Buy house or not?

[MichelleCarmen]

Hi everyone,

My husband and I plan to stay in the house we currently are renting for 10 years.

It currently needs:
a new roof
new windows (but those we would wait on)

Before *we* resell it in 10 years it would need:
new windows
carpets
hardwoods refinished
master bath refinished
kitchen counters updated
probably new appliances
new interior/exterior paint

Our goal is to stay until our younger son graduates from high school and then move to a secluded home that would be designed by us. It would be around 1200 sq. feet and would have a MIL with another 1000. The price range of the properties we're currently looking at are around $400,000. (I'm not sure of the cost to build the two homes. . .DH and I would be doing as much of the work ourselves as possible.)

We have the option of saving up 25% and putting that down on the house we are currently renting for $1,800 a month and then having the higher pmt of a mortgage and also be paying taxes and HOA fees. Or would rent for that entire time and save up the money instead and buy raw land to build our dream home on.

After buying, we'd be investing quite a bit in eventual upgrades and we would have paid so much more in mortgage pmts, PLUS, everyone I know owes more than their original loans because of refinancing and/or HELOCs. A few do have equity, but the majority have less than $50K of that even after living in the same home for 5 years.

I want to see a financial planner about all this. . .but wanted opinions from you all.

Thanks!

 

[steph72276]

I would say yes to buying it since you are planning to stay put for 10 years. Since this is a down market, it is a good bet that the price would increase on the house by the time you are ready to sell. I would just make sure you know the exact mortgage payment and would be comfortable paying the difference. I would not go over 25% of net pay, but I am pretty conservative when it comes to finances.

 

[NakedFinger]

I would say buy the house. I am not knocking anyone who rents, however in my personal opinion, to me renting feels like wasting money. I have always had a hard time grasping dumping so much money into something every month that isnt "yours". Because of this, I went straight from my parents home to owning my own single family home just shy of my 21st birthday. So i may have a one sided view of this.

If you werent planning on staying there for 10 yeats, i would caution against buying it (like if you were going to sell in 2 years or so) because like you said, you may not have any equity in it, or even worse, not get what you paid for when you sell it and owe money. However, in 10 years the market will most certainly pick back up, and with said improvements done to the home throughout the years, your home equity will rise, and you should make money on it. Think of it as a savings account.

The improvements that you listed, while very nice and would make a significant difference to the marketability of the home. And they arent that expensive (not like MAJOR remodeling), but instantly increase the value of your home.

 

[TravelingGal]

MC is your other home sold?

 

[MustangGal]

Before you choose to buy the home you''re corretly living in, make sure the price they''re offering it for is fair in this market. If you plan on staying somewhere 10 years, then buying would be the best option.

 

[MichelleCarmen]

Date: 6/9/2009 3:45:57 PM
Author: TravelingGal
MC is your other home sold?

Yes, but we didn't make any money off of it.

We're in the process of being bought out of a parcel of land we owned with a partner. Luckily that has turned out to be a good deal and will help out tremendously.

 

[TravelingGal]

Date: 6/9/2009 4:10:09 PM
Author: MC

Date: 6/9/2009 3:45:57 PM
Author: TravelingGal
MC is your other home sold?

Yes, but we didn''t make any money off of it.

We''re in the process of being bought out of a parcel of land we owned with a partner. Luckily that has turned out to be a good deal and will help out tremendously.

OK, I just wanted to make sure there wasn''t any possibility that you were stuck with two mortgages.

I don''t have any problems with renting if that means I can save extra money for the next step in our lives. 10 years will go by in the blink of an eye. Ten years is no guarantee you will come out ahead. Yes, I know that''s bearish, but some economies (like Japan) spend a long long time in recession.

However, most likely you will be fine if you buy the home, but it will be more of a pain getting of out there and moving on.

 

[rainwood]

MC -

One other thing to consider is that the woman who owns the house may not choose to remain a landlord for 10 years. Unless you have a 10-year lease, there''s always the possibility that the house gets sold to someone else and you have to move earlier than you''d planned.

I''m a big fan of home ownership but that works as an investment only for people who stay put for long periods of time, and 10 years qualifies as long-term, five doesn''t. I live in the same place you do and I think that real estate is generally a good long-term investment. We''ve been in our house a long time and we have lots of equity - to the point that I doubt we''d be able to afford to live in our neighborhood if we weren''t already here.

 

[phoenixgirl]

If you don't buy it and continue to rent for the foreseeable future, would the house be up to your standards if the landlord doesn't do the upgrades it needs? Is there a risk she'll raise the rent or sell to someone else? Those sound like the biggest factors to me. Otherwise, it sounds like you would probably be better off saving and investing money with the future house in mind rather than putting the money into this house.

You say you'd be paying

*more for the mortgage than to rent
*HOA fees and taxes
*for all the repairs you mentioned

And you'd also not have that 25% downpayment to invest and grow (assuming investments start growing again some day!). Do you think you'd make up all this in equity in your house in ten years?

 

[MichelleCarmen]

Rainwood,

The owner mentioned if we end up being "long-term renters," she will begin making renovations - like replacing the carpeting. We never discussed as to what length of time falls under that description, so you are right, she may get burnt out on it after a few years. . .Right now we have a one-year lease.

Is Zillow very accurate? I heard it's not.

I checked the market value change at:

1 year down 15%
5 years up 12%
10 years up 45%

 

[Dancing Fire]

Date: 6/9/2009 3:27:14 PM
Author: NakedFinger

I would say buy the house. I am not knocking anyone who rents, however in my personal opinion, to me renting feels like wasting money. I have always had a hard time grasping dumping so much money into something every month that isnt ''yours''. Because of this, I went straight from my parents home to owning my own single family home just shy of my 21st birthday. So i may have a one sided view of this.

depends,timing is everything. you wouldn''t make that statement if you had bought a house 4 yrs ago in Ca. you would be way underwater now.

 

[Tacori E-ring]

Date: 6/9/2009 7:12:55 PM
Author: MC

Is Zillow very accurate? I heard it''s not.

No it''s not. Your best bet is getting comps from the MLS.

 

[rainwood]

MC -

I think Zillow is really hit or miss in our area and it sometimes depends too much on the assessed value, which has its own set of peculiarities. I''m not sure what the right thing is for you between buying and renting, there are so many variables. If I remember correctly, you''ve moved several times in the last few years. You need to seriously consider whether you''re in a place where you''d be happy for 10 years. If yes, then that would tilt the decision toward buying if you can get a reasonable price. Most of the things that need updating are relatively easy to do and reasonably would have to be replaced within 10 years anyway.

One of the hard things to figure out on price appreciation potential is the neighborhood as well as the house and whether they will be in demand in 10 years. Suburbs can be particularly tricky that way - lifestyles change, trends change, Sound Transit may influence where people decide to live and work, gas prices may go sky high again. It''s hard to predict any of those things 10 years out.

 

[TravelingGal]

Date: 6/9/2009 7:12:55 PM
Author: MC
Rainwood,

The owner mentioned if we end up being ''long-term renters,'' she will begin making renovations - like replacing the carpeting. We never discussed as to what length of time falls under that description, so you are right, she may get burnt out on it after a few years. . .Right now we have a one-year lease.

Is Zillow very accurate? I heard it''s not.

I checked the market value change at:

1 year down 15%
5 years up 12%
10 years up 45%

Agree with Tacori, it''s not always accurate. But the market value change might be a little more on target.

And I wouldn''t give credence to the last 10 years...the insane bubble started around 2002, so 7 of those serious 10 are going to be very skewed numbers. The 5 year number (which includes about even the number of bubble and bust years) will probably be more indicative of what will happen for the next 10.

 

[Diamond Confused]

There has been a lot of information out there lately about how buying isn''t necessarily better than renting. If you consider ALL the expenses that go into buying a home you really aren''t "making" much money off of it. What they are saying now is that it may actully be smarter to rent and invest the rest. You will get a bigger return from investments than from a home. If you buy a 400k home you are looking at a $3500 a month payment with taxes, insurance, insidentals etc. There have been only two times since WWII in which people made significant gains from their homes: one was right after WWII and the second was for the people who bought in the early 90s.

 

[Dancing Fire]

Date: 6/10/2009 9:37:05 AM
Author: Diamond Confused
There has been a lot of information out there lately about how buying isn''t necessarily better than renting. If you consider ALL the expenses that go into buying a home you really aren''t ''making'' much money off of it. What they are saying now is that it may actully be smarter to rent and invest the rest. You will get a bigger return from investments than from a home. If you buy a 400k home you are looking at a $3500 a month payment with taxes, insurance, insidentals etc. There have been only two times since WWII in which people made significant gains from their homes: one was right after WWII and the second was for the people who bought in the early 90s.

true, we bought our house in 87 and after you add in all the maintenances, mortgage interest, etc... i don''t feel like we are ahead much.

 

[justjulia]

Would you be able to add a MIL suite to this present house? I''m only throwing this in because in 10 years, a lot could change. We built our dream home in a remote place, but then my mother became ill and we had to move closer to major medical resources to support her. Also, as I age, I appreciate being closer to medical, shopping, etc., not further away. Just 2 cents to chew on.

 

[MichelleCarmen]

Date: 6/11/2009 8:47:58 PM
Author: justjulia
Would you be able to add a MIL suite to this present house? I''m only throwing this in because in 10 years, a lot could change. We built our dream home in a remote place, but then my mother became ill and we had to move closer to major medical resources to support her. Also, as I age, I appreciate being closer to medical, shopping, etc., not further away. Just 2 cents to chew on.

Thanks. Excellent point. Where we''re looking to eventually build isn''t easily accessible to medical facilities and my husband and I haven''t discussed that. The house we live in now IS close to hospitals & shopping, but there isn''t room to build a MIL (we have a 17,000 sq ft. lot), plus we''re bound by HOA rules and I would suspect they wouldn''t support an additional building.

 

[Allison D.]

Date: 6/10/2009 9:37:05 AM
Author: Diamond Confused

If you buy a 400k home you are looking at a $3500 a month payment with taxes, insurance, insidentals etc.

That sounds a bit high to me; my mortgage started close to that amount and it's more like $2400/mo for PITI. (principal, interest, taxes, and insurance.) I don't pay PMI, but if I did, it would have been maybe another $150ish monthly. Top scale, I can't see it being more than $2700ish a month and it's hard to imagine another $800 a month in incidentals.

 

[MichelleCarmen]

Date: 6/12/2009 7:24:33 PM
Author: Allison D.

Date: 6/10/2009 9:37:05 AM
Author: Diamond Confused

If you buy a 400k home you are looking at a $3500 a month payment with taxes, insurance, insidentals etc.

Quick modification- with a $400K home, monthly nut (principal, interest, insurance and taxes) runs around the $2700-ish mark. I can''t imagine another $800 a month in incidentals.

Yep, my calculations were less than $3,500 as well. . . more around $2,500 (because we''d be putting money down). The taxes here are $4,500 a year. . . I''m not sure what the HOA fees are. I need to ask a friend because I don''t want to ask the owner until (unless) we present an offer.

Eight hundred in incidentals IS high. As Phoenixgirl questioned above, "could we live without the upgrades?" and the answer is a solid yes. The kids are at an age where replacing the carpet would be completely unthinkable. Our primary concern would be the roof. The only other expense is I''d like to spend is about $500 on new plants for the yard. Maybe also paint for the garage.

Right now, we''re saving up and will have a bit of time to figure things out!