Is it more fiscally wise to rent or to buy a home?
April 20, 2008 9:50 AM Subscribe
Buying a house (vs. renting): How much more does it cost to buy than rent? Is it worth it (tax, asset, etc) in the long run?
A fair number of people think that renting a house in the long-term is better for some people than buying. I understand that might be the case if you plan to stay in your home for less than five years, buy in a hot market, or have lots of repairs.
I'm trying to compare the costs of home ownership and renting, and hoped you guys could chime in in terms of how much more owning a house will cost, year over year, and the benefits.
Right now as a renter I pay:
monthly rent
utilities
renter's insurance
parking tickets when my street-parked car is caught by the sweepers
As an owner I'd pay:
*monthly mortgage
*utilities
*homeowner's insurance (which costs more than renters?)
*landscaping upkeep (time and/or money)
*home repairs and upkeep (money)
Right now Mr. arnicae and I have a lump sum of enough to put a reasonable down payment on a home and salaries that could pay the mortgage and plan to live in the area we're looking at for a looong time.
Also, a family member has offered us a sum of money roughly equivalent to our down if we buy in the next two years (complicated story that would make this AskMe even longer, please ignore why/how)
Is it a better financial decision to buy or rent for the long-term? Any specifics (like how much more it has cost you monthly or annually to own a home because of X and how much you've saved in taxes, if anything) would be greatly appreciated.
Thanks for your thoughts!
A fair number of people think that renting a house in the long-term is better for some people than buying. I understand that might be the case if you plan to stay in your home for less than five years, buy in a hot market, or have lots of repairs.
I'm trying to compare the costs of home ownership and renting, and hoped you guys could chime in in terms of how much more owning a house will cost, year over year, and the benefits.
Right now as a renter I pay:
monthly rent
utilities
renter's insurance
parking tickets when my street-parked car is caught by the sweepers
As an owner I'd pay:
*monthly mortgage
*utilities
*homeowner's insurance (which costs more than renters?)
*landscaping upkeep (time and/or money)
*home repairs and upkeep (money)
Right now Mr. arnicae and I have a lump sum of enough to put a reasonable down payment on a home and salaries that could pay the mortgage and plan to live in the area we're looking at for a looong time.
Also, a family member has offered us a sum of money roughly equivalent to our down if we buy in the next two years (complicated story that would make this AskMe even longer, please ignore why/how)
Is it a better financial decision to buy or rent for the long-term? Any specifics (like how much more it has cost you monthly or annually to own a home because of X and how much you've saved in taxes, if anything) would be greatly appreciated.
Thanks for your thoughts!
Response by poster: Wow, I totally don't know how to use it, but that's a pretty cool page. (Also: I'm considering buying a place much, much nicer than the place I'm renting, which is a cute little studio that we affectionately refer to as the hovel)
posted by arnicae at 9:57 AM on April 20, 2008
posted by arnicae at 9:57 AM on April 20, 2008
Response by poster: ah, I see how to calculate it. Huh.
posted by arnicae at 9:59 AM on April 20, 2008
posted by arnicae at 9:59 AM on April 20, 2008
Don't forget property taxes and the cost of selling the house down the road. Income tax savings depend on your income level and how much you can write off already.
posted by mzurer at 10:01 AM on April 20, 2008
posted by mzurer at 10:01 AM on April 20, 2008
Also don't forget property taxes as an owner.
posted by bitdamaged at 10:03 AM on April 20, 2008
posted by bitdamaged at 10:03 AM on April 20, 2008
Seconding Kwantsar's link. There are a lot of variables in determining which is better. Some things you didn't list:
Costs homeowners have that renters don't (or are part of the rent):
Property taxes (very important)
Water/sewage
Large transaction costs
Costs renters have that homeowners don't:
Rents rise with inflation
Advantages of home owning:
Mortgage tax deduction benefits (be sure to compare to standard deduction and factor in your income bracket)
Home may appreciate in value
Advantages of renting:
Can put money in more liquid investments with potentially better returns
Again, plug in your best guesses for these values into the link Kwantsar supplied and get an idea of which is better financially.
posted by justkevin at 10:04 AM on April 20, 2008
Costs homeowners have that renters don't (or are part of the rent):
Property taxes (very important)
Water/sewage
Large transaction costs
Costs renters have that homeowners don't:
Rents rise with inflation
Advantages of home owning:
Mortgage tax deduction benefits (be sure to compare to standard deduction and factor in your income bracket)
Home may appreciate in value
Advantages of renting:
Can put money in more liquid investments with potentially better returns
Again, plug in your best guesses for these values into the link Kwantsar supplied and get an idea of which is better financially.
posted by justkevin at 10:04 AM on April 20, 2008
doh!
Also I really besides the financial costs/benefits of owning vs. renting there can be pretty significant psychic benefits of owning your own home.
Finally one thing to work in that's not covered in the calculator is any sweat equity you're willing to put in to raise the value of the house.
posted by bitdamaged at 10:06 AM on April 20, 2008
Also I really besides the financial costs/benefits of owning vs. renting there can be pretty significant psychic benefits of owning your own home.
Finally one thing to work in that's not covered in the calculator is any sweat equity you're willing to put in to raise the value of the house.
posted by bitdamaged at 10:06 AM on April 20, 2008
In that calculator make sure to add your base tax rate in the general advanced settings. Though the whole thing is a guessing game - Where you believe the housing market is going during the time you own the house is the main thing, next to the actual cost of the home.
posted by mzurer at 10:07 AM on April 20, 2008
posted by mzurer at 10:07 AM on April 20, 2008
It depends on the real estate market whether it's cheaper in the short term. When I bought my shitty condo, it was cheaper from the outset than renting a similar shitty apartment. It may not be right now or in your area.
As Kwanstar's tool shows, even if buying appears to be a more expensive proposition in the short term, it's almost always going to be cheaper in the long term. And then when it's paid off, no "rent" at all.
Yes, renters insurance is cheaper because there is less to cover- it only covers your stuff, not the property.
With mortgage interest and property tax deductions, you save even more. Especially up front when most of the mortgage payment is interest.
Especially with the added bonus of the matching funds, I would definitely go for it. A perfect scenario would to buy something small, but with potential for additions later on. So that in ten years when you need more room, you will have the option to see if it's cheaper to add on or move to a bigger home.
posted by gjc at 10:09 AM on April 20, 2008
As Kwanstar's tool shows, even if buying appears to be a more expensive proposition in the short term, it's almost always going to be cheaper in the long term. And then when it's paid off, no "rent" at all.
Yes, renters insurance is cheaper because there is less to cover- it only covers your stuff, not the property.
With mortgage interest and property tax deductions, you save even more. Especially up front when most of the mortgage payment is interest.
Especially with the added bonus of the matching funds, I would definitely go for it. A perfect scenario would to buy something small, but with potential for additions later on. So that in ten years when you need more room, you will have the option to see if it's cheaper to add on or move to a bigger home.
posted by gjc at 10:09 AM on April 20, 2008
Much of the renting-is-better-than-buying is based on the principle that you get a better return on investing the difference between rent and mortgage+repairs+insurance than you get by investing it in property directly.
For me, my mortgage for a 2 bed flat is only marginally more than I was paying in rent for a 1 bed (in the south UK). Though there is now unemployment/injury insurance and life insurance, so I can continue to pay the mortage, plus costs for repairs and upkeep. The price difference is pretty marginal, maybe an extra £120 a month or so. Plus, I now have life insurance.
Even with the slowly gathering market problems and mortgage tightening, buying made sense for me, and I'm glad I did it. There's nothing quite like the peace of mind of knowing that your own roof is in your own hands, and no-one can take it away from you as long as you keep paying the loan. Plus, you want to paint, or put up shelves, or change the furniture? Go right ahead!
If you're planning on staying in an area for a while, and you like the property as a home not just an investment, and the difference in price isn't too much, and most importantly you can afford it even if circumstances change somewhat - go for it. It might not always absolutely maximise your possible returns over the long term, but I don't know anyone personally who bought a property and regretted it, even now, whereas I know a number of renters who'd like to buy, given it's not significantly cheaper in this area. They can't wait for prices to drop, in fact, so they can get the mortgage!
posted by ArkhanJG at 10:10 AM on April 20, 2008
For me, my mortgage for a 2 bed flat is only marginally more than I was paying in rent for a 1 bed (in the south UK). Though there is now unemployment/injury insurance and life insurance, so I can continue to pay the mortage, plus costs for repairs and upkeep. The price difference is pretty marginal, maybe an extra £120 a month or so. Plus, I now have life insurance.
Even with the slowly gathering market problems and mortgage tightening, buying made sense for me, and I'm glad I did it. There's nothing quite like the peace of mind of knowing that your own roof is in your own hands, and no-one can take it away from you as long as you keep paying the loan. Plus, you want to paint, or put up shelves, or change the furniture? Go right ahead!
If you're planning on staying in an area for a while, and you like the property as a home not just an investment, and the difference in price isn't too much, and most importantly you can afford it even if circumstances change somewhat - go for it. It might not always absolutely maximise your possible returns over the long term, but I don't know anyone personally who bought a property and regretted it, even now, whereas I know a number of renters who'd like to buy, given it's not significantly cheaper in this area. They can't wait for prices to drop, in fact, so they can get the mortgage!
posted by ArkhanJG at 10:10 AM on April 20, 2008
As I'm nearing retirement age, there was one other factor that came into play when I had the same decision last year. I timed my mortgage to be paid off when I quit working. Since my income will be reduced by retirement, it will be nice having my living quarters paid for. If I was renting, the monthly outlay would still be the same year after year.
posted by netbros at 10:14 AM on April 20, 2008
posted by netbros at 10:14 AM on April 20, 2008
The big thing to me, if you're thinking about buying something for the long term:
If you get a fixed-rate mortgage (and you should), you know exactly what you're going to be paying for housing for thirty years. Your property taxes may increase a bit, so check the trends in the place where you want to buy. But largely, you are obligated to pay the same amount for the next thirty years. For the next ten or so, you're probably going to be paying more each month than you do in rent (but you'll probably have a bit more space and a lot more freedom). Then it will be more or less a wash for a bit. Eventually, inflation will escalate rents in your area beyond what your mortgage costs. And inflation (and hopefully appreciation) will increase the dollar value of your home. So eventually, you're going to pay much less for housing than renters. And remember, this is all contingent on you staying put or, if you move, not moving to a place that is significantly more expensive than your first house.
There doesn't seem to be a firm consensus on the on paper financial elements-- some people claim it's better financially to rent, others say "buy". So the end financial results probably aren't far off for many people. Even if it does end up more expensive to buy (and I don't think people drawing this conclusion are factoring rent inflation like the kind in my area), it's hard to put a price on stability-- but I'm fairly certain than in 2030, I'm going to enjoying being in my 50's and paying my 2008 mortgage than I would be being in my 50's and paying 2030 rent.
And I'll never miss having to ask if I can get a dog or if it's cool to leave my bike in shared space.
posted by Mayor Curley at 10:21 AM on April 20, 2008
If you get a fixed-rate mortgage (and you should), you know exactly what you're going to be paying for housing for thirty years. Your property taxes may increase a bit, so check the trends in the place where you want to buy. But largely, you are obligated to pay the same amount for the next thirty years. For the next ten or so, you're probably going to be paying more each month than you do in rent (but you'll probably have a bit more space and a lot more freedom). Then it will be more or less a wash for a bit. Eventually, inflation will escalate rents in your area beyond what your mortgage costs. And inflation (and hopefully appreciation) will increase the dollar value of your home. So eventually, you're going to pay much less for housing than renters. And remember, this is all contingent on you staying put or, if you move, not moving to a place that is significantly more expensive than your first house.
There doesn't seem to be a firm consensus on the on paper financial elements-- some people claim it's better financially to rent, others say "buy". So the end financial results probably aren't far off for many people. Even if it does end up more expensive to buy (and I don't think people drawing this conclusion are factoring rent inflation like the kind in my area), it's hard to put a price on stability-- but I'm fairly certain than in 2030, I'm going to enjoying being in my 50's and paying my 2008 mortgage than I would be being in my 50's and paying 2030 rent.
And I'll never miss having to ask if I can get a dog or if it's cool to leave my bike in shared space.
posted by Mayor Curley at 10:21 AM on April 20, 2008
This recent AskMe question produced some answers that touched on this topic.
Like I said there, in my situation the financial benefits have been pretty marginal, and maybe would really be negative if I were strict enough about adding in all the real costs of ownership. The compensation, though, is having control over my own space, in a way that never happens when you rent, and that mattered more to me than the final bottom line number.
People have mentioned property taxes already -- I would just add that property taxes can jump suddenly, either because the tax rate goes up or because your house gets reassessed at a higher value. So build some room for bad news into your budget projections.
Don't discount the cost of all the small things that (often) go with a house, but less often with a small apartment -- gardening tools, outdoor furniture, plumbing tools, kitchen gadgets, etc. All cheap individually, but it can add up to a lot of money. Think of it as 'lifestyle creep,' maybe, and it can be hard to avoid. If you invite people over to your studio apartment, they sit wherever they can find a seat. In your house or condo, your bed is no longer in the living room, nor is your dining table, nor is your desk, so you now need seats for your guests in the living room. And in nice weather maybe you will want to sit outside, right? DIY repairs can save you a lot of money, but involve buying and storing tools, plus many, many trips to the lumberyard.
Another cost of owning that is hard to quantify is the "stickiness" of owning, where it can be harder to take an opportunity somewhere else, because of the cost and trouble of having to sell the house. A lot of people are suffering from this right now, because their houses have lost value, and they can't leave town to take a new job.
Yes, house insurance is more than renter's insurance (which is usually basically just insurance for your possessions -- the physical apartment is covered by the landlord's insurance policy). I think I pay more than $500/year for house insurance (I'm not sure what the actual number is; there are discounts for having car and house insurance coverage from the same company, too); the last time I had renter's insurance it was a lot less than that.
posted by Forktine at 10:37 AM on April 20, 2008 [2 favorites]
Like I said there, in my situation the financial benefits have been pretty marginal, and maybe would really be negative if I were strict enough about adding in all the real costs of ownership. The compensation, though, is having control over my own space, in a way that never happens when you rent, and that mattered more to me than the final bottom line number.
People have mentioned property taxes already -- I would just add that property taxes can jump suddenly, either because the tax rate goes up or because your house gets reassessed at a higher value. So build some room for bad news into your budget projections.
Don't discount the cost of all the small things that (often) go with a house, but less often with a small apartment -- gardening tools, outdoor furniture, plumbing tools, kitchen gadgets, etc. All cheap individually, but it can add up to a lot of money. Think of it as 'lifestyle creep,' maybe, and it can be hard to avoid. If you invite people over to your studio apartment, they sit wherever they can find a seat. In your house or condo, your bed is no longer in the living room, nor is your dining table, nor is your desk, so you now need seats for your guests in the living room. And in nice weather maybe you will want to sit outside, right? DIY repairs can save you a lot of money, but involve buying and storing tools, plus many, many trips to the lumberyard.
Another cost of owning that is hard to quantify is the "stickiness" of owning, where it can be harder to take an opportunity somewhere else, because of the cost and trouble of having to sell the house. A lot of people are suffering from this right now, because their houses have lost value, and they can't leave town to take a new job.
Yes, house insurance is more than renter's insurance (which is usually basically just insurance for your possessions -- the physical apartment is covered by the landlord's insurance policy). I think I pay more than $500/year for house insurance (I'm not sure what the actual number is; there are discounts for having car and house insurance coverage from the same company, too); the last time I had renter's insurance it was a lot less than that.
posted by Forktine at 10:37 AM on April 20, 2008 [2 favorites]
It all depends on the time horizon. In the short term it's entirely dependent on the housing market and other magic-8-ball numbers like inflation and tax changes. In the medium term, absent major market shocks like what we're in now owning starts to edge out as inflation eats away at the real costs of paying your mortgage (you cost of living goes up, hopefully so does your income, but your mortgage stays the same).
In the very long term it's a no brainer. If you buy a well built house in a stable area there's no particular reason it shouldn't outlast your children's children if you want it to (and if you maintain it). There's the rub of course, if your tastes, the neighborhood, or your situation changes substantially in the future you may be forced to sell at a disadvantage. Also there are severe liability concerns if you will be renting to others that you really shouldn't enter into unless you know what you're doing.
I don't weigh the appreciation value of a property very strongly in any calculations I make because I'm not usually planning on selling in any reasonable time scale so it doesn't effect the marginal (i.e. cashflow) factors.
posted by Skorgu at 10:43 AM on April 20, 2008
In the very long term it's a no brainer. If you buy a well built house in a stable area there's no particular reason it shouldn't outlast your children's children if you want it to (and if you maintain it). There's the rub of course, if your tastes, the neighborhood, or your situation changes substantially in the future you may be forced to sell at a disadvantage. Also there are severe liability concerns if you will be renting to others that you really shouldn't enter into unless you know what you're doing.
I don't weigh the appreciation value of a property very strongly in any calculations I make because I'm not usually planning on selling in any reasonable time scale so it doesn't effect the marginal (i.e. cashflow) factors.
posted by Skorgu at 10:43 AM on April 20, 2008
I've been having a very hard time on this myself and have been hemming and hawing for about 4 years. Factor in the Bay Area market and my living in a rent controlled apartment and the plusses and minuses make my head explode.
posted by ClaudiaCenter at 11:05 AM on April 20, 2008
posted by ClaudiaCenter at 11:05 AM on April 20, 2008
a family member has offered us a sum of money roughly equivalent to our down if we buy in the next two years
You mortgages are commonly available with 0%, 5%, or 20% down. If you are being offered 20% of the price of the home to help you with this, in most areas it will make the most financial sense to buy. If you are considering buying a home in an area where 90% of the population works at, say, a giant copper mine, it might not. It's like being able to get a house for 20% off, and I don't see any reason you would want to turn this down.
I own the house I live in, and my payments for mortgage+taxes+insurance are less than it would be to rent a comparable house now, as well as when I moved in two years ago. My insurance is less this year than last year. Rents and home prices in my neighborhood are both up from when I moved in -- this makes you happy if you own your home, and not very happy if you rent.
I've been spending some time and money on landscaping, because it's gotten to be something that interests me. If it didn't, I'd have some gravel dumped in my yard and be done with it. As for repairs, I've spent some money on a few things that I knew would need to be fixed when I moved in, and spent a little more to make things nicer than they would be if I was renting. Costs for repairs have been lower than I thought they would be, and I haven't had any surprises in this area.
I own another home in a town I used to live in. It's paid off, and I rent it out and use a building in the back for storage. Two months rent (it would be one month if the back building was also rented) covers the taxes, and I've spent about $150 on repairs in the last two years.
When it comes time to sell, most people (USA) are able to exclude profit on a home sale from capital gains taxes.
posted by yohko at 11:08 AM on April 20, 2008
You mortgages are commonly available with 0%, 5%, or 20% down. If you are being offered 20% of the price of the home to help you with this, in most areas it will make the most financial sense to buy. If you are considering buying a home in an area where 90% of the population works at, say, a giant copper mine, it might not. It's like being able to get a house for 20% off, and I don't see any reason you would want to turn this down.
I own the house I live in, and my payments for mortgage+taxes+insurance are less than it would be to rent a comparable house now, as well as when I moved in two years ago. My insurance is less this year than last year. Rents and home prices in my neighborhood are both up from when I moved in -- this makes you happy if you own your home, and not very happy if you rent.
I've been spending some time and money on landscaping, because it's gotten to be something that interests me. If it didn't, I'd have some gravel dumped in my yard and be done with it. As for repairs, I've spent some money on a few things that I knew would need to be fixed when I moved in, and spent a little more to make things nicer than they would be if I was renting. Costs for repairs have been lower than I thought they would be, and I haven't had any surprises in this area.
I own another home in a town I used to live in. It's paid off, and I rent it out and use a building in the back for storage. Two months rent (it would be one month if the back building was also rented) covers the taxes, and I've spent about $150 on repairs in the last two years.
When it comes time to sell, most people (USA) are able to exclude profit on a home sale from capital gains taxes.
posted by yohko at 11:08 AM on April 20, 2008
a family member has offered us a sum of money roughly equivalent to our down if we buy in the next two years
Renting vs. buying can be a very complicated decision, and tweaking your assumptions just a little bit can change things dramatically... but this factor here is a huge argument in favor of buying. It's hard to imagine that buying would not be fiscally wise for you, given that you're planning to stay in the area for a long time, and that someone else would (at least substantially) be covering the down payment for you.
posted by Perplexity at 11:12 AM on April 20, 2008
Renting vs. buying can be a very complicated decision, and tweaking your assumptions just a little bit can change things dramatically... but this factor here is a huge argument in favor of buying. It's hard to imagine that buying would not be fiscally wise for you, given that you're planning to stay in the area for a long time, and that someone else would (at least substantially) be covering the down payment for you.
posted by Perplexity at 11:12 AM on April 20, 2008
I get really bored by the financial minutia of buying vs renting because I feel like a lot of that is centred around housing as an investment. I don't really buy into that because I'm of the opinion that the primary goal of housing is to put a roof over your head.
The most persuasive argument for me for buying is that I do not want to be paying rent out of my retirement savings after I'm 65. If you don't either, then buying is the practical long term strategy.
posted by DarlingBri at 11:56 AM on April 20, 2008 [2 favorites]
The most persuasive argument for me for buying is that I do not want to be paying rent out of my retirement savings after I'm 65. If you don't either, then buying is the practical long term strategy.
posted by DarlingBri at 11:56 AM on April 20, 2008 [2 favorites]
There's a homebuying for dummies book that I personally found did a good job with rule-of-thumb type estimations of the cost of home-owning, including less obvious costs.
It totally depends on the specific property, the market, your tax situation and the local property tax situation, and how long you stay in. If your experience is like mine and everybody I know, owning is a significant financial liability in the immediate sense, which is to say we expend significantly more on housing than we did renting - like, 50% more. Your mileage will absolutely vary. The compensations for me are space and control - I always give the same advice in these threads: do not buy a house you aren't genuinely interested in owning.
posted by nanojath at 12:10 PM on April 20, 2008
It totally depends on the specific property, the market, your tax situation and the local property tax situation, and how long you stay in. If your experience is like mine and everybody I know, owning is a significant financial liability in the immediate sense, which is to say we expend significantly more on housing than we did renting - like, 50% more. Your mileage will absolutely vary. The compensations for me are space and control - I always give the same advice in these threads: do not buy a house you aren't genuinely interested in owning.
posted by nanojath at 12:10 PM on April 20, 2008
The rent-vs-buy calculators usually assume that you'll be investing the money you save in the stock market or something, which, let's be honest, basically nobody does. Make sure you compare the costs without hypothetical investments you're never really going to make.
The way I look at it, you're guaranteed to lose the money you spend on rent. If you buy, at least you have a chance of getting something back. Especially if you're thinking long-term, it's very unlikely that rent will be cheaper than your mortgage 20 or 30 years from now. If you bought a house 30 years ago, the average mortgage payment would have been around $400/month. I wouldn't mind having those kind of payments now!
And if someone's offering to cover your down payment? Shoot, that's free money, man! Even if you sell for the same price you bought it for, you'll still be ahead.
posted by designbot at 12:44 PM on April 20, 2008 [1 favorite]
The way I look at it, you're guaranteed to lose the money you spend on rent. If you buy, at least you have a chance of getting something back. Especially if you're thinking long-term, it's very unlikely that rent will be cheaper than your mortgage 20 or 30 years from now. If you bought a house 30 years ago, the average mortgage payment would have been around $400/month. I wouldn't mind having those kind of payments now!
And if someone's offering to cover your down payment? Shoot, that's free money, man! Even if you sell for the same price you bought it for, you'll still be ahead.
posted by designbot at 12:44 PM on April 20, 2008 [1 favorite]
If you're considering a condo or a townhouse, don't forget HOA (homeowner's association) dues. I recently read about one property in San Francisco where HOA was $1000/month.
posted by kristi at 1:18 PM on April 20, 2008
posted by kristi at 1:18 PM on April 20, 2008
It's all numbers based and location-based.
I wouldn't say now would be a terrible time to buy, but it does depend on your area and how much you want to try to time its market.
Eg. I am interested in getting a place in the nicest part of Fresno [not an oxymoron, k?].
The properties I'm tracking now are in the $500-600k range now, were $350-400k back in 2002 and peaked at $600-800k in 2006.
The $500K house I'm looking at now ~might~ be buyable for $400k eventually, but the monthly cost between a $400k and a $500k is "only" $500/mo.
Here's the numerical factors I have in my spreadsheet to find the True Monthly Cost™ of buying (I will use a $400K property with 3% down @ a 6.25% 30 year fixed for this example).
First. The Interest-Only part of your mortgage payment. Principal repaymets are a form of savings so Don't Count as a monthly cost IMV. The monthly interest expense is $2020.
Next. PMI and Property Tax. PMI is 0.85% and Property tax is 1.23% so the total is $685 per month.
BUT . . . the above amounts are TAX DEDUCTIBLE so at my marginal tax rate (37%) I get a monthly TAX CREDIT of $1001, leaving a net monthly subtotal cost of $1705.
Add in HO Insurance $80, Municipal Utilities $100, Random Maintenance Budge of $100, and the opportunity cost of the 3% down payment ($48) and total other costs will run around $330.
So the monthly cost of a $400K place is around $2050 by my calculations.
posted by tachikaze at 1:22 PM on April 20, 2008
I wouldn't say now would be a terrible time to buy, but it does depend on your area and how much you want to try to time its market.
Eg. I am interested in getting a place in the nicest part of Fresno [not an oxymoron, k?].
The properties I'm tracking now are in the $500-600k range now, were $350-400k back in 2002 and peaked at $600-800k in 2006.
The $500K house I'm looking at now ~might~ be buyable for $400k eventually, but the monthly cost between a $400k and a $500k is "only" $500/mo.
Here's the numerical factors I have in my spreadsheet to find the True Monthly Cost™ of buying (I will use a $400K property with 3% down @ a 6.25% 30 year fixed for this example).
First. The Interest-Only part of your mortgage payment. Principal repaymets are a form of savings so Don't Count as a monthly cost IMV. The monthly interest expense is $2020.
Next. PMI and Property Tax. PMI is 0.85% and Property tax is 1.23% so the total is $685 per month.
BUT . . . the above amounts are TAX DEDUCTIBLE so at my marginal tax rate (37%) I get a monthly TAX CREDIT of $1001, leaving a net monthly subtotal cost of $1705.
Add in HO Insurance $80, Municipal Utilities $100, Random Maintenance Budge of $100, and the opportunity cost of the 3% down payment ($48) and total other costs will run around $330.
So the monthly cost of a $400K place is around $2050 by my calculations.
posted by tachikaze at 1:22 PM on April 20, 2008
You need to answer a stack more questions before you can get a good answer, imo.
- Why do you want to buy property? Financial security or investment? Do you want to live in it or make money from it?
- What kind of return do you want? Capital growth or rental yield?
- What timeframe do you expect a return?
- Are you willing to renovate?
- Do you understand or want to understand other kinds of investments?
For many, the measure for a good investment is very personal. I'd consider a good property investment to be one that rent is greater than or equal to than the sum of my holding costs (mortgage payment, rates, refurb/reno costs) and is in a growing area probably near the beach. Whereas the wealthiest guy that I know hates property, rents and invests in the stock market.
If you decide to invest in property, I'd recommend considering the following:
- get a *good* mortgage broker - they are hard to find, but they do exist.
- get a good buyer's agent - they can save you more than they cost but do shop around
- know your target market or location - that way you'll get yourself a bargain
- buy more than one property - especially if you'll get a lump sum from someone else as well
Good luck!
posted by dantodd at 1:40 PM on April 20, 2008
- Why do you want to buy property? Financial security or investment? Do you want to live in it or make money from it?
- What kind of return do you want? Capital growth or rental yield?
- What timeframe do you expect a return?
- Are you willing to renovate?
- Do you understand or want to understand other kinds of investments?
For many, the measure for a good investment is very personal. I'd consider a good property investment to be one that rent is greater than or equal to than the sum of my holding costs (mortgage payment, rates, refurb/reno costs) and is in a growing area probably near the beach. Whereas the wealthiest guy that I know hates property, rents and invests in the stock market.
If you decide to invest in property, I'd recommend considering the following:
- get a *good* mortgage broker - they are hard to find, but they do exist.
- get a good buyer's agent - they can save you more than they cost but do shop around
- know your target market or location - that way you'll get yourself a bargain
- buy more than one property - especially if you'll get a lump sum from someone else as well
Good luck!
posted by dantodd at 1:40 PM on April 20, 2008
Absolutely agreeing with DarlingBri: I bought a house four years ago when a landlord wanted to switch from an annual to a month-to-month lease. Worry about that cost me far more than I might have made from any real estate flim-flammery.
posted by fantabulous timewaster at 2:30 PM on April 20, 2008
posted by fantabulous timewaster at 2:30 PM on April 20, 2008
DarlingBri- agree completely. Your house isn't an investment- except that once you get it paid off you have a place to live for free. Otherwise, you gotta have a place to live. It's an expense.
posted by gjc at 7:33 PM on April 20, 2008
posted by gjc at 7:33 PM on April 20, 2008
This thread is closed to new comments.
posted by Kwantsar at 9:54 AM on April 20, 2008