To rent or to own?

Hey ATS,

Right now I rent an apartment close to down town in Austin, Texas. My share of the rent every month, including utilities is roughly $675, which for my location and the quality of my complex/apartment is actually excellent. My income is $47,000 a year, and depending on my annual bonus (which can fluctuate depending on certain variables), my salary can be as much as $68,000. But, since that can vary, I think it's best if we stick with $47,000.

I am only 25, and I enjoy the young life aspect of living in the city. I grew up in the country, and when the time comes, I would like to buy a home outside the city. As someone who is still single, I don't feel as though a house is the best decision for me just yet. It would take me further away from the city, and it's a massive anchor that would be tough to get around if I met someone who had another house, or wanted to live in a different area, etc.

MAIN POINT: So my idea is, what about a condo? There are condos that are nice, and just as close to down town as I am for under $100,000. I could pay that off in a few years, stay close to the city, and by then have a little more saved up for a home, have a higher salary (I should hope), and I wouldn't be so nailed down to something. Finally, I could sell it and reclaim my $100,000. Paying rent right now, I will get nothing back ever.

This seems like such a basic idea to me, why don't more people do it? There must be a reason. Any help?

We got out of the rent paying scheme after we totaled up how much money we were making, compared to how much money we were spending annually on renting a place. The number was a lot bigger than we expected once we included utilities. Point being, If you can find a way to get rent free, it may help you out more than you realize.

I am currently saving for a piece of property out away from the city and would have never been able to do so if I had not went rent free. Reduce yourself to what you need as opposed to what you want, and it will astound you as to how much you can save. Cutting out the small things makes a HUGE difference.

a reply to: Schmidt1989

If you can do it, do it. Check your credit rating. Go to a bank and find out your ratios and see what you can afford, according to the banks. Start paying down your debt and saving cash.

I'm saving major $$$ per month by paying a mortgage compared to the rent I was paying before. But, I had to come up with a hefty down payment.

I skipped renting (it's a losing proposition) and went straight from living with my parents to home ownership some years ago.

I can say with 100% certainty that owning is better- IF you don't want to move anytime soon.

you need to make 100% sure you have no plans on moving anywhere in 5-7 years, for starters- then you need to find an area you can stand for that period of time (I hate where I live... it's not worth it)

Most importantly, keep in mind that the market can and will collapse at any moment. Depending on how bad the next one is, it could not matter as currency goes away- or it could land you on the street. As long as your local currency exists, the bankers will put you out on the street and let you starve to death as long as it means their profit goes up another point.

That means that if the market crunches again and we don't kill the failed currency system, you'll be stuck making payments on a place you can't sell for half what you owe, and what's left over might not put food on the table, or heat the place enough to keep the pipes from bursting.
You're young enough that unless you're in a tech field (salary implies you might be) that the bosses might chop you first over someone older should they need to save pennies to pay their own bills.

Money is a scam- plan accordingly.

I am a real estate agent in TN. I would definitely agree with the fact that renting is throwing money in the wind with no return in the future. When you own your own piece of property the luxury of sitting in the recliner and leaning back and thinking... This is all mine and has the potential to be my kids when I'm dead and gone. I'm only 26 and I would definitely say owning property is ALOT better than rent.

My daughter and son-in-law as newly weds in Texas, took at look at their rent. Then took at look at a total payment (taxes/insurance included) for buying a house. They purchased a house much nicer than what they were renting and the monthly payments are the same. Yeah, they have to pay for maintenance themselves, but once their student loans are paid off they can double up on the payment and have it paid off within 7 years. Then the monthly expense will only be taxes and insurance. Woo hoo!

I have found that maintenance on a fairly new home is not a lot, big expenses come after about 10 years.

So I recommend you buy, if you plan on staying in it for over 5 years, and if you can make double/triple payments in good financial times, you'll be really far ahead in the long run. However, if you think you may want a house within 5 years and get out of the city center, then think about a house rather than a condo. Ask a real estate agent who is also a friend and find out how well condos sell in that area. Or - if you buy a condo, is it close enough to the action to be able to rent for at least $200 a month more than you would pay with taxes and insurance and condo fees included? Remember, on a condo, there will be condo fees, but on some homes there is a HOA fee, but many homes do not have a HOA fee or a low one (my daughter's fee is $350 per year in a nice neighborhood with a pool)

So, yes it is better to buy a condo unless you think you'll want out of the area in less than 5-7 years and into a house, then consider a house instead and then buy the most you can afford in a house. Starter houses are no longer a good investment as real estate is no longer a money maker, it is a place to live long term.

It seems I am a bit older than most of you. I've owned two homes (Florida).
Sold everything I owned and moved to TN and have been happily renting for about 15 years.
I have no intention of buying again. When my children flee the nest I will not stay here.
I LOVE my current landlord (we are about the same age) and home. It is exactly what we want at this time and NO headaches as far as if something breaks or property taxes although I am paying them really.
There are two heat/air units and I can't personally can't imagine myself worrying over replacement if they were to break. I'm just not interested in that being my problem right now.

Just some of MY reasons for not choosing to own.
Maybe I am throwing money away but, I will be able to leave when I am ready and not be held back...
I have a gypsy's soul...

This seems like such a basic idea to me, why don't more people do it? There must be a reason. Any help?

The above is true...but here are the reasons.

1) You typically have to have a 10% or more down payment (which on $100,000 is 10 grand).
2) You have to pay annual taxes (which will be higher the first year or so, as you won't have a homestead exemption).
3) You have to pay for home insurance (which is pretty expensive).
4) YOU are now responsible for any repairs (some of which can be very expensive, even if a Condo, you are responsible for what is INSIDE it).
5) In a Condo situation, you will also likely have a monthly maintenance fee, and will be subject to restrictions like what can be in your yard, design, etc.

Don't get me wrong, the above posters are right, but you ALSO have to consider these costs as well, when budgeting for this.

The other thing to consider, is the difference between a condo and a home. Typically, both will be worth more when you are ready to sell later, but this is much more likely with a house. (plus the house also entails owning the land it is on). You have to consider the long term. For example, my parents bought their first home for 20,000. By the time they sold it (about 30 years later), it was worth about 125,000. Pretty damn good investment.

Starter houses are no longer a good investment as real estate is no longer a money maker, it is a place to live long term.

Yep, when my parents did it, different market. Over the long term though, it really has no place to go but up. Land, they ain't makin' it anymore. (well, unless you are China). A house is a long-term plan. The condo can be good, but only if you can later rent it out at a profit.

I have a condo. The nice thing is that my water, trash, heat and exterior maintenance/snow removal/lawn care are all taken care of. Sure, I pay a monthly fee for that -- but I had all those bill separately they'd add up to more.

I don't like having upstairs neighbors, or side neighbors. One day I'd like to own a stand alone home instead of a condo.

If you can't go all in on a stand alone home, a condo is a great transitional property into full on home ownership. You an live there and gain equity, and get used to what home ownership is about before making the larger plunge into a bigger house.

Just don't over buy...I know several people recently that have taken out VA loans with 0% down. We're talking $350,000 - $400,000 mortgages. Their monthly payments alone just for the mortgage are 2-3k a month. Both husband and wife HAVE to have full time jobs, as the income from one pays for just the house itself (not utilities or any other expenses on the home).

To me this is crazy. What happens if they want a kid? What happens if one of them gets really sick or injured? What happens if one of them looses their job?

They'll hardly ever be able to afford any vacations, as the rest of their income is spent on things like car insurance, groceries, utilities, maintenance...

I'd rather live a little closer to my means...

It's obvious that you're not ready to be tied down to a house yet. But, don't waste prime years of your life renting if you feel you're financially minded. You'll only regret this. I've only been to Austin once, but the vibe is very new, very up and coming, and a downtown condo could be a solid investment that makes you money until it crumbles to the ground or you're dead.

If you haven't all ready, I suggest you check out the forums at Mr. Money Mustache . It's an interesting blog where people discuss early retirement. Someone in the forum will no doubt delight in digging in to your case and presenting you with a ton of options. It's not for everyone, but you may enjoy it.

a reply to: Schmidt1989

While there are two sides to this,and I have both owned and rented.At this point in time,my advice would be to wait for now. As one poster pointed out,the market is again over inflated for houses,(this includes condos,etc) so I would wait until the market collapses then pick up a good deal on it. You don't want to get a mortgage for a house,condo or anything else that is over inflated in price,only to have the market drop and you are stuck paying the higher price still. Better to let the market fall in on itself,let the prices drop,then pick up a nice place for a lot less money.

There are plenty of "rent to own" options available for all sorts of property, Real estate contracts etc.

In case your employment situation changes, you can still bail with a minimum penalty and if it doesn't, you still have maintained equity.

win...win

Austin is in a growth spurt, Property is going to be sky high to buy outright.

If it were me...I'd look to buy a small fixerupper in some of the older but hipper neighborhoods.

a reply to: lordcomac
Why pay someone's mortgage. By renting you are paying someone else. Buying is the sensible thing to do. Pay yourself by owning your own place. If you decide its time to move, you could always become a landlord yourself.

I am going to be difficult a recommend neither.

If you can stay with family or save while renting, you can get into properties through auctions.

I have seen plenty of $150k houses go for $15k at courthouse auctions.

Do some research on foreclosures, tax deed sales and short sales.

I picked up my house for 145k 3 years ago and am selling it for 245k now. I still paid too much for it.

You also have to understand that banks write mortgages out and only have to have 10% in actual money in their account. The rest you owe them real money back.

So, they don't want to be property owners and carry taxes, maintenance, utilities and depreciation.
Keep that in mind and bid a hundred bids at half mrkt price, till one wants the sale on the bank owned properties.

If you can do some work, or are willing to learn, you can really save by purchasing eyesore homes with good bones.

For instance, they just need cosmetic updates, such as siding, paint, etc. Take pictures of the eyesores, estimate hired cost to fix snd submit with your lowball offer.

If you're seriously considering a condo, make sure to pay attention to Condo Association fees,and absolutely anything in paperwork about them fluctuating. Our previous residence down in FL was a condo (rental) and the association's monthly fee was $150. Our landlord owned other condo properties and that was one of the highest fees he paid. When he bought it, the fee was just $100 (a more average fee in FL for condos) He'd managed to get it lowered down from a peak of $250 over the course of several years, but it was still a place that charged an obscene fee to people for 30+ year old units in a not-very-valuable neighborhood. No pool, no tennis court, no playground, no grilling area, no covered parking, no exterior amenities at all.

Be careful, condo associations can sniff out a sucker with money quick, and if no one says or does anything, everyone gets the short end of the stick quickly when the fee goes up across the board.

It's as pretty simple as this:
After 5 years of renting you would have spent around $35,000.
After 5 years of paying that as a mortgage you could sell and would have at least broken even. As in spent nothing for the past 5 years.

originally posted by: FinalCountdown
It's as pretty simple as this:
After 5 years of renting you would have spent around $35,000.
After 5 years of paying that as a mortgage you could sell and would have at least broken even. As in spent nothing for the past 5 years.

That's exactly my point. It's too easy. Why don't more people do it?

It depends on many things...your age, how wealthy you are, whether you want to live in the same area for years or want the facility to move around, whether you are a family or single.

For most people of working age in the present times, I would have thought that renting is the way forward. The forces of capitalism seem to demand that we be prepared to move around at short notice.

If you are wealthy and not reliant on paid work and you see a nice cottage in some rural idyll, then heck, buy it. Most of us aren't that fortunate.

originally posted by: Schmidt1989

originally posted by: FinalCountdown
It's as pretty simple as this:
After 5 years of renting you would have spent around $35,000.
After 5 years of paying that as a mortgage you could sell and would have at least broken even. As in spent nothing for the past 5 years.

That's exactly my point. It's too easy. Why don't more people do it?

People ARE doing it. Where are you getting the idea that they aren't? I suspect it may be in your peer group since you stated your age was 25. I was an owner at 25, but out of the maybe 50 people under 30 I hung around on a regular basis, counting co-workers, only one other couple owned their home.

According to Wiki, 64% of people own their homes. That's two out of every three. Most people are homeowners. Many under 30 aren't. Here is the link

In 2014, homeownership dropped to a lower rate than it was in 1994, with a rate of 64%

Unless you plan on moving out of the home within a few years, buy the home. I live in Texas in a home that had an original mortgage of $65k (that's the mortgage amount, not the total price). My mortgage, which INCLUDES property tax and homeowner's insurance, is $505. I have 3 bedrooms.

So you are paying quite a bit more than me and I bet you don't have multiple bedrooms and a garage either. And you're never going to recover ANY of the rent you're paying, whereas if I sold today, I'd make a profit of about 30k (appreciation of home over five years we have owned). Even if at some point in the future I sold for less than what I paid, I would still recover SOME money, whereas you still recover nothing.

I cannot emphasize enough how much you should buy the home. You can definitely, unless you have outrageous debts you did not disclose, can easily get into a $100k property with your salary.

As far as the people saying "you have to pay for home repairs" and saying that's a con - well here is another viewpoint. First, some repairs are paid by your insurance company. 3 years ago I got a new roof and insurance paid for it. Some repairs aren't. I just replaced the AC and paid for it. The savings of mortgage payment vs. rent makes it easier to save for repairs/emergencies.

Buy the home! (I strongly recommend home v condo).

I too was an owner by 25, but it's hard to get ahead.

after five years, unless the "economy" has at least held still (hint- it doesnt) you might be under water on the loan to resale value ratio.

One thing that I can't stress enough ( and fortunately this didn't get me ) is to MAKE SURE YOU DO NOT BUY A HOUSE SUBJECT TO AN HOA

NOT kidding. there is no shortage of horror stories about this.