rent vs buy - and the "bubble"
say a 2br condo can be had for three quarters of a million bucks, with 33% down. Say 250k can earn 5% (after tax), and a 500k mortgage is 4% (after taking tax-deductions).. then the yearly costs after tax are 32500 plus 5k a year in after-tax monthly dues totals 37500. This is over 3200…
say a 2br condo can be had for three quarters of a million bucks, with 33% down.
Say 250k can earn 5% (after tax), and a 500k mortgage is 4% (after taking tax-deductions)..
then the yearly costs after tax are 32500 plus 5k a year in after-tax monthly dues totals 37500. This is over 3200 a month in real cost. And that assumes nothing breaks.
Say you can rent a garden duplex (larger) in the slope (non-prime) for 3000 a month, on a 2 year lease, and rent is realistically only likely to go up with inflation after that.
And further if you think that house prices are going to stay flat for a couple of years, and you may want to sell – either to trade up or to move around – within 5 years, and selling will incur a transaction cost of at least 5% (35k) (brokers need to eat too).
then is there a reason to buy outside the privilege of substituting a landlord who doesn’t want you screwing up the place but fixes things, for a bank manager who doesn’t care if you screw up his place, but doesn’t fix anything?
is buying an implicit bet that the property will appreciate sufficient to cover the transaction costs?
yes, you don’t buy a house as an investment, but to live in. But if you face a 5% real drop in price (-75k), that translates to more than 25% haircut on that 250k you saved up (after all it should have appreciated 5%).
just food for thought..
did I do some part of the math wrong? is my guess of rent too cheap and condo too expensive? (assume the slope, here).
1:23 PM. Comment about the AMT is incorrect. Mortgage interest is one of the only dedections you actually still get to take under the AMT.
If you can afford to buy a$750K condo, the tax deductions are the least of it (AMT wipes it out). And depending on the building, $5K/year for condo fees could be low. It is not worthwhile buying anything now unless you love it and intend to stay — regardless of the market — for a long time.
this is such an individual feeling that it’s almost dumb to talk about.
either you want to own your own home or not.
go with your gut.
you forgot to include data for how winning the lottery will affect the rent/buy balance!
seriously, there are so many variables here taken as written-in-stone criteria, it sounds very arbitrary.
but it raises a worthwhile question: what is the average rent increase in new york city? when i rented, my increases sure weren’t limited to inflation. but then there were years that i got no rent increases when i was sure i was due. you never know what you’re in for as a renter …
So the OP is weighing this rent vs. buy to apply to a period of 2 years? The answer is it’s better to rent if the OP would flip after only 2 years. No question. Even in Park Slope it’s uncertain the next 2 years would offer sufficient appreciation to make a profit after closing costs and other expenses.
Don’t buy now. You will regret it. Renting is much cheaper. You are not considering repairs and RE taxes. Homes are a depreciating asset. Only the land goes up and down in value.
nytimes have a calculator for that :). rent vs buy. to see which one is more worth it for you.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin
what about this: if housing prices stay flat or decrease by 5% as in your example, will you actually be able to earn the 5% after tax you mention on the 250k?
If the overall economy is as tied to housing as some people believe, then that part of the equation will be pretty hard as well.
I rented 3-4 apartments for about 20 years in total and found that my rent doubled about every 10 years so that $3,000 duplex (if you can get it) will cost $6,000 in a decade. I’ve owned a house for 5 years and know that my interest cost will go down over time as I slowly pay down principal. While costs for insurance + heat etc will go up every year, I still expect my cost for housing will decline over time. There is also a sort of forced savings benefit of paying down your mortgage a bit each month.
On top of that, you control the property. That duplex you call home is yours until the landlord’s kids get back fron college or their favoriate nephew fronm Oshkosh moves to NYC and needs a place to stay.