Should I buy or rent?

[FI by 2024]

I will be moving to a large city this summer and I'm debating the pros and cons of buying a house. Based on my situation, any advice?


- I will probably live there 3 years.
- I don't know whether I would keep the house as a rental unit after leaving or sell it. The decision would be based on the market at the time.
- Current average rents would cover PITI plus maintenance, but I *might* have to go out of pocket for property management. Again, it would depend on what the market looked like in 3 years.
- There is a chance I will live in this city again, so I might want to keep it.

- The housing market in this city is historically strong for both landlords and sellers due to a constant influx of people. It's a transient city, but also has a large population that lives there long term.

- I can afford a 20% down payment without affecting contributions to tax-advantaged accounts or selling any investments.
- However, I would stop contributions to my taxable account for the next 6 months to gather more money for the down payment and moving expenses.

- If I buy, I am debating whether to buy a simple fixer upper or move-in ready. I don't mind doing simple renovation projects: paint, lighting, fixtures, floors. If something more involved were needed I'd hire help. I would have cash to cover any renovations needed.

- Initial calculations look like I could return 40-60% of my initial investment (down payment) in 3 years based on predicted growth (calculated conservatively) and counting principal paid down during that time. If growth slows, obviously I will return less.

- Renting an equivalent property to the move-in ready houses I'm looking at will cost approximately the same as PITI. PITI would be lower than rent if I buy something needing renovations by about $200-400/mo.


The estimated growth points me towards buying, but it's also a short time horizon and I don't know what the market will look like in 3 years. So, thoughts?


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[Walt34]

Not being very adventuresome with money, I'd rent. But I can see how opinions will vary.

 

[2017ish]

Apart from financials, the two times we've moved to new cities, we chose to rent for a year just to get a feel for traffic/liveability. But, we were planning each time on permanent residence, which may change the conclusion.

 

[Senator]

For three years, I would rent.

 

[Meadbh]

I will be moving to a large city this summer and I'm debating the pros and cons of buying a house. Based on my situation, any advice?


- I will probably live there 3 years.

I stopped reading right there. The rest is speculation. If you can't commit to living there for 5-10 years, rent.

 

[rodi]

Did you factor in the transaction costs. On the front end - it's more than down payment, it's points, title/escrow/doc fees, etc... that can be several thousand. On the back end you have realtor fees and a whole different set of closing costs. That eats into any growth. And if the market is stagnant - you could lose money by the time you pay the realtor, taxes/escrow, etc.

3 years is a pretty short horizon. Since it's a new city to you, I'd agree with the renting thing. You don't know the ins/outs of neighborhoods and traffic, etc.

Good luck with your move. (I hate moving and hope to not have to deal with it till I move to a long term care facility - or the great nursing home in the sky.)

 

[FI by 2024]

I stopped reading right there. The rest is speculation. If you can't commit to living there for 5-10 years, rent.

I know this is the standard recommendation, but if I'd followed this advice on my last two houses I would have lost out significantly. I had one house for <2.5 years and at the sale I had more than $60K in profit after all fees, commissions, etc. My other house is a rental that has risen in value 55% in 4.5 years, but I haven't sold it because right now it is making me $325/mo in profit after accounting for management, maintenance, etc. I posted so much information after the "3 years" line because there is more to look at than just the timeframe. Also, I might not sell in 3 years, I might keep it as a rental.

Did you factor in the transaction costs. On the front end - it's more than down payment, it's points, title/escrow/doc fees, etc... that can be several thousand. On the back end you have realtor fees and a whole different set of closing costs. That eats into any growth. And if the market is stagnant - you could lose money by the time you pay the realtor, taxes/escrow, etc.

3 years is a pretty short horizon. Since it's a new city to you, I'd agree with the renting thing. You don't know the ins/outs of neighborhoods and traffic, etc.

Good luck with your move. (I hate moving and hope to not have to deal with it till I move to a long term care facility - or the great nursing home in the sky.)

I factored in realtors commissions and points, but not title/doc fees, etc. So yeah, it's probably off by a little but not a ton. I guesstimated high (in my opinion) on maintenance so what I missed in fees would probably be accounted for there. If the market is stagnant - which I acknowledge could happen - I don't think I'd lose money because the principal I'd pay during that time would make up for costs on the back side. However, I wouldn't make much/any money, for sure. Therein lies the risk.

The city is new to me as a resident, but I've been there several times and I have three close friends living there now who are recommending neighborhoods to me, advising me on traffic, etc. Two have offered to check out specific residences for me if I send them the info. So I'm pretty comfortable with those aspects.

Thanks for the well wishes! I am in the military so I'm used to moving. I figure I have at least three more moves ahead of me before I retire It's just part of the military life!



I don't know if this matters, but the numbers I ran are based on a 20-year mortgage in order to pay down principal faster. The picture changes a little if I change it to a 15-year or 30-year mortgage. Thoughts on that are appreciated too!

 

[Big_Hitter]

Rent - if you move to somewhere like Austin, you could be buying in the middle of a huge bubble.

 

[Senator]

Rent - if you move to somewhere like Austin, you could be buying in the middle of a huge bubble.

It's impossible to lose money in real estate, even the OP has proven that.... Of course, many investors and banks might beg to differ.

 

[W2R]

For three years, I'd prefer to rent.

That's what my ex and I did during his years in the Navy, and we were happy with that decision. It made it easier on me when he got transferred, I thought, because there was no need to sell a house each time.

 

[Big_Hitter]

It's impossible to lose money in real estate, even the OP has proven that.... Of course, many investors and banks might beg to differ.

it's never a bad time to buy.......

the 3-year time horizon though, could be a bad time to sell

 

[Senator]

it's never a bad time to buy.......

the 3-year time horizon though, could be a bad time to sell

There has never been a problem selling homes, it's pricing them right that makes it difficult.

 

[FI by 2024]

the 3-year time horizon though, could be a bad time to sell

I would be okay keeping it as a rental if the market doesn't support a profitable sale in three years. In that case would you recommend buying? Or stick with renting?


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[cooch96]

I stopped reading right there. The rest is speculation. If you can't commit to living there for 5-10 years, rent.

+1. I can't remember the author or name of the study, but I read 10+ years ago, that you generally need to live in a place for a full seven years before it becomes worth it to buy. I do remember the article was well written and persuasive, just none of the specifics other than the conclusion.

 

[FI by 2024]

+1. I can't remember the author or name of the study, but I read 10+ years ago, that you generally need to live in a place for a full seven years before it becomes worth it to buy. I do remember the article was well written and persuasive, just none of the specifics other than the conclusion.

Yes, as I stated I know that is the standard recommendation. I've read many similar articles. However, if you research more you find two things that change the recommendation: pay off principal faster (I'm looking at a 20 year loan specifically to accomplish this) and be willing to rent out the house to keep it longer (which I'm willing to do). So I'm looking at recommendations for my specific situation, not generic recommendations.

I apologize if that comes off as terse, I'm not trying to be. I just haven't seen anyone address my particulars.


ETA: I just reread and actually rodi did respond to me in particular. W2R did too, but somehow I missed reading her post before now.

 

[Bestwifeever]

Yes, as I stated I know that is the standard recommendation. I've read many similar articles. However, if you research more you find two things that change the recommendation: pay off principal faster (I'm looking at a 20 year loan specifically to accomplish this) and be willing to rent out the house to keep it longer (which I'm willing to do). So I'm looking at recommendations for my specific situation, not generic recommendations.

I apologize if that comes off as terse, I'm not trying to be. I just haven't seen anyone address my particulars.


ETA: I just reread and actually rodi did respond to me in particular. W2R did too, but somehow I missed reading her post before now.

Well, you did say "Thoughts?" at the end of your OP, so understandable that you are getting them nicely spelled out from several posters. You seem to have been pretty successful in buying and you already seem to want to go in that direction, so go for it.

 

[W2R]

Well, you did say "Thoughts?" at the end of your OP, so understandable that you are getting them nicely spelled out from several posters. You seem to have been pretty successful in buying and you already seem to want to go in that direction, so go for it.

Good point - - I would add that nearly everyone who posted was against buying in this situation.

FI to 2024, you do seem to have made up your mind. Nothing wrong with that, and you don't really need our blessing. Just give yourself permission to buy, and then buy if that is what you want to do.

I have never been a landlord so I wouldn't want to address any possible disadvantages of being an absentee landlord, especially one with military obligations, even with a well paid property manager on site. I would imagine you have already thought through that yourself.

 

[FI by 2024]

I honestly haven't decided - I spent two hours this morning looking at rentals - but if military personnel always followed the 5 year rule none of us would own a house before separation/retirement. So I was hoping for discussion that weighed the timeframe against the other aspects as a complete picture, while many of the responses focused purely on the timeframe. I apologize for not making that clearer; I definitely should have.


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[RunningBum]

+1. I can't remember the author or name of the study, but I read 10+ years ago, that you generally need to live in a place for a full seven years before it becomes worth it to buy. I do remember the article was well written and persuasive, just none of the specifics other than the conclusion.

That may be a general rule, but rent/buy decisions can vary by area. I had a 5 year window a few years ago and my spreadsheet showed that buying was likely to come out ahead, and I did. 3 years would not have worked for me, and I did not want to become a landlord.

To the OP, I suggest making a spreadsheet comparing all the expenses and gains, including reasonable but conservative estimates on the appreciation of the real estate if you buy and earnings on the money you aren't tying up if you rent. Don't forget the buy/sell costs.

 

[W2R]

I honestly haven't decided - I spent two hours this morning looking at rentals - but if military personnel always followed the 5 year rule none of us would own a house before separation/retirement. So I was hoping for discussion that weighed the timeframe against the other aspects as a complete picture, while many of the responses focused purely on the timeframe. I apologize for not making that clearer; I definitely should have.

I know that when I was a Navy wife, I wanted to own a house so badly! I felt like life was passing me by, that "normal people" owned houses, and that by the time he got out, houses would be too expensive for us to ever own one. Plus, several other military couples that we knew were buying homes every place they were stationed, and kind of bragging about all their real estate, which didn't make it any easier on me.

But it all worked out. He got out of the Navy after ten years in the fall of 1978, and we bought our first house in January of 1980, in San Diego. We were glad at that point that we didn't have homes in other cities to maintain, rent, and/or sell because life was keeping us pretty busy. Namely, our daughter who was born in late summer of 1978 was keeping me busy, and then his new job and school were keeping him busy. Not to mention trying to transition from the secure "cradle" of military life (where we felt the Navy was our family, and would take care of us), to life on our own out there in the civilian world.

Still, that was just my life and my experience with it. Yours could be completely different. For one thing, this is many years later and so many things have changed. Mortgages are cheaper now, for example.

 

[FI by 2024]

To the OP, I suggest making a spreadsheet comparing all the expenses and gains, including reasonable but conservative estimates on the appreciation of the real estate if you buy and earnings on the money you aren't tying up if you rent. Don't forget the buy/sell costs.

Lol, am I on camera? That is what I am doing right this minute.


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[braumeister]

if military personnel always followed the 5 year rule none of us would own a house before separation/retirement. So I was hoping for discussion that weighed the timeframe against the other aspects

During my military career, I bought three times and rented all the others. The three home purchases were when I had controlled four year assignments, so there was a decent level of predictability and stability. The first time worked out OK; I neither made nor lost any money when I sold. The second time I had my controlled tour shortened to just three years, and again I neither lost nor gained at the end of it. The third time, I was reassigned after only two years, and because of a booming market I actually made a substantial profit. But I considered that extremely lucky, not good planning.

So in my experience it all comes down to what the real estate market is like at the time of buying and selling. If I had it to do over again, I would probably opt to rent instead of buying in a three year assignment, simply to avoid the hassles and uncertainty. All of my other assignments were in cities ranging from midsize to extremely large, and my rental experiences were uniformly good.

The other factor, for me at least, is that I want to really get to know a location well before I can feel confident about just where to buy. That takes at least a year for me.

 

[FI by 2024]

my rental experiences were uniformly good.

You know, if I had to list my #1 reason for not wanting to rent it would be that my rental experiences have not been uniformly good. They have varied from benign (pleasant/acceptable/as expected) to poor. I've had two landlords who did not respect my personal space or schedule, a management group that charged us unexpected charges, etc. I am more comfortable with bad things happening if they are at least my fault and/or responsibility. But a few bad experiences does not mean I won't rent again.


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[Nords]

You know, if I had to list my #1 reason for not wanting to rent it would be that my rental experiences have not been uniformly good.

Well, if you're looking for a uniformly bad experience then you can certainly achieve that much more quickly (and much more intensely) through buying a home while you're on active duty.

Don't buy a home on active duty - Military Guide

I know people who've made money on real estate. Some of them are lucky because they do it frequently in high-growth areas where you only have to hit it right once or twice. Others are hardwired landlords who do it as a business, and they buy homes at a substantial discount.

But I've also heard from hundreds of miserable homeowners on the Facebook group "Military Landlords". These are people who fell into the trap of "Let's buy a house!" for all of your reasons and even more. Today they're dealing with all the miseries of long-distance landlording and trying to decide whether to lose hundreds of dollars per month for years... or whether to price it to sell and take a hard hit of $25K.

The military active-duty lifestyle is hard enough without becoming a homeowner and then upgrading to long-distance landlord.