Been renting for 10 years. Is it about time for me to get my own place?

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Xyz214
Posts: 61
Joined: Thu Jul 04, 2013 8:35 am

Been renting for 10 years. Is it about time for me to get my own place?

Post by Xyz214 » Wed Jan 11, 2017 7:54 pm

Hi.

I live in HCOL city and have been renting the past 10 years. My rent keeps increasing so I've been debating lately whether I should buy my own place to achieve more stable housing cost going forward and to build equity. I'm currently paying 2400 for a small studio.

Here are my information.

Age: 39
Debt: None
Net Worth: *redacted*
Income: *redacted*
Average Annual Savings (past 5 years): *redacted*

I'm currently single and not dating anyone but would like to get married ASAP when the right person comes along.

Does it make sense for me to purchase my own place next year after my lease is up? If so, how much house can I afford? I prefer to stay in my neighborhood since commute to work is only 20 minutes but 1BR condo costs about 700K to 800K here.

Last year I contributed *redacted* into my taxable account. Should I stop my monthly contribution and dividend reinvestment so I can increase my cash for downpayment? I'm tempted not to. I will just sell some shares when I'm about to buy. If the market performs well this year, I'll have more for downpayment. If the market performs poorly, I will just postpone my purchase.

I'm looking forward to hear the wisdom of this great community. Thanks in advance.

edit: I redacted some of the numbers as I don't want them to be captured by the search engines.
Last edited by Xyz214 on Thu Jan 12, 2017 8:02 am, edited 3 times in total.

wassabi
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Joined: Sun Feb 02, 2014 8:06 am

Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by wassabi » Wed Jan 11, 2017 8:05 pm

I can only tell you what I would do in your shoes, and I was a couple years ago. You never know when a potential mate will come along (could be tomorrow, or never), but if you are open to marriage and actively looking then I would not buy a house/condo yet. Marriage is a big life change, especially when you do not know your future mate's views on finances, career, living in the area, etc.

You are doing great financially. I know it's hard to feel like you're throwing away money at rent, but there are plenty of reasons that renting is ideal for someone in your situation. I'd stay patient and keep socking away the cash. Good luck finding your future spouse!

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VictoriaF
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by VictoriaF » Wed Jan 11, 2017 8:05 pm

If you get married and have children, a 1-bedroom condo will be inadequate. Even without children, your new place would have to be convenient for both you and your spouse, including the commute.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by jimb_fromATL » Wed Jan 11, 2017 10:39 pm

I have no idea which would be best, but here's some stuff to think about -- just in case you haven't thought a lot about the cost of buying a home compared to your current rent, or about the risks versus possible rewards.

For a home selling for $800,000 with 20% down ($160,000) the balance would be $640,000. Adding perhaps 1.5% closing costs would make the total due at closing about $169,600 and a mortgage balance of $640,000. The down payment would need to come out of liquid assets -- not any tax-deferred or tax-advantaged retirement accounts.

At perhaps 4.25% for 30 years for a jumbo loan, the payment for P&I (Principal and Interest) on the mortgage itself would be about $3148 per month.

Adding perhaps 1.5% of the home's value for taxes and insurance ($1000 per month) would give you a total payment of $4,148 per month. (Many lenders will require that you make the payment for T&I into an escrow account to protect their investment. But even if they don't require it, you'll need to set that amount aside to have on hand when taxes and insurance premiums are due.)

Allowing perhaps 1.5% of the home's value for annual fees such as condo or HOA fees plus maintenance and repair expenses would add another $1000 per month to your housing budget, for a total about $5148 per month you'd need to be able to live in the home. And that's before you heat it and cool it and furnish it.

At the common max of about 28% debt to income ratio for the PITI fixed costs of the home, that would require an income of about $14,816 per month, $177,789 per year to qualify for the loan. So it appears that you'd be well qualified for the debt-to-income ratio in the eyes of most mortgage lenders ... assuming a good credit rating.

about debt-to-income ratios

With a home this expensive, you would be one of the one out-of-four taxpayers who actually benefits from the mortgage tax deduction.

For example, a single person making $250K would be in the 33% federal tax bracket. With perhaps 1% of the value of the home for property taxes and about $26,991 mortgage interest in the first year, you might exceed the standard deduction by around $30,000 or more in the first year. With perhaps 7% state income tax, you might save around $1000 to $1100 per month in taxes, reducing your net cost of owning the home to about $4000 or so per month.

There would also be about $10,790 principal paid on the mortgage in the first year. While it does not reduce your month-to-month costs, it improves your net worth in the form of reduced debt, and effectively reduces your net cost by another $900 or so per month. Since interest is calculated on the unpaid balance which is going down every month, the equity/reduced debt improves slightly with every payment. However, while the interest goes down, the savings for taxes becomes lower as time goes on.

If the home appreciates in value, then after a few years the appreciation in value could far outweigh the costs of selling the home, and could greatly reduce the average expenses you had for owning and living in it.

On the other hand, if the property were to drop precipitously in value -- as happened to a lot of folks in the crash of 2008 -- you could find yourself living in a home that was worth several hundred thousand less than you owe on it.

So ... while you might come out well if everything goes well, you might also be essentially be forced to keep it or else take a huge loss with a lot of money out of pocket if you had no choice but to sell it because of a change in your life, or [shudder] a job loss or cut in pay. (Or in a non-recourse state like California, you could default on the loan and not be sued for the lender's loss, although it would cause a big hit on your credit rating and might be a few years before you qualified to buy another home.)

jimb
Last edited by jimb_fromATL on Thu Jan 12, 2017 2:20 am, edited 1 time in total.

physiorol
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by physiorol » Thu Jan 12, 2017 2:15 am

Not sure this really goes with your question, so ignore at will.

I think if possible I would purchase while single. It could be years before you find a mate and agree to buy/settle down. You seem pretty settled, and probably would not chuck in your job and move cross country if you future partner is from out of town. Even if you did have to move you may be able to cover your mortgage by renting it out in HCOL area?

But the main reason I would purchase now, is that probability says that many marriages (up to 50%) will end, and having that asset pre-marriage may make things a lot cleaner (and financially in your interest) if divorce occurred.

My wife and I lived and raised our kid in a one bedroom apartment for a year or so. These things are necessary in a HCOL area, and are very common outside of the US. If your career continues to do well you may be able to sell the one bedroom and upgrade, or even better rent it out and combine incomes with your future partner and a get a bigger family home.

why3not
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by why3not » Thu Jan 12, 2017 6:18 am

I think JimB nailed a lot of the financial details. One of the things he missed is that the $170k you pull out of your taxable account will no longer be compounding growth & will instead be in the bank making them money. So lots of opportunity cost in your decision to buy. For example, would your annual return on $170k grow faster than your annual rent increase?

IMO life reasons are good ones to buy. Since it seems you could have a major life change soon, I personally think waiting makes more sense. What if the girl of your dreams has 2 kids already?

Xyz214
Posts: 61
Joined: Thu Jul 04, 2013 8:35 am

Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by Xyz214 » Thu Jan 12, 2017 7:58 am

It sounds like I should wait for now. I just calculated the CAGR of my rent for the past 10 years. It comes out to 2.42, which is not as bad I thought.

physiorol, I'm afraid my income growth will be limited for the rest of my career. I'm in individual contributor and in tech where agism exists.

jimb_fromATL, thanks for the detailed analysis. When the time comes for me to buy, I'll use your response as a template to analyze the purchase.

why3not, good point about opportunity cost.

wassabi and VictoriaF, thanks for making me consider about the non-financial side.

Thank you all. You guys are the best. I don't think I'll ever get this kind of top quality response in real life.

Cheers.

blueman457
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by blueman457 » Thu Jan 12, 2017 8:10 am

If you've been renting for 10 years, it's totally fine to keep renting. You're not "throwing away" money by renting. There is value in flexibility and not doing maintenance.

That being said, if you're in a position to buy a place go for it. It might be 10 years before you find someone to marry. Maybe you won't have kids and a one bedroom condo would be fine. You'll be fine either way.

ponyboy
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by ponyboy » Thu Jan 12, 2017 8:33 am

Why do you want to get married asap? Just for fun? You're not even with someone yet...slow down. Nothing wrong with renting. We've rented for 10 years and finally bought a place. The were able to save a lot of money in those 10 years.

sco
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by sco » Thu Jan 12, 2017 11:43 pm

No way, you have no idea where you and that future mate will end up..

Ignore anyone that says you are "throwing money away", that only applies if you know for a fact that you will be in the same place for 7-10 years at least. (and probably more with ownership expenses)...

It is a lifestyle choice, that is all.

antheus
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by antheus » Fri Jan 13, 2017 3:47 am

Great response by Jimb. I think that it is really important to run true numbers when looking at a rent vs. buy decision. I think that the general population often overestimates the financial benefits of home ownership and underestimates the downsides (and similarly underestimate the benefits of renting). This is even more true in high cost areas where these risks are magnified and options are often more limited or require more compromises. My personal criteria for buying a home is that I don't see myself needing another one in the foreseeable future (~10 years). Your criteria may be different.

denovo
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Re: Been renting for 10 years. Is it about time for me to get my own place?

Post by denovo » Fri Jan 13, 2017 5:18 am

Here's my advice [redacted]

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