To buy or to rent? Why settle for less?
August 7, 2010 12:49 PM Subscribe
Yet another rent-versus-buy housing question, but I'd appreciate the hive mind taking the time to read the tl;dr details inside, as I'm faced with this imminent choice and am seriously confused and conflicted.
Mr. Adams and I currently rent a 1400 sq ft house in Birmingham, MI. We'd been renting a smaller house down the street since 1999 and moved into this house in 2007 at (pretty much) the owner's urging. Our current house had been for sale for over a year with no bites, and the owner needed to move to Arizona to take care of her ailing mother. We knew her casually as a neighbor and when it came to crunch time and she had to leave the state she pitched her house to us as an upgrade - for only $200 more per month than we were paying for our two bedroom we could rent her three bedroom house with a jacuzzi tub in one bathroom and a massive master bedroom suite upstairs that had glass sliding doors leading to an outdoor deck. We signed the lease and moved in. I was perfectly content in the other house, but I have since fallen in love with this house.
Mr. Adams and I work from home, and we turned one of the bedrooms in this house into our office. It has a large bay window looking out onto the street, and I've always had a "thing" for bay windows. The kitchen is very large and there are ceiling fans (another particular love of mine - I need a breeze blowing over me and we have our fans running all year round) in the office, the master bedroom and the family room. All has been well until recently when our landlord informed us that she wants to sell this house. She's giving us first crack at it, but she's also asking an unreasonable price, even when applying the rent we've paid her thus far. She's asking $210,000 which might've been in line with the market 10 years ago, but certainly not now. She was asking that much back when she first had it on the market and ended up renting it to us just so it didn't sit empty. The house across the street is of similar size as our house but has more amenities and it has been for sale for a little over three years. It was finally sold at a foreclosure auction last year for $92,000, but the financing fell through and it is still on the market. So Landlord's price is not realistic considering the current market.
Our choices are to (A) buy this house, but only if she lowers her asking price, or to (B) move to another rental or to (C) buy a house. I know that if we move elsewhere that this house will sit vacant and be for sale for a looong time like several other houses on the block. I think that Landlord is hoping we'll decide that the expense and trouble of moving is too great and that we'll agree to her inflated price. However, Mr. Adams is currently of the mindset that if we have to move, we should buy a house this time. We'll own something, no one can throw us out, etc. However, our financial circumstances are such that if we actually had to provide a down payment and secure a mortgage we'd have to downsize quite a bit. In fact, we'd probably end up with some starter home fixer-upper (not in Birmingham, he's been looking 'way up north in Lapeer near some good friends of ours who are encouraging us to buy in their area).
The few houses we've looked at just in the last week (that would be in our price range buying-wise) since we'd gotten the news have been "meh" in my opinion. Our friends keep enthusing "you can knock this wall down, you can do this, do that" but all that stuff takes money, right? And if we stretch ourselves out to the bare bones just to buy a house it will be years before we can consider even the smallest renovation. Maybe I'm missing something, but right now I can't make sense of making a huge, major investment into a place where you're going to spend the next 15 or so years if it's just so-so, a "yeah, I guess it's better than nothing, maybe eventually we'll fix it up" type of place. We're not youngsters; I'm this close to menopause so if we got even a 15 year mortgage I'd be in my late 60s by the time we paid it off. That means living my so-called golden years in a place I only agreed to because it was what we could afford and so we could say we "owned" a house.
By the same token, my parents (Mom is in her late 70s, Dad in his mid-80s) have owned their house outright for many years but they struggle to pay their property taxes and such on Dad's pension, and could not have afforded the new roof and new boiler they needed in recent years if we kids hadn't helped them pay for it. Mr. Adams' father also owns his house, but my beloved mother-in-law was struck with early onset Alzheimer's Disease eight years ago and her long-term care depleted his savings so that he is unable to make many necessary repairs on his house.
So please talk to me like I'm five years old. Explain to me the benefits of owning versus renting. It seems to me that at our age, if we ultimately have to leave this house, it would make more financial sense to rent another comparable house. So many people tell me about "equity" but yet just as many people seem to be selling their homes at severly discounted prices right now, so there is not necessarily a guarantee that a house is an investment, right? Its value might well decrease over time depending upon the market, changes in the neighborhood, etc.
Mr. Adams and I currently rent a 1400 sq ft house in Birmingham, MI. We'd been renting a smaller house down the street since 1999 and moved into this house in 2007 at (pretty much) the owner's urging. Our current house had been for sale for over a year with no bites, and the owner needed to move to Arizona to take care of her ailing mother. We knew her casually as a neighbor and when it came to crunch time and she had to leave the state she pitched her house to us as an upgrade - for only $200 more per month than we were paying for our two bedroom we could rent her three bedroom house with a jacuzzi tub in one bathroom and a massive master bedroom suite upstairs that had glass sliding doors leading to an outdoor deck. We signed the lease and moved in. I was perfectly content in the other house, but I have since fallen in love with this house.
Mr. Adams and I work from home, and we turned one of the bedrooms in this house into our office. It has a large bay window looking out onto the street, and I've always had a "thing" for bay windows. The kitchen is very large and there are ceiling fans (another particular love of mine - I need a breeze blowing over me and we have our fans running all year round) in the office, the master bedroom and the family room. All has been well until recently when our landlord informed us that she wants to sell this house. She's giving us first crack at it, but she's also asking an unreasonable price, even when applying the rent we've paid her thus far. She's asking $210,000 which might've been in line with the market 10 years ago, but certainly not now. She was asking that much back when she first had it on the market and ended up renting it to us just so it didn't sit empty. The house across the street is of similar size as our house but has more amenities and it has been for sale for a little over three years. It was finally sold at a foreclosure auction last year for $92,000, but the financing fell through and it is still on the market. So Landlord's price is not realistic considering the current market.
Our choices are to (A) buy this house, but only if she lowers her asking price, or to (B) move to another rental or to (C) buy a house. I know that if we move elsewhere that this house will sit vacant and be for sale for a looong time like several other houses on the block. I think that Landlord is hoping we'll decide that the expense and trouble of moving is too great and that we'll agree to her inflated price. However, Mr. Adams is currently of the mindset that if we have to move, we should buy a house this time. We'll own something, no one can throw us out, etc. However, our financial circumstances are such that if we actually had to provide a down payment and secure a mortgage we'd have to downsize quite a bit. In fact, we'd probably end up with some starter home fixer-upper (not in Birmingham, he's been looking 'way up north in Lapeer near some good friends of ours who are encouraging us to buy in their area).
The few houses we've looked at just in the last week (that would be in our price range buying-wise) since we'd gotten the news have been "meh" in my opinion. Our friends keep enthusing "you can knock this wall down, you can do this, do that" but all that stuff takes money, right? And if we stretch ourselves out to the bare bones just to buy a house it will be years before we can consider even the smallest renovation. Maybe I'm missing something, but right now I can't make sense of making a huge, major investment into a place where you're going to spend the next 15 or so years if it's just so-so, a "yeah, I guess it's better than nothing, maybe eventually we'll fix it up" type of place. We're not youngsters; I'm this close to menopause so if we got even a 15 year mortgage I'd be in my late 60s by the time we paid it off. That means living my so-called golden years in a place I only agreed to because it was what we could afford and so we could say we "owned" a house.
By the same token, my parents (Mom is in her late 70s, Dad in his mid-80s) have owned their house outright for many years but they struggle to pay their property taxes and such on Dad's pension, and could not have afforded the new roof and new boiler they needed in recent years if we kids hadn't helped them pay for it. Mr. Adams' father also owns his house, but my beloved mother-in-law was struck with early onset Alzheimer's Disease eight years ago and her long-term care depleted his savings so that he is unable to make many necessary repairs on his house.
So please talk to me like I'm five years old. Explain to me the benefits of owning versus renting. It seems to me that at our age, if we ultimately have to leave this house, it would make more financial sense to rent another comparable house. So many people tell me about "equity" but yet just as many people seem to be selling their homes at severly discounted prices right now, so there is not necessarily a guarantee that a house is an investment, right? Its value might well decrease over time depending upon the market, changes in the neighborhood, etc.
At a basic level, you'll want to play with the NY Times Rent vs. Buy Calculator.
posted by rhizome at 1:03 PM on August 7, 2010
posted by rhizome at 1:03 PM on August 7, 2010
I'm a big believer in doing whatever makes the most financial sense in your particular situation. I own a house because it's cheaper than renting here, even taking into account property taxes and insurance and such. If it was more expensive, I probably wouldn't own a house. I'd be hesitant to purchase in a declining market, though. Here in Tulsa, housing prices aren't really much if any lower than they have been, they just have failed to increase, so it seemed like a reasonable risk.
In any event, you shouldn't buy if you're not going to be able to have some savings immediately after closing. Mechanical systems can break down at any time, and not having the money to replace the furnace or whatever really sucks. (In not-too-distant past, the government was giving away that money; no longer)
It sounds to me like you should rent someplace else for a while and then decide.
And honestly? I think our sudden decision to buy when we couldn't find a place we wanted to rent was a bad, bad idea. There's all kinds of expensive shit wrong with my 1930 house. Luckily, nothing that's going to make it fall in any time soon, but inconvenience abounds. A good part of the reason we ended up in this situation was the hastiness.
Overall, I'm pretty ambivalent about our situation. It could have gone either way. If this house didn't have a garage apartment that was paying for part of our mortgage, I'd be a more annoyed with myself.
posted by wierdo at 1:05 PM on August 7, 2010
In any event, you shouldn't buy if you're not going to be able to have some savings immediately after closing. Mechanical systems can break down at any time, and not having the money to replace the furnace or whatever really sucks. (In not-too-distant past, the government was giving away that money; no longer)
It sounds to me like you should rent someplace else for a while and then decide.
And honestly? I think our sudden decision to buy when we couldn't find a place we wanted to rent was a bad, bad idea. There's all kinds of expensive shit wrong with my 1930 house. Luckily, nothing that's going to make it fall in any time soon, but inconvenience abounds. A good part of the reason we ended up in this situation was the hastiness.
Overall, I'm pretty ambivalent about our situation. It could have gone either way. If this house didn't have a garage apartment that was paying for part of our mortgage, I'd be a more annoyed with myself.
posted by wierdo at 1:05 PM on August 7, 2010
So many people tell me about "equity" but yet just as many people seem to be selling their homes at severly discounted prices right now
People are selling at such a steep discount right now because that's all that the market can bear, and if you need to sell your house, there's not much you can do about that. Those foreclosure sales in the neighborhood are driving down prices for everyone. Now, if they'd owned it for 10-15 years, then they may have received some money on the sale. For example, my house (in MN) is currently worth the same amount it was worth in 1998. If I'd owned it all this time, I wouldn't make any profit on the sale, but I'd get the equity back - that is, the amount of principal that I'd paid down, plus the down payment (minus agent costs etc.) I would essentially have been paying rent in the form of mortgage interest, since I wouldn't get that back when I sold.
This could be a good time to buy if you think that housing prices have bottomed out in your area, because then it would be very likely that you'd make money over time as housing prices go up. You could talk to a real estate agent to get their opinion of the market.
The other benefit of buying a house at this point is that as you approach retirement, you could have equity in your home that you could use for emergency expenses. For example, you may want to tell your parents to look into a reverse mortgage. They get to tap their equity without making any payments on it. The drawback is that the house would go to the bank when they die, rather than to you kids. But - you'd never have that option if you didn't buy a house.
I'll stop rambling now but I think that your landlord's price is insane if there really are foreclosures going on in your neighborhood. The same agent I referred to above can help you determine a reasonable offer for the house based on comparable properties.
posted by cabingirl at 1:17 PM on August 7, 2010
People are selling at such a steep discount right now because that's all that the market can bear, and if you need to sell your house, there's not much you can do about that. Those foreclosure sales in the neighborhood are driving down prices for everyone. Now, if they'd owned it for 10-15 years, then they may have received some money on the sale. For example, my house (in MN) is currently worth the same amount it was worth in 1998. If I'd owned it all this time, I wouldn't make any profit on the sale, but I'd get the equity back - that is, the amount of principal that I'd paid down, plus the down payment (minus agent costs etc.) I would essentially have been paying rent in the form of mortgage interest, since I wouldn't get that back when I sold.
This could be a good time to buy if you think that housing prices have bottomed out in your area, because then it would be very likely that you'd make money over time as housing prices go up. You could talk to a real estate agent to get their opinion of the market.
The other benefit of buying a house at this point is that as you approach retirement, you could have equity in your home that you could use for emergency expenses. For example, you may want to tell your parents to look into a reverse mortgage. They get to tap their equity without making any payments on it. The drawback is that the house would go to the bank when they die, rather than to you kids. But - you'd never have that option if you didn't buy a house.
I'll stop rambling now but I think that your landlord's price is insane if there really are foreclosures going on in your neighborhood. The same agent I referred to above can help you determine a reasonable offer for the house based on comparable properties.
posted by cabingirl at 1:17 PM on August 7, 2010
"Equity" is what you hope to get out of your house when you sell it. If you are satisfied that you will be staying in the same house for the next fifteen years, then the two issues you need to consider are a) control over your destiny, and b) what happens at the end of that fifteen years.
When you rent from someone else, you are paying all of the costs of ownership, plus a profit, by the payment of rent. Your landlord will have to step up and make suddenly-needed repairs and ongoing upkeep repairs, but you are really paying for them. You are just deriving the benefit of being able to lay off responsibility for making the repairs (tax payments, etc.) themselves onto the landlord. You also get to simply walk away at any time without having to find a buyer for the place. In essence, you have total flexibility in exchange for a loss of control over whether you can remain there for as long as you want at a predictable cost. The landlord can, at any time, raise the rent or sell the property out from under you. So, your independence comes at the cost of relying on your landlord's good will and timely attention to your needs concerning repairs and such. I have both owned and rented and have felt better believing I control my own destiny. This is something you need to decide for yourself.
At the end of that fifteen year period, if you have been renting you still have all of the flexibility without any control over your destiny. You are still at the mercy of the landlord and will still have to pay next month's rent. If you have purchased that house and paid off a 15 year loan, you own the place, warts and all, but can stop paying "rent." You are done with that part of the cost of ownership. You will, however, own an asset that will continue to require maintenance and repair. You will also have built that "equity" that could come in handy if you need to move on to the next phase of your life.
IANYAccountant, but you should also consider the tax benefits of home ownership. When you rent, your landlord gets to depreciate the value of the property and you get nearly no tax benefits. If you own and are paying interest on the loan, a portion of that interest (very high in the early years as a percentage of your total payment) is probably tax-deductable.
As I sit here in retirement we live in a house that was paid for by the paid-off equity in our previous homes coupled with the crazy jumps in housing values through the years. YMMV.
posted by Old Geezer at 1:26 PM on August 7, 2010
When you rent from someone else, you are paying all of the costs of ownership, plus a profit, by the payment of rent. Your landlord will have to step up and make suddenly-needed repairs and ongoing upkeep repairs, but you are really paying for them. You are just deriving the benefit of being able to lay off responsibility for making the repairs (tax payments, etc.) themselves onto the landlord. You also get to simply walk away at any time without having to find a buyer for the place. In essence, you have total flexibility in exchange for a loss of control over whether you can remain there for as long as you want at a predictable cost. The landlord can, at any time, raise the rent or sell the property out from under you. So, your independence comes at the cost of relying on your landlord's good will and timely attention to your needs concerning repairs and such. I have both owned and rented and have felt better believing I control my own destiny. This is something you need to decide for yourself.
At the end of that fifteen year period, if you have been renting you still have all of the flexibility without any control over your destiny. You are still at the mercy of the landlord and will still have to pay next month's rent. If you have purchased that house and paid off a 15 year loan, you own the place, warts and all, but can stop paying "rent." You are done with that part of the cost of ownership. You will, however, own an asset that will continue to require maintenance and repair. You will also have built that "equity" that could come in handy if you need to move on to the next phase of your life.
IANYAccountant, but you should also consider the tax benefits of home ownership. When you rent, your landlord gets to depreciate the value of the property and you get nearly no tax benefits. If you own and are paying interest on the loan, a portion of that interest (very high in the early years as a percentage of your total payment) is probably tax-deductable.
As I sit here in retirement we live in a house that was paid for by the paid-off equity in our previous homes coupled with the crazy jumps in housing values through the years. YMMV.
posted by Old Geezer at 1:26 PM on August 7, 2010
Response by poster: For example, you may want to tell your parents to look into a reverse mortgage. They get to tap their equity without making any payments on it. The drawback is that the house would go to the bank when they die, rather than to you kids.
Here's the thing with my parents' house....I don't want to sound racist, but the fact is their neighborhood has "changed" as they say in real estate terms (i.e. they live just a few blocks north of Eight Mile Road) and sadly, as soon as the first few folks of color bought houses nearby, the sale prices of houses in their area have dropped dramatically. They'll never get back what they've put into it over the years if they were to sell right now, and the value keeps decreasing on a steady basis. They originally paid $16,000 something for that house in 1958, and in the late 1970s it was assessed for $45,000 something thanks to both appreciation and the improvements they'd added (central air conditioning, copper plumbing, etc.). Now in 2010 houses on their block are selling for 1970s prices ($45,000), whereas a similar house north of 11 Mile Road would sell for upward of $90,000. So I guess that makes me question the whole idea of "equity" - is it not as stable as the word implies? Does it not still teter on the brink of how goes the neighborhood?
posted by Oriole Adams at 1:41 PM on August 7, 2010
Here's the thing with my parents' house....I don't want to sound racist, but the fact is their neighborhood has "changed" as they say in real estate terms (i.e. they live just a few blocks north of Eight Mile Road) and sadly, as soon as the first few folks of color bought houses nearby, the sale prices of houses in their area have dropped dramatically. They'll never get back what they've put into it over the years if they were to sell right now, and the value keeps decreasing on a steady basis. They originally paid $16,000 something for that house in 1958, and in the late 1970s it was assessed for $45,000 something thanks to both appreciation and the improvements they'd added (central air conditioning, copper plumbing, etc.). Now in 2010 houses on their block are selling for 1970s prices ($45,000), whereas a similar house north of 11 Mile Road would sell for upward of $90,000. So I guess that makes me question the whole idea of "equity" - is it not as stable as the word implies? Does it not still teter on the brink of how goes the neighborhood?
posted by Oriole Adams at 1:41 PM on August 7, 2010
"So I guess that makes me question the whole idea of "equity" - is it not as stable as the word implies? Does it not still teter on the brink of how goes the neighborhood?" Of course it does. But let's take your example. Let's say they could only get $30,000 for that house. How much could they have gotten for it if they had been renting it all of this time? Only roughly doubling their money on an investment in fifty years is terrible. Getting a 0% return on that investment is somewhat worse.
In my mind it goes back to what that flexibility and independence is worth.
posted by Old Geezer at 1:54 PM on August 7, 2010
In my mind it goes back to what that flexibility and independence is worth.
posted by Old Geezer at 1:54 PM on August 7, 2010
How about this. You approach her and tell her you would like to buy it but: 1) You can not afford the asking price, 2) You believe it is over priced. If you want the house, and can afford it, at a certain price then make an offer for that amount. I would guess she does not want you to move out while it is for sale unless your lease encumbers the value of the house. Since you want to continue living there but not move on a moments notice tell her you want a 90 day notice ( in writing ) of a need to vacate in case she sells it. If she is unwilling to do this tell her you will begin immediately looking for an alternative--assuming you have a month to month lease. This might not be necessary depending on the length of your existing lease. Remember, your existing lease transfers to any new owners. Any way, continue staying there hoping that the price does reach a range that is affordable and negotiable for you. I realize that this puts you in a period of uncertainty, and that can be difficult--we all want closure. But closure to bring closure is not a wise financial strategy. You are much more likely to get it for the price you want directly proportionate to the extent you are willing to not buy it. If you do have to move you have 90 days to find a rental. Worst case scenario--you move into some temporary rental until you find the long term rental or home purchase you want. There is excess rental on the market as well as homes for sale.
As to whether to buy/rent. The other posters can speak to that--it is complicated and depends on so many personal and financial variables. The worst financial mistake I have made is not buying the most expensive house I could afford--the best personal decision I have made is to buy homes that are very affordable. I have been able to travel and enjoy day to day life in a way I would not have been able if I had always been stretching the budget. I have also been able to save money for a retirement that I am really enjoying. We did not have to sell our house to afford our retirement and we have a wonderful place to live mortgage free and considerable financial flexibility. I sincerely hope that some of the answers here help you in comfortably moving ahead.
posted by rmhsinc at 2:02 PM on August 7, 2010
As to whether to buy/rent. The other posters can speak to that--it is complicated and depends on so many personal and financial variables. The worst financial mistake I have made is not buying the most expensive house I could afford--the best personal decision I have made is to buy homes that are very affordable. I have been able to travel and enjoy day to day life in a way I would not have been able if I had always been stretching the budget. I have also been able to save money for a retirement that I am really enjoying. We did not have to sell our house to afford our retirement and we have a wonderful place to live mortgage free and considerable financial flexibility. I sincerely hope that some of the answers here help you in comfortably moving ahead.
posted by rmhsinc at 2:02 PM on August 7, 2010
Does the landlord want you out before listing the house? Maybe if it's on the market a while with no bites she'll reconsider the price.
posted by galadriel at 2:03 PM on August 7, 2010
posted by galadriel at 2:03 PM on August 7, 2010
I am slightly confused how you could afford a down payment on this house if you can't afford it for some other house without cutbacks.
From my personal knowledge of the metro Detroit area, now is not the time to pay too much for a house.
posted by oddovid at 2:09 PM on August 7, 2010
From my personal knowledge of the metro Detroit area, now is not the time to pay too much for a house.
posted by oddovid at 2:09 PM on August 7, 2010
I would look at this two ways:
1) Is the house worth what they're selling it for? The answer in this case appears to be a big fat "no", but I would second asking the seller to get it appraised, and/or making a counteroffer based on recent sales of similar homes in the area. That might change the price.
2) Is the down payment something you can afford, and are monthly payments on the house (after it's adjusted by item 1, of course) more or less than you're paying in rent? If you can afford the one-time cost, and the payments are less, around the same, or only a little more, it seems to me as if buying it is a reasonable decision. That way, if you absolutely cannot sell and have to walk away from the house in the future, you haven't lost your shirt on it compared to renting.
If the mortgage is going to be hard to swing and/or the payments would be a hardship, I'd let it go. And I would not consider buying another house just so you're not renting; until you really want to buy that house, that one, right now, I think you should rent.
posted by vorfeed at 2:17 PM on August 7, 2010
1) Is the house worth what they're selling it for? The answer in this case appears to be a big fat "no", but I would second asking the seller to get it appraised, and/or making a counteroffer based on recent sales of similar homes in the area. That might change the price.
2) Is the down payment something you can afford, and are monthly payments on the house (after it's adjusted by item 1, of course) more or less than you're paying in rent? If you can afford the one-time cost, and the payments are less, around the same, or only a little more, it seems to me as if buying it is a reasonable decision. That way, if you absolutely cannot sell and have to walk away from the house in the future, you haven't lost your shirt on it compared to renting.
If the mortgage is going to be hard to swing and/or the payments would be a hardship, I'd let it go. And I would not consider buying another house just so you're not renting; until you really want to buy that house, that one, right now, I think you should rent.
posted by vorfeed at 2:17 PM on August 7, 2010
Old Geezer wrote: "The landlord can, at any time, raise the rent or sell the property out from under you. So, your independence comes at the cost of relying on your landlord's good will and timely attention to your needs concerning repairs and such."
That's what leases are for. Just because they sell the place doesn't mean the new owner gets to kick you out before the lease ends. And if you live in a recourse state, you not only may be forced out of your "owned" home if you can't pay for it, but you're also on the hook for the entire amount of the loan no matter how poor housing prices get, so walking away isn't all that great of an option.
Old Geezer wrote: "Only roughly doubling their money on an investment in fifty years is terrible."
But they wouldn't "only" double their money. First off, that money could have been spent on better investments, and secondly it is reduced by the cost of ownership above and beyond the cost of paying off the mortgage. Improvements, repairs, all that.
What I'm saying is that unlike renting, there is an element of financial risk involved in owning a house. We seem to have forgotten about that after the steady increase in housing prices since World War II, and even the current mess hasn't disabused people of the notion that owning a home is nearly risk-free.
posted by wierdo at 2:20 PM on August 7, 2010
That's what leases are for. Just because they sell the place doesn't mean the new owner gets to kick you out before the lease ends. And if you live in a recourse state, you not only may be forced out of your "owned" home if you can't pay for it, but you're also on the hook for the entire amount of the loan no matter how poor housing prices get, so walking away isn't all that great of an option.
Old Geezer wrote: "Only roughly doubling their money on an investment in fifty years is terrible."
But they wouldn't "only" double their money. First off, that money could have been spent on better investments, and secondly it is reduced by the cost of ownership above and beyond the cost of paying off the mortgage. Improvements, repairs, all that.
What I'm saying is that unlike renting, there is an element of financial risk involved in owning a house. We seem to have forgotten about that after the steady increase in housing prices since World War II, and even the current mess hasn't disabused people of the notion that owning a home is nearly risk-free.
posted by wierdo at 2:20 PM on August 7, 2010
Response by poster: I am slightly confused how you could afford a down payment on this house if you can't afford it for some other house without cutbacks.
IF we were to buy this house, we wouldn't need a down payment; the Landlord would apply our previous rent payments in that regard.
posted by Oriole Adams at 2:35 PM on August 7, 2010
IF we were to buy this house, we wouldn't need a down payment; the Landlord would apply our previous rent payments in that regard.
posted by Oriole Adams at 2:35 PM on August 7, 2010
Oriole AdamsIF we were to buy this house, we wouldn't need a down payment; the Landlord would apply our previous rent payments in that regard.
That is a very unusual assumption. Very few sellers would apply previous rent as a down payment unless you had a previous arrangement for lease to buy. What's past is past. Perhaps that is why the selling price is so high. Your past rent counts for nothing. Look at it from the seller's point of view. If they could sell it to someone else for full price plus a down payment, why would they give you a better deal?
posted by JackFlash at 2:56 PM on August 7, 2010
That is a very unusual assumption. Very few sellers would apply previous rent as a down payment unless you had a previous arrangement for lease to buy. What's past is past. Perhaps that is why the selling price is so high. Your past rent counts for nothing. Look at it from the seller's point of view. If they could sell it to someone else for full price plus a down payment, why would they give you a better deal?
posted by JackFlash at 2:56 PM on August 7, 2010
IF we were to buy this house, we wouldn't need a down payment; the Landlord would apply our previous rent payments in that regard.
This may seem like a great thing, but it's really not. Her offer to apply your rent to the down payment is almost completely meaningless. It's just her attempt to get you to pay more for the house than it's worth. The similar house across the street is priced $118k lower than yours, and apparently isn't even worth that much. Have you paid $118k in rent for your current house over the last 3 years?
posted by jon1270 at 2:56 PM on August 7, 2010
This may seem like a great thing, but it's really not. Her offer to apply your rent to the down payment is almost completely meaningless. It's just her attempt to get you to pay more for the house than it's worth. The similar house across the street is priced $118k lower than yours, and apparently isn't even worth that much. Have you paid $118k in rent for your current house over the last 3 years?
posted by jon1270 at 2:56 PM on August 7, 2010
Cold hearted bastard here. Get an appraisal done, absolutely. Don't tell the owner about it. Get in touch with real-estate attourney and have them write up an offer letter for the appraisal amount from "a private investor." See what happens.
Anyway, if home prices are stable or dropping in your area, you shouldn't be buying now. You should be renting and saving money for a down payment. To that end: stay in your current situation until you're forced to move out.
From what you describe, the owner is just "making shit up" and doesn't really have a hot clue about how real-estate works. Past rent as a down payment? Please.
posted by seanmpuckett at 3:08 PM on August 7, 2010
Anyway, if home prices are stable or dropping in your area, you shouldn't be buying now. You should be renting and saving money for a down payment. To that end: stay in your current situation until you're forced to move out.
From what you describe, the owner is just "making shit up" and doesn't really have a hot clue about how real-estate works. Past rent as a down payment? Please.
posted by seanmpuckett at 3:08 PM on August 7, 2010
Of the "seriously confused and conflicted," I suspect that the conflicted is the more important. It's clear you don't want to move if you can help it, and you're allowing that very natural feeling to cloud your thinking. If you could separate out your emotional attachment to this particular house, I suspect you'd find yourself able to think quite clearly about this situation.
You already know that home ownership is a financial gamble. You can't know for sure whether it's smarter to buy or rent, because you don't know the future of the real estate market. What you do know for sure is that paying more for a house than it's worth is, like overpaying for anything else, just a way to throw money down the drain. The difference between houses and other sorts of purchases is that buying real estate gives you the opportunity to throw away lots and lots of money all at once.
So many people tell me about "equity" but yet just as many people seem to be selling their homes at severly discounted prices
Lots and lots of people in your area are stuck holding very expensive losing lottery tickets. It's painful for them to be in that situation. Some are in denial about it, and will try to convince you of the wonders of 'equity' because your believing in it would comfort them. You're not the only person whose feelings are clouding their thinking.
posted by jon1270 at 3:45 PM on August 7, 2010
You already know that home ownership is a financial gamble. You can't know for sure whether it's smarter to buy or rent, because you don't know the future of the real estate market. What you do know for sure is that paying more for a house than it's worth is, like overpaying for anything else, just a way to throw money down the drain. The difference between houses and other sorts of purchases is that buying real estate gives you the opportunity to throw away lots and lots of money all at once.
So many people tell me about "equity" but yet just as many people seem to be selling their homes at severly discounted prices
Lots and lots of people in your area are stuck holding very expensive losing lottery tickets. It's painful for them to be in that situation. Some are in denial about it, and will try to convince you of the wonders of 'equity' because your believing in it would comfort them. You're not the only person whose feelings are clouding their thinking.
posted by jon1270 at 3:45 PM on August 7, 2010
That is a very unusual assumption. Very few sellers would apply previous rent as a down payment unless you had a previous arrangement for lease to buy.
On reflection, perhaps what your landlord is suggesting is some sort of owner-financing? Because down payments are paid to the bank, not the landlord (who, after all, will have sold the place). Here is a previous AskMe thread with, admittedly, limited info.
posted by oddovid at 6:04 PM on August 7, 2010
On reflection, perhaps what your landlord is suggesting is some sort of owner-financing? Because down payments are paid to the bank, not the landlord (who, after all, will have sold the place). Here is a previous AskMe thread with, admittedly, limited info.
posted by oddovid at 6:04 PM on August 7, 2010
Best answer: A few random thoughts from a nearby area code:
- Do you like the SE MI area and want to stay for the long term? y/n
- If "no," then that's another issue; if "yes," then...
- Go onto zillow.com and check what their software claims the place you're renting is actually worth (and the one across the street, and everywhere else in the neighborhood as well). It's a pretty amazing website if you're thinking about entering the market (but an actual appraiser could come up with even more precise figures).
- What you'll soon discover is that the landlady is living in era long past, like many of homeowners in my neighborhood who keep putting places on the market with price tags from 5-10 years ago, which then sit for months until they start reducing by choice or necessity.
- So, if you wait a while, the price on your place is probably coming down at some point (whether landlady knows it yet or not).
- While you're waiting, is the one across the street that much worse? Some of the price drops in the area have been absolutely stunning. Maybe starting see what's available nearby.
- Which leads to that intangible matter of "how much lower will the market go?" In my limited experience, SE MI is an odd sort of real estate market, with some neighborhoods turning to war zones as we speak and others keeping afloat despite massive drops in tax revenue due to declining property values. If you're a local, you should be able to get some sense of what the trends are in a given community.
- FWIW, I bought that one across the street, more or less, a while back and no regrets - paying less per month than for rent....
posted by 5Q7 at 6:59 PM on August 7, 2010
- Do you like the SE MI area and want to stay for the long term? y/n
- If "no," then that's another issue; if "yes," then...
- Go onto zillow.com and check what their software claims the place you're renting is actually worth (and the one across the street, and everywhere else in the neighborhood as well). It's a pretty amazing website if you're thinking about entering the market (but an actual appraiser could come up with even more precise figures).
- What you'll soon discover is that the landlady is living in era long past, like many of homeowners in my neighborhood who keep putting places on the market with price tags from 5-10 years ago, which then sit for months until they start reducing by choice or necessity.
- So, if you wait a while, the price on your place is probably coming down at some point (whether landlady knows it yet or not).
- While you're waiting, is the one across the street that much worse? Some of the price drops in the area have been absolutely stunning. Maybe starting see what's available nearby.
- Which leads to that intangible matter of "how much lower will the market go?" In my limited experience, SE MI is an odd sort of real estate market, with some neighborhoods turning to war zones as we speak and others keeping afloat despite massive drops in tax revenue due to declining property values. If you're a local, you should be able to get some sense of what the trends are in a given community.
- FWIW, I bought that one across the street, more or less, a while back and no regrets - paying less per month than for rent....
posted by 5Q7 at 6:59 PM on August 7, 2010
You think the house is worth around $100,000. The owner thinks the house is worth over $200,000. This is too large of a difference to reach a fair compromise, I think. Having bought and sold many, many houses in the last ten years, I can tell you this is a very big problem. My advice would be to tell the owner you are not interested in buying at this time, but you will stay in the house for as long as she wants, keeping it ready to show, etc. Let her education come from the market itself, not from you. Six to twelve months from now you both with have a much better idea of how much the house is really worth, and you might be able to negotiate such a great deal that buying the house becomes a no-brainer. You can imply that if she's not able to sell at the price she wants, you would consider purchasing it in 12 months at a greatly reduced price. In the meantime, using Zillow to do your research is a great idea. But I'm afraid you will not be able to convince the owner of the actual fair market value of the house.
posted by raisingsand at 12:19 PM on August 8, 2010
posted by raisingsand at 12:19 PM on August 8, 2010
Best answer: What you haven't said is whether you've checked out your credit rating and gotten pre-qualified for a loan yet. I would advise you to do that first; then, if you have an amount you're approved for, you've got some leverage with your landlord.
Either you can afford a house and be approved for a loan or you can't; based on some of the things you've mentioned, it doesn't sound like you have 20 percent to put down on anything, and you don't say anything about investments or other financial assets that could be viable as collateral in getting a loan. That will automatically make it obvious whether to rent or buy.
Once you get that done, and you've gotten approved for a 15 or 30-year fixed rate loan, you have a bargaining chip; until then, you're guessing and stressing, and she's throwing out arbitrary numbers trying to panic you into giving her what she wants.
If you come to your landlord and say, "we can only get approved for a loan for $112k, would you take that if you apply our previous 3 years' rent as a down payment?" and she says no, then offer to live in it while it's being shown on the market month-to-month so she doesn't lose rental income and you'll get to stay there as long as possible. It will appeal to her, and you'll get a pretty good taste of what it's like to buy and sell a house. It's nothing like what you think it is; it's harder.
Then, if the house sits on the market for 6-9 months, you're in an even BETTER position to bargain with her. She'll see the error she's made in pricing, and you'll (hopefully) have saved a little money and gained time to look for a new rental OR buy something you like without having to make a rash decision.
As far as equity goes, think if it like your 401k. Sometimes it's up, sometimes it's down. The assumption is that your equity grows as the home is paid off, but if the property value declines, then the equity becomes less valuable. The "old rules" of real estate said that if you bought a house and lived in it and kept it well-maintained for 30 years, it'd be paid for, lots more valuable than the original price, and you'd be able to sell at a profit. the "new rules" of real estate are... there are no rules. Homes are expensive to maintain, repair, rent out, buy OR sell, period. Everything related to a house is gonna cost you about 7 grand anymore. Major appliance replacement, foundation repair, closing costs, refinancing, realtor fees, management companies to act as your landlord by proxy -- all those things cost lots and lots of money for much less financial gain than you'd expect anymore.
It sounds like you've probably looked at comparison sales and foreclosures. Have you calculated payments you can afford WITHOUT a significant down payment? I mean, assuming your landlord goes for that arrangement. Most calculators tell you the house payment but don't include the cost of homeowners insurance, any points/PMI, escrow fees, taxes... I built a house brand-new on an empty lot in 2003. The estimated payments were $1300. My then-husband and I made 70 grand a year - payments were eminently doable.
Tack on property taxes, insurance, etc. and our house payment was actually 2 grand a month. Still doable. Then a pipe burst and a room flooded. He wrecked a car and lost his job. Pretty soon we were scraping by, then we divorced and suddenly a $2000 payment every month was more than 50 percent of my income. When the a/c unit failed the next year, I had to take out two loans to pay the 7 grand to fix it. I finally sold the house and made less from the sale than I'd spent repairing and maintaining it for the 6.5 years I'd lived in it... AND IT WAS BRAND NEW. Hell, some of these things were under warranty, but the model of appliance wasn't made any more, so it had to be replaced at additional costs.
This is only to point out to you that the best-made plans can fail, and at your age and with your circumstances, you need to know FIRST what you can get approved for and afford, THEN what the "real" payment for something would be, THEN decide to rent or own.
Never assume that owning something gives you a guarantee of future wealth or stability, but at the same time, being happy in a place you live AND work is freaking priceless. That's what should really resonate with you; not owning something you might profit from later, but living and working in a home you can see yourself living in until you're 70. Good luck!
posted by Unicorn on the cob at 4:13 PM on August 8, 2010
Either you can afford a house and be approved for a loan or you can't; based on some of the things you've mentioned, it doesn't sound like you have 20 percent to put down on anything, and you don't say anything about investments or other financial assets that could be viable as collateral in getting a loan. That will automatically make it obvious whether to rent or buy.
Once you get that done, and you've gotten approved for a 15 or 30-year fixed rate loan, you have a bargaining chip; until then, you're guessing and stressing, and she's throwing out arbitrary numbers trying to panic you into giving her what she wants.
If you come to your landlord and say, "we can only get approved for a loan for $112k, would you take that if you apply our previous 3 years' rent as a down payment?" and she says no, then offer to live in it while it's being shown on the market month-to-month so she doesn't lose rental income and you'll get to stay there as long as possible. It will appeal to her, and you'll get a pretty good taste of what it's like to buy and sell a house. It's nothing like what you think it is; it's harder.
Then, if the house sits on the market for 6-9 months, you're in an even BETTER position to bargain with her. She'll see the error she's made in pricing, and you'll (hopefully) have saved a little money and gained time to look for a new rental OR buy something you like without having to make a rash decision.
As far as equity goes, think if it like your 401k. Sometimes it's up, sometimes it's down. The assumption is that your equity grows as the home is paid off, but if the property value declines, then the equity becomes less valuable. The "old rules" of real estate said that if you bought a house and lived in it and kept it well-maintained for 30 years, it'd be paid for, lots more valuable than the original price, and you'd be able to sell at a profit. the "new rules" of real estate are... there are no rules. Homes are expensive to maintain, repair, rent out, buy OR sell, period. Everything related to a house is gonna cost you about 7 grand anymore. Major appliance replacement, foundation repair, closing costs, refinancing, realtor fees, management companies to act as your landlord by proxy -- all those things cost lots and lots of money for much less financial gain than you'd expect anymore.
It sounds like you've probably looked at comparison sales and foreclosures. Have you calculated payments you can afford WITHOUT a significant down payment? I mean, assuming your landlord goes for that arrangement. Most calculators tell you the house payment but don't include the cost of homeowners insurance, any points/PMI, escrow fees, taxes... I built a house brand-new on an empty lot in 2003. The estimated payments were $1300. My then-husband and I made 70 grand a year - payments were eminently doable.
Tack on property taxes, insurance, etc. and our house payment was actually 2 grand a month. Still doable. Then a pipe burst and a room flooded. He wrecked a car and lost his job. Pretty soon we were scraping by, then we divorced and suddenly a $2000 payment every month was more than 50 percent of my income. When the a/c unit failed the next year, I had to take out two loans to pay the 7 grand to fix it. I finally sold the house and made less from the sale than I'd spent repairing and maintaining it for the 6.5 years I'd lived in it... AND IT WAS BRAND NEW. Hell, some of these things were under warranty, but the model of appliance wasn't made any more, so it had to be replaced at additional costs.
This is only to point out to you that the best-made plans can fail, and at your age and with your circumstances, you need to know FIRST what you can get approved for and afford, THEN what the "real" payment for something would be, THEN decide to rent or own.
Never assume that owning something gives you a guarantee of future wealth or stability, but at the same time, being happy in a place you live AND work is freaking priceless. That's what should really resonate with you; not owning something you might profit from later, but living and working in a home you can see yourself living in until you're 70. Good luck!
posted by Unicorn on the cob at 4:13 PM on August 8, 2010
Response by poster: 5Q7, the house across the street has a few very attractive features (including two full baths - we currently have a bath and 1/2 - where the actual bathing areas are granite-tiled and large enough to walk around in [tub plus shower area]). But the room that we would use as our office is painted raw beef red (which I guess I could get used to until we had time, etc, to have it re-painted....but I really, really hate the smell of paint....) and shows signs in one upper corner of roof leakage (the paint is "blistering" and "bubbling"). The only other downside is the stairway leading up to the second floor; they are significantly steeper than the stairs in our current home (dunno if the house is technically an A-frame, but it does have a roof that comes to a significant point, and the stairs lead straight up instead of, say, having one set leading to a landing and then another continuing upward). Mr. Adams has arthritis in his spine and I've got Lupus which means that occasionally we are feeling very old and creaky and such steep stairs leading to the bedrooms might be a problem. Above and beyond all that, however, is the rumor I've heard from our next-door neighbor who told me that that particular house hasn't sold yet because it has a mold problem. I don't know how reliable her information is, but with that leaky portion of the roof - would that be condusive to mold? And what would be involved in ridding a house of mold?
posted by Oriole Adams at 1:22 PM on August 9, 2010
posted by Oriole Adams at 1:22 PM on August 9, 2010
This thread is closed to new comments.
I would start there- it may go for as much as she's asking, but it sounds like it won't and she'll have a hard time making a case for selling for much more than the appraisal value.
posted by TheBones at 1:02 PM on August 7, 2010