Profile picture for real estate mike

Buy a starter home or keep renting?

My customer(and friend) asked me to weigh in on whether to keep saving up for a big down payment for his dream home or...Just plunge in now and get a starter house he knows doesn't suit him but might be a good investment at this time. I'm for renting and waiting, you?
  • May 29 2009 - Carrollton
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Answers (44)

http://money.cnn.com/2009/05/22/real_estate/renting_buying.moneymag/index.htm?postversion=2009052604
It's depend on the markets,
Chicago, Dallat, Los Angeles, Pittsburgh, those areas are good to buy compare with rent.

  • May 29 2009
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I think it mostly depends on HIM.  Values will likely rise faster than he can save, unless he's living with mom and dad rent free.  So, I favor buying in most cases.  However, if his finances are unsteady or his life is unsteady and either of those things could force him to have to sell before the market has produced for him, it could have the opposite effect.
  • May 29 2009
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Profile picture for real estate mike
I respectfully disagree on values rising at this time. Also the stats Hoa has are generalities and in my opinion only pertain to someone renting at the average price and buying at the average price. My friend knows not to pay the average price for an apartment. He negotiated a good deal on a very nice place. His rent is what my p in  my p.m.i. is for. So yes he can save the interest and taxes and maintenance,etc of homeownership every month and In this downward house value market I think it's very safe to say a person would come out better waiting and saving a bigger down payment.
  • May 29 2009
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There are free classes available to first time home buyers that talk about the benefits and pitfalls of owning versus renting.  Once the classes are completed first time home buyers will qualify for a really low fixed rate and a really great deal on REO's.  Classes are being offered in a town near you. Limit one per family. This program is not open to investors.

[content removed by moderator for being self promotional]
  • May 30 2009
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Linda is full of nonsense like usual. the banks don't suddenly decide to sell you a home cheaper because you took some class. Nor do you get some magic rate.
  • May 30 2009
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Profile picture for westridge88
I think linda is full of substance and good ideas...i would like learn more of her ideas on a more personal level  :-)
  • May 30 2009
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Profile picture for davidslavin
As long as you have good credit, owning will be better than renting.  When you rent, you are payinig for the landlord's real estate.  Why not pay yourself instead?  And you could get to take advantage of the $8000 tax credit!  Now's the best time to get your piece of the American dream!
  • June 03 2009
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Profile picture for dacolan
Potential buyers beware of predatory/ignorant REAs Linda Strasberg and David Slavin.

Renting can in fact be the better fundamental personal financial decision. Educate yourself.

  • June 03 2009
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Profile picture for Blue Nile
Why not pay yourself instead????

Good idea; rent at 1/10 the cost of buying, let the landlord subsidize all expenses, then pay yourself the other 90% you would have been paying to buy in a good solid investment.

When the market stops dropping, you can pay cash from your investment, then pay 90% of what you would have been paying in housing expenses into your retirement investment, and use the other 10% for taxes, insurance and maintenance.



Why do sales people keep giving outdated advice that applies to an entirely different economic market?  Don't they ever pay any attention to any numbers themselves?  Do they always have to repeat what they learned in a seminar a decade ago?
  • June 03 2009
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"As long as you have good credit, owning will be better than renting." Ok, care to explain this to the millions going into foreclosure?

When you rent, in many cases you are paying less than half of your landlords mortgage. Nice of the landlord to pay the other half for you isn't it?

SAD SAD SAD...
  • June 03 2009
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David wants to talk to today buyers, not to few years ago buyer.
Can't explain every detail in every word that some one wants to say.
  • June 03 2009
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Profile picture for Chelsy_
man, I would say rent!

MBA said in a statement that it does not expect any recovery in the property market until at least the end of 2010 and probably it will be 2011

http://www.nuwireinvestor.com/articles/foreclosures-at-all-time-high-in-first-quarter-53044.aspx
  • June 03 2009
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Profile picture for Chelsy_
You will see value dropping while you rent, especially in CA.
now the problem spread to prime mortgages which has the bigger share.
  • June 03 2009
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rent
  • June 03 2009
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Profile picture for Randy_H
So, I favor buying in most cases.  However, if his finances areunsteady or his life is unsteady and either of those things could forcehim to have to sell before the market has produced for him, it couldhave the opposite effect.

Good to see the usual realtor marketing babble.  Note the above from Vicky adheres nicely to "Real Estate Sales Tactics for Beginners", probably recently held at her local airport hotel conference room.

Yes, one only should rent if their finances are unsteady, their life is in a shambles, or they live in their mom's basement.  Funny.  I guess I should tell that to the CFO of the $5bn company I lift with at the Bay Club.  Now, why on earth would he sell not just one of his homes, but all 3 of his homes (in the US; he's kept the one in Europe which is a family legacy)?

And then there's David's advice:

As long as you have good credit, owning will be better than renting.

Care to demonstrate that for us, Dave?  Occurs to me that producing a quick counter-example to falsify your assertion isn't all that though.  Try this:  close your eyes, think real hard -- can you imagine any case where renting might be better than owning regardless of the buyer's credit?  Hmmm.  Stretch your imagination...  Hmmmm.  Maybe if prices fall a bunch?  Hmmmm.
  • June 04 2009
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Profile picture for Randy_H
To the original question:

Just plunge in now and get a starter house he knows doesn't suit him but might be a good investment at this time. I'm for renting and waiting, you?

This is a false choice, but I'm happy you came to the right answer anyway.

The choice of whether to buy, and how to invest might be unrelated (depending upon the circumstance).  Regardless, a realtor is not qualified to dispense any investment advice.  And further, for most people planning to buy a primary residence in which they will reside, a home is not an investment -- it is a specific form of savings with more risk than a savings account/CD/etc., but with other benefits to taxes and lifestyle.  However, it is not an investment, nor can a realtor analyze your investment strategy or advise on your investment decsions.
  • June 04 2009
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Profile picture for jimmy57
Still waiting for non-REAs to recommend buying. 

(sound of crickets)
  • June 04 2009
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Profile picture for jimmy57
I'm evolving a new attitude about renting: housing without the investment component.

Do we really need to own our homes?
  • June 04 2009
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Profile picture for Tagei
Michael,

IMHO, it really depends on what kind of "landlord" you friend will be to  himself as his own "tenant". 

Will your friend maintain the property so it is a credit to its neighborhood?  Or let the property decay, as a "slumlord" would?  

Will your friend make improvements to the property that increase its future sales value as an interim step towards buying his "dream home"?  Or will he just "veg-out" and hope that the rising values of his neighbors' properties will make him "rich "without requiring any effort on his part?

My experience is that enterprising people will always make money -- even in falling markets.  On the other hand, I have observed that lazy people will usually lose money -- even in rising markets.

So, if your friend is lazy, I'd advise him to rent.  


Jimmy57,

Thanks for the article. 

It makes you wonder why "professors" seem to think that Americans "should" only buy one house and "should" live in that one house forever.  IMHO, that is an unreasonable limitation to place on anyone who dreams "big".
 
As an example, my wife and I have bought and lived in eight homes already, while up-sizing from a one bedroom "starter" apartment to a home with 16 comfortable rooms and lush perennial gardens.  My wife and I invested "sweat-equity" in each home, which has been returned to us with some pretty huge "dividends" over the years.  

Do you suppose that the reason why so many "renters" here on Zillow are so bitter is that they believe, as the "professor" seems to believe,  that they entitled to move from their parent's house directly into their one-and-only "dream house" -- without ever breaking a sweat? 

Strangely enough, the worst of those guys claim to be "realists"!

LOL!  
  • June 04 2009
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"Do you suppose that the reason why so many "renters" here on Zillow are so bitter is that they believe, as the "professor" seems to believe,  that they entitled to move from their parent's house directly into their one-and-only "dream house" -- without ever breaking a sweat?"

I don't know if you intended to include me in that mix, but I would wager that I have paid more dues and exuded more "sweat equity" in my lifetime than you have.
  • June 04 2009
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Profile picture for dacolan
My experience is that enterprising people will always make money -- even in falling markets.  On the other hand, I have observed that lazy people will usually lose money -- even in rising markets.

So, if your friend is lazy, I'd advise him to rent.


If life were only that simple. I have another anecdotal story to share that offers a different perspective.

I have a very enterprising neighbor (electrician by trade who owns/runs his own shop w/ a dozen employees) who dumped six figures+ worth of sweat equity into his home toward the end of '07 just as the bottom was falling out, doing much of the work himself.

After the better part of a year - landscaping, concrete, lighting, fences/walls, pool, converting a detached garage into a fully permitted professional grade recording studio, etc. - he had his home re-appraised. After all that effort, time and money, he had still lost $50.000 relative to his homes "value" before starting any of the renovations and upgrades.

Which do you think is more bitter; the "lazy" renter, or my hard-working, enterprising neighbor?

Caveat emptor.
  • June 04 2009
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Profile picture for jimmy57
Tagei:

I "wish" I had the "energy" to "fully respond" to "your comments" but "I" can't "get past" your "extravagant" "use" of "punctuation."  ;)

But congratulations on your success and your lush perennial gardens.
  • June 04 2009
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Profile picture for jimmy57
Good points, dacolan

There's really a danger in assuming that old patterns of behavior will guarantee the same results.  In 2004-2006, many folks imagined that their labor (and choice of countertops) were building house value; in retrospect it appears that they were simply riding the train of loose lending standards and runaway speculation. 

I got away with some good profits as well.  I don't kid myself that much of that was earned by my home improvement projects.
  • June 04 2009
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Profile picture for Tagei
K101,

I do NOT consider you to be one of Zillow's little princesses or princelings.  Still, I wonder how a person who (wisely) invested a large amount of her"sweat equity" would now find herself 
hoping/wishing/dreaming to buy a really cheap "cracker-box" somewhere in the "boonies" outside Orlando.  Hmmm...  Does not compute...


Dacolan,

IMHO, a person who turns his garage into a "recording studio" has life-stye issues.  He really limited his resale market, didn't he?  Oooops...


Jimmy...

Dolche far niente..
  • June 04 2009
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Profile picture for jimmy57
 Il dolce far niente.

I'm not sure I take your meaning, though... are you referring to yourself in your Lush Perennial Gardens? 
  • June 04 2009
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"Still, I wonder how a person who (wisely) invested a large amount of her"sweat equity" would now find herself 
hoping/wishing/dreaming to buy a really cheap "cracker-box" somewhere in the "boonies" outside Orlando."

1.  Not "hoping/wishing/dreaming" - I can buy what I want for cash at any point.
2.  Not a "really cheap 'cracker-box'" - just a nice home at a good, non-stupid-bubble, value
3.  "Boonies" - you kind of have me there (technically, it's not "Orlando") - but, our area has some of the best schools available for our daughter (I refuse to pay for private elementary school) and we are not dependent upon commuting to the city for work.  I have the amenities I need available and I kind of like it on the quiet side with the airport/downtown scene still in easy enough reach.  And, it is sunny almost every day.  8)
  • June 05 2009
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Tagei:

So what is wrong with the boonies?
  • June 05 2009
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Profile picture for Randy_H
The average number of years in the US for owning a single (primary residence) house is 7 years.  That number used to be much higher in previous decades. 

I'm having trouble balancing that out with the assertion that serial ownership of 8 houses is a vision of success for anyone under the age of 75.

  • June 05 2009
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Profile picture for BMFPitt
It's depend on the markets,
Chicago, Dallat, Los Angeles, Pittsburgh, those areas are good to buy compare with rent.

I wish there were enough software jobs in Pittsburgh so I could go back.  I could buy a decent house with 25% down and pay it off in 10 years with 90% of my current salary.

I think it mostly depends on HIM.  Values will likely rise faster than he can save

I would tend to disagree unless he has a fairly negative savings rate, in which case he definitely shouldn't buy.
  • June 05 2009
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Profile picture for dacolan
IMHO, a person who turns his garage into a "recording studio" has life-stye issues.  He really limited his resale market, didn't he?  Oooops...

A little judgmental, huh?

He's played in a band for 20 years and recorded an album (or three), but his primary motivation for building the studio was to rent studio time to other aspiring bands/musicians.

The studio actually has a mini-suite built in where musicians can crash at his place for a week or two while they're recording. The Fender Museum is located in our city as well. The guy that helps manage the museum, and one of the most well regarded recording engineers in the business, man's the boards during these sessions.

Playing music may be a passion of his, but like I said earlier, he's an entrepreneur with excellent business sense for a blue-collar working stiff with lifestyle issues.
  • June 05 2009
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