house vs renting an apartment

[itguy08]

It really all depends on how you live and what you want. IMHO a house is not an "investment" any more than say a car. Why? Because you will be constantly repairing and renovating things all the while hoping that your house's value goes up.

At the end of the loan, you've paid nearly or over double your starting rate in interest charges so right there you have to hope your home value doubles in, say 15-30 years. Doubtful in most markets. On our $180k 30 year loan @ 4% (which I'm paying more than the minimum), the interest will tack on another $130k to the price of the house. Do I really think our house will appreciate $130k by 2042? And that's just to break even!

Then you have the property taxes and other things that you pay year in and year out.

Then you have any repairs that need to be done - say the HVAC goes - that could be $10k+ right there. Or a roof, or God forbid a pipe bursts.

You will have ancillary items you will need like lawnmowers, etc.

Then you have renovations you may want to do. Even if you do the work yourself it still will cost. We just added a utility sink in the laundry room and a base cabinet, wall cabinet, painted, and stacked the washer/dryer. Close to $800 and I did all the work myself. Cabinets were nothing fancy - cheap basic cabinets from Ikea (which were cheaper than the cheap white from Home Depot).

Then you have your time spent on things like cutting the lawn, landscaping, etc.

Contrast that with a renter who simply calls up someone to fix it.

Yes we own a house but I'm not under the delusion that it's better than renting or even more financially sound. I've not run the numbers but I suspect if you add up all the money people spend on their houses as well as the time it would not make sense to buy property. A house pretty much is just another pit you throw money at. Only difference is it may go up in value and you may feel like you get money out at the end.

Think long and hard about it but don't be under the delusion that home ownership is not throwing money away. It is but just in a different manner!

 

[Astro14]

Originally Posted By: motor_oil_madman
I finally got a decent full time job and it got me thinking about my future. Right now I can probably budget 700-800 dollars for an apartment. That sure seems like a lot of money to just [censored] away in the wind each month on rent. I thought I would ask for some opinions on what you think? I guess an apartment would be ok starting off for the next couple years, but I know I'm not going to be as happy in an apartment cause I like to do carpentry and work on my truck. It's kind of hard to do that in an apartment cause you don't even have a back yard. My dad says I'm like 10 years away from buying a house, but I'm not sure I agree with that. I'm 24 now.


I have to agree with those who have said wait.

Sure, you've got a good job now - but do you have the cash to buy? The cushion for emergencies? The beginnings of retirement savings? Those things need to be at the top of your list.

You're not throwing $$ away on rent: you pay for something, housing, and you get it. At the end of the lease, you walk away. It's simple, easy to calculate, and leaves you no complications. You pay for the product.

I have rented (apartment or house) many times, in all of those cases when I had an uncertain amount of time in a new area, or was simply new to the area. Nothing wrong in renting - it allows you to leave easily if that's needed.

You finally got a job - my bet is that it won't be your last job and when the next job/move opens up, you'll be glad your not stuck with a house that is not liquid. You or your job move, can you afford rent in the new location while still making the mortgage payment? Few can...

Further, buying a house doesn't always improve your financial position, not in the short term...it can improve your position in a rising market...but markets can go down, as an example, I bought a house here in Virginia Beach near the peak...were I to sell it today, I would lose six figures because the market dropped and has yet to fully recover...think about that, can you afford to lose your down payment if you lose your job or have to move?...the thing with leveraged positions (and in buying/selling before the mortgage is paid off, you're leveraged) is that leverage works both ways.

You're 24...slow down a bit...this may not be the ultimate job...and until you've got all the other bits lined up (savings, down payment, retirement investments), getting saddled with a mortgage may not be the best thing for you.

 

[Cujet]

I rented houses when young. Had roommates and so on. It worked out very well. Rented my first house at 20 years old!

When I married, we rented apartments and a condo for a while. This was less than ideal and I probably should have found a cheap house rental.

A true single family home is a huge benefit to certain types of people. Especially if there is a nice garage and some land. It's debatable whether renting a house or buying is better. At times, it's actually to your financial benefit to rent a house, long term.

The purchase of a home is VERY expensive, as everybody has has a claim to some of your money. It's a one time expense, but it's not unusual to see fees, taxes, closing costs, title insurance, doc stamps, realtor and mortgage broker commissions, PMI, buydowns and downpayments to run into the $30,000 range on a typically priced single family home.

 

[Sonic]

As long as you are fully aware of all the costs buying a home will generate it comes down to your income and how secure your job is. Also never ever take the full loan amount you can get approved for. My wife and I have lived in 6 homes and before that we lived in 3 apartments. I know about house buying. Back when the market was good you could buy a home and sell it 2 years later and make a profit, houses automatically went up in value (assuming you maintained it well). We did this with our first few houses making profit to add to our equity to put down a larger amount on the next home. Making sure you can put 20% to 30% down greatly reduces your interest as well as helps you avoid mortgage insurance. You also need to remember about realtor fees and also a city tax if your inside the limits.

If you know what interest rate you can get and how much you are getting a loan for and also an accurate estimate of what property tax will be, you can get an idea of your monthly payment. This payment might look okay on paper but remember every other utility bill you'll have, plus food, clothes, fun money, insurance (car & home) upkeep, and all the other wonderful surprises that come with owning a home.

I've seen friends who have become 'house poor' due to getting in over their heads by taking the maximum amount a lender will give them. Some people just want to jump right in to the big fancy home they think they will live in forever. Yeah, if you can afford it, go ahead but, smarter to buy smaller and affordable. People forget about the fact that they will need to replace their car at some point or want to take a vacation. Don't make your life revolve around making your house payment. I've tried to play it smart and started out in a smaller home but we could easily afford our bills. Now, years later our house is 3 times the size and bought new yet our monthly payment is almost the same as it was in the first house we ever bought. And, we were able to get a 15 yr loan too and a good interest rate. Hoping to finish it off in about 9-10 years.

If you can rent a place that still affords you to save up money for a house, that's not a bad idea. That's what we did. Sure you're just trading money away for somewhere to sleep but you avoid the headache of home ownership for a little while. Having a good down payment and a good nest egg is the best thing you can do. Picking to buy in an area that seems to be growing and doing well helps too for resale and property value.

 

[supton]

If I had to do it again, I would not have bought. It's nice, but honestly if I was renting I probably would have moved closer to work by now, and saved on commuting/vehicle costs. I would not have spent nearly as much on hobbies, and had I been smart I would have put more into retirement. Rent is expensive, but insurance+property taxes+loan interest is all money that you'll never see again, just like rent money. And you can always move every 12 months if you rent; by doing so it's a great incentive to not hold onto junk that you don't really need.

My house certainly has not been an "investment"; it has cost money on upkeep and has depreciated since the recession. If I got out of it now, after 8 years, I'd walk away with first/last months rent on the next place. Not a downpayment for the next but rather just some rent money.

Call me bitter but I'm a bit disillusioned by the American dream of home ownership and having all the fixings.

 

[supton]

Originally Posted By: Sonic
Also never ever take the full loan amount you can get approved for.


At the height of it, they were handing out / loaning out money hand over fist. We got pre-approved for some ridiculous amount--and the bank had the audacity of asking if we wanted more??? We specifically told them we wanted to be approved only on my income, which I think they did; but even with my poor budgeting skills I knew they were offering me too much.

At the same time I kinda wished I had bought more house. Another 50k and I would have had the space I wanted, and would not be thinking of moving. Would have hurt during the recession but my income rebounded and that extra payment cost would have been a fixed number while my income could be expected to rise as the years go by.

My mistake was in buying a starter home with the intention of moving in 5-10 years when I outgrew it. I did not do adequate planning and thus did not anticipate the market going downhill. It's not a bad home but I can't justify putting money into it, since I'll never get that money back; if I expand it then it'll be too big when the kids leave home.

 

[IndyIan]

How is the realestate markey in Houston? Did it crash in 2009 or just dip a bit? What is driving realestate prices there? In Toronto, immigration and foreign investment are keeping prices growing.
I would try to time the market abit if you can since you are young. Buying high and waiting for a rebound isn't much fun as supton points out.
Also if you think prices are going no where but up, then maybe try to buy something small in a stable area a bit sooner than later. Its all a bit of a gamble, but if you don't risk everything then probably you'll be fine.

 

[msparks]

You can either pay rent or pay interest. In the scheme of things getting yourself right financially before you buy is much more important than buying in my opinion.

But if you like carpentry, maybe a repo could be an option?

 

[Schmoe]

Sonic is pretty spot on. When I was your age, I was renting. My dad was constantly on my arshe to buy....when I finally did....about your age...I realized why he rode me so hard. There are tax advantages, you actually own something and you have a sense of pride. It's also investing. Your area is growing leaps and bounds. Don't see how you'd lose money when and IF you sell. You'll get a better return than putting that money in a savings account. But, don't be house rich and dirt poor as others have mentioned. You got to live too. Remember, it's LOCATION, LOCATION, LOCATION and finding a good realtor that understands your situation and maybe was their themselves at some point. When I was living in an apartment, it wasn't that bad....but being single and having some cash on hand....did a lot of partying and really had fun. But in retrospect, I wish I'd have bought sooner, just what dad was preaching. It's never to young of an age to invest. Don't let your money tell you what to do. There is a reason why they call it the American dream. I mean....it's yours. Apartment...it's not yours, you helping someone make it theirs....Some will say with an apartment you don't cut the grass, worry about plumbing, roof, etc. etc. Those problems exist in apartments as well, but you don't have to fix it. At least with your house, you said you were good with tools, YOU fix it. How many times have you been to somebodies house and they said they built the patio, or repainted the house, or redid the kitchen and you'd say something like "wow, that' nice!!!" Imagine how the homeowner felt. You live once, enjoy the fruits of your labor for yourself, not others.

 

[SwampSurvivor]

I felt bad about renting as I'm just throwing money away every month. I considered myself to be throwing the ENTIRE amount away every month.

However, property taxes around here are ridiculous. I'd be spending MINIMUM of $400 a month in property tax (and that's in a bad neighborhood) and a bit more on top of that in interest.

For what I pay in rent, I'm really not throwing away as much as I had thought.

 

[itguy08]

Originally Posted By: Miller88
I felt bad about renting as I'm just throwing money away every month. I considered myself to be throwing the ENTIRE amount away every month.

However, property taxes around here are ridiculous. I'd be spending MINIMUM of $400 a month in property tax (and that's in a bad neighborhood) and a bit more on top of that in interest.

For what I pay in rent, I'm really not throwing away as much as I had thought.


You're really not throwing anything away different than those of us that own.

Of our just under $1300/mo mortgage, I throw away $600 in interest and another $300 in escrow (insurances/taxes, etc). That is money I'll never get back again. Over the 30 years I'll have thrown away over $130k in interest alone.

So it's really no different renting. Other than I may get out of it even when I sell after it's all said and done.

Home ownership is just another pit to throw your money in, like pretty much everything else in life.

 

[daves87rs]

Originally Posted By: Shannow
Had a very good piece of advice from my boss the other day...

Buy the smallest place that meets your needs, and pay it off as fast as you can.

If you need to move for work later, depending on where you are, do the same again, and either sell the first, or keep it as the sums work.

Don't lock in until you've settled where you can retire to, and keep/liquidate the rest to meet that end.


It keeps your repayments low, and stops you buying a place bigger than you need to sell down to later.


Kinda what I am doing now...bought a fixer uppper, and I just finished all the "important stuff" (well, need to install my AC unit, but..) My bank must be exicted, because they now tell me my house is worth nearly twice as much as I paid for it. (Ti get me into loans, of course). I'm happy where I am for the time being, but when I'm ready for that jump, I should have no issues there....

 

[Win]

We are inexorably and unwisely being driven to a nation of haves and have nots.

More and more people will be chasing fewer and fewer "decent full time jobs".

Which do you want to be? Have or have not?

Buy all the real estate you can while you can. Let a renter pay for it.

Sorry if that sounds harsh.

 

[99Saturn]

Difficult to say whether or not you are throwing rent away vs. making a good investment in a home. So much has to do with the direct value/cost of the house as well as the indirect value/costs which become a lot harder to define and estimate when making the decision.

Biggest recommendation, as others have already stated is have "enough" savings. Define what "enough" is for yourself along with how much risk you are willing to take and hold onto and work towards that. (As many others) I'd recommend coming up with what you need saved in closing costs, surprise expenses/repairs, increases in taxes, personal expenses, future savings, etc. Past that come up with a budget, see what factoring in a house does to it, think about what impact no income, or a decrease in income could have, as well as how you're going to feel if you have a big jump in income.

 

[SwampSurvivor]

Originally Posted By: Win
We are inexorably and unwisely being driven to a nation of haves and have nots.

More and more people will be chasing fewer and fewer "decent full time jobs".

Which do you want to be? Have or have not?

Buy all the real estate you can while you can. Let a renter pay for it.

Sorry if that sounds harsh.


That's the plan!



Originally Posted By: 99Saturn
Difficult to say whether or not you are throwing rent away vs. making a good investment in a home. So much has to do with the direct value/cost of the house as well as the indirect value/costs which become a lot harder to define and estimate when making the decision.

Biggest recommendation, as others have already stated is have "enough" savings. Define what "enough" is for yourself along with how much risk you are willing to take and hold onto and work towards that. (As many others) I'd recommend coming up with what you need saved in closing costs, surprise expenses/repairs, increases in taxes, personal expenses, future savings, etc. Past that come up with a budget, see what factoring in a house does to it, think about what impact no income, or a decrease in income could have, as well as how you're going to feel if you have a big jump in income.


The same would happen if I lost income whether renting or mortgaging a home. I would not be able to pay.

If I had a huge bump in income, I would, personally, not do anything different as far as spending habits.

 

[99Saturn]

Originally Posted By: sciphi
Originally Posted By: eljefino
Buy a house, they are shooting up in price faster than you can save. Do whatever it takes to get a 5% mortgage... pay PMI. It's offensive in nature but consider it part of your interest rate/ the bank's risk. You can shake it off early by over-paying your payments, getting a new assessed value, or refinancing. But work that out later once the house is yours and you've settled in.

If your work does 401k matching, go for that. Otherwise, put everything towards your down payment. You can borrow against your 401k if some major emergency with your house comes up.

Be very careful around HOAs if you want to work on vehicles or do anything else remotely fun.


FHA loans now need PMI for the life of the loan, so they're a little less of a deal.



Correct me if I'm wrong, but I believe you can still go the route or a conventional mortgage with PMI, and discharge the PMI at 20% to 22%.

 

[supton]

Originally Posted By: Win
We are inexorably and unwisely being driven to a nation of haves and have nots.

More and more people will be chasing fewer and fewer "decent full time jobs".

Which do you want to be? Have or have not?

Buy all the real estate you can while you can. Let a renter pay for it.

Sorry if that sounds harsh.


That works great, as long as the renters keep paying, and the area remains desirable. At least until you've paid off the loan to buy, then after that you only have to make enough to pay for upkeep taxes and whatever. If you can buy low and rent high then I guess you're golden. Otherwise it strikes me as a risk like everything else.

 

[99Saturn]

Originally Posted By: Miller88
Originally Posted By: 99Saturn
Difficult to say whether or not you are throwing rent away vs. making a good investment in a home. So much has to do with the direct value/cost of the house as well as the indirect value/costs which become a lot harder to define and estimate when making the decision.

Biggest recommendation, as others have already stated is have "enough" savings. Define what "enough" is for yourself along with how much risk you are willing to take and hold onto and work towards that. (As many others) I'd recommend coming up with what you need saved in closing costs, surprise expenses/repairs, increases in taxes, personal expenses, future savings, etc. Past that come up with a budget, see what factoring in a house does to it, think about what impact no income, or a decrease in income could have, as well as how you're going to feel if you have a big jump in income.


The same would happen if I lost income whether renting or mortgaging a home. I would not be able to pay.

If I had a huge bump in income, I would, personally, not do anything different as far as spending habits.


Personally, living in NY (like you) and taxes being a little under $700/month here, I actually think renting can make a lot more sense.

I was really gearing my original comment towards the OP, because to me it seems like he has to decide to stay where he is, rent, or own, and the opportunity may be to stay where he is and nest egg some money now. There's been some mention of starter homes versus buying extra home today for tomorrow, my point for the OP was just to look down the road - as what made sense yesterday does not always work tomorrow - kids, commute, etc. get in the way sometimes. With closing costs and possibly a refinance at some point, it takes a while before you are no upside down cost wise.

 

[strat81]

Originally Posted By: motor_oil_madman
I finally got a decent full time job and it got me thinking about my future. Right now I can probably budget 700-800 dollars for an apartment. That sure seems like a lot of money to just [censored] away in the wind each month on rent. I thought I would ask for some opinions on what you think? I guess an apartment would be ok starting off for the next couple years, but I know I'm not going to be as happy in an apartment cause I like to do carpentry and work on my truck. It's kind of hard to do that in an apartment cause you don't even have a back yard. My dad says I'm like 10 years away from buying a house, but I'm not sure I agree with that. I'm 24 now.


If $800 is your budget for living quarters, expect to be able to afford $600/month on a mortgage. And by mortgage, I mean mortgage + escrow (taxes, insurance, PMI, etc.).

The other $200 will go towards maintenance. It sucks when you have to shell out $500 for a new mower, $2,000 for a new furnace, $5,000 for a new roof, etc.

I bought my first house when I was 24. It was almost a hundred years old. It was a terrible financial decision. All of my equity was consumed by repairs. I should have waited.

 

[supton]

Very good point. When I bought my house, the roof was less than 10 years old; 25 year rated shingles. Made it 4 years before I had it stripped off and done right, so as to fix ice daming and leaking (which has damaged basically the ceilings). Finding more things when I look around that weren't done quite right.