Rent vs Buy: Rental Market is Bananas edition
May 21, 2016 11:08 AM   Subscribe

Mr. Getawaysticks and I are attempting to move the Downriver area of Michigan (this is ~30 miles south of Detroit or so). The rental market in this area is really expensive compared to what it would be in monthly mortgage payments. Our credit is fine and we have stable jobs, so we should buy, right? But what if we want to leave the area in 2 years?

We've reviewed the New York Times Rent/Buy Calculator, we've read so many articles on this issue. We do not plan to stay in Michigan long term, but need to get to the Downriver area for my husband's job.

All there are out there are really expensive rentals - $1800 for a 1600 square foot condo with a garage, $1800 for a 2000 square foot house with garage. We are hampered by the fact that we came from Texas with giant houses and we enjoy having at least 1700 square feet or so, require 2 baths, have cats, and refuse to live in Michigan without a 2 car garage. We could buy a similar house with 5% down and the payment would be $300-400 less per month.

We are about to move for the 4th time in just under 4 years and are fed up with moving and landlords, and were hoping to find somewhere to park for 2 years until we decide where we want to relocate longer-term. The only acceptable rental we've been able to find this time is has a built-in 15% rental increase in one year, putting it out of the acceptable range. There are just no rentals available with 2 bathrooms (+allow pets) that aren't tiny apartments.

It's still stupid to consider buying a house to sell in 2 years, right? We did just sell a house in 2012 and it was so aggravating and stressful, but finding a new rental house every year is aggravating and stressful and it is wearing us out. Also, I'm a contractor (with a stable client) and having a tax write-off would be nice as we have no kids and nothing else to write off.

The Zillow "breakeven horizon" is 1.5-2.5 years for the Wayne County area, meaning that if we buy a house and keep it for 1.5-2.5 years we'll come out ahead of renting. There is a chance we could keep the house on as a rental after we move away, but I'd prefer not to.

This all sounds fantastic on paper, but I still can't talk myself into such a huge commitment if we know we want to leave in short order. What am I missing? Thanks in advance for any and all thoughts.
posted by getawaysticks to Work & Money (18 answers total) 4 users marked this as a favorite
It might be worthwhile to talk to a bank and get a good faith estimate of potential closing costs, interest rate, and estimated monthly payments.

I find those online calculators of potential mortgage payments tend to be wildly inaccurate because they don't always accurately include things like PMI (which you'll be paying at 5% down), home insurance, and property taxes.

After that, you need to then calculate the closing costs on both ends - when you buy, how much will it cost you (what's customary, who pays what fee), and how much it'll cost you when you sell, including the agent's cut and all that.

Then you take those costs and divide that up by 2 years to get a sense of what you'd be paying monthly.
posted by Karaage at 11:20 AM on May 21, 2016

What am I missing?

Have you calculated the transaction costs of buying and selling? Buying means loan origination fees and so on, and selling means realtor commission, local taxes, etc, which all add up. So for a $200,000 house you might be in a few thousand on the buying side, and then a good $12,000 just in commission when you sell it. Aside from the big picture of whether you think prices will go up or down, those are the costs you would be comparing to the extra you would be paying in rent.
posted by Dip Flash at 11:22 AM on May 21, 2016 [6 favorites]

Well, that $300-400 per month difference could easily be eaten up by property taxes, the difference in insurance (homeowners' vs. renters), and all the various little costs that homeowners incur. Never mind the fact that buying and especially selling property is expensive in and of itself, stressful as you know, and not guaranteed. You could potentially be unable to sell a house for months or years after you decide to move out. Obviously things vary hugely from market to market, but I would not buy in this situation. I did once sell a home within 3 years after moving in (not my intention), and I would... never do that again.
posted by obfuscation at 11:22 AM on May 21, 2016 [6 favorites]

If there's any chance you're going to live there for less than two years, you also need to worry about capital gains taxes on the house.
posted by mskyle at 11:41 AM on May 21, 2016

Unless you can be assured of at least a $20k profit when you sell, you won't break even. Unless there are highly extenuating circumstances, I wouldn't recommend that anyone buy unless you're planning on staying for at least 5 years. We're selling our house and buying a new one right now and $20k is just going up in smoke due to commission and closing costs (thankfully we've been here long enough that we're making a good deal more than that on our home). Also, due to amortization schedules a teensy amount of your mortgage payment will be going to principle for those two years. You'll have almost no equity.

Tl;Dr: don't.
posted by soren_lorensen at 11:41 AM on May 21, 2016 [5 favorites]

I'm assuming you want a two-car garage because of the snow. One thing to bear in mind is that you are still going to have to shovel a large driveway and sidewalk if you have a house (or hire someone to do it). Clearing off a car is not that much more work. If you're concerned about damage to the car from the salt, there's no way around that except keeping the cars in the garage all the time. Apologies if you've lived in snowy places before and this is obvious to you. I'm just bringing this up because renting a place with a two-car garage is going to be a lot more expensive.

And yeah - find out what your property taxes are going to be before you buy. I'm in Washtenaw County, which is a little different from Wayne, but I'm paying $3000 annually on property taxes for a three-bedroom condo. Also, houses in my area routinely get sold the day they're listed for more than the asking price, but this may not be true where you'll be living.

I would vote for not buying. In addition to property taxes and other expenses noted above, you never know when you're going to have a surprise repair that's super expensive.

Has Mr. Getawaysticks talked to his future co-workers about this? Some people I know end up commuting - friends who moved here from California say a long Michigan commute is much easier than a long California commute because the traffic isn't as bad - I don't know anything about Texas though.
posted by FencingGal at 11:58 AM on May 21, 2016 [2 favorites]

Some clarifications, sorry - we are in Michigan now, but an hour north.. in a tiny rental house. The rent/buy calculator at NYT covers closing costs/commissions/etc, but has unknowns like how much the house will go up in value over the next xx years, how much interest is your savings making, etc.

We've been here for a winter (and I grew up here) so yes, know all about the snow removal/etc. Really hate dealing with a car that has been iced over. :)

Thanks for your answers so far, very thought provoking.
posted by getawaysticks at 12:28 PM on May 21, 2016

If you are buying with a two year time horizon, it's not for financial reasons. And that's fine, too.
posted by deadweightloss at 12:41 PM on May 21, 2016 [2 favorites]

Not all value is money. Even setting aside that the administrivia of owning will eat up most if not all and more of your $300-400 "savings" every month, how are you with stress? How is your partner with stress? How much headroom for stress is there in your relationship? How much money is there to buy other forms of flexibility if you're anchored to a house?

Buying a house, on a stress scale of 1-10, is about a 3. Oh, you'll think it's a 9, until it's two years later and the time comes to look for that job elsewhere but do you put the house on the market and start looking? Start looking and put the house on the market when one of you gets a job? What if the house doesn't sell in a day or a week or a month? What if in the intervening two years you've found out it needs critical work, and now that you know you can't sell without disclosing, or it's going to show up in an inspection, which means you'll only be able to sell to cash-rich buyers, no FHA buyers, likely no first-time buyers. You'll realize how easy buying was when you have to juggle selling and moving when you can only afford one residence at a time.

You'd be far better served by trying harder to find a place to rent, and being more flexible (it's two years, consider it your suffering years to prep (and save!) for the new thing you'll be doing in the future - give up a toilet for two garage spaces, hold out for two toilets but only 1400sf, you'll live, this isn't where you're going to settle for a good long time). Maybe try a Realtor since a good motivated one (look for a younger/newer agent) will have some superpowers you don't - and they Know Stuff, it's how I've rented in tough markets in the past.
posted by Lyn Never at 1:16 PM on May 21, 2016 [2 favorites]

The Downriver real estate market is really soft, has been for decades, and I would not buy unless I knew I was going to stay for 5 years or more -- just too much of a chance to get stuck with a house that won't sell. There is no reason to believe that it will get much better, either. Assume that financially it will be a wash, if not more expensive, to buy for such a short time. There's no reason to think that being a homeowner will be less stressful than dealing with a landlord.

The other thing is that there really aren't a lot of houses (to rent or buy) with the features you want Downriver. Downriver has always been far more working class than middle class, and the houses reflect that, especially in the older areas. 1700sf with two full baths is a big fancy house for the area -- you may have better luck settling for smaller with two baths and a garage.

Where will MrGetawaysticks be commuting to, and where have you been looking?
posted by jlkr at 1:25 PM on May 21, 2016

@jlkr - he is working at Sibley and 75. We are looking at Trenton, Brownstown, (the nicer side of) Romulus, Southgate - basically anything within a ~15 minute commute.
posted by getawaysticks at 1:53 PM on May 21, 2016

The Detroit area is so fragile and you KNOW you're there temporarily, find a place you like and rent.

One unexpected expense in a house and your math goes the other way. A furnace or roof or flood and you're in the red.

Rent. Rent. Rent.

Brought to you by the people who wouldn't own another home again.
posted by Ruthless Bunny at 2:40 PM on May 21, 2016 [4 favorites]

As a couple, you're really not going to be suffering at 1600 sq ft. You're just not. It's one thing if you have the money and you choose to invest it in more room, but the idea that you need to take a risk like this because otherwise you might end up at sub-1700 ft...that's just silly.
posted by praemunire at 5:43 PM on May 21, 2016 [3 favorites]

Unless you're super invested in living within the Detroit-Ypsi-Ann Arbor corridor along I-94, I think you should extend your search for a rental south down I-75 rather than north and east, and outside of town and city centers. Monroe is only ~25 minutes south of the Sibley exit.

I'm a southeastern Michigan native who moved to Chicago to get out of the terrible job market. I would never dream of purchasing a house there with intent to sell it again--I'd be too afraid of getting trapped (or taking a bath) if the economy faltered. When the US sneezes, Detroit comes down with the flu.
posted by pullayup at 7:24 PM on May 21, 2016

If rental payments in the areas are higher than the mortgage payments, would you consider buying to live in it for two years, and then renting it out afterwards instead of selling it?
posted by Gomez_in_the_South at 8:16 PM on May 21, 2016

Rent a really nice smaller space with a great commute and get storage for your stuff . It's only for two years!
posted by lalochezia at 5:37 AM on May 22, 2016 [1 favorite]

Thanks, everyone!! I'm marking this as resolved. This is about as close to unanimous as you get around here, I think :)

Notes to anyone still reading later who wants to chime in: Yes, we'd consider renting it out later (but would use that as a last resort). Also, if it was between renting 1600 at a reasonable price or buying 1700 at a better price, there would be no contest! But the rent for 1600 is obscene, so we're probably looking at 1200 square feet. We've been at 1400 for a year and are miserable.
posted by getawaysticks at 10:27 AM on May 22, 2016 [1 favorite]

It's temporary. I'd scale down and pretend I was doing 'Tiny House'.

We're in 1400 down from our 2600 house. It was pretty easy with a thoughtfully designed place and a new sofa.
posted by Ruthless Bunny at 5:21 PM on May 22, 2016

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