Rent or Buy??

[les12]

Hey everyone, I'd like some advice.

My husband and I are moving to Houston for his job next month, where we have a 14 month lease signed for an apartment. At this point in time (this may change) we are planning on being there no more than 5-7 years. Probably closer to 5.

After our lease is up, we're trying to figure out if it's most economical to continue renting, probably somewhere even cheaper, or purchase a home. I know that Houston has pretty high property taxes, so that's another thing to consider.

We are completely debt free, have a pretty good chunk of change in savings, and he's set to receive his annual bonus next month. Over the next 14 months, we will be saving as much as we can each month. So basically, we will have enough for a good downpayment. If we decide to live in the suburbs, I know we can get a lot more house for our money, so that's probably what we will do if we decide to buy. We also plan on paying it down pretty aggressively, as we'd prefer to have it paid off before we leave Houston.

If we rent, we can be in our favorite part of town, which we couldn't afford to buy in if we were only staying 5 years. We won't have property taxes (although I'm not even sure they will make that much of a difference??). We can be closer to work, so that's less of a commute. We can continue saving enough money to purchase a house in cash at our return. But, obviously, our rent money will not be recouped.

Maybe I'm answering my own question, but what would you all do?? I didn't include any numbers but if that would help please let me know.

 

[TravelingGal]

If you're only going to be there 5 years, I'd rent. You can pick up and move way more easily, and without a lot less stress.

 

[les12]

I agree it would be stressful to try selling a house quickly if we needed to.

 

[iheartscience]

If you're only going to be there 5 years, I'd rent. You can pick up and move way more easily, and without a lot less stress.

Ditto. If you know your move isn't permanent I wouldn't buy.

 

[les12]

If you're only going to be there 5 years, I'd rent. You can pick up and move way more easily, and without a lot less stress.

Ditto. If you know your move isn't permanent I wouldn't buy.

If we were able to purchase a house well below our budget and pay it off in about 3 years, do y'all still think renting is better?

 

[NewEnglandLady]

I agree that renting is probably your best option.

I'm not just suggeting you rent because this is a temporary move (though that is part of it), but it sounds like even if you did buy, you'd want the house paid off in 5 years. I think that if you rent cheaply, which it sounds like you're doing, you can still achieve the goal of paying cash for a home in 5 years (when you do settle) without having to pay for things like property taxes and home maintenance in the meantime. So if I were in your shoes I would rent, save, save, save, and still reach that goal of being debt free including the house (when you buy) in five years. I'm excited for you, this will be fun!

ETA: I wrote this before your last post, so am just updating. I do think having it paid off in 3 years is great--the main reason people say not to buy if you're not planning to stay for more than 5 years is because the first 5 years of a mortgage is mostly interest, anyway. Obviously if you have a really aggressive payoff plan, you could get a great rate and have 100% equity in a few years. Still, if it were me, I would just save and pay cash when I was settled. DH and I REALLY wanted to pay cash for our house, but lost a ton of money in the market and couldn't. We bought this summer and have an aggressive payoff plan, but I can tell you that it was much easier for us to save when we were renting and in saving mode than it is now that we have a mortgage. Now I start thinking "Should we pay a big chunk towards the mortgage or use that cash for an addition on the house?" Suddenly you start playing the "equity game" in your head, which isn't a factor when you rent.

 

[iheartscience]

If you're only going to be there 5 years, I'd rent. You can pick up and move way more easily, and without a lot less stress.

Ditto. If you know your move isn't permanent I wouldn't buy.

If we were able to purchase a house well below our budget and pay it off in about 3 years, do y'all still think renting is better?

I do think renting is the better option if you know you won't be there permanently. Closing costs are expensive, plus you'll be paying taxes on the house each year, and you said they're high in Houston. Additionally, you'll have to pay closing costs when you sell, and it may take a long time to sell the home. And since the housing market has tanked, there's no guarantee that your house will even be worth what you paid for it when you go to sell, let alone worth more.

I just don't see the benefits to buying in your case. You said yourself that if you rent instead of buy you can live in a more desirable area. If that's the case, why buy? Houses are definitely not a sure bet as far as investments go.

 

[les12]

NewEnglandLady and thing2of2, y'all are right, renting seems to be the best decision. We are definitely willing to live below our means to save for a cash purchase when we leave. And, if we change our minds and decide to stay, we'll still have enough saved up for at least a hefty downpayment.

We're both big Dave Ramsey fans (NewEngland, am I right that you follow him too?) so the idea of not having a mortgage, or at least not for long, is very exciting for us! And, we're only 23 Glad to be starting out on the right foot.

Thanks again for the advice!!

 

[NewEnglandLady]

I think so long as you have a plan that you and your huband are happy with, you'll make the right decision!

And yes, big DR fan here. I'm willing to be that if you called in and asked he'd tell you to save and pay cash, haha, but who knows, I could be wrong!

You're only 23?? Good for you, you and your DH have a lot to look forward to!

 

[decodelighted]

I'd rent. Having been a homeowner for 8 years now, I'm QUITE daunted at the prospect of having to *sell* the house. Its been such a terrible market for sellers for several years now. Our friends relocated to TX & had their house on the market for THREE years before it finally sold. Another friend has been on & off the market for three years, and the house directly across the street from us has been on & off for two years now -- nothing! No offers! Not one!

Closing costs on both sides of the transaction, hassle, the emotional attachment to something you *own*, additional maint. while you're living there, taxes, not much mortgage tax savings if you're paying it off in 3 yrs, the risk of it going DOWN in value during those three-five years. GAH! ABORT!

 

[Lady_Disdain]

Even if you can pay cash for your house, I think (but you really have to do the math) that it would make more sense to rent:

- I don't know how it would work in the US, but, here, I would pay 6% closing costs both when buying and selling, so that is 12% to recoup straight off
- there is generally a "first owner" premium for a house that has never been lived in, so you might have to figure that in as well (if the house is brand new)
- what would your alternative investment be? Would you be investing more in a 401(k) that has an employer match (you would lose this if you were saving for a down payment)
- how easy would it be to sell the house when you move out? Will you be able to wait for a buyer or might you have to slash the price for a quick sale?
- you would be responsible for maintanance of the house
- if you rent, would you have the financial responsability to keep saving? If not, a house might be a good tool for forced savings

Basically, I would look analyse the equation:

(Alternative investment gain) - (Rent paid) vs (Home apreciation/depreciation) - (maintenance costs) - closing costs on both deal) - (property taxes) - (interest paid) - (potential loss for a quick sale)

 

[les12]

Even if you can pay cash for your house, I think (but you really have to do the math) that it would make more sense to rent:

- I don't know how it would work in the US, but, here, I would pay 6% closing costs both when buying and selling, so that is 12% to recoup straight off
- there is generally a "first owner" premium for a house that has never been lived in, so you might have to figure that in as well (if the house is brand new)
- what would your alternative investment be? Would you be investing more in a 401(k) that has an employer match (you would lose this if you were saving for a down payment)
- how easy would it be to sell the house when you move out? Will you be able to wait for a buyer or might you have to slash the price for a quick sale?
- you would be responsible for maintanance of the house
- if you rent, would you have the financial responsability to keep saving? If not, a house might be a good tool for forced savings

Basically, I would look analyse the equation:

(Alternative investment gain) - (Rent paid) vs (Home apreciation/depreciation) - (maintenance costs) - closing costs on both deal) - (property taxes) - (interest paid) - (potential loss for a quick sale)

The closing costs are most definitely a concern. As far as 401(k), my husband's company has a match of 6% and he puts an additional 6% in, all of which comes out of his paycheck before we see anything, so we're relying on funds after the fact to save for a house.

The sale of the house is another thing. We would have to do some research and find out which areas have the best resale value, but don't stay on the market forever.

I know that by renting we can easily get up and leave, but the house will tie us down. I do believe we will be responsible enough to save a set amount each month towards our goals. I currently am not working so once I find a job in Houston, we will likely live off of my salary alone, or at least save it all and live off part of his.

Thanks again everyone, I think the decision is pretty easy after all.

 

[boredstiff]

You can also check out NYT's rent or buy calculator.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

 

[les12]

You can also check out NYT's rent or buy calculator.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Thanks! That's very helpful, it's telling me renting is better than buying for the first 10 years. I know it doesn't take everything into account but either way it's confirming the decision once again.

 

[zoebartlett]

If you're only going to be there 5 years, I'd rent. You can pick up and move way more easily, and without a lot less stress.

Ditto. If you know your move isn't permanent I wouldn't buy.

If we were able to purchase a house well below our budget and pay it off in about 3 years, do y'all still think renting is better?

I think renting would still be better than buying. Anything can happen and you just never know if you'll really be able to pay it off. What if one of you loses your job or something else happens?

ETA: I posted before finishing reading the thread. It looks like you've decided that renting is the best option. Sounds like a good plan.