Can someone explain to me how buying residential real estate in a major/expensive U.S. metropolitan area makes any sense whatsoever? I'm really not seeing it right now (and yet I would love to join the landed gentry).
GF and I live in a rental apartment in downtown Boston, which is experiencing a crunch in the rental market. Our apartment is expensive (and parking is extra), and we look forward to moving on to someplace else. We have been seriously considering buying a condo either downtown or in the close 'burbs.
That said, we're both highly rational people, and the numbers don't make any sense to us. We're looking for a condo that is at least approximately equivalent to the square footage we have now and, broadly speaking, about as nice (accepting that part of the niceness of your condo is that you own it). We'd like to have kids at some point, so schooling is a factor--either good public schools or having enough free cash for a private school.
The mid-winter listings market is not popping right now, but reasonable enough places seem to be offered from $450K-$650K (figure a mortgage at 4.5-5.5% for 80% of that), plus condo fees of maybe $300-$600, taxes at about $4000-6000, insurance, maintenance, improvements, etc.
Add it up, and you've got a cash
outflow of easily
$3500 per month. Factor in the mortgage interest deduction and the property tax deduction and you might be down to $2600 on a tax-effected basis, but that number obviously goes up as the mortgage amortizes.
This does not compute. I love the idea of buying, and, at our current jobs, we can afford those prices (have the down payment, pre-approved for a mortgage, the whole nine yards)--but, if jobs were to be lost, or other emergency expenditures to arise, $3500 is a big fucking nut to crack each month. With a rental, you can downsize or move away if need be.
Yes, I've seen the NYT buy vs. rent calculator
; and with some inputs, it does make sense to buy after a few years. Granted, payments of principal on the note are like a forced savings account, but 1) we're already saving and 2) the "savings" in early years are quite minor compared to the total cash outlays.
Am I missing something here? I'm aware that gain on a subsequent sale is tax-free to certain limits--but I'm more of the "housing as a consumable" rather than an investment camp. It feels like everyone I know owns or is buying, and that home ownership is some incredible rite of passage--but I look at the numbers and think that everyone is a sucker. Is everyone a sucker?