If it's 3 years I would DEFINITELY rent. You have to realize that the first 3 years of a mortgage is almost all interest. Pair that with the closing costs, real estate taxes and you will basically be paying incredibly high rent with some potential for equity with an increased home value...but also possibility for declining home value and more closing fees when you sell.

Home purchase beats renting long term...much longer than 3 years.

I vote for buying while the market is crap. Even if you don't make any profit, you will certainly get a % of your money back that you wouldn't from renting. With renting there is 0% chance of you ever seeing a dime back. Atleast with renting you have the hope that the market will go up, and you have the opportunity for some sweat equity as well.

Closing costs, real estate taxes, etc. will cost you; but it really depends on what kind of place you get in to as to how much. I recommend getting in touch with a realtor and just seeing what your options are before deciding not to buy. Just a matter of doing some homework...

gl with the hunt

The thing you have to consider with buying is that you have a lot of extra costs such as property tax, higher insurance, maintenance and heat/hydro/cable (may or may not be included in a rental agreement). As a renter you have the advantage of leaving the home ownership and equity headaches to the owner. Having said all that, if you have a minimum 3yr time horizon, this is probably not a bad time to buy and recoup all the money plus profit (hopefully) that you put into the place when you sell. A lot would depend on the current and future market conditions in the area you are in.

NM - pistol beat me to it

All those previous points...if you rent and the water heater goes out or something major, you just call the landlord. If you own that place, that could be thousands of dollars.

Also, you have to consider that when you sell, the Real estate agents will take up to 6% of the sales price. So even if you sell for what you bought it for, you are out 6%.

That said, it could be a good idea depending on the area...I know in Chicago I was running some numbers awhile back, rent is pretty cheap, and it didn't really make sense financially unless I bought a 2br place and had a paying roommate. Other areas, it might be expensive to rent and not so expensive to buy.

 

Originally Posted by RWD123

Buy.

the average mortgage only lasts 2.7 years before somebody refinances, sells, or the mortgage is sold to another bank.

If the area has a stable real estate market you will stand to gain some equity.

It may be the norm to refinance after 2.7 years but 9 out of 10 times it's a horrible idea that just delays the inevitable for people who are overspending and need the equity to pay everything off. Refinancing is a way longer term investment than people think. Instead of doing so people should spend less or refinance once, fix cash flow so they don't have to do it again.

Let's say OP buys a 200,000 house. He puts down 20k for instance in this example. So a 180k mortgage at like 5%. His payment will be about 1k, and for the first 3 years each payment will be about 750 interest and 250 principal. Assume taxes are about 4k per year on top of this. Insurance is about 800 per year. PMI is 75 per month (if OP can put down 20% won't apply but for this example it does).

So total expense:
750 x 36 = 27,000
4k x 3 = 12,000
800 x 3 = 2,400
PMI = 75 x 36 = 2,700
Closing costs (buying the home) = $7,000
Closing costs (selling the home) = 10,000
Total costs for 3 years of owning = $61,100
Minus costs of renting (@ 750 per month obv could vary) = $27,000
Difference = $34,100

These are just rough numbers I probably forgot some and I didn't include the potential costs of home maintenance that you don't have if you rent that would certainly add to this. I also didn't factor in the opportunity cost of the 20,000 you use as a down payment that you would have if you rented instead.

And if you need new windows...don't even get me started.

I see where kev is coming from, but there are some things about his numbers that are a little misleading (tbh I just enjoy debate).

1. There is nothing that says he has to buy a 200K home. With the economy where it is today it is very easy to find a steal on houses. Short sales, BO, etc. Which (if done right) has equity already built into it.

2. The part about the first 3 years being all interest is true, but is pretty much irrelevant if you are essentially flipping the house.

3. When considering having to fix things, damages to the house, hurricanes, etc. Many of those things can be fixed with a quick trip to Home Depot, and anything major will be covered by your home owners insurance. Just put enough aside to cover your deductible ($500-$1000 ish).

4. You could rent out the room(s) and depending on the area, condition of the house, etc. your renters could nearly cover the cost of your mortgage.

5. With living in one of the worst economies we've had in a while, it is more likely (than not) that the market will go back up and the rise in housing prices could offset some of your closing costs on both ends.

6. Instead of worrying about shit breaking, think about the improvements you can make yourself on the property that will help sell it for a higher value later. Your own sweat costs you nothing.

Honestly, there really isn't enough information from OP for any of us to make a completely perfect decision. But I will always buy when I have the opportunity.

 

Originally Posted by Geoff Moore

I see where kev is coming from, but there are some things about his numbers that are a little misleading (tbh I just enjoy debate).

1. There is nothing that says he has to buy a 200K home. With the economy where it is today it is very easy to find a steal on houses. Short sales, BO, etc. Which (if done right) has equity already built into it.

2. The part about the first 3 years being all interest is true, but is pretty much irrelevant if you are essentially flipping the house.

3. When considering having to fix things, damages to the house, hurricanes, etc. Many of those things can be fixed with a quick trip to Home Depot, and anything major will be covered by your home owners insurance. Just put enough aside to cover your deductible ($500-$1000 ish).

4. You could rent out the room(s) and depending on the area, condition of the house, etc. your renters could nearly cover the cost of your mortgage.

5. With living in one of the worst economies we've had in a while, it is more likely (than not) that the market will go back up and the rise in housing prices could offset some of your closing costs on both ends.

6. Instead of worrying about shit breaking, think about the improvements you can make yourself on the property that will help sell it for a higher value later. Your own sweat costs you nothing.

Honestly, there really isn't enough information from OP for any of us to make a completely perfect decision. But I will always buy when I have the opportunity.

Thanks for the input Geoff, and everyone. As for cost of home.. I guess it really doesnt matter.. I just want to see the numbers that would say ok if you buy a house for XXXX you will break even in X years.. or if i could find out a rough estimate of how much I would lose/save by taking this path instead of renting a house, if im planning on staying 3 years and then possibly longer.

 

Originally Posted by Geoff Moore

I see where kev is coming from, but there are some things about his numbers that are a little misleading (tbh I just enjoy debate).

1. There is nothing that says he has to buy a 200K home. With the economy where it is today it is very easy to find a steal on houses. Short sales, BO, etc. Which (if done right) has equity already built into it.

I mean yeah, the 200k was just an example you can buy a lesser house, but where I live the $750 rent will give you about the same quality of living as a 200k house - it's different everywhere.
2. The part about the first 3 years being all interest is true, but is pretty much irrelevant if you are essentially flipping the house.

It's not irrelevant, in fact it's the exact reason flippers want to flip houses as quick as possible, each month they pay interest is burning money, in my example the interest equals the rent which is again true in my area (in fact the example I used is almost identical to my home purchase last year).

3. When considering having to fix things, damages to the house, hurricanes, etc. Many of those things can be fixed with a quick trip to Home Depot, and anything major will be covered by your home owners insurance. Just put enough aside to cover your deductible ($500-$1000 ish).

I didn't even add any costs of repairs or anything. For my house my stove was oozing carbon monoxide about 5 months after I bought it there goes at least $500 (I spent 1100 on a new stove), the furnace was old and went out on me (lucky I work for an HVAC company no big deal but if I didn't $$$$$$$$$). Basically who knows, after 3 years you could literally spend nothing on repairs or you could spend 10k, it just depends.

4. You could rent out the room(s) and depending on the area, condition of the house, etc. your renters could nearly cover the cost of your mortgage.

Potentially sure you could do this.

5. With living in one of the worst economies we've had in a while, it is more likely (than not) that the market will go back up and the rise in housing prices could offset some of your closing costs on both ends.

I don't think it's more likely than not to go up in the next 3 years, I think that's way too tiny of a timeframe in general, let alone right now, to speculate on home costs.
6. Instead of worrying about shit breaking, think about the improvements you can make yourself on the property that will help sell it for a higher value later. Your own sweat costs you nothing.

True and this is something I myself do, but not everyone is handy.

Honestly, there really isn't enough information from OP for any of us to make a completely perfect decision. But I will always buy when I have the opportunity.

No doubt.

^

Also, I wouldnt be renting it out during or after I decide to move. The plan would be to live in it for 3 years, don't upgrade anything and then if i'm staying after that 3 years to upgrade it how Id like it. I was plugging numbers in and after 3 years ( mortgage itself would be 175k) I would have paid 20k in interest and still owe 165k. .. so if I put 20 percent down, and could somehow sell the house for 215-225 ( the amount I paid ) I could get my original cash investment back + pay the bank what I owe them.. so 20k in interest + all the cost of taxes and closing costs = bad deal for me?

 

Originally Posted by coolhandkev

It's a gamble either way because you don't know your exact time frame or the exact future cost of the house at the end of that time frame. If you knew both those you could figure out exactly what's the best route. Personally I'd probably buy with the intent of renting it out at the end if the market value isn't where I want it to be to sell. If you are conservative just save yourself the stress and headache and just rent. I'm aggressive but everyone is different. The average person I would say is better off renting (like above) that doesn't mean it's the right move every time.

Yea, the reason why I dont want to rent( out the house that I would buy)is because I dont think the rental market will be very good in the area i'm looking, Id rather take the money from the house I sell back and invest that into rental property. I guess I just want to live in a nice place for the next 3 years, and have the option to stay if I want to. When you say if I lose money do you mean like on top of the rent paid? Lets say I lose 35k by renting, I could potentially lose 40k total by buying?.. As far as being risk averse, I really dont care if I lose a little bit as long as im happy, and making a bit wont do anything for me either. I just literally want to have the peace of mind knowing I didnt waste 35k on rent.

Alot of great points ITT I myself would have to side with the renters for short term Lawyers are crazy $$$$$ and unless buying new there are alot of unseen problems that may arise (Water heater-Furnace-Roof-Windows-Driveway) all of which would surely pay your rent for at least 4 months. Also be sure to check property taxes in your area it could be well over $6000 over the 3 years

Whatever you decide I hope it works out Homie

depends on the area and I'm not familiar at all with yours. I know here, if you buy and move 3 years later you could end up paying 2 mortgages while your house is on the market for years. Not an expert at all but unless you find a great deal I would lean towards renting. Of course you could be in an area that took an extreme correction and is on the rise. Buying in that situation could net you a huge gain.

bookmarked so i can read this later...

 

Originally Posted by iFish

You get get a lot back in taxes for the interest you pay on a mortgage not to mention possible equity. So even if you break even as you've calculated you stand to make many thousands of dollars back each year in interest.

As an example - my home was $320,000 when I bought. The first full year of owning it I got almost $9,000 back in my tax return just due to interest paid. My rate was 5.5% as an FYI.

Renting is pretty stupid.

probably shouldn't give advice on the MID if you don't know anything about it.