October 16, 2007

What’s the rush to buy a home?

I’m not in one and for good reason. I just ran the numbers using this nifty tool and found that unless I can find a place for $312,000 (you can’t find ANYTHING in this area for that amount), I’m saving money by paying rent ($2000/mo, adjusted with inflation), heck, far more than I currently do pay, than buying a house. That $2000/mo gets me a really nice place, no sweat, and the ability to move whenever I want.

If you’re not already “in,” don’t even bother… You’re just getting yourself in to something that financially isn’t really worth it, and is very difficult to get out of. Note: Of course this conclusion varies greatly based on location and the associated cost of living in that area.

Tool found courtesy of Millionaire Mommy Next Door.

Comments

Drizzle

October 16, 2007

Unless you want to live in a house long term, or want the security of your payments staying the same, or want to see the benefits of your asset appreciating…..I agree rent away
Mike

October 16, 2007

The above calculator factors asset appreciation… That’s kind of the whole point of it.

The only benefits of owning a house (if you were to buy now): less moving, can remodel/paint as you see fit.
Drizzle

October 16, 2007

Our payments went down last year, while yours increased. While renting allows greater flexibility and freedom the quantifiable and non quantifiable moving costs are very unattractive.
Jess

October 16, 2007

enough
Mike

October 16, 2007

Different strokes for different folks. You must admit, though, that the market is quite a bit different than when you bought.

As I said, “if you’re in, good for you. If you’re not, don’t even bother.”
Drizzle

October 16, 2007

Yeah different strokes for different folks. When you want to settle down and want a place that you don’t have to share, it will cost a whole lot to rent a house than the 2/5 of the rent you and c8 are paying now. Also you do not have the asset to tap into for emergencies, college etc and you are not building your credit as fast.
Mike

October 16, 2007

Three things about what you said… You seem to not be reading very well.

1) I gave myself a $2000/mo rent payment. That will get me more than I need minus a garage, which I can rent for another $100/mo. $2000/mo assumes I do not have five roommates… I current pay less than $600/mo.

2) The whole idea of this whole thing is that I will have that asset. Weren’t you a finance major or something? At the end of 30 years, I’ll have greater assets after renting than buying. That’s like… why would I write all this if I were losing money? That’s my entire point! I will have more money. God.

3) The credit concern – my credit is pretty damned close to perfect. What do I even need more credit for if I’m not buying a house? I can already secure a great car loan and my credit cards have high enough limits that I don’t have much to worry about. When you die, you don’t get ranked by your credit score and depth… sorry.
Drizzle

October 17, 2007

That “tool” is not really correct, not based on my experience anyway. The %s are off and it has you paying PMI when only a fool pays PMI these days. Also when you did your analysis you probably ran “cash on hand” at the default of 10,000. For somebody who has been renting for years, you should probably have 10-15% of the purchase price to put down. When you bump the downpayment up, the numbers change significantly.
cd's nuts

October 17, 2007

I would argue that buying very close to any major metroploitan area is almost always going to be more than renting.

One thing that tool lacks is variable rate mortgages. I’m not one to follow trends but most first time buyers aren’t getting 30 year fixed these days.
cd's nuts

October 17, 2007

P.S. – What’s your “break even” point? (shown in ‘View Report’)

I’d also like to see a screenshot of your values because I’m curious.
Drizzle

October 17, 2007

That is one hell of a fixer upper at $500 a month for maintenance and HOA dues. If you can only put 4% as a down payment of course it is going to tell you to rent……..
Mike

October 17, 2007

Screen shot is posted. Note: I bumped the appreciation value since where I plan to buy is above average AND I left the $2000/mo rent payment, which is far more than I currently pay and more than I plan to pay for quite a few years.

My numbers were a bit skewed yesterday as I had the wrong property tax rate. With the correct one, and giving better appreciation and high rent, a $400k house breaks even in just over five years. Good luck finding a $400k home that doesn’t need a lot of work, which would bump up the monthly expense quite a bit. Soooo, I figured $500k, which brings the break even point to “greater than 30 years.”
Mike

October 17, 2007

I think the $500/mo is pretty accurate. Keep in mind in that number is everything you get with a rental… I have never had to lift a finger for home maintenance.

Regarding the down payment… I could put down more, but I doubt anyone in my age bracket has $100k just lying around to dump in to a home.
Mike

October 17, 2007

Ok, did some more research in to numbers:

Appreciation rate: -2% last year. I dropped my value back down to 3% to be fair.
Monthly dues/maintenance: Dropped to $300/mo.
Down payment: Bumped to $100k just for shits and giggles.
Rent: Dropped to $1600/mo. Still more than I pay, but I\’m trying to be more fair to all sides.

Result? \”Your home purchase does not break even after 30 years.\”

Game, set, match. If you\’d like to keep trying, let me know what you\’d like to see changed.
Drizzle

October 17, 2007

Can you rent a $500K house for $1,600 / month in Arlington?
Mike

October 17, 2007

You should be able to; we pay $3200 on a million dollar house.

If I were to leave my current residence, I’d rent a condo or buy a house. If I were to rent a house on my own, sure, buying might make more sense, but I’m not about to do that.
cd's nuts

October 17, 2007

FYI – You can’t rent a $500k house in Ashburn for $1600/month.

That house you’re living in isn’t worth $1m, the land is.

I go back to my previous statement regarding proximity to major metropolitan areas.
cd's nuts

October 17, 2007

I just looked at the screenshot…

In reference to your “anyone in my age bracket has $100k lying around,” no on in your age bracket should really expect to afford a $500k house. People get beginner homes for a reason. It’s not because it’s what they ultimately want, it’s just a way to start building equity.

I think the problem, if you’ll call it that, is you don’t want to start small and go big. You want it all right away.
Mike

October 17, 2007

Unless the market starts to do what it did from 98-06, there is no sense in \”starting small.\” There is no equity to be built in a starter house any longer.

FWIW, a \”starter house\” in this area is at least 450. Arguing that 500 is vastly different than 450 is silly.
C8

October 17, 2007

In Mike’s defense, $450 will get you an “OK” 2, maybe 3, bedroom, mayyybe 2 baths, in a decent section of Arlington. The smallest houses, in the worst condition are going for at least 400. His estimate of 500, is right on target for this area. That’s not trying to “go big” right away. So if he wants to continue to live a more metropolitan lifestyle, renting makes sense. If he wants to live in Centreville, then he can buy my mom’s townhouse for 350 and sit in rush hour traffic for 2+ hours everyday.
Mike

October 17, 2007

Oh gah-damn! She said you both live in miserable areas!
C8

October 17, 2007

In Arlington, this is the lowest priced home north of Rt. 50. (South of Rt. 50 = we don\’t speak the predominate language.)

http://tinyurl.com/25xsa4

Other than that house, there were 2 others for sale at a listing price under 500,000. Both were sold “as is.”

With South Arlington included in the search, there were only 38 properties for sale under 500. Only a handful of those looked like they had been well maintained.
cd's nuts

October 17, 2007

By “go big” I meant live the metropolitan lifestyle and not be in a 200 sq ft condo. It’s a sliding scale dependent on where you live. Like I said, if you want to live in/near the city and don’t have a bling down payment then you’re better off renting.

There is equity to be built, just not as the breakneck speed it was the last 5 (or whatever) years. A “starter house” in Arligton isn’t a house at all. Ever wonder why people your age own condos?

I don’t think anyone is arguing that your situation calls for renting. I think the exception was taken by you saying “if you’re not already in, don’t bother.” Perhaps had you said, “if you’re not already in and you want a decent house in a realtively expensive area, don’t bother.” There are plenty of situations if you’re willing to live in a smaller place or farther out that make good fiscal sense.
Drizzle

October 18, 2007

Miserable areas? Yeah loudon and fairfax counties are terrible places to live. It is a shame that you had to be raised in a miserable place though.
Mike

October 18, 2007

Yes, Loudoun County and where you live in Fairfax County are miserable places to live. They’re artificial, everything is five miles from everything else, and they’re chock full of yuppies on the express track to a boring cookie-cutter life.
Mike

October 18, 2007

Chris, I refuse to buy a condo. That’s a poor decision in so many ways…
cd's nuts

October 18, 2007

I rather enjoy where I live. I have pretty much everything I need within 10 miles, including an international airport.

I was going to make fun of where you live but realized it’s worth worth dragging this conversation any lower.
cd's nuts

October 18, 2007

*not worth

P.S. – Arlington is full of yuppies. What do you think the ‘y’ and’u’ stands for? Exactly what you are, that’s what. Loudoun is more like masppies. [tongue]
Mike

October 18, 2007

Loudoun does have some character, I’ll give you that, but Assburn just rubs me really wrong. I think it might be their roads… They’re weird.

Masppies, whatever. The true yuppies in Arlington right now will move to Assburn when the time is right. Most of them are still busy binge drinking three nights a weekend in hopes that they’ll find that true love at a jumbo slice joint in Adam’s Morgan.

When they’re ready to get married, buy a house, and have a kid all in a span of less then… well, too little time, they’ll be out that way.
Mike

October 18, 2007

I’d love to see your argument against living in Arlington. Please, go for it.

Aside from the cost of housing, I think you’d really be hard-pressed to come up with anything.
cd's nuts

October 18, 2007

tr00 tr00

FWIW, Ashburn proper annoys me too. Part of our quest to move farther east included the desire NOT to live off Ashbirn Boulevard.
cd's nuts

October 18, 2007

We’ve had this argument a million times. I’m not going to convince you and you’re not going to convince me… but because I have nothing better to do.

Cost of housing is a pretty big reason but if you dismiss that…

-traffic
-proximity to my job
-proximity to “the country”
-proximity to things like Summit & IAD
-wide open spaces (I actually like that things are 5 miles apart from everything)

To me, the only negative here is that my friends don’t live around this way.
Mike

October 18, 2007

Traffic – If I worked out there, sure, traffic would be an issue. Actually, wait, I did work out there and traffic was not an issue. I had a 35 minute commute containing the best roads in Northern Virginia.

Proximity to job – You\’re not me; bad point.

Proximity to country – Proximity to nightlife and DC are also very nice things. It only takes 20 minutes from my place to yours on a weekend anyway…

Proximity to things – Summit? I got there five times a year. A 1.5 hour ride versus 45 minutes is certainly not a reason to change where I live. IAD? I live 10 minutes from Reagan, which I\’ve come to prefer. Less hassle, typically cheaper flights.

Wide open spaces – I have a park across the street from me, which has a trail that goes all the way down to the Potomac. I also live a mile away from the canal, which is pretty freaking wide open. I run in the woods or along the river pretty much every night.

Annnnd my friends all live out this way.
cd's nuts

October 18, 2007

It was my argument against living in Arlington for me, dufus… aka why Loudoun isn’t miserable for me.

It doesn’t have what you want, okay… but that doesn’t make it miserable. Oh wait, let me check the Mikey Rules Handbook…. yes, yes it does!
cd's nuts

October 18, 2007

I take back the dufus. That was childish.
Mike

October 18, 2007

Good call on the handbook.

RECOGNIZE!