WatchI am a noob to real estate. I agree with the skeptics, don't trust realtors and I am not really optimistic...read below...should I be way more negative on buying?
I made a smart decision when I didn't get pushed into buying by my friends a few years back. Now my apartment rent is being jacked up 150 (2nd year in a row)...I live in Chicago River North aka downtown and will have to pay 1650 +225 parking + cable + elec + renter insurance. I could move but I am finding that stock is tight and rates are high. I know I will be in Chicago until June 2014 after that I will probably move. I just don't like the idea of sinking 40k+ into rent over the next 2 years.
I used a few calculators
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
I'm think about buying a 200K place... but everything is so tenuous and contingent in the market and little changes dramatically change the calculation. My personal feeling is that housing prices will stay flat in the near term 3-5 years. I think the people who are unemployed are minimum wage and I don't see those jobs coming back...and in that sense the 8% unemployment is mostly on the back of the lower middle class/poor. The people I see who are in downtown chicago seem to be doing ok...
I don't know much about real estate but I have a business background...I am now in healthcare.
Any thoughts on this Chicago centric decision. And one more thing I'm not exactly handy and a little worried about renting the place out after I leave...how much does it cost to hire a company that would do that for you...assuming that I have to leave chicago and I can't sell the place.
thanks
Follow
Befriend (28)
182 threads
4,620 comments
Premium
Just squat in a foreclosure.
Follow
Befriend (3)
2 threads
179 comments
Bronx, NY
Property management fees are usually around 6-10% of rent, you should be able to get them down to the lower end of that in this market.
If I were you I would talk to the landlord and explain to him that you feel this raise is unjustly high, but first look for a new apartment and armed with that information you can threaten to leave if he doesnt at least raise it less than 150$. Renting probably is better if you don't plan on living there more than a couple years. But 40 grand on rent in 2 years...ouch.
Follow
Befriend (23)
56 threads
4,081 comments
Scottsdale, AZ
robertoaribas's website
two years is a very short time frame for owning a home. When you mention buying something for $200K is that in any way comparable to what you rent? what would your hypothetical 200k home rent for?
also, don't think of it as wasting 40K in rent... If you buy you will pay:
1. interest on the mortgage
2. taxes
3. much more insurance
4. maintenance
5. closing costs on purchase
6. closing costs on sale.
7. realtor's commission the sale.
It would take a ton of appreciation in just 2 years to make it worthwhile
Follow
Befriend
3 threads
106 comments
San Jose, CA
Just find a cheaper rental. I don't see any reason into buying a property knowing you will not be living there in 2 years. In 2 years, most of your mortgage payments would have contributed to interest, and not principle. It really is the same as sinking money into rent.
Follow
Befriend (28)
182 threads
4,620 comments
Premium
Punch the landlord in the face, shit in the tub, move out and move into a foreclosure. Wait until you're thrown out. Fund another. Repeat.
Follow
Befriend
35 threads
5,700 comments
Bellingham, WA
Transaction cost is $12,000 or so but at 3.75% interest rates a FHA loan would only have a cost-of-ownership of $1000/mo or so.
LLs know they have you by the balls -- $2000/mo you're paying now is a $1000/mo premium over buying
Over two years renting would be $24,000 extra expense, or $12,000 counting the transaction costs of buying & selling.
Tough call I guess. I don't know what the market's going to do in the next 2 years. If you've got friends or friends of friends who might want to rent from you maybe you could keep the place and just rent it out for $1000 or so, but that comes with its own hassles.
Including amortization, the monthly nut would be $1300, which sounds like a competitive rent for your segment, so if you can find good renters a purchase might not be a bad thing to get stuck with.
Follow
Befriend
35 threads
5,700 comments
Bellingham, WA
bighorse says
Thing is, the monthly interest on $200,000 @ 3.75% is $625, and that doesn't count the MID. Nice rent if you can get it!
Follow
Befriend
35 threads
5,700 comments
Bellingham, WA
robertoaribas says
wat? How does one get stuck on both ends of the these transactions.
It's of course debatable who pays what, but ceteris paribus this can surely be assigned one way or the other.
Follow
Befriend (7)
22 threads
327 comments
40K in rent over 2 years is IMHO, very reasonable, especially if living in a central Chicago neighborhood and have a nice place. If you are bolting out of the city in two years, I would stay a renter. Sort of a no-brainer situation here. The only way I would buy and sell in 2 year window is if the realestate market was zooming upwards in prices, which it is not, and is not forecast to for quite some time.
Follow
Befriend
35 threads
5,700 comments
Bellingham, WA
Buster says
Oops, I forget that with such a short term loan a 5/1 ARM is the way to go.
Google isn't giving out mtg quotes any more but I think 2.5% is close enough.
With 20% down PITI less the P is $420/mo, ~$10,000 for two years.
Other costs are the opportunity cost on the $40,000 DP and amortization (~$1000), transaction costs of buying and/or selling ($12,000?), and any HOA and other fees you don't get directly hit with as a renter ($6000?).
So that's about $30,000 in costs to save $40,000 in rent.
Not such a no-brainer, LOL
Follow
Befriend (3)
2 threads
179 comments
Bronx, NY
Assuming all that, just gota hope you dont get stuck with it for more than 5 years.
Follow
Befriend
35 threads
5,700 comments
Bellingham, WA
woppa says
http://research.stlouisfed.org/fred2/series/GS5
And chances are very very good that if by some oddness interest rates are going up, rents are also going up.
And if the meteorite of interest rate rises and falling rents hits, back to the bank it goes (though for that one should not put 20% down I guess).
Follow
Befriend (23)
56 threads
4,081 comments
Scottsdale, AZ
robertoaribas's website
Bellingham Bill says
Bellingham Bill says
you have some closing costs buying (lenders title insurance, appraisal, inspection fees, recording fee, flood cert, half of the escrow fee, lawyer fee if its a place that uses lawyers, doc - underwriting-origination fee on loan, etc) and different ones on sale (half of escrow fees, title insurance, possibly transfer tax depending on local law, possibly hoa transfer fee, and very likely all of the real estate commissions) there are heavy transaction costs both ways, and much more time involved. In a rental, you just give notice and leave, you could spend half a year selling the house...
Follow
Befriend
35 threads
5,700 comments
Bellingham, WA
robertoaribas says
Well, the 6% agent fee is the long pole in the tent here.
But, yeah, LLs are of course willing to pocket ~$10,000 for the convenience of being able to walk after the lease expires.
Follow
Befriend (5)
1,070 comments
Santa Cruz, CA
Drop 1. cable 2. parking 3. renter's insurance.
I don't think you need renter's insurance unless you have some very valuable artwork in your place.
Electronic stuff can be replaced for a thousand bucks today.
Buy an antenna for your HDTV, check out CCrane.com for amplified ones.
Get roku for streaming movies no netflix=$8/month.
You live somewhere that has no street parking?
Follow
Befriend
3 threads
2,564 comments
Bellingham Bill says
You have to exceed the standard deduction to itemize, 625 a month isn't going to do it.
No way, no how 12k transaction costs on buying and selling a 200k property. Have you actually ever bought a house?
BTW the rent is 1650 not 2000. How do you know the 200k place doesn't also have paid parking.
Pretty loose set up assumptions all around.
Follow
Befriend (3)
15 threads
5,718 comments
bob2356 says
You get property taxes and state taxes as well.
Follow
Befriend (1)
1 threads
4 comments
bob2356 says
Thanks everyone for the responses. Yes Bob I have never bought a house that is kind of why I am here...you guys know what you are talking about. What would you expect total cost to be? what do you need MID to be to itemize?
clambo says
Our friend the mayor sold the parking to some corporation...they raised rates by 100-200%. Street parking in downtown Chicago is not ideal if not impossible most of the time.
I was thinking about the roku... what subscriptions do you have?
Renter's insurance is mandated...think I could just cancel after I turn it into the landlord?
Follow
Befriend
9 threads
86 comments
Portland, OR
Move to a beat up old apartment in ukranian village, enjoy life more.
Follow
Befriend (3)
41 threads
835 comments
San Francisco, CA
virginwhodoesntwanttobesacrificed says
Why does your desire not to spend $40k over two years result in a decision to spend $200k in the time it takes to sign the papers? You're thinking that the $200k will become more than $200k, right? Much of what you wrote doesn't support that condition.
You have a business background, so consider the relationship of time and money. Then consider your budget and how much income you're committing to saving/spending for growth/investment.
Follow
Befriend (5)
10 threads
2,329 comments
unstoppable says
Or move to one the empty ones near the Chernobyl site when the cannibal anarchy hits,as AF says.
Follow
Befriend
3 threads
164 comments
cheapest way to go is to buy with fha 3.5% down. then stop paying after 6 or 9 month and live the second year completely free. if the house is still not foreclosed when you leave chicago rent it out and collect rent to recoup your 3.5% down. long live the obama insured fha!!!
Follow
Befriend
4 threads
2,115 comments
CashWillCrash said: cheapest way to go is to buy with fha 3.5% down. then stop paying after 6 or 9 month and live the second year completely free.
Everything I've seen on the intertubez says that Illinois is a recourse state so you could end up with a deficiency judgement. IANAL. YMMV.
Follow
Befriend (1)
2 threads
344 comments
Sunnyvale, CA
clambo says
You need renter's insurance and perhaps an umbrella policy for liability coverage against damage you might do to the multi-million dollar building (one of my friends without renter's insurance had to cough up five figures out of pocket because a light fell over, started a small fire, and caused smoke damage) or six figure medical bills (one broken leg will do it) if some one steps in front of your bicycle.
Especially if you have assets (like a $40K down payment for a $200K piece of real-estate).
Follow
Befriend (1)
2 threads
344 comments
Sunnyvale, CA
virginwhodoesntwanttobesacrificed says
Federally it depends primarily how much you're already paying in state and local taxes which are the biggest potential itemized deductions for most people. You need to come up with $5950 in itemized deductions as a single person or $11,900 as a married couple before you're paying interest and property taxes with pre-tax dollars.
If you lived someplace with no state income tax (like Washington state) and low property taxes (some of the east side cities are below 1%) with 20% down on a $200K property you'd be paying local taxes and the 2.5% arm interest with post tax dollars.
Your mortgage and property tax bills generally need to be higher to get out of paying state income tax on the interest since the states don't allow an itemized deduction for their own taxes.
Follow
Befriend (9)
43 threads
288 comments
Danville, CA
gregpfielding's website
You've got costs going in - mostly loan and escrow/title expenses. And costs going out - mostly commissions, but also 1% or so of misc. costs.
All told, the price of your home would have to appreciate 8-10% just for you to break even. Probably more if you get an FHA loan with upfront mortgage insurance costs.
I don't know much about the Chicago market, but I have to believe the odds of this kind of appreciation over such a short time are very low. In the Bay Area, I usually advise buyers to only buy if they can realistically see themselves staying there for 10 years.
You should rent.
Follow
Befriend
7 threads
37 comments
San Clemente, CA
Two years, really?? Rent, of course!!!