February 9, 2012
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Buying versus renting
Last month, Mrs. jigg and I saw a condo in Brooklyn that we really liked. It has four bedrooms, two full bathrooms and a finished basement, totalling about 2,800 square feet. It’s brand new, near a very good elementary school and would cut our current commute to and from work by about an hour. Best of all, at $599k, it was affordable.
The problem was that both my wife and I don’t really think its ever worth it to own. Because this is a new property, it will cost about $30k to close. Interest on a 30 year loan will be another hundred thousand. Including monthly maintenance and properly tax, we’re talking about A LOT more than $599k.
I think a lot of people think property is a good investment. I think the ROI is actually very low considering how much you actually pay. The last ten years have really impacted these thoughts, but that’s because of the bubble that heavily inflated the value of homes. Any reports indicate that values will continue to go down for the next year or two.
But then again, maybe these financial justifications are really what I’m telling myself. Maybe I just don’t like being tied down to a mortgage, or a home that I may not want to live-in, in 5 years.
Some people may argue that renting is a waste of money because you’re not preserving your wealth. But if I rented in an ideal location that won’t cost too much, I can always take the leftover money I saved and put into some steady investments. If I hedge and balance correctly, I might be able to double my money in 7-9 years. These investments wouldn’t be for now, but for when I retire.
Anyway, we were pretty close in buying that place, but the guy wouldn’t budge on the price and we’re not willing to pay so much, knowing that the value would go down. Buyer’s market right?
What are you thoughts on this?
Comments (10)
Bureau estate should be considered a luxury purchase. Don’t just get a house you can afford, get a house you can afford and still live comfortably with the money left over. Otherwise, no shame in renting.
at least when you own, you get a lot back on your taxes. More money in your pocket and not uncle sam’s. But I honestly don’t see the equity in condo ownership though. But at least you’ll get the 15 year tax abatement. I like the permanence in having your own home. It makes me feel like I worked hard for something, I guess. Good luck, Jigg. Back to brooklyn!
yes, i wouldn’t advise buying a place you don’t intend on staying in for at least 5 years. though, we do want to think about moving at about the 3 year mark- we’ve been living in our co-op for around 2 years. it didn’t cost anywhere near 599 and we’re hoping it wouldn’t take too long to sell. my sister’s house took more than a year to sell.
I don’t want to live in a house that I’ll never be able to own 100%.
Sarahaka made a point I agree with – if you aren’t positive you’re going to stay there for 5 years or more, I wouldn’t buy. But if you’re certain you’ll want to be there a while (And judging by your comment about the elementary school, I’d say you are) then I’d say take advantage of the market and buy it now. I’ve met people who were smart buyers and saved thousands of dollars over the years through buying rather than renting to begin with, then self-renovated their home to increase its profit and sold it for a good deal more than it was worth when they bought it.
i don’t think it’s a buyer’s market :X whoever’s selling has to make up for the fact that it’s new as well, so i don’t see them haggling with you or anyone else.
if you don’t see yourself living there after 5 years then it’s not really your dream home. would you be willing to work so hard and then sell it for less later on? i say that cause it could go either way–people always want to believe it’ll sell for more. anyways, it’s a gamble. if you’re not 100% into it, maybe not a great idea.
There is no crystal ball but maybe the economy is improving. If it is improving more people will be buying real estate. So the main guess is that you think that your job is stable enough to set down roots and buy or there is an uncertainty and the safest bet is to rent.
Location, location. That will save you time. Time is valuable too. Good luck on your decision.
buying a house is the most leverage you can get with the money you have, I think if you make smart choices, it can definitely be a worth while investment.
Even with a 30 year loan, the time value of money will make it worth it… c’mon you’re in finance, you know this.
Anyway, it’s all about location, make sure you get that part right first. Even if you move you can always rent it out if the location is attractive. I’d look at long island city if you haven’t already, that place is exploding.
Buy what you can afford and love in the best location you can. Wont haggle? Never heard of that ever… look elsewhere and let them know where they can find you if they wanna move on the price. ^..^
It’s pretty much the difference between something that will become an asset which you can sell (though through many years of having a ongoing liability) vs. pure expenditures. Interest rates on mortgages are pretty low now, even though the prices of housing is high, so it’s basically a tradeoff there.
I think one is more suitable for the long term, while the other is more suitable for the short term. That’s pretty much all there is to it.