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Rent or Buy? Am I crazy?

I currently am renting in the Midtown area of Houston, Texas.  Our rent is ~$1200 for a 690sqft, 1bdr, 1 bath apartment.  Our lease ends in 7 months and we want to find  larger place which will run between $1800-$2200/ month rent.  I don't know whether I should buy or not.  Should I buy if I plan to live in a house for only 2-3 years and then move to another state or continue to rent for the 2 years before moving?  Here's my thinking, please tell me if this is sounds erroneous..

Renting:
Renting for 2 years @ $2000/month = $48,000 

Buying:
Buying a house for $300,000
Selling that house after 2 years for $300,000
The fees that I will pay out of pocket will be (may not be accurate, just throwing numbers out there):
~$10,000 escrow, loan cost, etc
~$18,000 6% Realtor fee when selling

= $28,000 in cost I will not recoup.


I may 'lose' money on the house but I am still 'losing' less than the $48,000 I am going to spend renting a place, correct?


I may be way off here.  I'd love to get some advise from your professionals out there.

Thanks,

  • February 01 2013 - Midtown
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Answers (7)

There has been a huge increase in rental demand in the last quarter of 2012, compared with the same time last year.  The magnitude of rental demands has increased so much that is cheaper to buy a two bedroom home than rent in most major US cities.  Consumers think owning a home is the best way to in 2013, as mortgage reports shows rates have fallen to the lowest in 40 years.
Best of Luck,

Maria Cipollone
  • March 05 2013
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Well, you're crazy, but not dangerous!

Back away from this a moment: do you want to invest in real estate, be a homeowner, or neither?

I say this because I firmly believe that home ownership is a lifestyle choice (for those who can afford it), and that when you decide you can afford to own your own home, the lifestyle it affords is paramount.

If you're looking for an investment, especially if you're crunching numbers hard, you probably will be better off buying a property to rent to someone else, rather than living in it.

Consider this: qualities such as finishes, architectural details, landscaping, et cetera, may not add up to increased rent, but they do have value to homeowners. Consider them, "consumables" - today's nicely remodeled kitchens and baths will be stylistically out of date midway through the mortgage!

With a rental, these "consumables" aren't necessarily as important.

To recap: make your home a lifestyle choice, and make your investments pencil. 
  • February 01 2013
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I guess I wasn't taking into account the PMI, interest and property tax I won't recoup either.  After 2 years I'd pay ~$33,000 towards the loan and only ~$11,000 would go towards the principal.. that $22,000 in interest would be lost. I would also lose out on the ~$12,000 in property tax and $5,000 in PMI over the 2 years.  So over the course of 2 years I would have about $65,000 I could not recoup (that includes 6% Realtor fee, etc).

I ran some numbers in excel and I'd have to live in the house for >5 years, with zero maintenance costs, to break even with a $2000/month rental..
  • February 01 2013
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I am in Houston and the market is strong compared to other states. If you plan on moving out of state2-3 years you could rent it out and start building your RE investment portfolio? - Just a thought.  -- Best wishes!

  • February 01 2013
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Here is your chance to build wealth and become a landlord yourself. Check your tax laws but in most states if you live in your primary residence for two years you can claim it as your primary residence and avoid certain taxes. Being as such you avoid having to put 20% down because it would not be considered an investment property. Who know but in two years you might want to sell, If it were me. I would buy, hold and rent....
  • February 01 2013
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That's really only a decision that you can make.  That being said, think about this.

Many areas are still not out of the woods yet in regards to values going up or remaining the same.  It's too soon to tell by any patterns in the market as to if property values are on the rise.  So you are taking a gamble by presuming that you will be able to sell at the same price that you purchased the house for now.  It could be the same, go up, but what if it goes down.  No set patterns/trends yet to know with any certainty.

Also, you will have to factor in real estate taxes paid for the 2 or 3 years that you will be there if you purchase. 

Maintenance costs and/or repair costs

How do the utility costs compare?

Upkeep

And then when you go to sell, you need to add in closing costs, not just realtor fees

Weigh the monthly costs of buying vs. renting then factor in all out of pocket expenses that you will  not recoup and see which is less per month.

Personally if I was planning to move in 2 years, I would continue to rent as when the time comes to sell, you will have to factor in market time to get the property sold and that may not fit into your time frame.  Property could take longer to sell than planned, or sell sooner in which case you could be back to renting until settled.
  • February 01 2013
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The interest rates have never been this historically low.  I would recommend talking to a bank to see what costs you may have with your purchase.  The market will come back and while you are paying your mortgage you are building equity in the home and will get some money back.  You are also still able to write off certain home ownership expenses on your taxes as well as some closing costs so you will win that way as well.  My professional opinion is to buy.  Why pay someone elses mortgage if you can pay your own and build credit and equity.  When it is time for you to move you can also rent out your house.
  • February 01 2013
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