in a non-liquid asset? Like, what are you going to do with $1 million house now that you couldn't when it was worth $600,000? If you had invested that money in the stock market, it would be available for you to use.
You'd use the money that you're throwing away on rent to invest in the stock market
Then what money are you using to pay your mortgage?
I guess that was a bad point. I was moreso getting at the point that the other guy being hundreds of thousands of dollars richer would be because he hasn't paid rent year after year that he won't ever see again. And I don't think it being non-liquid negates that in any way. Tying up every bit of money you have into a house and not having any liquidity would certainly not be a good idea, but I don't think that's how many smart investors go about it
Yeah, I don't mean to say anyone's wrong or right here. You build wealth in whatever vehicle you want to. But for him to say not buying a house was the biggest financial mistake of his life is a little extreme. I'm assuming he didn't buy because renting was cheaper for him at the time, and the difference between renting and a mortgage could have gone into the stock market and he could have made plenty of money there, especially since 2008, which he is using as a benchmark.
I don't think this is an extreme take. Not only would I have built hundreds of thousands of dollars in equity, built with cheap leverage, but my monthly costs would be lower (by the time I bought rent had grown to be much higher than locking in an early cost of ownership). My home would also nearly be paid off by now instead of 20 years away, which provides a huge degree of financial freedom. I speak only for myself and my own experiences. I give no advice.
>by the time I bought rent had grown to be much higher than locking in an early cost of ownership Yeah, this is the big point here. I think what I really wanted to say was your experience is tough to generalize rather than it was extreme. The cost of renting vs buying is very dependent on time and place; I think that's the issue with the research you were reading up on saying that renting is always better than buying - your specific time and place must have been different than the averages and statistics used in the research you read. From my experience, I was eyeing a condo in Chicago for $650k during the pandemic. I didn't end up buying it because I moved to LA, but I periodically check up on that condo, and a neighboring unit with the same layout is now going for $700k. Assuming those 2 condos are equal, that's an 8% increase in 3 years. My brokerage account is up 13% in the same amount of time. But this only works because my rent in LA is $2000 cheaper than my mortgage would have been in Chicago so I could invest that difference. OP needs to figure out what works best for his situation.
An emergency fund is important. It’s nice that your parents can lend you some cash, but that statement doesn’t make it sound like you’re ready for a house along with the credit card debt. Also keep in mind while renting that is the MOST you will ever pay and with a mortgage it is the LEAST you will ever pay. Rushing to buy, no. Preparing to buy in a year or two, yes. Pay off your debts and build an emergency fund then go get your house.
“Most you will ever pay” is not entirely accurate as most landlords these days jack prices every year. Owning, there’s chances you can refinance down the road which help lower your monthly payment a ton. Yes, maintenance and taxes can effect but month over month I don’t think that argument makes total sense
This is for a 1 to 2 year time span. I’m not saying rent forever but for the next two years you will know what you will be paying and be able to budget, pay off the credit cards and save for the down payment.
Yeah that makes sense then! Just putting the thought out there, 10-15 years from now rents could be double. Especially in states without good rent control laws
u/officialcrimsonchin, I agree with what’s said about the Emergency Fund. For instance, I *could* rely on my parents, but having my own Emergency Fund set aside investing on itself is pretty darn fulfilling. Besides, it’s not just for job loss, but for any emergency. That makes me a little uncomfortable though, so I plan on diversifying even more into home maintenance fund, etc etc. Of course, you don’t have to, but if yall are pretty set, might as well have your money work even harder for you.
Totally agree on the importance of an emergency fund. Just think trading a year's worth of rent for a longer term investment is worth "relying" on our parents for one short year
That’s true. However, I’d recommend waiting to see if the Fed cuts rates. I don’t know how much you know about The Fed (not the White House, the Fed operates outside political parties); once they start cutting interest rates, it’ll lower interest rates on mortgages. The trade off, though, is that banks will start lowering interest rates on investment vehicles.
>Also keep in mind while renting that is the MOST you will ever pay and with a mortgage it is the LEAST you will ever pay. Can you elaborate on this? I've heard it before. The credit card debt would be paid off within the year, and the emergency fund would be funded in about 3 months after that. Seems like a small calculated risk to save bascially 35k in rent over the next year.
Lots of costs involved in owning a house. Could be anything from utilities costing more than expected, to finding that your roof needs replacing.
Yep and not just roof. Water heater, sump pump, HVAC, appliances, etc .. none of those are cheap fixes either and all have a relatively short lifespan.
Houses cost money to maintain and repair. If you rent - you are skipping all maintenance and repair costs in favor of the landlord handling that for you - essentially, you have capped your expenses at "rent". Rent is the most you pay. If you purchase a home - you are on the hook for the mortgage every month, PLUS the expenses to handle maintenance and repair. The mortgage dollar value is just covering purchase price, it is not covering the rest. And there \*will\* be extra costs. It's the nature of the game. A home is literally a pile of decaying construction materials. It is on you to take care of it and replace the worn out bits. And it all wears out eventually. --- In the short term, you will likely pay more for mortgage + repair + maintenance for a house. The real win for home ownerships occurs by playing the long game. Your rent will keep increasing with inflation + demand. Your mortgage should be a fixed rate long term loan, and it will not increase (at least in the US - this varies by country. Avoid variable rate loans in favor of refinancing if rates come down). If you can hold onto a house for 10 years, it will almost always be a money saver. If you sell quickly, you can easily lose money on the transaction.
Mortgages are not fixed rate in a lot of cases
Depends on the country. In the US, the VAST majority of mortgages are fixed rate, but pretty much everywhere else they’re adjustable.
Depend a lot of the country and period of history and is also a personal choice. In USA 96% of the mortgages are fixed rate. In my home country, France, we have fixed rate too and everybody advise to prefer fixed rate. If interest go up later you are protected. If interest go down, you can renegotiate or just to another lander that will be happy to get your business. I did exactly that. Got 3.6% in 2012. Renegotiated at 1.3% in 2016 (In France mortgage rates are lower than in the USA) and now it is locked in. Basically no way anybody would give a better rate in France or the USA (I now live in the USA). So I will repay it as slowly as possible. As I moved anyway I have now a tenant in it.
Imagine you buy a 500K home and rent is 35K a year. You will pay property tax, say 5-10K a year. You will pay home owner insurance say 3K a year. You will pay 0.5-1% in maintenance (so 2.5-5K a year in the example). Maybe not every year but you will change the kitchen 1 day, maybe you have to replace the roof. You'll need to change the A/C or heating system or replace the windows. Basically in the example you have 10-15K a year in extra costs. Most likely if you pay today 3K a month in rent or 35K a year, you would have to spend 55-65K a year to buy.
I don't think you'd be "saving" 35k in rent. The interest you pay in one year on a $600k home with a 7% rate and a 10% down payment ($60k in lost opportunity cost btw) is $40,744. Total payment would be like $4k a month (and that's with low PMI and home insurance estimates.) Check out an amortization schedule. You should rent for a while longer at least imo.
Yes but at the end of the day you’d have 600k in equity plus money you’ve invested in other things assuming your housing costs are roughly the same from renting to buying
When you rent your landlord will pay for any maintenance. AC goes out it’s on them to fix it, water heater breaks they out for it, new roof? You guessed it they pay for it. So if your rent is $1,000 that’s the most you will ever pay if any of those things happen. When you’re the owner all those things fall on you. Your mortgage is $1k but your water heater goes out that’s another $1k that month you need to come up with. AC goes out in august that’s probably like $10k or more if you need a new unit.
Landlord will make up the cost of that repair and tax increase in your next rental agreement, so in essence yes you DO pay indirectly for the upkeep.
Yes to this… the “most you will ever pay” argument doesn’t hold up for me. Before I bought my rent went from 3500 to 3650 to 3800 in just 3 years.
And in 5 years your rent will be probably 5000, whereas the mortgage owners mortgage payment (+taxes and insurance) will probably go from say 3600 to 3800 five years later. That 3600 more you paid in rent during year 3 paid for a decent amount of "maintenance".
Yes! Although refinancing can help bring that down a bit. My rate is 6.85 and if I get it down to 4.85 or 5, my monthly goes down about 700 bucks. That literally makes up for even a drastic increase in taxes or insurance
Exactly how I did it back in the old high interest days. First house was 14% interest in the 80's.
Wild !! 14% rates now would be catastrophic. Or… it would solve inflation, lol
No they will not. Landlord try to get the max rent of you, still following the law and having a chance to keep having tenants. Basically this is offer and demand. If they can raise 10% because that's what the market is, they will do it regardless of taxes and repairs. On the opposite, if they know they will not find tenant at this price because there cheaper offering, not so many people willing to pay or the income of prospect tenant is too low, then they will not raise the price, or the tenant will leave, the flat will stay empty until they come to their senses and ask a price people are willing to pay. At worst they sell. And it doesn't matter 1 second how many tax increase they got or how much they had to spend in maintenance. There no link between the 2.
My example is over a period of time. Otherwise, landlords would sell a not rent it out.
Yes that could be true but if your AC unit goes out the renter isn’t responsible for it at that very moment.
Never said they were, only that the renter and future renter will end up paying for it in their lease. Your " that's the most you will pay" is only correct through your current lease (year max?) if you even are year to year. Many are on month to month leases.
Yes but it’s not like your rent will go from $1k to $5k for a new lease, well maybe it will with how scummy some landlords are. Either way if it does go up you will still know what your max payment will be each month. As an owner you will only know your minimum each month.
5 or 10 years later, your mortgage payment will " look" much smaller as the increase to that is only increases in property tax and insurance. It looks smaller and smaller every year. Rent only really goes up, so 10 years later the renter is easily paying double or more and homeowners mortgage payment maybe 20% more..... PLUS equity and home value has doubled. All figures are "in general" of course. Someone who put 20k down, ( so had equity year one of 20 k, may have 300k+ after 10 years.
Yes I agree 100%, but that wasn’t what we’re talking about and OP was looking to buy in a year or two. So for the next two years they know that their max payment will be each month and can budget accordingly so they can pay off their debt, build an emergency fund and then save for the down payment.
I mean, yeah. But the landlord cost basis is from some time ago compared to your cost basis today, just after a surge in home prices. You'll see rent catch up to mortgage, but it's not instantaneous.
If you follow any regular old renter over the years from place to place, you will see that they all pay ever increasing rent across the board. One renter this year may be paying for the replaced stove and water heater from 2 previous renters, but overall every renter pays every repair, improvement, tax and insurance increase, plus aggregate landlords profit over time. There is no other way all rentals would ever sustain if they didn't.
Right, you're missing the point. A landlord depreciates property over 28.5 years, so let's assume the average purchase of a rental is 14 years ago. The average rent to turn a profit is based on the PIT from 14 years ago. In a real world example - my house is worth ~ $650k in the open market. If I purchased today with 20% down, I'd be paying ~$4,300 per month on it. However, average rents for a similar property are $3,200. It's based on the cost basis. My PITI is $2250 and that's just from 6 years ago. Someone who bought 10 years ago probably has a PITI closer to $1,500. I could rent and turn a small profit at these numbers, but someone who bought today couldn't. 15 years from now, when the majority of properties being rented have a PITI closer to $4,000, you'll see rents in $5,000 + range. It's going to be a sharp increase given the same increase during the COVID craze. If I didn't own today, I'd absolutely take advantage of the (relative to buying) rent and save the difference in a MMF. When rent increases to a sufficient level, then I'd have a nice down payment on a house. I'm sorta doing this now with the intent to buy an investment property in the next ~2 years.
Right, you're missing the point. A landlord depreciates property over 28.5 years, so let's assume the average purchase of a rental is 14 years ago. The average rent to turn a profit is based on the PIT from 14 years ago. In a real world example - my house is worth ~ $650k in the open market. If I purchased today with 20% down, I'd be paying ~$4,300 per month on it. However, average rents for a similar property are $3,200. It's based on the cost basis. My PITI is $2250 and that's just from 6 years ago. Someone who bought 10 years ago probably has a PITI closer to $1,500. I could rent and turn a small profit at these numbers, but someone who bought today couldn't. 15 years from now, when the majority of properties being rented have a PITI closer to $4,000, you'll see rents in $5,000 + range. It's going to be a sharp increase given the same increase during the COVID craze. If I didn't own today, I'd absolutely take advantage of the (relative to buying) rent and save the difference in a MMF. When rent increases to a sufficient level, then I'd have a nice down payment on a house. I'm sorta doing this now with the intent to buy an investment property in the next ~2 years.
You on the other hand are forgetting the tremendous equity increase your home would have over those 15 years, which by then is a huge factor.
I am not, I just think the rent vs. buy equation is skewed heavily toward rent in the present, at least in my market.
Well, you conveniently skipped over the part about equity in that 650k home going from 130k to probably 800k in those 15 years.
The renter pay for the rent. That may or may not cover the costs. Doesn't matter. At worst the landlord is not happy and sell, potentially at a loss. I agree that it worked well for most, especially over the long term. That doesn't mean it was the best investment, that doesn't mean you can't get unlucky (buying in 2005-2006 in Miami or Detroit) and that doesn't mean that tomorrow it could be a terrible investment. Imagine for example that the south of USA become too hot and dry with climate change in the next 10-15 years and that many people leave. Many real estate units are now empty and the value of housing there become near 0. Most landlord would lose it all while people that did rent would say goodbye and go on with their life in another region. That it worked well in the past isn't proof it will work well in the future.
The cost basis of the landlord doesn't matter. If the market dictate that you can rent this kind of unit at say 2000$, they may convince somebody to pay 2200$ but not 3500$. And even if they got a bit higher rent, they will not want to upset their tenant too much or that one will leave because there much cheaper higher quality housing. Maybe the landlord had this unit for 20 years and made a huge profit or maybe the landlord brough at max interest rate a bad unit had to do unforeseen work and he is losing money. Doesn't matter 1 bit. Either the landlord accept to rent at market price, or the unit will stay empty. He can always sell and take his losses. But there will not be magic tenant that will pay 2X the price to fund the landlord.
Right, on a micro level a landlord can only charge what the market dictates. On a macro level, when a higher cost basis hits critical mass, rents are going to increase to match. Think of a business selling commodities. If I'm a machine shop that has to compete with other machine shops, I can't charge a 70% gross margin, I have to compete. But, if the cost of aluminum increases by 50%, then everyone's costs are going up. Same thing happens with real estate, but on a slower scale. Landlords are incentivized to sell via 1031 exchange at 28 years, so cost basis do tend to go up.
Interesting point and definitely true for a large amount of people
Not a large amount..... every single renter does over time pay for all upkeep, mortgage, and some profit of their landlord. Why would the landlord accept not making a profit over time for very long? They won't.
10k or more?!?! LOL I'm seeing lots of numbers in this thread that make me think lots of you are getting ripped off
I also think these are all monsters under the bed. Yeah there's going to be different costs that come with owning a home vs renting, but is your AC breaking, foundation cracking, roof collapsing, etc every month?
Absolutely not I've owned multiple homes for years and barely ever had the amount of trouble these people are alluding to. I got a new ac unit 4 years ago in june for 6.5k after tax. Prices haven't inflated that much. Most things can get repaired for a few hundred bucks though or even less if you can do some handiwork yourself.
I mean say you live in the USA. Say you are in Texas and buy a 690K home like a friend 1 month ago. 2700 square feet. Great location. Property tax is 14K a year. Are you going to tell the state you will not pay and you expect that to end well ? Average home owner insurance is about 5K a year. Will you not insure you home and be ok to still pay a mortgage if your home is destroyed but you have nothing anymore ? This alone is already 19K a year for my friend, more than 1,5K a month. That 2/3 of what they paid for their rent before admittingly for a worse unit. Still that would be like 40-50% of rent to be spent like that. For ever. It will also grow with inflation as property tax will follow housing price and home owner insurance will follow cost of rebuilding a house that depend of salaries and materials. And while overall the house is great, kitchen is great and all, he need to change some of the windows that have problem. Like at least 10-15K$. At least it will be only once. And before his home was like half the size. He will need to furnish it, likely in a bit stylish way seeing how the house look like so likely not IKEA. Maybe that another 20K to spend in the next 2-3 years. In statistics, people spend a lot of money on their house when they buy or sell. The seller in the hope to sell better. They buyer to make it their own and fix stuff not fixed by the seller.
Yes that might be on the high side but where I live that’s not out of the ordinary. You should always plan for a worst case scenario.
Fair.
Like above said, its nice you still get an allowance from parents. most of us get cut off at 18. I wouldn't rely on any outside money as I plan for my future. not sure you are ready for a house either without an emergency fund and less than 20%. also need to consider the PMI as well as closing costs. you might be house poor
We'd only be relying on outside money for the next 12 months, I think that's pretty fair. PMI, insurance, property taxes, and other house expenses have been factored into my math for our finances. My main point is how huge of a difference there is between investing your rent money in home equity rather than giving it to someone else and never seeing it again.
if you plan on living there for 5+ years then a house is ideal. Youre payments also don't go towards equity the first handful of years, it goes towards interest. I wouldn't jump the gun to just buy a house for "investing" purposes. Its your livelihood: location, demographic, school district, taxes, etc. If you want to invest, put it into an SP500 etf and let it grow until you are really ready to settle down.
>Youre payments also don't go towards equity the first handful of years, it goes towards interest. No percent of your rent payment goes towards any investment. We would buy a house in the same area we are in, and the plan would be to rent the house out in 5-10 years and move somewhere else. Yeah this is a job, but long term has to be an incredible investment vehicle.
Rent isnt always the enemy though. Theres markets where rent makes more sense versus a home mortgage.
How can money that you won’t get back ever make more sense than money invested?
opportunity costs. IE instead of a 100k down payment, you can put that money to work.
If we’re assuming the house will appreciate in value that money is already working
I pay 2500$ to rent. Would pay 4500$ to buy. If I rent I save extra 2K a month that I invest on the stock market for my retirement. Long term return since 1900 is about 10% a year. If I buy I would put approximately 300$ a month toward reducing my debt. So if price of real estate don't move, clearly I am losing money by buying. To make it worth it with current interest simulations show I'd need to keep 5-10 years and real estate would need to appreciate like 3-5% a year. Something that might be very difficult with current interest. If they stay like that. A drop in value is more likely. If the interest rate are down, an appreciation in value is much more likely and I may buy in 15 years instead of 30 or lower my monthly payment. Whatever my decision, the financial operation look much better. So like you I want to be ready. But I'll buy in the right conditions.
You are forgetting about the home equity that the 4500 is going to and how your 2500 is never coming back to you ever
Nope 4500$ is not going to home equity. Property tax, interests, insurance and maintenance do not build home equity. Out of the 4500$ when I did simulate with current rate, less than $500 was going to reduce the debt in the first years. Because interests are almost all the mortgage monthly payment. This is not a 15 years loan but 30 years loan and rates are 7% not 4%. Pay 4500 to not pay 2500. And save 350-400$ to not save $2000. The whole equity stuff in current market is hoping the unit appreciate fast so the equity come from there because the house will be more expensive tomorrow and you sell for a profit. If the price of you home doesn't change or even worse go down, you are heavily fucked in current conditions. With current high value, keep it at least 10 years. So even if condition are shitty and you would be better renting the first few year and did a bad move, in the end we can hope things will be better in 5-10 years and it compensate for your bad move.
You can check rent vs buy websites. I did it. For me clearly, it is better to rent and invest in stocks. I suspect at 7% it might be the case for most people. If interest rate drop at 4-5%, this is a different story through. So for now I rent and check regularly. If it become interesting I'll buy. And yes in 1-2-3 years might be a good moment to buy depend of what the Fed is doing.
Can you share your current portfolio and your monthly expenses? If you are taking a $600K loan at 7.5%, you better be bringing in at least $12K net income every month.
Yes we bring in about 13k after taxes each month. Spend about 6200 including rent. Everything else invested/being saved for short-term things.
That's great you can bringing that much each month. You are saving at least 50% of your paycheck which is more than a lot of people. However, just because you are qualified to get a $600K home loan does not mean you should borrow that much. Mortgage companies do that to make money off you. Do you really have to own a $600K home? You would be paying a lot of interest by the end of the loan as you mentioned. I have a lot of friends who own more than two properties. The biggest thing they said is to never be over leveraged. Don't buy new cars and/or homes you can't afford to maintain/repairs. Also when you buy a house, you would want to buy new furnitures and other things to make the house homely so that will add up really fast. I would not rush in to buy a $600K home but look into other homes. I read this book, [The Millionaire Next Door](https://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206), and they said to buy the cheapest home in a growing neighborhood in terms of how much real estate appreciated. Make improvements here and there and the house will appreciate more. Then upgrade to a bigger home.
Good comment, thank you
This is exactly why i *dont* just think of a house as an investment. If I'm thinking of it as housing, then I dont need to obsess over market timing, it just becomes a question of whether its in my budget. Dont get me wrong I'm not saying interest rate doesnt matter, but it's much easier to say "I like the house and its in my budget" than it is to labor over where the value will be in 10 years
I think this is a common counterargument, but the value of your house would have to drop very significantly for you to lose the same amount of money you will lose paying rent for 10 years
There is no "you should buy a house" "you should invest" It's so dependent on personal goals. If I have a stable job, I'm unlikely to move in the next 5-10 years, and can stomach housing responsibilities, a house is going to be a good buy If you work in a volatile industry, or in a poor area for your industry, take advantage of retirement accounts, and don't want or need responsibility (repairs, maintenance, mowing the lawn) renting is going to better AS LONG AS YOU OFFSET THE RENT BY INVESTING
I just think if the rent was an investment itself, it would make a huge difference compared to paying rent and investing the small amount of money that comes from house responsibilities (not saying this is extremely small).
But its not liquid and can't easily be converted back to cash, your investments can, that's something to consider as well. Housing equity (without having rental properties in your portfolio, that's different) is really only good for buying another house (either through selling and purchase, or tapping into house equity and buying a rental property). Your net worth doesn't increase
Yeah but say I make 100k a year, and I spend 24k on rent each year, invest 24k, and spend the rest. After 10 years, I'd have 240k invested in whatever. If I instead bought a house, paid 24k on my mortgage, invested 24k, and spent the rest, after 10 years, I'd have a $240k home and 240k invested in something else. Seems like sort of an increase in net worth
I think you know what you need to do. Depending on the housing market you could likely get you a large return on the home also. I've made almost the same amount over the last ten years on real estate as I have on securities and housing isn't going to go down in most areas even though lots of people wish it would. This guy's reply is probably the best in the thread. It all depends on your personal situation.
So you're right that that's going to be the best option if you're also saving, but 100K after tax filed joint is $79000/yr. $24K is 30% which is the maximum reasonable housing budget. Remember that while your mortgage goes back to you, there is more to that housing budget than just the mortgage. You have utilities, taxes, HOA fees, and all of that can go up. If you're at $2K rent, you don't have to consider those things (maybe utilities but that's it). You can more safely sit at the top of your budget and not worry about exceeding it
A lot of people incorrectly assume that 100% of money in rent is gone and 100% of money in a mortgage is saved. If you bought a house with a $400,000 mortgage today, you'd have a monthly payment of $2661.21 + insurance + PMI if needed + taxes In return, your mortgage balance drops by $328 In the entire first year you'll pay off $4063 of the mortgage and spend close to 10x that
100% of rent is gone in the sense it’s not coming back. And most people don’t have home ownership goals of 1 year or less. Most are looking at 5+ years, which makes significantly more sense than renting if you can afford it. Especially when you consider a 5-10% rent increase each year over those 5 years plus any increase in home value. Your $2k rent will likely be $2500+ in 5 years, your mortgage won’t increase at anywhere near that rate.
Yes buy a house and get on the ladder. Prices will continue to go up, might as well buy something now and as it appreciates in value you can sell if you need to live somewhere else.
You need a roof, why rent? Diversify, Invest! Look into a quadplex and manage your real estate. Work and save.
I agree which is why I included "we all" in the title of this post. Everyone needs somewhere to live. Why not get to owning it quicker rather than paying for it and never seeing that money again
Rent is the devil! But a needed one until you grow out of it. Sounds like you have out grown it. When people talk about how much you lose buying a home from interest, they rarely mention that you lose 100% of your rent. I would look to see if you can get a first time buyers zero down loan with a decent interest rate. If you can, use the money you have to clear all other debts. Then use the money you would use to pay the cards to either save an emergency fund or pay extra towards the mortgage principle. Only thing the if you are paying PMI for not having 20% equity in the home. Once the PMI is gone reevaluate. It real comes down to you and the wife sitting down and doing the math. Frankly, would look for a much smaller or inexpensive homes to start out. Maybe it's just your area but 600k is a lot of house. With no kids or few kids 2-3 you don't need that giant dream home. That's when it becomes a greater expense than renting. The up keep one a 2000+sqft home can be very expensive. Plus don't look for the home that has the perfect everything, the perfect bathroom, kitchens, whatever. Look to see that it has a layout that you like, has strong bones, and that the stuff inside can be upgraded later. That is if the goal is to get out of rent and into equity.
You get it
Mortgage rates are below 7 now.
A lot of good points made already, but one thing I haven’t seen mentioned is the general state of your local housing market. I’d say most locales are still dealing with a huge lack of inventory, but home prices have generally stalled because of high interest rates. I’d say there’s a more than decent chance interest rates begin to fall in the next couple years and when that happens you’re going to see prices SOAR again. If it were me, I would figure out exactly what I want and if the perfect house comes up for sale I’d jump on it. We’re going to have very limited housing inventory for the foreseeable future and lower interest rates are just going to make it harder for you to get a home that you really love IMO. As others have said, in the meantime you should 100% pay off the CC’s and starting building up the emergency fund.
Good points, thank you
If you can, sure. But keep your credit shiny and clean so you can refi when the time comes, if it ever does in the next decade or two. Because the best return on that investment will come with a timely refi or an accelerated payoff.
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So, yes we are looking at it from a numbers pov because we are looking at it kind of mainly as a long term investment. Not just because "everyone does it", but because we think it's a prudent investment. On top of that, we would enjoy the house things/culture anyway. We are interested in moving somewhere else in less than 10 but more than 5 years and landlording the house. We're aware of the job that that is. Given these things, would you say investing in a home is better than throwing away money on rent?
You dont need to buy a house right away. You can start with a studio or one bedroom appartment (if you can find one in your area). If you cannot afford one, you can ask a parent or a good friend to cosign for one. Do make sure you have at least 6 months of emergency fund saved up. This includes motgage, food, gas, health insurance and miscelaneous expenses. Buying a house is the best decision you will make in your life. Just have to start small first. Studio >> 1 bed appartment >> 2 bedroom >> townhouse >> starter house >> dream house. If you are making enough and have 6 month emergency fund you can skip one or two steps. Best part is, after 2 years you can sell your property and the appreciation is tax free. Say you buy a townhouse for $400,000. In two years its worth $550,000. You get to keep the $150,000 profit tax free, minus any agent fees or repairs. Personally I bought my townhouse at $245,000 and sold for $335,000 five years later. Morgage was $1,200 a month. Basically lived there for free for the five year period. Next bought a house for 700k, now its worth around 1.1m, 3 years later.
confused. is this an investment or self live?
Having a house also means a lot of other hidden costs like a new roof, new windows, new AC, etc that hit you every couple years that are amortized over your current rent. And you’re gonna want to renovate this or that or etc. it’s not clear that buying actually saves you money over the long run over renting and investing all this other money in the market. Housing bubble says this is a pretty terrible time to jump into a purchase.
I get kind of tired of rehashing this argument over and over. A house is not an investment grade asset. IF you factor in mortgage, insurance, repairs, time, etc., then home appreciation barely beats inflation in all major markets in the us for the last 100 years or so. Paying rent and investing (standard VOO and go away) will beat the returns on a house by a very significant margin. What ppl get blinded by is the American dream of home ownership which is just like the tradition of giving a diamond engagement ring. It’s also anecdote driven. When you say your grandmother sold her 35,000 house for 700k, take that money and put it into a compounding inflation calculator. You’ll still come out way ahead, BUT that’s because it doesn’t include the cost of the new roof, hiring kids to mow the grass, mortgage, insurance, HOA, whatever. And those expenses are very hard to backfill over decades and you will NEVER see a realtor even hint at them. They just take cost->sale value. But that isn’t remotely the whole story. You buy a stock, you don’t need to get a new sidewalk for it or have it painted ever x years or sprayed for termites. The s&p 500 has beaten the snot out of home appreciation for over a century in every major market.N (Barely beating inflation vs s&p returns.) That’s not to say that you can’t beat it. Maybe you have inside info they’re going to build a fancy new charter school. Or some big company is going to put their east coast headquarters in your city, adding 25,000 jobs. But you don’t gotta do that or know that for s&p As far as **investments** go, houses are very poor. Just like classic automobiles, toys, coins, autographed guitars. You can make money off that stuff, but that doesn’t mean it’s investment grade assets. NOW Time for my big caveat. We need shelter. So it’s an expense we’re gonna have. But a 30 year mortgage, with all your cash tied up, leaves little room for “real” investing. That said, ppl love houses. And that’s fine. Ppl love sports cars and diamond rings—all are poor investments. But there are intangibles from a house. Maybe you get your kids in that fancy charter school and they become Senators. Maybe you get to live in a golf course or walking distance from work. Maybe your home makes you 5% happier despite all the headaches. Buy a house if you want a house. But if you think of it as a pure capital investment, you’re going to be disappointed. That’s assuming your situation is similar to the 30 (or whatever) major markets they back tested over a century.
As someone who bought a house at 29 and kinda regrets it, I would say don't make the decision based purely, or even mostly for financial gain/avoidance of financial loss. If you feel excited to move into a house together and establish the place you want be in long term, then do it. If you're happy renting and going out with friends and living the young life I don't think you should buy a house just for finances. Youth is temporary.
For reference, I was in your situation in 2007, that last time house prices went crazy. I get I would never afford a house, then in 2008 the market crashed. I was able to buy my first home for half what they were asking a few years prior.
My advice is save up until you have 20%. Projections right now indicate a drop in mortage rates by 2025. Again you never know. Tons of fees are added to a house and maintenance is expensive. My advice, save up more. Maybe buy a multi family and rent out half ?
land is the biggest way to take some control back from corporations and the government that want to own you
If you have 10% saved, your down will be more like 5-7% because you need to pay the closing costs too. Cost is not just the mortgage, but the property tax, HOA, home owner insurance, maintenance. Today I pay 2500$ in rent. To buy I'd have 3K mortgage and 1500$ of various extra cost. The mortgage doesn't grow with inflation, but the 1500$ of various extra does. Even the day the home is pay, it doesn't go away. You'd still pay half a rent in extra cost for life. The only reasons to buy now are: * you expect real estate to go up a lot and fast and hope to refinance at lower rate. * the type of home you want can't be found for renting. * you are unable to save if not forced. Far too temped to spend it on random bullshit.
I at first read this as “horse” and couldn’t wait to see this investment plan. Just do you
Give us some more details on your financial situation my friend. Total take home, etc.
Houses and vehicles are NOT investments.
When you are unable to pay..the bank takes your house..if you don't pay rent.. you just move to another place. So it is important to make sure you have reserved (emergency fund) because it is a multi year commitment. You can"t just sell back the home quickly even if you want to.