WatchI'll be needing a house in about 4 years for a family. Currently debt-free. Should I...
A) Buy a house now at 2.5-3x my yearly income. 10% down payment. Keep this house for the long run.
B) Buy a condo now at 1.5x my yearly income. Sell in four years and then Plan A). 20% down payment.
C) Continue to keep renting for four years; all together, .67x my yearly income. Would allow for A) and B) reevaluation after the year lease.
What do you think? Can give more info if needed.
Edit: Edited C) value. Added info.
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Option A) is my choice cuz you are not overextending and that seems to be low end market that may not correct that much anyways.
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Monterey, CA
I'd rent till next year. Then re-evaluate.
All housing price indicators point down, so I see no reason to jump into being a debt slave.
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Is that option C
0.67x or
2x - 3x?
If the latter, of course buy now if you can own your house for the equivalent of 4yrs of rent
If the former, then either (A) or (C). Condo's may face difficulty being unloaded in the next few years as condo purchase may become cash-only market in the next few years.
My humble opinion, of course, as always.
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Option C is .67x.
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B seems like it's the best option, with lowest risks, provided that condo is worth the money.
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La Mesa, CA
Buy a condo that is cash flow positive from day 1, preferably putting as litle down as possible (Fannie Mae?), live in it for 4 years and continue to save. Rent it out and buy your house, hopefully now with 20%.
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Squat in an abandoned foreclosure and hoard cash and potatoes.
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madhaus's website
I would avoid the condo, because HOA dues only go up. Did you include those fees in your estimate of 1.5-2x? Also, the it seems most condo associations skimp on reserves and then hit owners for special assessments like replacing a roof or other maintenance they should have allotted for.
In many places, condo rentals are so much cheaper than PITIH (PITI + HOA fees) that banks won't write loans due to too low a percentage of owner-occupiers. It really depends on where you're buying, and you didn't say that. A condo in San Francisco is a much better bet than South Florida, say. Or even Hayward.
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madhaus says
No, those fees are not included. Neither are costs like maintenance and property tax for A).
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You didnt factor in where you are looking to buy. If you were looking at buying a condo in the middle of suburbia I would say no way. A house yes based on your model.
Forget whether if its going up or down a good majority of inventory in some desirable areas like San Diego where I live have complete losers on the market. If you find the value in the house, then yes, if it just makes sense econmically I say no. Wait until you find the RIGHT house for you AND facts and figures make sense.
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madhaus's website
StoutFiles, maintenance on a house is not comparable with HOA dues. You have much, much less control over HOA (as in virtually none). Even if you invest the time to join the HOA board, bizarre things tend to happen.
I owned a condo in Walnut Creek (suburb east of the Oakland Hills). The board fired the professional managers and two of the people on the board said THEY would manage the place. Incredible conflict of interest, plus this was a huge complex, so not a job for amateurs. There were so many lawsuits when I moved out of the place I don't even want to enumerate them. And yet they managed to keep their value (subject to the bubble and pop, that is). I sold out in 1998, long before the huge property value increase (over 300%), and I don't regret it.
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And just for giggles, share with us the taxes on a $100k property where you would be living.
Also, plan D) would be a small multi unit (2-4 apts). Live in one and rent out the others.
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a lot can change in 4 years time.
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Murrieta, CA
Debt is Slavery! , option C never ever use debt to buy a house. cash or don't "buy."
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Denver, CO
Katy Perry says
Come on. Rent is slavery too.
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Murrieta, CA
swebb says
with rent I can change my "Master" when I want. 30 days notice I can move anywhere I want. Freedom vs Slavery. My land lady works for me. she pays over what my rent is. Many in my area do.
As a Mortgage holder, ( you own nothing BTW,) your Master trades your debt like a baseball card. you've signed up to work for your Master for thirty years. I hope he/she is kind. don't upset your master or they may pluck your eye out.
Debt is Slavery.
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Denver, CO
You have some good points, but emotion / fear mixed in with it. Buying a house with a mortgage isn't always a bad decision. I rent, and I'm glad to have the freedom that that goes along with it. I, too am in a place that has a higher mortgage than my rent. The numbers don't always work that way. I'm also at the mercy of my landlord as well. When he decides to develop the land, I will have to vacate. Moving sucks, and knowing I won't have to move is worth something to me. I may end up buying a house in the next few years, and I will almost certainly have to use a mortgage to do so. In any event I'm going to make a clearly thought out rational decision, and try to avoid the dogmatic path.
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StoutFiles says
(B) seems like the worst option. If you only plan to live there four years, you will be paying huge transaction costs for a "starter home." This only makes sense if the appreciation in 4 years is certain to dwarf transaction costs, and therefore it only makes sense during booms. It doesn't make sense now, when prices could still drop or might stay flat for several years.
What city?
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San Jose, CA
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EBGuy says
I wish someone told me this back in the days. However, it's not too late that I found it out recently. :)
StoutFiles says
Why buy, when it's much cheaper to rent something equivalent? Option C. :)
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swebb says
Yes it is when the house value is upside down.
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Oakland, CA
I would do A
but I agree with what people are saying about no debt is pretty ideal.
The only way I would rent is if it will allow you so save up enough in 4 years to buy a house with no mortgage.
otherwise option A
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San Francisco, CA
Malkovich's website
What about interest rates? They are the lowest in a long time.
Anyone thing they are headed up?
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Denver, CO
bubblesitter says
That may be an example of when it is a bad decision, which my statement allows for. Maybe I should have said "buying a house with a mortgage is sometimes a good decision." ?
And being upside down isn't the main factor, to my mind. If you pay less than equivalent rent, and live in it for 30 years...with a final value of $0, you still come out ahead.
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Bellingham, WA
Malkovich says
http://research.stlouisfed.org/fred2/graph/?g=1ML
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swebb says
and where would that be?
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San Leandro, CA
Even WHEN housing hits bottom, do you anticipate an immediate or significant rate of appreciation ? Base your decision on were you will work, where you will raise your children. There are several online "Buy or Rent calculators" if you want to base your decision financially.