Should I rent or should I buy now?
July 20, 2016 4:18 PM   Subscribe

I'm 40 and single, and have been renting for all of my adult life. I'm now in a position where I can buy if I want to. I'm starting to do initial research and attempt to get a better understanding of my options and what the best decision is for me.

This is a whole new world for me. I've seen the NYT article on rent vs buy, and according to their calculator (incompletely populated with the limited information I have now) buying is the better option. At this point I'm considering purchasing a condo or a standalone home; I haven't begun checking out properties yet. (Based on the info I have now, my mortgage payment would be less than half my current rent).

As a single woman with no immediate prospects, I'd like to do what I can to help bolster my financial future. I do understand that both renting and buying have their obligations and pitfalls, that as a property owner I will be responsible for repairs that can be expensive and difficult.

What factors should I consider in this decision? What pitfalls should I beware of? Are there experts out there who can be hired to look at the whole situation and give advice?
posted by bunderful to Work & Money (25 answers total) 20 users marked this as a favorite
Hard to answer this question in a meaningful way without knowing where. Can you share that?
posted by mhoye at 4:26 PM on July 20, 2016

There are a few big unmentioned aspects of homeownership that tend to get glossed over.

1) Worry. When you own a thing you worry about it.
2) Time spent sorting out the financial implications and machinations required for homeownership is not actually free.
3) Bad neighbor risk is substantial.
4) In addition to the maintenance responsibility there is decisions about maintenance responsibility. You have to spend time and energy finding people to fix your problems. Sometimes you will succeed and sometimes you will fail. This can either improve your view of people or shatter it. You need to budget for maintenance, fixing bad maintenance and learn how to tell good and bad maintenance apart.
5) Property value anxiety. Owning a home can make you into one of those people who oppose everything because it could hurt your property value. Do you want to be that person?
6) Condo and HMO politics can be awful.
posted by srboisvert at 4:37 PM on July 20, 2016 [9 favorites]

Best answer: One big thing to think about is how long you're going to stay in your home. There are high transaction costs associated with buying and selling a house and the first few years of mortgage payments are typically mostly interest, so it takes a while to build equity. If there's a chance you'll be moving out of your city in the next 3-5 years, that might be an argument for renting. On the other hand, if you're planning on staying in a home for a long time, getting a 30 year mortgage means you'll never have to pay more for it (although property taxes, etc. can increase).

Other things to think about are how much of your money it will tie up. Houses are not very liquid and also they the place where you live, so if you have a six month stretch of unemployment it's not always easy to access the money tied up in your home the way you can access a savings or investment account. Since you're also responsible for repairs, etc., you also need more of a cushion than when you're renting to account for large but urgent repairs.

You should do some preliminary research on how much a home in the neighborhoods you're interested in costs, as well as associated costs like home insurance and property tax (this can be a lot). If you're looking at condos you'll also need to factor in HOA dues, the fee you pay to the condo association that is intended to pay for maintenance and upkeep of common areas. If you decide that you'd like to buy, usually people contact a real estate agent to start showing them properties and that person will work with them through the sale of the house.

There are also a lot of other costs related to buying and getting a mortgage, most of which are one-time, such as inspection and appraisal fees, title insurance, mortgage origination, etc.

Believe it or not, I actually got a lot out of Home Buying for Dummies, which you can probably get at your local library. Make sure you get a recent edition though since a lot of the regulations about mortgages changed after the 2008 mortgage crisis. The ad copy makes a big production about "negotiate the best deal!" but actually the book is mostly about learning to identify things that make a particular house or financing approach a good or bad choice for you under your particular circumstances.
posted by The Elusive Architeuthis at 4:49 PM on July 20, 2016 [7 favorites]

As I get older, I regret having sold my home. I had good reasons at the time. But I'll never be able to afford to buy another one. And, at some point, I will be priced out of my current rental apartment when I'm unlikely to be working. I have no idea where I will be living in my old age. I'm 20 years older than you so there's a good reason why this concerns me. It may not be a concern for you but if it is, buying a home you plan to keep the rest of your life (barring disability or illness) might sound pretty sweet.
posted by Bella Donna at 4:59 PM on July 20, 2016 [6 favorites]

I read somewhere that the single biggest predictor for long term economic stability in the US is home ownership. But - if you do decide to go that way - please do the hidden cost research. Property taxes. Repairs -- this is constant -- every little thing that your landlord would take care of is now your problem. Time and labor spent on home projects. I don't discourage home ownership, but do encourage NOT buying at the higher end of what you can afford.
posted by fingersandtoes at 5:09 PM on July 20, 2016 [1 favorite]

If you purchase a home -- and I truthfully wish more people would -- consider that you can and probably ought to become a full member of the community there. A good, healthy, safe, beautiful community will be a place that people will want to move to, and will be a place you'll find a joy to live.

You should investigate the community that's there already (avoiding those problem neighbors), and when you can, do a little to make it better. This will improve your quality of life and, incidentally, the value of your real estate.
posted by amtho at 5:12 PM on July 20, 2016 [3 favorites]

Also - those little bits of time and resources that one occasionally has can go toward improving the home and community. If you rent, you can't do that as easily.
posted by amtho at 5:13 PM on July 20, 2016

Woman also 40, also single, also thinking about the same issues.

I'm at "Wait a year or two and then look at buying a condo/apartment". My main reasons are two fold.

First, I'm pretty sure I'm in a metro area (Boston) where I'd like to stay put (having lived two other places, but now being established enough in my career I'm reasonably confident there'd be job options within a reasonable commute), plus having returned to the area I grew up in and having lots of friends here, I want to stay put.

(And if for some reason I had to move, well, the economy would have to be horrible before there would be no demand - and it's not like prices are likely to go *down* substantially in the area. I'm also scared of being priced out of the rental market within a reasonable commute in the long-term.)

Second, I have some chronic health things (not a huge problem now, but with a couple of 'that might change'), and I'm worried about being in a position where my health changes dramatically and I need a living space that can cope with it and having to move suddenly to do that. Where, if I buy soonish, I can take my time and look for something that should work even if that's the case, and then make modifications over time to suit what I need long-term. (My ideal housing would not have carpet, for example, that kind of thing.)

(Also, as a woman who is 5', the idea of being able to do something about kitchen cabinets I can actually reach, and some other modifications it's hard to do in a space you don't own is sort of compelling.)
posted by modernhypatia at 5:31 PM on July 20, 2016

There are too many factors to consider to give a properly objective and quantifiable financial analysis, and future risks and contingencies. Depending on what you rate as a likely thing or a problematic thing would sway the argument one way ore another. In other words, we can't really answer. Ultimately it comes down to a lifestyle choice - what do you want? Gardens, renovating, stability, neighbourhood roots, or flexibility, easier access to money, insecurity and landlords. This is a heart decision more than a head one.
posted by wilful at 5:33 PM on July 20, 2016 [2 favorites]

Consider buying if:

1. You plan on staying put for at least 5 years, more like 10. Five years is usually just the break even point where the costs of the transaction and the equity you've built approach one another.

2. Where you want to live is not in the middle of a real estate boom, nor is it in post-bubble malaise. You want a solid community which is good now but has even better prospects 5 years out. Even if you never plan on selling, a good rate of appreciation will take a load off your mind.

3. The sort of property you'd be happy living in is truly, for real affordable for you. Remember that property taxes will amount to a couple to several hundred extra dollars a month on top of your mortgage payment. I cannot stress this enough. We just bought a new house and I had to cross so many great houses off my list because they were just $10-20k more than I was willing to pay, which seems like peanuts when you're talking about such a huge purchase amoritized over 30 years, but that thinking quickly turns into a very slippery slope and next thing you know you're justifying that dream home that's $60k over your budget to yourself. That's how people wind up house poor.

If you can meet all those criteria, it might be time. Personally, being a home owner has worked out well for us so far (knock on wood with the new house). Rents on my city have gone way up because there's a large transient college and medical school population but home prices are still affordable. My mortgage payment of $800/month wouldn't even get us a 2 bedroom apartment in a halfway decent part of town.
posted by soren_lorensen at 5:35 PM on July 20, 2016 [4 favorites]

I owned a home in the Midwest for a few years, when I was in my 20s. It was a ton of work, and although I saved a bit of money, in that my mortgage was less than rent would have been, when I factor in all the maintenance work (especially in a house where the basement always seemed to flood) it wasn't really worth it. Granted, if I'd been there a few years longer I would have gotten more equity, but as it stands it wasn't a great investment.

Also on the NYT calculator: if it's the same one they've had for awhile, I know it's been criticized before for assuming nice, steady appreciation levels, when that's definitely not always the case.

I rent now in a city I moved to for work, and I like it. Renting gives you that freedom to just pack up and follow the money, which can more than make up for the home equity you'd be accruing staying put.

Of course, you can buy and watch your property skyrocket and turn out a nice profit. I had a family member who just watched his house grow in value by like 30 percent in 3 years because the neighborhood got hot. It's a gamble.

Like wilful says, there are so many factors to consider, it's near impossible to give an objective response. But here's what I think: if you are near 100 percent sure you're gonna be where you are for at least 5 years, and you are very secure in your job and don't think you'll want to chase another job down the road, buy. But from my experience, if you think you might want to move down the road, rent.
posted by joechip at 5:37 PM on July 20, 2016 [1 favorite]

Three bedroom houses generally sell better than two bedroom. Or have historically.

Houses in a good school district generally also do better in terms of value.

You do not want the most expensive house on the block. It has little room for appreciation.

A one story house with no stairs is a better house to plan to stay in "forever." When you get old enough, or if you end up in a wheelchair, stairs are a problem.

If property values are unstable, in the first few years, not only will you not build equity, but you could find yourself owing more than the house can be sold for. This can make it hugely illiquid.

If you get a dirt cheap fixer or one of the cheapest houses in the neighborhood and bring it up to "standard" for that neighborhood, you can add sweat equity. This can potentially offset the issue with an unstable market.

Last I checked, most Americans have more than half of their "retirement assets" in the form of equity in their house. So, historically, homeownership was one of the big things separating the haves from the have nots. But, from what I gather, this is less certain these days, in part because moving around when changing jobs is more of a thing than it used to be and in part because some wonky things have gone on in real estate.

If you can stay long term and buy in the right neighborhood, this can give you substantially enhanced financial security.

I am fond of real estate and comfortable with it. I would buy in a heart beat. But that doesn't make it the right decision for you necessarily.
posted by Michele in California at 5:39 PM on July 20, 2016 [2 favorites]

Do not buy if you plan to move in five years or less. Unless you really love home repairs and actively want to do a house flip, I guess. Other than that, the answer so much depends on the current market where you live. The suburb I live in is in the midst of a bubble and I absolutely would not advise buying here (although it's a fantastic location). I see old, strange houses on very undesirable streets selling at top prices. If the market sinks even a bit or rates go up, those buyers will not be able to sell. If you're in a hot market like that, I suggest waiting for the market to cool and then buying. Bide your time examining neighborhoods, saving money and just researching what your housing priorities are. You may find you want a condo in a walkable, urban area or you want a duplex you can rent or a ranch that will last you through retirement.
Just a caveat about condos: I think too much emphasis is often placed on the idea that condos don't require work. Just really check the condo fees and weigh that against what it would cost you to pay for the same services (if you really don't want to do maintenance). I know people who pay $900 a month condo fees and they have a lovely place, but the yard maintenance and snow removal covered by that fee is not worth anywhere close to $900 a month. I think often someone could essentially hire a PT handyman for less than they pay in condo fees. Just my 2 cents.
Overall, this rent vs buy is a good situation to be in. Congrats!
posted by areaperson at 6:00 PM on July 20, 2016 [1 favorite]

It may not be a concern for you but if it is, buying a home you plan to keep the rest of your life (barring disability or illness) might sound pretty sweet.

This is one of those things that is ridiculously hard to predict, but....ending up house-rich and cash-poor in your old age is not necessarily a great situation. I do wonder, if houses become more and more of homeowners' assets, how many of them will be forced to sell around retirement not because they're forced to by health but because they need to free up the cash to replace lost income.
posted by praemunire at 6:14 PM on July 20, 2016

What b1tr0t said. You get to live in your house, but your heirs (if any) may not be able to afford to keep it.
posted by zippy at 7:17 PM on July 20, 2016

Do not buy if you plan to move in five years or less.

How long you need to own before it pencils out depends on appreciation (or depreciation) in your area, as well as transaction costs, which can vary a lot. My totally anecdotal experience would put the minimum time well over five years, but I am sure that in other places it would be shorter.

Just in terms of the finances, I figure that owning means needing to be able to cover a $10,000-ish bill at any time. That would cover your routine set of disasters -- new roof plus new furnace in a smaller house, or just a new roof in a large house, say -- but doesn't at all cover you for the less routine disasters, like finding out that subsidence means that your foundation is crumbling and your house needs to be jacked up and a new foundation excavated, along with a new sewer line and a new driveway. You wouldn't necessarily need that in a cash reserve (though obviously that is ideal), but wherever it comes from, you need to be able to absorb unexpected large expenses from time to time.
posted by Dip Flash at 7:37 PM on July 20, 2016 [3 favorites]

Response by poster: This is one of those things that is ridiculously hard to predict, but....ending up house-rich and cash-poor in your old age is not necessarily a great situation. I do wonder, if houses become more and more of homeowners' assets, how many of them will be forced to sell around retirement not because they're forced to by health but because they need to free up the cash to replace lost income.

If I understand "house-rich / cash-poor", it means that I would technically have the asset of my house, but not be able to meet other expenses or maintain the house. This seems like something I can avoid by not buying the most expensive house I can get a loan for.

Say I'm laid off at 55 or 60. Currently I've seen older women struggle to find good employment, and I don't expect that to change in the next 15-20 years. I expect rents to continue to go up. One of my concerns here is figuring out how to position myself so that if that happens, I won't be destitute.
posted by bunderful at 9:07 PM on July 20, 2016

If you're worried about being "house-rich/cash-poor" then you might consider looking at property with an extra bedroom or room to put in a "mother-in-law" space. Being able to get a little income from your property to cover the mortgage, repairs, taxes, can ease some of the anxiety of finances around affordability.

If you want to age in your house you should also consider layout. I have some family friends who specifically moved into a ranch style house where everything is on one floor, so should stairs become a problem they can still easily stay in their home.
posted by brookeb at 9:28 PM on July 20, 2016 [1 favorite]

I'm a single woman who bought a house when I was 38. It's one of the best things I've ever done for myself. I was really sick of renting, to the point where if I came home and saw a notice from the management company that they needed to get into my apartment I would cry. I just could. not. deal with it anymore. And now I never have to again and it is glorious. I'm actually a million times happier fixing something that breaks or paying someone to do it than having to deal with a landlord, because guess what, I get to decide! I'm in charge!

I would not have bought a condo or anything with an HOA. My house payment (including taxes and insurance) is about half of what the rent on my last apartment was and probably one third of what that same apartment rents for now. I bought fixer-upper in a gentrifying neighborhood.
posted by Violet Hour at 9:33 PM on July 20, 2016 [3 favorites]

Best answer: You might also consider what you like and dislike about renting, and how those things would be affected if you owned instead. For example, I like the predictability of not having surprise rent increases (my condo dues go up a little, sure, but I get a big report on where the money actually went every year!), or having to move because the management company wants to remodel the unit. I like not having to deal with the landlord coming in my unit. On the other hand, it was nice not to have to worry about appliances giving out when I rented.

Oh, and if you do start thinking condo, find out what you should be looking for in the association's finances to make sure the place is well run. There's a risk of surprise assessments -- "hey, the elevator failed inspection so everyone has to write a check for $thousands, and if you don't we'll put a lien on your property. kthx!" You want to make sure they keep an appropriately-funded cash reserve, find out what the assessment history is, make sure they're regularly doing maintenance projects before small problems become expensive disasters, that sort of thing. Your realtor will be able to give you guidance on what appropriate condo fees look like. You don't want to pay too much, but paying too little means they're deferring maintenance, which will eventually bite you in the ass.
posted by Blue Jello Elf at 9:40 PM on July 20, 2016

Best answer: Buying seems like a wise option for you for two reasons:

1) If you are paying more in rent than you would with a mortgage, insurances and property tax, then you will gain some additional monthly money to put towards retirement, which is your best hedge against future poverty.

2) The term of the mortgage is an important thing to consider. If you can arrange your finances and mortgage so that your mortgage terminates at retirement age (so a 25 year mortgage), then assuming the house is not falling down around your ears, this will be much better than having to pay rent each month out of your retirement income.

3) I am a fan of home ownership for childless people. If you don't have offspring to whom you feel compelled to leave assets, then fuck it - you can always reverse mortgage a home (not sure about a condo.)
posted by DarlingBri at 10:15 PM on July 20, 2016 [3 favorites]

I bought my first home two years out of college and have been a homeowner ever since, am now in my forties and single. But I did rent while in college, and also for a few years after I became a homeowner, when I moved elsewhere for graduate study and work.

There are a lot of advantages to owning your own home. You can remodel, you don't need to move if your landlord decides not to continue to rent to you once your lease is up and you hopefully build some equity along the way. There are some drawbacks too, like not being able to just up and move as easily as when you're renting, although have moved elsewhere temporarily more than once, and rented out my place in the meantime, so it can be done.

The financial aspect of it is that you go into debt. So you have to be careful. It's not enough to look at the mortgage and compare it to your rent. You need to combine the mortgage, your taxes, insurance and maintenance costs and then see if that's still lower than your rent. The maintenance is what most people fail to take into consideration. Most experts that I've read say you spend 1-4% of your house value on maintenance every year. If your home costs $200,000 that's $2,000-8,000 annually.

You have to factor that in and ideally SAVE a part of your pay check every month into a maintenance fund, so you don't get deeper into debt if you need to repair something. And it will happen. If you calculate all the costs and it's still lower or at least not higher than your rent and you can envision yourself living there for at least 5-10 years, then buying might be right for you.
posted by specialsnowflake at 12:10 AM on July 21, 2016 [1 favorite]

I was in your position a few years ago (single, no prospects, mid 40s) and pulled the trigger and bought the house. I woke up one day in my comfortable little private rental life and thought, "OMG, what if Landlord's family decides to sell this house or move? What happens to me? I'll have to move." Suddenly I didn't like my fate being in other people's hands. The older I got the more I wanted my own security so I can call the shots* - and a place of my own to call home. Yeah, there has been good and bad - in fact, a pipe burst in the bathroom the other day - I knew where the water main was, turned it off and the plumber did the rest. Yeah, it was a little nerve wracking, but that is part of home ownership - and I knew that as I bought a 60 year old house. Even as I was mopping up water in the laundry room, I wouldn't trade my little house for anything in the world.

*This is why I went with a single detached home - no condo, no HOA. But that's me. I don't mind mowing the lawn and the yard work, I do however, love my privacy and freedom. YMMV - but that's part of figuring this thing out - what is best for you. My aunt loves having the HOA where she lives - everyone is different.

Another part of home ownership is the pride you feel when those plants you put in the garden and the front yard start growing, how the kitchen I renovated is freaking awesome and made just for me - designed by me. Someone upthread mentioned the community part and that has been nice, meeting neighbors and feeling vested in a community. There is a lot of great advice here - saving that maintenance fund, making sure you include taxes in any mortgage calculator (they all leave that out for some reason), ranches are a smart move if you plan to live there through retirement, if you have no children to leave it to - reverse mortgage, etc.

The bottom line is that only you know what is right for you. Run the numbers, run them again. Make sure you have a realtor you are comfortable with. Cus you know what? If you buy a house and you don't like it, you can sell it! You're not trapped forever. Remember that. Best of luck with your decision, if you want to chat more or if you have questions, memail me.
posted by NoraCharles at 4:59 AM on July 21, 2016 [4 favorites]

Best answer: I just bought my first house a few years ago, though I own other property - business premises and a block of land I hope to build on. I'm single, mid 50s male.

It sounds to me like you're in a good position to buy, so I would definitely keep moving forward with the process and see if you find somewhere you really like. If you don't, you can rethink it, and everyone is right about the pitfalls, but owning your own place is kind of freeing too. It's great being able to bang nails into the wall or splash some paint around and not worry about losing your security deposit. It's also great knowing that every time you make an improvement, you get the immediate and long term benefits from it.

Having to replace expensive things can be scary, but it's really just a matter of making sure you don't spend all your cash on the house. Borrow a bit extra if you have to and keep some of yours. Things will break and you will probably want to do some renovations at some point.

Assuming you do your homework and buy the right place at the right price, you are setting yourself up for some decent capital gains (10 years plus for that) and dramatically lower living costs if you stay until it's paid off. Investing in making it more energy efficient along the way adds to that and makes it better to live in too. Once you have security/collateral you can then borrow against it too if you wish, so your options increase as you go on.

One thing you really should look at if you decide to do it is getting a mortgage that allows you to pay above the required amount without penalty. Paying it off really hard at first will save you gazillions in interest, and that's really handy because you pay a lot of interest on a long term loan and especially so at first when the principal is at its highest. I pay double my minimum and it is saving me tens of thousands on a small mortgage. I could stop paying now for a couple of years if I wanted to, which is another great buffer to have.

If I understand "house-rich / cash-poor", it means that I would technically have the asset of my house, but not be able to meet other expenses or maintain the house. This seems like something I can avoid by not buying the most expensive house I can get a loan for.

I think that's very good reasoning. I also bought something much cheaper than I could afford because I didn't want a super flash house and I didn't think I would see the capital gains on something more upmarket for my time frame and area. I got a nice, solid 50 year old home in a quiet area that's close to all the things I need.
posted by mewsic at 5:08 AM on July 21, 2016 [1 favorite]

I recently watched this:Link

You might find it helpful.
posted by poppunkcat at 8:17 AM on July 21, 2016

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