which is better.

[realgone]

My bf and I are looking for a home. We have been saving money and within 6 months will have enough for a 20% down payment on a home in the 300,000-350,000 range.

Today we were talking about that even with 20% the payments will be arount $2800 a month (insurance, etc.) 15 year mortgage. YIKES

If we save up for another 4 years, we should be able to come up with over $200,000.

So now instead of buying this winter with 20% we are talking about waiting another four years.

Getting to my question. We are currently renting at $975/month. We are able to save a lot of money in our current situation, so would it be better to save for another 4 years while renting, or take $40,000 of our money saved now and use that as a down payment on a cheaper home that we will live in for 4 years, and after 4 years would we be able to get our $40,000 back after selling, or is it not worth it and we should just continue to rent and save.

My question in short.
Rent and Save or buy a cheaper home and save.

Also, if buying and saving, what range should we be looking at to have a payment that is not much more than we are paying for rent now($975). We both have very good credit, so the interest rate should be good.

[rama1]

I will tell you something that, as an agent, I am not supposed to tell you. I would rent in your situation and save. The reason -- if you buy a house, you will be hit by taxes and insurance. If you will buy a condo -- taxes, maintenance and assessments. You decide but I would rent.

[Malok]

So your 2 choices:
Buy now - when its a buyer's market and stuff is on sale.

Throw money away on rent for 4 years - wait until the market corrects itself, and it becomes either a balanced, or a seller's market - and pay a premium on the home you wanted to buy.



There is ZERO chance I would rent.



Absolutely now is the time to buy.

[PaulChapman]

If you buy, put your 20% down. Take a 30 year interest only mortgage. With the 20% you will get a good rate with no mortgage insurance. With the interest only mortgage, your payments will remain reasonable and you will be able to take advantage of the 100% tax deduction.

Keep two things in mind.

1) You can always put extra money towards the principle to reduce your loan amount.

2) Paying off your home in 15 years is a fairly old-school way of thinking. In all reality, you will most likely have a mortgage on your home for far more than 30 years. When used correctly, your mortgage can be a tool, not a liability.

[gjtrafl]

Monitor the market in your area... When you feel that things have hit the bottom, then buy. Buying a home and watching it depreciate is the same as renting and throwing it all away.

[ltcobretti]

Realtor are not licensed to offer financial advice, but can comment on the current market. You should consider the tax incentives of owning also, which may have been overlooked. Your accountant can look at your specifics and answer that. The current Buyer's market could be an opportunity - why don't you continue to look for a great deal? I wouldn't say now or four years - somewhere inbetween there may be a deal to be found!

[IggysListing]

Always consider location and timing!
My general advice to young people is this. Always try to get others
to pay for your real estate. When you rent you are doing this for others.
I tell young (and older people) to consider a house where you can do one
of the following things (I have done this multiple times):
1. Have Room mates (you can always get rid of them later.
2. Find a house with divided quarters, basement, etc.
3. Temporarily divide up the house.
4. Be creative!
This can get you into a home or a larger home. It works!
Of course, be careful when you choose renters or roommates.
Spend the time up front to find them, preferably through referrals.
I know a young couple and they are both attornies with good jobs.
They have rented out their basement.
Go for it.


___________________________________

http://IggysListing.com

http://HomeRanks1.com

[beer234]

The other thing in your favor buying vs renting now is that rates are back to a very low position. Lately i've seen the 30 yr conventional at 6% or slightly under. In two years you may end up buying but at a rate more like 7% or 7.5% which will cost you quite a bit each month. Another factor is whether you want to be a homeowner and nurture and improve your property or just maintain someone elses where your not as free to make improvements or changes. Just food for thought.

[atkjhi]

So your 2 choices:
Buy now - when its a buyer's market and stuff is on sale.

Throw money away on rent for 4 years - wait until the market corrects itself, and it becomes either a balanced, or a seller's market - and pay a premium on the home you wanted to buy.



There is ZERO chance I would rent.



Absolutely now is the time to buy.


Throw money away for 4 years? I think not. At the rate they are saving they could buy this house for cash in about 6 years. $2,800 per month mortgage vs. $975 rent, it's a no brainer to rent in this market.

These are obvioulsy high earning individuals if you can save money at that rate. Let's say they pay $33,600 ($2,800 x 12) annually for a mortgage, interest would be about $18,000 on a 15-year mortgage. Considering you get about $10,500 (combined for both taxpayers) as a standard deduction on your tax return, they are only getting the tax benefit of about $8,000. Tax effect the $8,000 and at say 30% combined fed/state tax rate that's a tax benefit of about $2,400.

You pay $33,600 to get a tax benefit of $2,400? That's negative cash flow of $31,200. If they rent they pay $11,700 annually. By renting they increase their cash flow by $19,500.

They would have to build equity in the property of $19,500 to break even and that is assuming the property they bought does not depreciate. If it does depreciate in the next few years that makes this all the worse. I'm not sure what the market is like in this area but if it's appreciating 10% a year then you could make a case for buying but if it's a stable market or even still in a down trend they are much better off renting and will be able to buy a home for cash in about 5-6 years, or perhaps put $100,000 down on 2 or maybe even 3 homes.

Based on the 15-year loan they will have about $70,000 in equity after 5 years. By renting they'll have equity of $97,500 ($19,500 x 5) which is almost 40% more assuming zero appreciation/depreciation over 5 years.

[Codythebest]

You may try to find a 'owner financing' with your term...
Maybe with a 5 years balloon and then refi...
Or whatever terms needed...

[CreditCardRadio.com]

In the current market with prices decreasing and still some uncertainty. I would rent. People talk about throwing money away, but with your rent only being $975 and with realestate taxes being extremey high on a 300+K home and with Insurance on top this almost offsets your rent just by itself! Throwing away money on realestate taxes and insurance isn't really smart either in the current conditions. Then you have your mortgage on top of that. Some will say well you can deduct the interest, but is it smart to spend $1 to get .28 cents back? No

I would continue to save and invest the money for a few years if you can and them pay mostly cash on a house if you really need one. Otherwise I would continue renting. I would rather wait until the market does start to heat up. At least when you buy that home you will know the prices will be going in the right direction.

[Malok]

And if interest rates spike into double digits like Alan Greenspan has predicted in the relatively near future - this person will potentially have missed the good deals to buy properties that are currently at a discount because they won't be able to afford as high of a monthly payment - a double loss: loss on the deal, and loss on the potential upside of appreciation spread across their years of ownership of the more expensive home that they would have been able to afford.
They will have missed the opportunity to lock in a great interest rate, and instead of building equity in a home - they will have thrown away 100% of their money on rent.

And to use your numbers & reasoning as gospel:
Yes, it is absolutely better to throw away a dollar, and get back 28 cents - than it is to throw away the entire dollar.


Most of the persons that "wait for things to hit bottom" - NEVER pull the trigger - or only pull the trigger AFTER everyone else does.

Thats not being safe or smart. Thats being just plain stupid.

[atkjhi]

And if interest rates spike into double digits like Alan Greenspan has predicted in the relatively near future - this person will potentially have missed the good deals to buy properties that are currently at a discount because they won't be able to afford as high of a monthly payment - a double loss: loss on the deal, and loss on the potential upside of appreciation spread across their years of ownership of the more expensive home that they would have been able to afford.
They will have missed the opportunity to lock in a great interest rate, and instead of building equity in a home - they will have thrown away 100% of their money on rent.

And to use your numbers & reasoning as gospel:
Yes, it is absolutely better to throw away a dollar, and get back 28 cents - than it is to throw away the entire dollar.


Most of the persons that "wait for things to hit bottom" - NEVER pull the trigger - or only pull the trigger AFTER everyone else does.

Thats not being safe or smart. Thats being just plain stupid.

In an double digit interest rate environment that house they're looking at probably drops 30% as buyers evaporate faster than water. You seemed to have missed the statement that they can have about $200K saved in 4 years, they buy 2 of these houses for cash debt free is we get double digit interest rates.

Not to mention they can earn 8-9% in the bank while they wait. In a double digit interest rate environment cash is king, owning a piece of depreciating real estate is not.

[Malok]

Please go to the original post, and tell me where it says that THEIR market is depreciating. There ARE markets appreciating right now.

How do you know that things are plummeting where they are at??? Even in higher interest environments, there are places that will appreciate.

Oh wait. Let me guess - you got that from the same place that you pulled the "they're looking at probably drops 30% as buyers evaporate faster than water".

Why don't you REALLY prove your point, and use 100% instead of 30%? Or better yet, make it 200% - that way, the seller will PAY them double to buy their house from them??


And from an investment side, your reasoning is flawed: most persons would NOT be best served to pay for a home in cash. If you assume they save up $200,000 - they can buy more properties and rent the ones they aren't living in by using 20-30% down per property.
[If you assume $200,000 houses @ 30% down = $60,000 per house. Which means they could buy a home for themselves, and 2 others to rent out rather than paying for their home in cash which leaves them no deductions on their taxes. And with higher interest rates, it is reasonable to assume more persons would be wanting to rent because they will be unable to afford what they want. People will still need to live somewhere. All of which creates a much stronger financial portfolio than paying for a home in cash.]


Regardless, it really doesn't matter - the original poster has 1 post, and hasn't responded to this thread in nearly 2 months, so I would assume they have found their answers & made their decisions already.

[Codythebest]

Malok, you got a point. However, you can count the appreciating market with the fingers of one hand only. Let's make a column with appreciating and deppreciating market.
Appreciating market: Charlotte, NC and Austin, TX...What else?
Deppreciating market: the rest of the US

[Malok]

I'm not trying to take the position that things are booming in a majority of the country.

I was merely poking holes in the various random and grossly unjustified assumptions.



And just to answer your question regarding other popular markets:
Albuquerque NM
McAllen TX
Salt Lake City UT
Seattle WA
Houston TX
Biloxi MS
El Paso TX
Portland OR
Dallas TX

[Lots of popularity in TX right now. :)]

[IggysListing]

Thanks Malok.
There are many more.
Also within the so called slow or depressed markets are areas
that are doing well.
Blanket statements do not work.

[IggysListing]

I would like to add something.
Renting vs buying is always an individual decision based on several
prime factors. What type of dwelling and where it is located meshed
with short term and long term financial goals. Throw in to the decision
marriage and children, current interest rates and employment goals
and decisions.
This is not about generalities. It is about specific decisions and peoples
lives.

[atkjhi]

I would like to add something.
Renting vs buying is always an individual decision based on several
prime factors. What type of dwelling and where it is located meshed
with short term and long term financial goals. Throw in to the decision
marriage and children, current interest rates and employment goals
and decisions.
This is not about generalities. It is about specific decisions and peoples
lives.

This is exactly what my realtor said, is this the sales pitch from real estate 101? He said there is never a bad time to buy real estate...I beg to differ. I'll wait this market out and if it comes back to me fine, if not that's fine too.

I suppose it depends on where you live. If you're looking at $300K houses and hoping it drops 30%, you're only saving $90K, not a whole lot in absolute dollars. The houses in my area were $400K 3 years ago and now they are $800K...I can wait. Personal incomes haven't risen 100% in the past 3 years and there is no way these prices can sustain.

We're already seeing sellers drop prices numerous times and still no buyers, something tells me it's going to get a lot worse. It's like the tech stock bubble of 2000, the greedy speculators are going to get burned and it won't be pretty.

[Codythebest]

And just to answer your question regarding other popular markets:
Albuquerque NM
McAllen TX
Salt Lake City UT
Seattle WA
Houston TX
Biloxi MS
El Paso TX
Portland OR
Dallas TX

[Lots of popularity in TX right now. :)]

So I might be right saying few markets if compared with the hundreds of thousands other cities nationwide...

[Malok]

So I might be right saying few markets if compared with the hundreds of thousands other cities nationwide...

No you are absolutely correct. I wasn't attempting to dispute that.


You asked for a list, so I was just listing a few of the markets that based off information/data that I've read that appear to be doing well.
Let's make a column with appreciating and deppreciating market.
Appreciating market: Charlotte, NC and Austin, TX...What else?

It was more for informational purposes, rather than trying to take any opposing viewpoint.

[Codythebest]

You are in KY and I'm in TN.
Any good area within these 2 states that you know of?

[Malok]

There are 2 big events drawing a lot of attention where I'm at:

2008 Ryder Cup - Louisville KY.
2010 FEI World Equestrian Games - Lexington KY.

As far as buying opportunities: I like Shelbyville Kentucky - self proclaimed Saddlebred Capitol of the World. Its more or less, half way between Louisville & Lexington (about 30 minutes drive) and a short distance from the state capitol Frankfort. Land prices are starting to move up, but they are vastly lower than properties closer to Louisville or Lexington. Basically, the values are starting to get pressure from both sides (Louisville to the west, and Lexington to the east). There are still deals to be had especially relative to properties in either direction that are 15 minutes away. I think its poised to make big increases in the next few years (which is why I sold my home on a golf course, and bought a 30 acre horse farm there :) )

[VancouverWa]

Hi RealGone,

Wait a second, what market are you in? Real estate is a local thing, find yourself a good Realtor in your market and pick his brain on what area of town is fairly insulated from market conditions- In my market it's the old classic homes downtown.

Always remember: Location, Location, Location, Condition, Price.

I can't tell you what the future housing market will be like 'cause my crystal ball broke. I can tell you this has got to be the best buyers market I've seen in a long, long time. Get out there and start looking!

Happy house hunting

[IggysListing]

Hi RealGone,

Wait a second, what market are you in? Real estate is a local thing, find yourself a good Realtor in your market and pick his brain on what area of town is fairly insulated from market conditions- In my market it's the old classic homes downtown.

Always remember: Location, Location, Location, Condition, Price.

I can't tell you what the future housing market will be like 'cause my crystal ball broke. I can tell you this has got to be the best buyers market I've seen in a long, long time. Get out there and start looking!

Happy house hunting


Great answer! Definitely time to buy.