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Permalink Like Dislike If you already own a home/condo, how do you decide if it's financially better to go back to renting? There are the monthly cash flow benefits, the long term benefits, the non-financial and the financial, and the costs already sunk into buying.
Trying to analyze this for myself, any thoughts?
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46 male
Menlo Park, CA
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Here's a thought: maybe you could sell to some investor who will give you a long-term lease to stay in the same house. Then you wouldn't even have to move.
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Emeryville, CA
Do you own it, or do you have a mortgage? Are you underwater?
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I'm more interested in how you would do the analysis. I have significant equity in the home (70% LTV) but I wonder if I would do better renting and investing the cash instead. I'm open to moving, so that's not a big deal. It's not a strain to stay in the home at all financially, but would I become richer faster by getting out?
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Time to cash out of the real estate game and get into commodities.
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San Jose, CA
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Bradmando,
Not enough info to evaluate. How much is your condo worth? How much can your condo be rented for? How much is your monthly HOA? How much is your property tax? Any additional taxes or Mello Roos? What's your tax bracket, or how much do you make per year? Single or married? Kids?
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The specific costs shouldn't matter since I know I can find tons of cheaper rentals. The question still remains, It's not a strain to stay in the home at all financially, but would I become richer faster by getting out?
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1) will you be disciplined enough to save the difference
2) returns in this environment are difficult to project – how have you done in recently (say within the past four years) ?
3) What do you consider rich?
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Brad,
First, it depends on whether your HOA will let you rent, along with how many others are renting. In many condo complexes, less than 70 percent owner occupied will render your condo ineligible for federal financing, thus making it a cash only deal when you sell.
Second, the rent you bring in should exceed the PMI plus HOA plus any special assessments on the horizon by a factor great enough to be worth your while. Know what your tenant's rights are and what yours are before going into a deal.
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EastCoastBubbleBoy says
GREAT 1/2/3.
Personally? I would dump it because I would never buy into a condo I have seen too many tank even at the highest end.
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Bradmando;
IMHO, the only reasons to stay in your condo are:
1. You are relatively certain the RE market will be heading up significantly.
2. You are emotionally attached to your condo and couldn't bear to leave.
3. Some other factor is forcing you to stay where you are - i.e health.
4. The savings gained by selling and renting is just not enough to warrant the change.
In this RE market, even with the declines and bounces, you can probably still rent a condo more cheaply than owning a condo with a 70% LTV. This is not the case if you fail to invest the money wisely!
I rent a decent 1000 SF loft apartment in S.Calif. which costs me $1,225/mo. I've been here for almost 16 years, and the landlord has been reasonable with rent increases. I could easily afford to buy a condo or house, but I think prices are still too high, so here I am.
HOWEVER, with interest rates for a 15 year loan at 2.75%, 66% of a buyer's initial payments are going into his equity - unless prices fall. So as long as prices don't fall, or can rise even slightly, buying is probably better than renting, over a period of years, with a 15 year loan, IMHO.
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RoyP77 says
I guess at the end of the day this is what it is all about. We all have individual experiences and goals. We each have different personal reasons and various levels of knowledge. We have to do what we feel is right for each of us, right or wrong.
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I don't think prices are going to significantly change over the next 10 years, unless inflation gets crazy. My condo is located in a dense city neighborhood where rental demand and home buying demand are very high. While I don't expect prices to go up, I also dont expect them to go down.
I wish I could go back in time and avoid the transaction costs, but I'm happy with the purchase otherwise. Prices have come down about 6% since I bought which I also wish I avoided.
My only other worry is where do I stash the cash if I did go back to renting. Money Market? Bonds? I've already got stock exposure through my 401k investments....
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> Do you believe that prices rolling back to early 1990's levels over the next deacde is significant?
That would be significant. I don't think that will happen given the rental parity to home prices in my market. It would be great though, because then I would scoop up all kinds of real estate at bargain prices.
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> You might want to re-work your thinking considering rental rates are inflated and falling. And no....1990's prices aren't a " bargain" either.
Ok, I'll think that over.
Any other thoughts from the group if I don't think pricing is going to significantly change?
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Kent, WA
John Bailo's website
War says
Rents Falling in Orange County
http://www.rpmcoast.com/property-management-blog/rents-falling-in-orange-county.html
SHOCKER: UPPER WEST SIDE RENTS ARE FALLING
http://www.westsiderag.com/2012/10/04/shocker-upper-west-side-rents-are-falling
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bradmando says
It is really unclear whether this is a good time to sell your condo. My inclination is no as I think Condo's are hard to finance and selling to an investor is not ideal. You want to sell in a climate that is more lending friendly and sell to the end user (bascically when short sales and foreclosures are gone). That may be several years away but who knows.
Then the question becomes what plans you have for the cash. It sounds like you have no concrete plans. How can you have a strategy and go down a path if you can't answer, now what?
If you have 70% LTV ratio, I would look to refinance to a 2.87% or 3.5% mortgage. Continue to save for your 401K and hoard cash in spite of equity embedded in the house. This is not the time to sell the condo.
Also as E-man points the advise/opinion is as generic as your facts.
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http://www.chicagorealestatedaily.com/article/20120514/CRED02/120519948/rents-rise-again-in-sizzling-downtown-apartment-market
More info about my market....
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I'm at a loss, but thanks for everyone's help.
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Bradmando, I think you are looking at it the right way. IMHO, prices will not fall to early/mid 90s levels, although I wish they would. As for investments, I have a similar situation with asset allocation. I have enough exposure to the overall stock market, and commodities (miners,major oil/gas). I've started buying corporate bonds recently.
There are good values out there at the upper end of "non-investment" grade bonds and they can be traded like stocks. Maturities are not past 2018 since IMHO we will be looking at higher interest rates (and inflation) sometime in the future, what with all the reckless printing of paper money going on. There has also been some de-leveraging - a complicated soup of factors governing the markets.
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bradmando says
depends on whether you know how to invest your money. you sound like you may be a novice investor. in that case, i would say stay in your condo.
there was a study/paper/article(don't remember exactly) showing renting and investing the money saved (from not paying mortgage interest, taxes, insurance, maintenance, etc) in stocks/bonds was better in the large majority of years (something like three quarters of the time it was better to rent+invest in stocks/bonds compared having a mortgage). i'm too lazy to look up where i read this so you'll have to do your own search.
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Since I ALREADY own I would only sell and then go and rent an apartment if I think that long term housing prices are going down? With even low inflation I don't see prices going down if the prices in my area are supported by rents and incomes.
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bradmando says
As far as the "How" use a rent vs. buy calculator
and play the "what if" game in order to evaluate a wide variety of situations. Look at different time frames (1 yr, 3yr, 5 yr, etc.)
Look at as many possibilities as you can think of.
1) What if prices drop further
2) What if they go up?
3) What if rents rise?
4) What if rents fall?
5) How much of a return will you get on your investments?
6) What if its lower than you project due to unforeseen circumstances?
7) What if there is major inflation down the road?
8) What if you lost your job and your income was cut in half?
9) and other "what if" scenarios.
Based on this you'll be able to develop a general idea of your odds of success of failure. The calculators are not the be all and end all, but they can at least start to point you in the right direction.
The good news is the numbers don't lie. The bad news is that they are based on future projections, which in turn are nothing more than educated guesses. Despite our strong convictions about what will most likely happen with a particular market in a particular time frame, none of us know the future.
Best of luck, no matter what you decide.