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Buy a house: Yes or No?
April 14, 2009 2:14 PM   Subscribe

Do I buy a house?

I understand this may be an annoying question, but it's a big one, so I'm hoping to hear from people who've gone through this situation as well.

Situation: I'm early 20s, young professional (solid job), living in a great place I can see myself settling into, and certainly someplace I can see myself in for at least 5 years.

But I love to travel and definitely want to see some of the world, live in other cities, before I settle down.

With the tax credit for first-time homebuyers, this would be a great opportunity to build some equity. Costs would be about the same as renting an apartment and I have enough budget wiggle room to cover a minor catastrophe.

You never can tell what the future holds, so I'm not sure how long I'll stay or go for (if I just leave for a couple years, it can be rented or such (I have siblings in the area)), so I'm just not sure to pull the trigger or rent. Spending 40,000 renting for the next five years seems like a waste when 25% of the could be equity. I know it's risky to depend on real estate for future prosperity, so that's not even a given. I just don't want to miss out on a great opportunity.

Again, I know this question isn't exactly Mefi material, but any advice would be much appreciated.
posted by CPAGirl to Grab Bag (46 answers total) 7 users marked this as a favorite
 
Don't try to catch a falling knife.
posted by devnull at 2:18 PM on April 14, 2009 [4 favorites]


Spending 40,000 renting for the next five years seems like a waste when 25% of the could be equity.

This is almost certainly wrong for most locations, unless a large part of that $40k is your initial equity.
posted by iknowizbirfmark at 2:26 PM on April 14, 2009 [1 favorite]


I don't see this as trying to catch a falling knife unless your only rationale for buying a home is the hope of making a profit off its sale in the near future. If you want to have a place to live where you build equity instead of just giving it to someone else for them to keep building the equity in their investment, than it's not a horrible idea.

If you're in the place financially and life-wise to buy a house, have enough money plus wiggle room in case of an emergency, and a solid contingency plan to be able to keep paying for the house (rental income) if you want to move without selling, as in, you probably won't end up in a position where you HAVE to sell to survive financially, buying a house is not that huge of a risk. It's when you have uncertain finances or wouldn't have any wiggle room in case of an emergency that it's riskier.
posted by fructose at 2:27 PM on April 14, 2009


What's the monthly cost difference between renting a house and paying a mortgage? How much of a down payment do you have? Do yo have an emergency fund for when the water heater blows up, or would you have to put the plumber's bill on a credit card? How handy are you -- are you going to end up calling someone for basic maintenance, or do you have the time, knowledge, and inclination to do it yourself?

Those are the questions you need to be asking... and this question is definitely AskMe material. You've got a good half of the questions down, but you need to really sit down and put a pen to the numbers. Don't forget taxes.

For what it's worth, my roommate saved a lump sum for a down payment and bought a house, and now lives 3 towns over almost full time with his girlfriend. He pays rent on two places, but the nookie's over there and there's a lot of maintenance to be done -- which I take care of for him, and he essentially covers half the "rent" on the place for the amount of time I put in on it. It really hasn't turned out to be a good deal for him, he should've kept renting for a whlie longer. If he had put down more of a down-payment, he would've been making some money each month. As it is, he's losing some (although building equity, which is draining out of the house as fast as it accrues due to the market and the homebuilder he chose.) each month. You should never buy a house just because you can... there's a reason so many young single people rent, or own a condo.
posted by SpecialK at 2:31 PM on April 14, 2009


A large chunk of this answer depends on your location. A more stable area w/r/t housing prices is better then say... Detroit.
posted by bitdamaged at 2:32 PM on April 14, 2009


I was in virtually the exact same position as you. We bought, and we're happy. Could we have gotten a "better deal" if we waited, or changed various variables? Sure, but when can't you say that? We don't plan on moving any time soon (say, inside 3-5 years) so resale value in today's market isn't a big factor for us.

Keep in mind that with a house, it's not just the mortgage cost. You have to pay property taxes and insurance monthly. Also, the average house is bigger than an average apartment, so there's more to heat/cool, power, clean, furnish, etc. There's also the miscellaneous items you probably don't own that you'll need. Things like a ladder, shovel, or garden hose that you'll almost never need in an apartment, but will find a use for after about 48 hours in a new house.

Bottom line, you have to do what you're most comfortable with. Make sure you're confident handling all the non-mortgage issues before you even consider buying.
posted by JuiceBoxHero at 2:40 PM on April 14, 2009 [1 favorite]


There's only two reasons to rent. One is that you can't afford to buy a house.

The other is that, the money you "save" by renting is invested in some other financial vehicle that has an actual return greater than that you would recognize from the total value of the real estate equity you would recognize. This would include the money saved from the various tax advantages of paying a mortgage.

I have a hard time believing that even 10 percent of the people that claim to do this actually do it. But it's certainly possible. I think most people that choose to rent when they could buy are just throwing their money away.

But it's a complicated formula, based heavily on location, location, location. Your mileage will almost certainly vary. Just don't listen to the brainless, wannabe hippies out there that advise you not to buy just on principle.
posted by Cool Papa Bell at 2:40 PM on April 14, 2009 [2 favorites]


Have you thought about coops/condos? You do less maintenance but still get a lot of the benefits of ownership. And most of them (around here at least) will let you sublet when you travel.

Also, a local real estate agent can give you a good idea of what expenses will be like for different type properties in your area.
posted by cestmoi15 at 2:49 PM on April 14, 2009


I have a hard time believing that even 10 percent of the people that claim to do this actually do it.

How is this hard to believe at all? On a $300,000 mortgage @ 5.5%, the first 5 years build $22,000 in equity, or 7.3% equity. In 2008, the average home lost 7.6% of its value. So to beat buying, a renter just has to not lose 0.3%.
posted by 0xFCAF at 2:52 PM on April 14, 2009 [1 favorite]


I would look at the costs more carefully. Someday perhaps I will meet a person who did not underestimate the cost of owning a house, but that hasn't happened yet. Your name is CPAGirl, so there's a really good chance you are better than math than I am, but even so it's probably worth digging into this one. Closing costs, insurance, the tons of stuff you never thought about before that you suddenly need when you buy a home, maintenance costs - buying a house is like buying a used car in that regard, it is honestly always something. Although we have substantially more space (that we need, with a baby) owning a house on average costs us easily 60% more than renting a space that was perfectly sufficient when we were single, and this is a modest mortgage on a modest house (though the overall economics would be a lot more favorable if we'd had a bigger down payment).

Another thing to consider is that owning a house is a lot of work. A LOT of work. Like, I had no idea how much work it would be. Again, we own a reasonably modern, late 40s era, well-built and well maintained house. But it turns out that if real estate doesn't receive constant care, it falls apart. There is ALWAYS something to paint, to fix, something cracking, shifting, getting broken. It just happens. I have maintenance projects on my schedule 100% of the time. Having other people work on your house costs a fortune. There is never a time when there isn't stuff I need to work on. That's to say nothing of routine cleaning and yard work and so forth. Home ownership has easily doubled the time I spend maintaining my living space.

I'm glad I own a house, I like it despite the expense and work. I'm glad to have a yard for my kid and a place to garden and so on. Not having people living directly above, below, or to the side of you is something I would be very sad to give up. But I'm of the consistent opinion that the impulse to own a home purely on the assumption of substantial financial gain over renting in the shorter term (less than 10 years) is misbegotten. It could work out but it could just as easily not work out.
posted by nanojath at 2:53 PM on April 14, 2009 [3 favorites]


Incidentally this gets asked quite a bit here.
posted by nanojath at 2:55 PM on April 14, 2009


Ah, the old buy v. rent conundrum.

First the obvious: There are plusses and minuses to both, so a lot of it comes down to lifestyle preference. I've owned 5 houses, and rented numerous apartments. I now rent. I wouldn't try to talk you out of buying, but here's a little reality check based on my experience.

First, rent is not wasted money. You are trading money for a place to live and (I assume) maintenance and caretaking of the property. Mowing, watering, snow removal, and repairs of anything that goes wrong are covered by your rent. So, add to your projected house payment the cost of maintenance, repairs, and upkeep. If you plan on doing the yard work and snow removal yourself, ask yourself if you have the time, or if that's how you want to spend your time. If not, add the cost of those services to your payment. "Minor catastrophes" aside, it can be a rude surprise to find out how much normal maintenance on a home can cost. And don't forget: it's very unlikely that you will find a home that is so perfect that you won't want to paint, change carpets or flooring, or landscape, or...

Next, don't assume you will have any equity in any particular time period. Buying involves closing costs, financing fees, interest, etc. Your payments will be front-loaded with interest. A very small portion of your initial payments will go toward building equity. At first, nearly all of it goes to interest. The last house I sold was in an increasing market (although not a "boom") and after 6 years of payments, maintenance, repairs, and remodeling, I just broke even. The house sold for about $20,000 more than I paid, but I had made 6 years of payments and put thousands into remodeling. Obviously, every situation is different, but this scenario is not uncommon.

The first time homebuyer credit is attractive, of course. But don't make your decision based solely on its availability.

So, again, I'm not saying buying is a bad idea at all. There are advantages over renting, such as more privacy, freedom to paint, plaster, and decorate however you want, etc. If you do look at houses, make sure you are understanding what the whole payment will be. You want to know the "PITI" (Payment, Taxes, Interest, Insurance) to make an informed decision. I would add at least 10% to any amount a real estate agent gives you for this figure. (No offense to agents; it's just been my experience that their estimates are usually low.)

Either way... good luck!
posted by The Deej at 2:57 PM on April 14, 2009 [4 favorites]


It sounds like you are a CPA, so I think that you are taking the wrong approach to this. The correct approach is to come up with some REASONABLE assumptions and model them, e.g:

Current rent (You already said that this is expected to be $667/month for the next five years)
Cost of house
Current cash on hand to pay for down payment and closing costs
expected minimum time in house
closing costs
moving costs
monthly interest paid
monthly principal paid
increased insurance costs
increased utility costs
increased maintenance costs
property taxes
savings from tax deductions
expected appreciation
any rent you can get roommates to pay
any rent you can get from a tenant if you move out
expected utility benefit to you (expressed in dollars) of being an owner rather than a renter
etc.

As a CPA, you should be able to answer this question using a basic conservative model. What we think shouldn't really matter. I really doubt that there are that many people for whom the first time homebuyer credit really makes that much of a difference. If it does, it has to be a pretty small difference in the first place. Even for smaller, less expensive markets, $8k pales in comparison to ownership costs, appreciation, depreciation, etc.
posted by iknowizbirfmark at 3:01 PM on April 14, 2009 [1 favorite]


There's only two reasons to rent. One is that you can't afford to buy a house.

The other is that, the money you "save" by renting is invested in some other financial vehicle that has an actual return greater than that you would recognize from the total value of the real estate equity you would recognize.


Really? Only two? Because I'm in my early 20s, don't want to be tied down to a specific metro area - never mind address - and want to maintain maximum flexibility as I pursue my career and, even more importantly in the long run, the prospect of living with a significant other. I could absolutely afford to buy a house right now, but I figure 24, single, and having been working for 2.5 years is a really stupid time to settle down and lock myself into a location. Never mind the peace of mind of knowing I don't have to worry about all the things that could go wrong in my house and how much it would cost to fix them, as long as I have enough spare cash to move myself into a new apartment.

Not saying these are universal traits, or that they even necessarily override the advantages of ownership - god knows I'd love to be able to remodel my current place, but they're very real and legitimate reasons for not buying.
posted by Tomorrowful at 3:02 PM on April 14, 2009 [1 favorite]


one thing i feel like people miss with this a lot is like "renting is wasting money". But when you borrow a huge percentage of a home's value to purchase it, you are renting money. Not that there's anything wrong with that, but like...at least be apples to apples about it. In either case, you are paying rent. The details of your market and situation (savings, tax bracket, moving horizon) will determine which is the better deal. Think about this though: the amortization sched of your mortgage is going to work in such a way that for the first several years, the bulk of your payments will be interest, not principal. Sure, there's other benefits like the tax advantages, but if you sell the house in a couple years, you just paid to rent money like you would have paid to rent a house. So there's a few ways I could see this being a good call:

- values are stupid. Like houses are really cheap, rent is really expensive.
- you want to make a speculative bet on the housing market going up.
- you see a way that you could realistically hold on to the house for a goodly while, meaning, even if you move in a few years to travel the world, it'll be practical to rent it out at such a level that it'll take care of itself, or come close enough that you can kick in the overage.

Any or all of these could be true, its just that your question makes it sound like you are thinking "cash on cash i'll be the same, so might as well get the re equity / carry the risk cause i think its mainly to the upside", just want to point out that your time horizon doesn't make the equity argument too good, so like, be clear what you are doing I guess. Otherwise, I wouldn't do it. Hth.
posted by jeb at 3:07 PM on April 14, 2009 [2 favorites]


My girlfriend and I have been making some of the same calculations recently, and one factor that hasn't been mentioned here yet is the neighborhood you're in. In our neck of the woods, we can afford to rent in our perfect neighborhood, but don't have enough of a down payment to buy unless we go out to the edge of town. This can be a quality of life issue. For us, living downtown is worth putting off homeownership for a few years until we've saved up a bit more. Depending on what kind of reserves you have on hand, this may or may not be an issue for you.
posted by echo target at 3:10 PM on April 14, 2009


Let's get one thing straight: it's not really "rent" versus "buy". Unless you put 100% down, you're still renting, you're just renting money instead of a room. In a lot of markets, it's still cheaper to rent a particular property than it is to borrow the money to "buy" it. (Check out item #2 here.)

You should buy when it makes sense for you to do so, not when the market seems good and the government is offering tax benefits.

Can you afford to pay 20% down and still have some cash left over to pay for the inevitable (for example) broken water heater? Is your mortgage payment going to be less than 30% of your monthly after-tax income? If you lost your job tomorrow, do you have the resources to continue paying your mortgage while you find another job?

If you answered "no" to any of those questions, I'd say wait a little bit. Use that time to store up cash until you can answer "yes" to all of them.
posted by sportbucket at 3:10 PM on April 14, 2009 [5 favorites]


It doesn't sound all that crazy for you to buy. If you want a home because you need more room, a yard or want to be able to play your stereo at 2AM, then it's a good idea. Even if it costs you tons more than you expected (which it will), you'll still think it's worth it because you'll be enjoying the property. But while you're young, if apartment living suits you well enough, just continue renting because you'll be able to enjoy all the money you're earning (you could get hit by a bus tomorrow, so you may as well enjoy your life as much as you can, right now).

Be aware that home ownership can eat up a lot of your spare time, especially in the first few years as you learns how much freaking stuff is wrong with your house. That doesn't sound like big deal but it takes away from the time you have for family and friends. As others have said, factor in property taxes, utilities, new furniture and the interest component of your mortgage payments. Set aside a few thousand for emergency stuff like blocked sewer pipes or major roof repairs.
posted by bonobothegreat at 3:27 PM on April 14, 2009


*Buy more house than you need.
*Rent out one or more rooms while you're living there.
*Rent out more while you travel.
*Profit!

I have a 4-bedroom house in Las Vegas. I rent out one bedroom to a friend for half my mortgage, and my gf pays me rent equal to the other half, so I'm living rent- and mortgage-free. I pay all the bills, though, so it's pretty equitable overall.

Buying a house is one of the smartest things I've ever done, financially, and I bought near the top of the market. Had I bought at today's prices, I'd be making a substantial profit.
posted by coolguymichael at 3:29 PM on April 14, 2009


How is this hard to believe at all? On a $300,000 mortgage @ 5.5%, the first 5 years build $22,000 in equity, or 7.3% equity. In 2008, the average home lost 7.6% of its value. So to beat buying, a renter just has to not lose 0.3%.

The kicker in your sentence is "in 2008," which as we all know was a once-in-a-lifetime downturn. Real estate has gone up in value on a steady curve since the end of World War 2.

Next thing you'll tell me is that I shouldn't put money into a 401(k) because in any given year, you can lose money. Yes. These are called risks.

The other extreme is paying rent. And you realize of course that a renter PAYS RENT, which is by definition "losing"?

Really? Only two? Because I'm in my early 20s, don't want to be tied down to a specific metro area

Please don't be pedantic. The question is "should I buy or rent?"

Not "should I buy, rent or move around frequently?"
posted by Cool Papa Bell at 3:31 PM on April 14, 2009


Bottom line:
* If you rent, you pay. Period. That money is GONE. Hope you enjoyed the apartment's charms.
* If you buy, you pay, and there's a good chance of getting it back and an outside chance of making money on the deal. YMMV.
posted by Cool Papa Bell at 3:33 PM on April 14, 2009


Next thing you'll tell me is that I shouldn't put money into a 401(k) because in any given year, you can lose money. Yes. These are called risks

Correct. For a ~5 year outlook there's no way I would recommend someone buy stocks with the expectation that this would have a guaranteed positive return.

The other extreme is paying rent. And you realize of course that a renter PAYS RENT, which is by definition "losing"?

The first month of that 5.5% $300k mortgage, the homeowner is paying $1,375 in interest. Is there some magical 0% mortgage out there where I don't have to pay any extra money to the bank? Or is interest payment somehow not "lost" the same way rent is?
posted by 0xFCAF at 3:43 PM on April 14, 2009


which as we all know was a once-in-a-lifetime downturn

Which as we all know was a small part of a once-in-a-lifetime downturn that came after a once-in-a-lifetime boom. The downturn is not over yet. Buying makes sense for some people, even in a falling market. But it is important to remember that, in the short run, a house purchased in the U.S. today is not likely to gain much, if any, real equity. If there is one lesson to be learned from the housing collapse (and there are many, actually), it is that the house you buy to live in is not an investment to make so that you can make a profit. If your ability to buy is contingent on making a profit by selling, you should not buy.
posted by The World Famous at 3:46 PM on April 14, 2009 [2 favorites]


* If you rent, you pay. Period. That money is GONE. Hope you enjoyed the apartment's charms.

You pay less, you assume far less risk, and you give yourself more freedom and cash while you figure out what you want to do. Also, the money is only gone in the same way it's gone when I buy a sandwich. The money isn't being thrown away, I get something in exchange.

* If you buy, you pay, and there's a good chance of getting it back and an outside chance of making money on the deal. YMMV.

Just how "good" the chances are is a tricky concept, depending heavily on the amount of time involved. If you're planning to own for 5 years or less, you shouldn't expect to make any money.
posted by sportbucket at 3:49 PM on April 14, 2009 [5 favorites]


And for some perspective, check out what happened to real estate prices in Japan in the past 25 years (also the case-shiller index). It is entirely plausible that we're only at the beginning of a massive drop in home prices. If you wanted to just go buy a house outright, sure, but this is a leveraged investment. Just as I wouldn't recommend someone leverage themselves 4:1 on stocks unless they were looking at a 20-30 year outlook, I wouldn't recommend someone leverage 4:1 (who's putting 20% down these days anyway?) on a house unless they were definitely willing to stay there at least 15 years.
posted by 0xFCAF at 3:55 PM on April 14, 2009


For a ~5 year outlook there's no way I would recommend someone buy stocks with the expectation that this would have a guaranteed positive return.

Pick a five year period where you would've lost money. Go ahead, I'll wait. I can see only one in 40 years, it was down only 100 points, and two years later, it was quite positive again.
posted by Cool Papa Bell at 3:57 PM on April 14, 2009


That's meaningless without benchmarking against the risk-free rate of return for the same period.
posted by 0xFCAF at 4:00 PM on April 14, 2009


I think this question if more complex.

[--] Closing costs are so high, it makes only sense to buy if you own the house at least over 7 years ("The Economist").

[--] A house binds you to a specific location. renting it out while not being around is asking for trouble.

[++] Besides falling home prices a home can also be a hedge against inflation and currency screw ups, as every German can tell you.

[--] I am a little bit concerned with taxes. What about New York city? The city has little income anymore from the finance industry, where should the tax revenue come from? It would be the easiest thing to increase property taxes.
posted by yoyo_nyc at 4:02 PM on April 14, 2009


It doesn't sound all that crazy for you to buy. If you want a home because you need more room, a yard or want to be able to play your stereo at 2AM, then it's a good idea.

You can rent houses too, you know. In my market, I can rent about twice the house at half the price of buying. I'd be stupid to buy just for more space.
posted by mr_roboto at 4:03 PM on April 14, 2009


Purchasing a home is one of those things that unfortunately involves considering many factors that are not easily compared. First, (and probably the largest) is the financial aspect - can I afford it, and is there a good case for it versus renting? Fortunately this is an easy one to figure out if you get your facts straight - a calculator (or Excel) is all you need to know this.

The second is an aspect of time - or more precisely, where are you in life. Yes, you can always rent it out if you move, but are you really fit to be a landlord? If not, then you're going to go crazy dealing with it. Don't count on this as a relief valve unless you know your temperament for these things. (And if yes, and you have the business savy, I believe accumulating real estate is one of the easier ways for regular people to become wealthy).

Third - how rooted are you in this city? Do you have a feel for how the neighborhoods might change? Some years down the road, changes in the neighborhood may affect you in ways you never considered - and I don't necessarily mean obvious stuff like crime spiking, or urban decay. A former boss of mine is from Taiwan. He settled in a neighborhood that was rapidly gaining Asians. It is now overwhelmingly populated by Asian immigrants. Recently, he's been thinking of moving - why? He says he's finally feeling like an American, and he doesn't feel like he needs to live in an ethnic enclave to feel safe - plus he can't stand the fact that he's got to get on the bus to get a decent slice of pizza, and the markets within walking distance do not seem to carry natural peanut butter, or some snack foods he had become fond of. But he's feeling a little stuck because even with the bust, and the equity in his current place, he still needs to take out a hefty mortgage because the neighborhoods he'd like to move to appreciated faster than his.

I personally bought recently, but just about everything aligned perfectly -

1. I grew up in this city, and I've lived in my neighborhood for 14 years - I know the area very well, and I wouldn't mind living here for another 14. It's an unglamorous neighborhood that is very unlikely to ever become an exciting one. I'm also a bit older than most first time buyers, so I've had the time to figure out that I'm not much of a wanderer.
2. My landlord is planning on raising my rent, which is already a little on the high side for this area - but which I was willing to pay for being steps from the train. If he had held the line (which I was expecting given the economy and falling rents), I probably would've never gotten off my ass.
3. The apartment I bought is a tiny studio (I don't need much space), in a coop building that recently decided to prohibit subleasing. This put a dent in it's price, and the tenant's lease had expired months ago, so the previous owner had to get rid of it. There would have to be a considerable drop from where prices are now for me to be upside down on the mortgage.
4. The monthly nut is cheap enough I could probably lose a significant part of my salary (I am not an investment banker, and I'm not rich) and not be homeless.
5. I sold mutual funds that were under water for the down payment, so I also get a capital gains loss deduction this year.

Not everything is peachy though - the place is tired and worn looking (it was a rental it's whole life), and I don't have the money to renovate this year. But I've lived in way shittier apartments for years without blinking an eye.
posted by Calloused_Foot at 4:11 PM on April 14, 2009


Perhaps framing the question this way will help put things into perspective: Are you interested in (a) borrowing a large sum of money with which to invest and (b) possibly becoming a long-distance landlord? If either of these things sounds like more risk/trouble than they're worth, you're probably better off renting for now.
posted by sportbucket at 4:15 PM on April 14, 2009 [1 favorite]


If you can't buy the house outright, you are a renter-with-the-option-to-buy. Like a car lease. You are now financially joined at the hip with your lender. You will have many, many new additional (recurring) expenses that you will have to pay. Your option-to-buy is based on a number of assumptions that you may or may not be able to make about your life and future. If you don't believe me, just ask any of them.

That said, if you can afford to buy the house outright, a home is a great thing to have. Otherwise you're taking on a lot of extra weight with no financial benefit. None. The chance of "someday" actually owning a home. A dream… that's it. I rent, and I got the same dream. But with none of the risk.
posted by Civil_Disobedient at 4:28 PM on April 14, 2009


The point that you're "renting money" if you have a mortgage is a really, really good one.

Read the whole article sportbucket linked to. It has persuaded several of my friends in their 20s and early 30s to hold off on buying.

A few of the more salient points from that article, in my mind:

- If you do buy, you shouldn't take out a mortgage for more than 3-4x your yearly salary. Staying within this limit will help ensure that your monthly housing costs stay under 33% of your income. This was a huge shock for me to read, since it seems like, during the boom, it became completely normal for people to buy houses that cost over 5 or 6 times their salary.

- If your income or life situation changes, it's pretty easy to adjust rent payments by moving - even if you have to break a lease, the most money you'll lose is your deposit. But if you have to sell your house, you'll probably have to spend a bunch of money to get it sold, and then keep paying mortgage payments while you wait for a buyer.

And you realize of course that a renter PAYS RENT, which is by definition "losing"?


This is not true, and it represents the kind of mentality that got us into this whole housing market mess.
posted by wholebroad at 4:28 PM on April 14, 2009 [2 favorites]


(who's putting 20% down these days anyway?)

Uhh...my friend who's buying in my area called a bunch of mortgage brokers/banks who wouldn't talk to him unless he could put 20% down, and he got a way better rate at 25%. So at least where I live, the answer to this question would be "people who are buying a house."
posted by jeb at 5:08 PM on April 14, 2009


Where are you? The housing bubble hasn't burst evenly in all markets across the country--some houses still have ridiculously high price tags.

I'm no expert by any means, and as I'm renting now I'm in the same boat as you and wonder the same thing. From the research I've done, the key question to ask yourself is how long you want to own the house. If you're talking very long term--30, 40 or more years, then you probably are ok in buying a house now. You might take a haircut if the bottom keeps dropping the next year or two (or three or four), but 50 years from now when you retire and own the house now at a reasonable (?) value, that haircut won't seem like much at all.

But obviously, if you decide to pull stakes and sell right at or just after the bottom has fallen out, in the next 10 years or so, you're gonna take a hit. A hit that effects your current financial status. Working out a good mortgage rate is also a huge factor.

So if you want to stay (or at least keep ownership of the house) for a long time and get a good mortgage rate for that, then bite the bullet and shop around. Also, take everything real estate agents say with a grain of salt and get opinions from everyone you know.
posted by zardoz at 5:26 PM on April 14, 2009


If you have the cash for a downpayment, go take a look at a few homes in that 3x-4x income price range to see what you can get for your situation. What you feel about those homes and neighborhoods will have a lot of impact on your decision whether to buy or not.

I closed on my house a month ago. If I had not stumbled upon a home on the low edge of my price range, within an easy commute to work, and in a neighborhood my wife and I adore, we would have not bought.

The key here is to get your ducks in a row that if you stumble upon your dream home, you can buy it. We first timers have the advantage of being able to pick exactly when we want to buy.
posted by robocop is bleeding at 6:18 PM on April 14, 2009


If this is strictly a financial decision (as opposed to a romantic one), well then nothing beats cold, hard analysis. And for that I recommend plotting all the figures out - all the costs included. Try using a buy vs. rent calculator to start with. You might be surprised to find that renting over owning is simply a fallacy if you aren't settling in for long-term occupancy...unless you're speculating, but then right now isn't the best time for that :)

Other costs of owning to bear in mind:

- Maintenance/user costs
- Transportation/auto repair
- Commuting - it sucks!! (science says people are bad at evaluating this attribute)
- Opportunity cost of down-payment
- Real estate broker, transaction fees (6%+$$$)
- Property taxes support local school systems, something you'd be subsidizing if you're not going to have kids
posted by shmooly at 6:46 PM on April 14, 2009 [1 favorite]


That $8,000 credit is contingent on you living in the place for at least 3 years, so you wouldn't be able to rent it out (or sell it) for at least that long unless you were willing to give up that credit.
posted by willnot at 7:13 PM on April 14, 2009


I'm just going to address the investment side:

Don't try to catch a falling knife.

Is that advice for when a potential investment is going down in value? What would be the advice for the opposite situation?

Don't let go of a flying balloon
?

The way you make money from an investment is to buy low and sell high. It is as simple as that. Guess what happens if you listen to the above advice. You end up buying (and holding) high, and selling (and not buying) low--exactly the opposite of what you should be doing. But that's what most people who follow the crowd do.

Unless you think the whole economy of the US is going to collapse (which I guess is a possibility), then real estate prices are very low.

So what do you do when prices are low?
posted by eye of newt at 7:22 PM on April 14, 2009


Unless you think the whole economy of the US is going to collapse (which I guess is a possibility), then real estate prices are very low.

They're still running over 6x median income in many areas. This is, from a historical point of view, a very high price.

Also, "buy high, sell low" is investment advice. "Diversify" is also good investment advice. A single piece of real estate is pretty much the least diversified investment portfolio imaginable.
posted by mr_roboto at 7:36 PM on April 14, 2009


Unless you think the whole economy of the US is going to collapse (which I guess is a possibility), then real estate prices are very low.

So what do you do when prices are low?


Where do you live? Because I live in Los Angeles, and the real estate prices are astronomically high and completely out of line with wages, particularly given the massive layoffs and economic collapse that are currently driving wages even lower at a rate far greater than the collapsing and still falling housing prices.

The way you make money from an investment is to buy low and sell high.

No. The way you make money from an investment is to buy lower than you sell for. If you buy an "investment" whose value is dropping, you will not make any money from it unless and until it bottoms out and then returns to a level well above where you bought it.

And the only way you make any money from a house that you live in is if you sell it and then buy a house to live in that costs less than what you sold the first house for.

Buying a house right now might be a good idea for some people -- if they can "afford" the house and can afford to stay in it long enough to not lose money on it when they eventually want to sell. In a normal market - one that is not dropping faster than any housing market in history - that means staying in the house for 3-5 years with a normal mortgage. When prices are falling, as they are now, that time frame becomes significantly longer. How much longer? I don't know.

I ask you this, eye of newt: Are you buying residential properties as an investment right now? If not, then please don't advise someone else to do it.
posted by The World Famous at 7:48 PM on April 14, 2009


My wife (then girlfriend) and I were in your situation about 10 years ago. We bought. We have not regretted it, and are still living in the place. If you are ready to live in the same address for the next 5 or so years, and you can afford the down payment, then by all means, look at buying... interest rates are incredibly low, the sellers are a little desperate, and it at least looks like a good time to be a buyer.

Paying 4-5% per year to rent money will someday feel like a bargain. It wasn't that long ago that people were thrilled to pay twice that.
posted by toxic at 9:20 PM on April 14, 2009 [1 favorite]


Thanks so much for all the advice! I searched Meta, but I guess i was thinking in the wrong terms and didn't see the previous posts.

To answer some of your posed questions, I am looking at places about 2x my salary (but the interest on a 100k house doesn't even surpass the single deduction amount) and have already spoke with a lender about a loan at 5%. When she added all the insurance, taxes, etc, into the payment, it was still manageable, about what I'm renting for (plus, an extra 200 a month gets the place paid off 10 years early!). Putting about the bare minimum down 3.5% plus enough for closing and such, and then I would file an amended return and get the 8000 and put it in a high-interest savings like ING for and "oh crap" fund.

I have to say, I'm not too crazy about the maintenance aspect. That was a really good point posed by some of you. There are definitely different things I'd rather be doing. Then again, if something is going to benefit me in the long run-- accounting degree in lieu of liberal arts (which I would have enjoyed)-- I'm usually pretty good about sucking it up and doing it.

I am thinking about how the neighborhoods are and could be, and what I want to do. This just seems like a good jumping board for future independence and stability. Even with some of the added costs and time, oh well, it's just a Saturday I won't be wasting time or money shopping.

Definitely leaning towards buying. The only thing holding me back is this impending anxiety attack in doing some so inaurguably grown-up (same thing happened when I bought a car).

So again, THANKS to all of you who took the time to respond and share your stories and opinions.
posted by CPAGirl at 6:32 AM on April 15, 2009


Here is one quote to contemplate: "Property is the enemy of leisure."

On the other hand, pride of place is a good feeling.
posted by Midnight Skulker at 7:17 AM on April 15, 2009


It sounds like you can afford it, but I'd still recommend waiting until you can throw down a healthy down payment. (Unless by "bare minimum" you meant 20%.) 'Cause if you put 10% down, it only takes a 4% slide in value to put you underwater (with closing costs and agents' fees and whatnot). Time is on your side. Buy because you're ready, not because everyone tells you it's a good time to buy.
posted by sportbucket at 11:09 AM on April 15, 2009


I ask you this, eye of newt: Are you buying residential properties as an investment right now? If not, then please don't advise someone else to do it.

Considering I am 'between jobs' at the moment (I've just been called in for a second interview, so I'm hoping this will change soon!), it isn't an option for me. Otherwise, I would seriously consider buying a second house as an investment. There are some incredible bargains out there in some good neighborhoods.

Of course the original question was about buying a house for herself as a young professional. There have been a lot of good points brought up that go well beyond the investment question.
posted by eye of newt at 2:07 PM on April 15, 2009


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