help for my brother, buy vs rent

[Bimmerbill]

I talked to my little brother (well he is 34, but will always be "little" to me!) last night.  He took a new job aboug 6 months ago down in southern CT, close to the NY boarder.   

He is currently renting, but lookign to purchase a house.  Married, 3 small kids, making good money ($120K or so I think).   Not the greatest money manager tho.

Anyways, he was complaining about the cost of houses down in that area.  Most are in the $400K range, and several they looked at were small or needed significant work.

Does anyone have a rent vs buy calculator or something he could use to weigh his options?  He is currently renting a nice place right on long island sound for $1800 a month.   Prices are slowly dropping down there I think, with several houses down $15-50K off their asking prices.

How do we factor in the tax implications of renting vs buying? 

Thanks!

 

[Maximillion]

http://www.hsh.com/calc-amort.html/

Kids, they like stability, one plus of ownership.

Pay a little more for a neighbourhood with good schools.

 

[tryan]

Another no brainer ... keep renting. $1800/mo will never buy a $400k fixer-upper. Rents are a steal ... bank the difference and be ready to buy on a dip (when the mortgage, taxes and insurance are $1800/mo)

 

[brewer12345]

Bill:

I work in the same area as your bro. There is a reason I haven't moved closer to work (from central NJ), namely RE prices are insane anywhere near work. With a 30 year mortgage with 20% down, $1800 might just about cover the payment plus RE taxes. But there's probably at least another $700 a month of other stuff that he'd have to pick up, plus you have whatever it costs him in renovations, etc. So financially, buying is not a good deal vs. the rent.

Having said that, I would have a hard time renting (married with a kid and another due in June) simply because of the stability thing. If he can get past that, the rent is a steal and I suspect he will have a chance to buy cheaper in the next few years.

 

[Bimmerbill]

Yeah, renting seemed a better deal to me too, but I was unable to figure out the tax implications. He makes close to twice as much as I do, and must be getting killed in income taxes.

He mentioned cutting back on his 401K to buy, and I told him not to do that, but I don't know if he will listen.

I may have to drive down there and give him a dose of "brotherly love" hehe.

He is getting mixed signals from his current land lord whether she will offer another 12 month lease or move back into the house.

 

[cute fuzzy bunny]

If he's making that much, he's gotta be in the 30-50% total tax bracket. At that point, he'd be getting back a third to half of his money paid on the mortgage as a deduction. Plus the deduction for the property tax.

Could turn out to be a positive for him. But like Brewer said, real estate in that neck of the woods is pretty nutty. Thing is, its always been nutty, and I wouldnt count on a lot of big dips. But you never know...

 

[lets-retire]

i'll keep my reply short. I agree with the Bunny

 

[gtmeouttahere]

i'll keep my reply short.  I agree with the Bunny

I also agree.  Not only the tax benefits, but long term.  Rents will continue to go up but the house payments will stay the same.  Over time he will pay less owning a house then his rent payments, plus have the equity in the home which is likely to almost double in 10 years or so.  Imagine 20-30 years worth of that.  That makes a nice retirement nest egg for the future.  If you rent, you will ALWAYS rent, rent always keeps up w/inflation.  If you own the house outright, you stop paying (except taxes). Makes it alot easier for retirement in the future w/out a rent payment. 

To me, buying always leaves you more options in the future and your payment is protected from inflation.   

 

[mathjak107]

remember everyone gets at least the standard deduction so start all your mortgage and tax calculations from there......and if you are a high income earner watch out for the amt or you get nothing back.....

 

[mathjak107]

suzie orman says 20x yearly rent should be the guide for rent vs buy...anything more than 20x is to high vs rent

 

[gtmeouttahere]

suzie orman says 20x yearly rent should be the guide for rent vs buy...anything more than 20x is to high vs rent

I disagree, there is a big piece of that puzzle missing. There are a lot of variables that would make that statement false.

Why then, doesn't everybody rent?

 

[mathjak107]

i agree,im not sure where she gets that 20x from.......it seems really high...im paying 1500 a month here in nyc in a rent stabilized apartment.if we werent rent stabilized we would pay 2200.00....as far as im concerned we have an amazing deal here ...no matter how i worked the numbers buying our own place at 350,000 for an equivelant apartment just made no sense..investing the difference over the last few decades gave us enough to buy 2 apartments today................of course when we retire in 3 years we will re-locate and buy a place but for now suzie is off off off

 

[mathjak107]

to show you some of the crazy deals here in nyc created by rent control and rent stabilization my wife and i owned 9 apartments over looking central park in a very prestigious building.for those of you who are from new york its the 200 central park south building.its an archectural landmark in nyc...any way the tenents some of which are paying 2,000 a month are in apartments worth 1 to million each.its crazy....
we offered 50,000 cash to any tenents who would move allowing us to sell off the apartments...so far 5 took the offer but 4 remain....these people have an incredible rent deal courtesy of new york city and we foot the bill.......but thats another issue....

 

[cute fuzzy bunny]

suzie orman says 20x yearly rent should be the guide for rent vs buy...anything more than 20x is to high vs rent

Suzie Orman is a butthead who talks too loud and sounds like she's your mother.

And I have a picture of her with pizza on her head.

 

[Martha]

I watched a rerun of Big Love last night. One of the wives called Suzie about her credit card debt. Suzie gave good advice.

 

[cute fuzzy bunny]

Busted clock is right twice a day

The only problem I have with Suzie is that she hears half a question, yells out an answer, and the answer is probably good for 1/3-1/2 of people with that problem, but she rarely asks the digging questions to give a good answer.

Its like the folks that post here asking if their asset allocation is correct. Suzie would bark out that they need more international and more short bonds. A lot of people here ask how old the person is, what their risk tolerance is, what their investing horizon might be, etc.

By the way, calculators for this determination were really, really easy to find

http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH
http://homestore.com/Homefinance/Ca...ALSEOCALC07&source=a2gg7tft1272&poe=homestore
http://www.dinkytown.net/java/MortgageRentvsBuy.html

 

[mathjak107]

i recently sent her a comment about the fact that i didnt see her logic when she always says 401k loans are the worst deal since you are taxed 2x...once when you pay the loan back with taxed money and 2nd when you withdraw the funds later on...i dont see her point since the money you pulled out as a loan was never taxed even once.....there is no difference in number of times the money is taxed on a 401k loan...you have to pay taxes on the money that you pay the loan with regardless ....

 

[Martha]

I never watch Suzie Orman so after hearing all you guys pick on her all the time, it was fun to see her on Big Love.

She does have a patronizing manner. Some people seem to like that.

 

[mathjak107]

anyone else get the feeling she hates men?

 

[cute fuzzy bunny]

I think she IS a man.

Anyone ever see her and dr. phil on tv at the same time?

Didnt think so...

 

[LOL!]

If he's making that much, he's gotta be in the 30-50% total tax bracket.  At that point, he'd be getting back a third to half of his money paid on the mortgage as a deduction.  Plus the deduction for the property tax.

When we lived on Long Island across the Sound from your brother, we made more money and were not in the 30-50% tax bracket.   We also rented.  I believe tax rates were higher then, and we barely cracked 28% including FICA taxes, Federal and NYState income taxes.

This idea of required "stability" for children is a myth as well.  My military parents lived in about 10 different places while I was still growing up.  Has it affected me?  Most definitely, but I think in
positive ways.

Anyways, by renting until our late 30's we were able to do other things with our money.  The idea that one needs to own a home is suspect.

Full disclosure: we own a house and it's the only place our 10-year old has ever lived. We live in a state with no income tax, so even though we make even more money, our tax rate is even lower than ever.

 

[cute fuzzy bunny]

When we lived on Long Island across the Sound from your brother, we made more money and were not in the 30-50% tax bracket. We also rented. I believe tax rates were higher then, and we barely cracked 28% including FICA taxes, Federal and NYState income taxes.

Federal married filing jointly for $120k - 25%; connecticut rate at that earning level - ~4.8%. Dont know what their deductions or other income are though.

 

[cube_rat]

I think she IS a man.

Anyone ever see her and dr. phil on tv at the same time?

Didnt think so...

Come on Fuzz, Does she really look like a man?

 

[cute fuzzy bunny]

Uhh...yes! A scary one with makeup on!

 

[cute fuzzy bunny]

Here she is without makeup