Struggling with deciding whether to buy a house in DC or keep on renting

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Topic Author
FriedFire
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Joined: Tue Nov 07, 2017 7:33 pm

Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:05 pm

Hi everyone,

We're contemplating buying a house in DC and could use some help analyzing and thinking through this decision.

Background
We currently rent a 1,000 sqft apartment in northwest DC. I work in Dupont Circle (on the Metro red line) and wife works from home. Our kids go just entered elementary school. We chose this neighborhood because it's on the red line for my commute and the best public schools are in the northwest part of DC. We have family in MD so anticipate staying in DC for the next ~10-15 years. After the kids are off to college we may choose to move to Philly where cost of living is a lot more reasonable but still close enough to family in the mid-Atlantic region.

Finances
-Total household income is $350k
-Net worth is $1.2M
-- Cash $250k
-- Taxable $200k
-- Tax-deferred $675k
-- Roth 401k $75k
- Debt $17k in students loans @ 2.125%
- We save about $185k maxing out tax-deferred, 529, mega backdoor and taxable

Current housing situation
- Current rent is $3,500 for a 1,000 sqft 2 bedroom apartment with a garage and a common pool/gym. Our rent increases 3-7% each year.
- We will likely need to rent a slightly bigger 3bd apartment (~1,200-1,500 sqft) in the next 2-3 years as our kids are growing which would be around $4,500-5,000/mo
- Houses that are in our school area and close to the red line start at $1M (tough to find) and $1.2M give us very few options
- We've been looking to get an idea and it seems that we can eventually find a house for $1.2M with a basement that we can rent out for $1,200 (we don't mind having a tenant as both wife and I were landlords before we got married). Definition of a house is detached, semi-detached, townhouse, and row house BUT NOT condo (condo fees go for about $1k/mo here!!)

The way rent continues to increase has made me consider buying but I'm still struggling with sticker shock. I'd love to hear everyone's thoughts from a numbers perspective. Should we keep on renting at $3,500/mo now and $4,500-5,000 and continue to shovel savings into pre- and post-tax accounts OR buy a $1M dollar house!

Thanks for the advice!

ARoseByAnyOtherName
Posts: 1000
Joined: Wed Apr 26, 2017 12:03 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by ARoseByAnyOtherName » Sun Feb 02, 2020 10:07 pm

Have you considered going further up the Red Line and looking at homes in Montgomery County? I hear the schools are (still) good (in places) and it's cheaper further north.

Topic Author
FriedFire
Posts: 88
Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:10 pm

We looked at Bethesda but basically similar house prices and rent there. At that price range we prefer staying closer to the city.

Unladen_Swallow
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Unladen_Swallow » Sun Feb 02, 2020 10:13 pm

Like the other poster suggested, have you considered Rockville in Montgomery county? Schools are good. Train station is right there.


I often attend conferences and meetings in DC, and stay with family in Rockville. I take the train into DC conveniently.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman

KlangFool
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Sun Feb 02, 2020 10:15 pm

Keep renting. The math is simple. It is cheaper to rent versus buying by a mile.

My friend just sold his house inside the beltway. He bought it in 2005. He was glad that he did not lose too much money from selling his house.

KlangFool
Last edited by KlangFool on Sun Feb 02, 2020 10:17 pm, edited 2 times in total.

Topic Author
FriedFire
Posts: 88
Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:15 pm

We have looked into Bethesda as the farthest we would go. We'd like to stay closer to the city as we enjoy the walkability and lifestyle. We are blessed to be able to afford our rent and living in a HCOL area. my main dilemma is whether it's "better" to rent or buy as both options are doable.

Sam1
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Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:17 pm

I’d consider an area like Glover Park. You’ll be able to find a decent home for $1.2 million with a lot more space than an apartment that rents for $5k per month.

One spouse already works from home. The other should be able to deal with a bus commute to Dupont. Other options are biking or driving. I assume you have one car. My point is that you shouldn’t have to be right off the red line.

There’s a reason most DC residents ditch condo living after kids come along to once they are getting older... it’s relatively easy to find a decent house with space for kids in this area if you have the money.

ARoseByAnyOtherName
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by ARoseByAnyOtherName » Sun Feb 02, 2020 10:18 pm

If Bethesda is the furthest you'll go then yeah you probably won't see any price relief, and as Klang says it probably makes sense to keep renting.

If you're willing to go out to Rockville or beyond it may be a different story as prices drop.

Sam1
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:20 pm

KlangFool wrote:
Sun Feb 02, 2020 10:15 pm
Keep renting. The math is simple. It is cheaper to rent versus buying by a mile.

KlangFool
Is it cheaper to rent when the rent is $5k versus a $1.2 million dollar home where they can rent out the basement unit? I’m not so sure. Seems to me the monthly payment would be pretty similar and they’d be paying down principle every month.

Also depends on if this is a purely financial decision or not. It would probably be cheaper for most people to rent, but they don’t. It’s also cheaper for me to lease a car but I don’t think it’s cheaper in the long run.

mortfree
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by mortfree » Sun Feb 02, 2020 10:21 pm

Why not just pay off the student loans?

ARoseByAnyOtherName
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by ARoseByAnyOtherName » Sun Feb 02, 2020 10:21 pm

KlangFool wrote:
Sun Feb 02, 2020 10:15 pm
My friend just sold his house inside the beltway. He bought it in 2005. He was glad that he did not lose too much money from selling his house.
I know first hand that there are areas in the DC metro area that are still 15%-20% below their peak in roughly 2007.

Thankfully this fact doesn't effect me at all but I sympathize for those that are not so lucky.

Sam1
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Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:21 pm

ARoseByAnyOtherName wrote:
Sun Feb 02, 2020 10:18 pm
If Bethesda is the furthest you'll go then yeah you probably won't see any price relief, and as Klang says it probably makes sense to keep renting.

If you're willing to go out to Rockville or beyond it may be a different story as prices drop.
Rockville!!?!?!?! Such an extreme suggestion.

They can spend a million and find a home within WALKING distance of DuPont that offers way more space than they have now. Like this.

https://www.redfin.com/DC/Washington/24 ... ntent=link

ARoseByAnyOtherName
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Joined: Wed Apr 26, 2017 12:03 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by ARoseByAnyOtherName » Sun Feb 02, 2020 10:23 pm

Sam1 wrote:
Sun Feb 02, 2020 10:21 pm
ARoseByAnyOtherName wrote:
Sun Feb 02, 2020 10:18 pm
If Bethesda is the furthest you'll go then yeah you probably won't see any price relief, and as Klang says it probably makes sense to keep renting.

If you're willing to go out to Rockville or beyond it may be a different story as prices drop.
Rockville!!?!?!?! Such an extreme suggestion.

They can spend a million and find a home within WALKING distance of DuPont that offers way more space than they have now. Like this.

https://www.redfin.com/DC/Washington/24 ... ntent=link
Not a million... $1,195,000. There's a difference :happy

Sam1
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Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:24 pm

FriedFire wrote:
Sun Feb 02, 2020 10:15 pm
We have looked into Bethesda as the farthest we would go. We'd like to stay closer to the city as we enjoy the walkability and lifestyle. We are blessed to be able to afford our rent and living in a HCOL area. my main dilemma is whether it's "better" to rent or buy as both options are doable.
I ultimately bought because I want more space and I don’t want to live in a condo with kids. I realize this is fine for many, but I personally want more space and privacy. I can own a home and still invest a decent amount, so I choose to own a home. If owning a home meant I couldn’t invest much, then I would probably rent.

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Sun Feb 02, 2020 10:26 pm

Sam1 wrote:
Sun Feb 02, 2020 10:20 pm
KlangFool wrote:
Sun Feb 02, 2020 10:15 pm
Keep renting. The math is simple. It is cheaper to rent versus buying by a mile.

KlangFool
Is it cheaper to rent when the rent is $5k versus a $1.2 million dollar home where they can rent out the basement unit? I’m not so sure. Seems to me the monthly payment would be pretty similar and they’d be paying down principle every month.

Also depends on if this is a purely financial decision or not. It would probably be cheaper for most people to rent, but they don’t. It’s also cheaper for me to lease a car but I don’t think it’s cheaper in the long run.
Sam1,

<< Seems to me the monthly payment would be pretty similar>>

That means it is a lousy deal. I will only buy when the PITI is 20% to 30% lowered than renting. In this case, if the rent is $5,000 per month, I will only buy when the PITI (20% down payment and 30 years mortgage) is $3,500 to $4,000 per month.

I bought my house in Northern Virginia under this condition.

<< It would probably be cheaper for most people to rent, >>

Under my condition, I know that it is cheaper to buy. I can take out the word: "probably".

KlangFool

Topic Author
FriedFire
Posts: 88
Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:27 pm

Sam1 wrote:
Sun Feb 02, 2020 10:21 pm

They can spend a million and find a home within WALKING distance of DuPont that offers way more space than they have now. Like this.

https://www.redfin.com/DC/Washington/24 ... ntent=link
Funny. We looked at that one today. Great house but 1 bathroom shared by 4 bedrooms. We'd have to pour more money into it to add a bathroom.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:27 pm

ARoseByAnyOtherName wrote:
Sun Feb 02, 2020 10:23 pm
Sam1 wrote:
Sun Feb 02, 2020 10:21 pm
ARoseByAnyOtherName wrote:
Sun Feb 02, 2020 10:18 pm
If Bethesda is the furthest you'll go then yeah you probably won't see any price relief, and as Klang says it probably makes sense to keep renting.

If you're willing to go out to Rockville or beyond it may be a different story as prices drop.
Rockville!!?!?!?! Such an extreme suggestion.

They can spend a million and find a home within WALKING distance of DuPont that offers way more space than they have now. Like this.

https://www.redfin.com/DC/Washington/24 ... ntent=link
Not a million... $1,195,000. There's a difference :happy
Sure but they can rent out the bottom unit. It’s equivalent mortgage of a million dollar home.

Also, that home is almost 3,000 square feet. That’s HUGE! The point is that they can find a home for around a million.

Plus moving to Rockville will require TWO cars - gas, insurance, depreciation etc. That alone is expensive! A 1.1 million dollar house without needing a car is practically the same as a million dollar house with two cars.

Sorry but saying there are no options and they should move to Rockville is ridiculous! They already said they value walkability and the city.

Sam1
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Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:28 pm

FriedFire wrote:
Sun Feb 02, 2020 10:27 pm
Sam1 wrote:
Sun Feb 02, 2020 10:21 pm

They can spend a million and find a home within WALKING distance of DuPont that offers way more space than they have now. Like this.

https://www.redfin.com/DC/Washington/24 ... ntent=link
Funny. We looked at that one today. Great house but 1 bathroom shared by 4 bedrooms. We'd have to pour more money into it to add a bathroom.
How many bathrooms do you have now? In your rental?

Topic Author
FriedFire
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Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:28 pm

Sam1 wrote:
Sun Feb 02, 2020 10:17 pm
I’d consider an area like Glover Park. You’ll be able to find a decent home for $1.2 million with a lot more space than an apartment that rents for $5k per month.

One spouse already works from home. The other should be able to deal with a bus commute to Dupont. Other options are biking or driving. I assume you have one car. My point is that you shouldn’t have to be right off the red line.

There’s a reason most DC residents ditch condo living after kids come along to once they are getting older... it’s relatively easy to find a decent house with space for kids in this area if you have the money.
Funny you mentioned Glover Park. We just looked at a house for $1.2M today. It was a great looking house but had 1 bathroom shared by 4 bedrooms which would feel like a downgrade for us given that we have a 2bd/2ba now in our 1,000 sqft apartment. We like the neighborhood there and I don't mind taking the bus. We'll keep looking there for something closer to the $1M price point.

Topic Author
FriedFire
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:29 pm

Sam1 wrote:
Sun Feb 02, 2020 10:28 pm
How many bathrooms do you have now? In your rental?
2 full bathrooms: 1 en-suite and 1 for kids and guests.

cochlearboy
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by cochlearboy » Sun Feb 02, 2020 10:30 pm

Hi OP

I currently rent in Alexandria, so I know exactly where you're coming on sticker shock for a 3 bedroom home. Around here in Alexandria, a new 3 bedroom townhouse goes for 1.2 mil, too.

Another idea is to look for housing in Virginia (i.e., Fairfax county) but I am sure you've already found that it is no less cheaper down here too.

If you're sure about staying in this area for 10-15 years, then I strongly recommend you buy a place. Washington DC Metro area is one of those places where housing prices will not drop too much in a recession. Don't forget about Amazon HQ2 in crystal city, too.

The only reason why I haven't bought a new place after being here 8 years is because of job uncertainty. I am also single and have no dependents, which make it easy for me to just up and move if needed. In your case, you have a wife who is earning income, and you appear to be committed to staying here because of your kids (and it appears from your post that you and your wife are secure in your careers?). If so, it's a no brainer.

Just suck it up and buy a 1 to 1.2 mil home - you have enough cash for a 10-20% payment, and you have enough in your taxable account for emergencies. Just make sure you get a rock-bottom interest rate of 3% on the mortgage.

Topic Author
FriedFire
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:31 pm

KlangFool wrote:
Sun Feb 02, 2020 10:26 pm

That means it is a lousy deal. I will only buy when the PITI is 20% to 30% lowered than renting. In this case, if the rent is $5,000 per month, I will only buy when the PITI (20% down payment and 30 years mortgage) is $3,500 to $4,000 per month.

I bought my house in Northern Virginia under this condition.

<< It would probably be cheaper for most people to rent, >>

Under my condition, I know that it is cheaper to buy. I can take out the word: "probably".

KlangFool
Interesting rule of thumb KlagFool. Will definitely run the numbers just to see where they fall. Also, curious to get your take on the NY Times calculator for Rent vs Buy:
https://www.nytimes.com/interactive/201 ... lator.html

Sam1
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:35 pm

FriedFire wrote:
Sun Feb 02, 2020 10:27 pm
Sam1 wrote:
Sun Feb 02, 2020 10:21 pm

They can spend a million and find a home within WALKING distance of DuPont that offers way more space than they have now. Like this.

https://www.redfin.com/DC/Washington/24 ... ntent=link
Funny. We looked at that one today. Great house but 1 bathroom shared by 4 bedrooms. We'd have to pour more money into it to add a bathroom.
You have to compromise on real estate if you want to live in DC in a walkable area with good schools on a $350k HHI. You have to decide what you value. If it’s space and bathrooms then consider an area like Rockville.

If you can’t imagine buying the perfect place (space, location, bathrooms, upgrades) then continue renting. But I can’t imagine that having someone work from home in a condo with two young kids is the perfect setup.

I myself sacrificed and bought a home that you probably wouldn’t want. But it was nicer than what I was renting. I’m about to sell and should walk away with a lot of money from the sale. I’ve been able to invest heavily since my mortgage payment has stayed the same for years now. I suppose I’m very pro ownership since I always paid a lot in rent and I’ve been able to grow my net worth significantly while owning. But at the end of the day if finances are your main priority then you should pay close attention to The NY Times buy versus rent calculator.

Topic Author
FriedFire
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:35 pm

cochlearboy wrote:
Sun Feb 02, 2020 10:30 pm
In your case, you have a wife who is earning income, and you appear to be committed to staying here because of your kids (and it appears from your post that you and your wife are secure in your careers?). If so, it's a no brainer.

Just suck it up and buy a 1 to 1.2 mil home - you have enough cash for a 10-20% payment, and you have enough in your taxable account for emergencies. Just make sure you get a rock-bottom interest rate of 3% on the mortgage.
Thanks cochlearboy. Our careers are luckily very secure. And we're committed to stay because we want to stay close to family in MD.

KlangFool
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Sun Feb 02, 2020 10:36 pm

cochlearboy wrote:
Sun Feb 02, 2020 10:30 pm

If you're sure about staying in this area for 10-15 years, then I strongly recommend you buy a place. Washington DC Metro area is one of those places where housing prices will not drop too much in a recession. Don't forget about Amazon HQ2 in crystal city, too.
cochlearboy

<< Washington DC Metro area is one of those places where housing prices will not drop too much in a recession. >>

There are many places in the Northern Virginia/DC Metro area that the housing had not recovered from the 2004/2005 level. So, that must be a big drop from 2004/2005. Just go into Zillow and check the price of the house that had existed in the 2004/2005 time frame. This is obviously a false statement.

KlangFool

Topic Author
FriedFire
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Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:38 pm

Sam1 wrote:
Sun Feb 02, 2020 10:35 pm
You have to compromise on real estate if you want to live in DC in a walkable area with good schools on a $350k HHI. You have to decide what you value. If it’s space and bathrooms then consider an area like Rockville.

If you can’t imagine buying the perfect place (space, location, bathrooms, upgrades) then continue renting. But I can’t imagine that having someone work from home in a condo with two young kids is the perfect setup.

I myself sacrificed and bought a home that you probably wouldn’t want. But it was nicer than what I was renting. I’m about to sell and should walk away with a lot of money from the sale. I’ve been able to invest heavily since my mortgage payment has stayed the same for years now. I suppose I’m very pro ownership since I always paid a lot in rent and I’ve been able to grow my net worth significantly while owning. But at the end of the day if finances are your main priority then you should pay close attention to The NY Times buy versus rent calculator.
Thanks Sam1. We're definitely finding properties for $1.2M with 3bd/2ba. We don't really care if it's dated or ugly so that's where we would compromise. I used the NYT calculator and based on very conservative market assumptions the breakeven point on that calculator is around $1.2M

Sam1
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:39 pm

FriedFire wrote:
Sun Feb 02, 2020 10:28 pm
Sam1 wrote:
Sun Feb 02, 2020 10:17 pm
I’d consider an area like Glover Park. You’ll be able to find a decent home for $1.2 million with a lot more space than an apartment that rents for $5k per month.

One spouse already works from home. The other should be able to deal with a bus commute to Dupont. Other options are biking or driving. I assume you have one car. My point is that you shouldn’t have to be right off the red line.

There’s a reason most DC residents ditch condo living after kids come along to once they are getting older... it’s relatively easy to find a decent house with space for kids in this area if you have the money.
Funny you mentioned Glover Park. We just looked at a house for $1.2M today. It was a great looking house but had 1 bathroom shared by 4 bedrooms which would feel like a downgrade for us given that we have a 2bd/2ba now in our 1,000 sqft apartment. We like the neighborhood there and I don't mind taking the bus. We'll keep looking there for something closer to the $1M price point.
You must care a lot about bathrooms. Going from 1,000 square feet to almost 3,000 square feet (2,000 in the non rental portion) would be a huge upgrade for most people!

There is going to be something kind of wrong with every home at this price point in DC. Just like there is something wrong with your current rental (lack of space).

KlangFool
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Sun Feb 02, 2020 10:39 pm

FriedFire wrote:
Sun Feb 02, 2020 10:31 pm
KlangFool wrote:
Sun Feb 02, 2020 10:26 pm

That means it is a lousy deal. I will only buy when the PITI is 20% to 30% lowered than renting. In this case, if the rent is $5,000 per month, I will only buy when the PITI (20% down payment and 30 years mortgage) is $3,500 to $4,000 per month.

I bought my house in Northern Virginia under this condition.

<< It would probably be cheaper for most people to rent, >>

Under my condition, I know that it is cheaper to buy. I can take out the word: "probably".

KlangFool
Interesting rule of thumb KlagFool. Will definitely run the numbers just to see where they fall. Also, curious to get your take on the NY Times calculator for Rent vs Buy:
https://www.nytimes.com/interactive/201 ... lator.html
FriedFire,

That calculator is useless because you can assume an appreciation of X% to justify buying any house. Please note that my rule of thumb assumes 0% appreciation. The purchase decision is purely based on imputed rent.

KlangFool

Topic Author
FriedFire
Posts: 88
Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:41 pm

Sam1 wrote:
Sun Feb 02, 2020 10:39 pm
You must care a lot about bathrooms. Going from 1,000 square feet to almost 3,000 square feet (2,000 in the non rental portion) would be a huge upgrade for most people!

There is going to be something kind of wrong with every home at this price point in DC. Just like there is something wrong with your current rental (lack of space).
I wouldn't say we care a lot about bathrooms. I'd say we found another place that is 3bd/2ba for the same price. So I'd pick that over that one specific listing. The issue I'm struggling with is renting for $5,000 vs buying for $1.0-1.2M

Topic Author
FriedFire
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Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:43 pm

KlangFool wrote:
Sun Feb 02, 2020 10:39 pm
That calculator is useless because you can assume an appreciation of X% to justify buying any house. Please note that my rule of thumb assumes 0% appreciation. The purchase decision is purely based on imputed rent.
Makes sense. I'll run your rule of thumb and I'll also use the NYT calc with 0% appreciation assumption

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:44 pm

KlangFool wrote:
Sun Feb 02, 2020 10:26 pm
Sam1 wrote:
Sun Feb 02, 2020 10:20 pm
KlangFool wrote:
Sun Feb 02, 2020 10:15 pm
Keep renting. The math is simple. It is cheaper to rent versus buying by a mile.

KlangFool
Is it cheaper to rent when the rent is $5k versus a $1.2 million dollar home where they can rent out the basement unit? I’m not so sure. Seems to me the monthly payment would be pretty similar and they’d be paying down principle every month.

Also depends on if this is a purely financial decision or not. It would probably be cheaper for most people to rent, but they don’t. It’s also cheaper for me to lease a car but I don’t think it’s cheaper in the long run.
Sam1,

<< Seems to me the monthly payment would be pretty similar>>

That means it is a lousy deal. I will only buy when the PITI is 20% to 30% lowered than renting. In this case, if the rent is $5,000 per month, I will only buy when the PITI (20% down payment and 30 years mortgage) is $3,500 to $4,000 per month.

I bought my house in Northern Virginia under this condition.

<< It would probably be cheaper for most people to rent, >>

Under my condition, I know that it is cheaper to buy. I can take out the word: "probably".

KlangFool


OP isn’t considering renting a $1.2 mm house. OP currently lives in a condo and is looking to buy a rowhouse. A better rule would be to consider the rent on a comparable house. My current mortgage is $3k and it would rent for around $5k.

ARoseByAnyOtherName
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Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by ARoseByAnyOtherName » Sun Feb 02, 2020 10:45 pm

Sam1 wrote:
Sun Feb 02, 2020 10:27 pm
ARoseByAnyOtherName wrote:
Sun Feb 02, 2020 10:23 pm
Sam1 wrote:
Sun Feb 02, 2020 10:21 pm
ARoseByAnyOtherName wrote:
Sun Feb 02, 2020 10:18 pm
If Bethesda is the furthest you'll go then yeah you probably won't see any price relief, and as Klang says it probably makes sense to keep renting.

If you're willing to go out to Rockville or beyond it may be a different story as prices drop.
Rockville!!?!?!?! Such an extreme suggestion.

They can spend a million and find a home within WALKING distance of DuPont that offers way more space than they have now. Like this.

https://www.redfin.com/DC/Washington/24 ... ntent=link
Not a million... $1,195,000. There's a difference :happy
Sure but they can rent out the bottom unit. It’s equivalent mortgage of a million dollar home.
That's fair. Then you're a landlord and have to factor in vacancy/maintenance/etc but yes the income can offset.
Sam1 wrote:
Sun Feb 02, 2020 10:27 pm
Sorry but saying there are no options and they should move to Rockville is ridiculous! They already said they value walkability and the city.
I never said there are no options and they should move to Rockville. I said:
If Bethesda is the furthest you'll go then yeah you probably won't see any price relief, and as Klang says it probably makes sense to keep renting.

If you're willing to go out to Rockville or beyond it may be a different story as prices drop.
Here's a place in Rockville that's walkable to the Metro, 4 bed/4 bath for a lot less than a mill.
https://www.zillow.com/homedetails/1437 ... 9072_zpid/

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:46 pm

FriedFire wrote:
Sun Feb 02, 2020 10:43 pm
KlangFool wrote:
Sun Feb 02, 2020 10:39 pm
That calculator is useless because you can assume an appreciation of X% to justify buying any house. Please note that my rule of thumb assumes 0% appreciation. The purchase decision is purely based on imputed rent.
Makes sense. I'll run your rule of thumb and I'll also use the NYT calc with 0% appreciation assumption
It doesn’t make any sense to assume 0 percent appreciation. Especially if you plan on staying in a home for say, 20 years.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.

Topic Author
FriedFire
Posts: 88
Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 10:55 pm

Sam1 wrote:
Sun Feb 02, 2020 10:46 pm
It doesn’t make any sense to assume 0 percent appreciation. Especially if you plan on staying in a home for say, 20 years.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
True. I'll be running the numbers with various assumptions to cover extremes and average to get a sense of the range.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 10:56 pm

FriedFire wrote:
Sun Feb 02, 2020 10:41 pm
Sam1 wrote:
Sun Feb 02, 2020 10:39 pm
You must care a lot about bathrooms. Going from 1,000 square feet to almost 3,000 square feet (2,000 in the non rental portion) would be a huge upgrade for most people!

There is going to be something kind of wrong with every home at this price point in DC. Just like there is something wrong with your current rental (lack of space).
I wouldn't say we care a lot about bathrooms. I'd say we found another place that is 3bd/2ba for the same price. So I'd pick that over that one specific listing. The issue I'm struggling with is renting for $5,000 vs buying for $1.0-1.2M
I dunno. 5k is a lot in rent. I’d try to find a less expensive place to rent but realize that’s hard to do.

It’s just as much lifestyle to me as it is financial. I bought a place I want to keep in my family and pass on to children. They aren’t building many more rowhouses in DC. I wanted way more space than a rental could provide. I wanted basement storage and not parking my car in a parking garage. I wanted to be locked in for schools. I didn’t want anyone living above me. I wanted to walk directly into my home and not go up an elevator. There are many reasons people buy besides just for finances.

People post on here from the Bay Area where it’s significantly cheaper to rent (or usually is). For you, it’s not. I would just bite the bullet and buy a family home. It’s not like you’re comparing renting for $3k versus buying for $1 million.

Does sound like Glover Park is a good neighborhood to target since you work by DuPont.

Also have you faced rent increases frequently? Many people on here who rent seem to rarely face rent increases. You may be in that category. I always had landlords increasing my rent! It really added up over the years. I love having a fixed mortgage payment.

Maybe you could look at renting a place in a similar neighbor as a better comparison? There are rowhouses for rent although a lot harder to find and not as good of a deal usually. The few rentals I’ve seen have been $7-8k per month or more.

KlangFool
Posts: 16640
Joined: Sat Oct 11, 2008 12:35 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Sun Feb 02, 2020 10:58 pm

Sam1 wrote:
Sun Feb 02, 2020 10:46 pm
FriedFire wrote:
Sun Feb 02, 2020 10:43 pm
KlangFool wrote:
Sun Feb 02, 2020 10:39 pm
That calculator is useless because you can assume an appreciation of X% to justify buying any house. Please note that my rule of thumb assumes 0% appreciation. The purchase decision is purely based on imputed rent.
Makes sense. I'll run your rule of thumb and I'll also use the NYT calc with 0% appreciation assumption
It doesn’t make any sense to assume 0 percent appreciation.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
Sam1,

<<It doesn’t make any sense to assume 0 percent appreciation. >>

How does this statement make any sense?

It is very simple.

If I can justify buying a house and making money with a 0% appreciation assumption, I got a great deal! I could only make more money if the house appreciated.

And, it does not matter how long I plan to stay at this house. I make money from imputed rent every year.

<<If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. >>

The 20% to 30% discount on PITI takes care of that too.

<<Both are extreme assumptions.>>

If I can buy a house with my assumptions. It meant that I got a great deal! What is the problem with that? The alternative is to overspend on a house and pray that there are enough appreciation to make it worthwhile. Aka, "buy and pray".

There are two choices:

A) You make money when you buy it.

Buying the house that is significantly cheaper than renting. You earn money from your imputed rent every year. You do not need any house appreciation. The house pays you from your rent savings every year. Your cash flow improved after you bought the house.

B) Buy and pray

Buying the house is more expensive than renting. You pay more every year when you buy the house. The house takes money from you every year. You pray that when it is time to sell the house, the house appreciates enough to pay you back.

I choose (A). Many people choose (B). Hence, people like me get to shop for a great bargain in every recession.

KlangFool

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 11:00 pm

FriedFire wrote:
Sun Feb 02, 2020 10:55 pm
Sam1 wrote:
Sun Feb 02, 2020 10:46 pm
It doesn’t make any sense to assume 0 percent appreciation. Especially if you plan on staying in a home for say, 20 years.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
True. I'll be running the numbers with various assumptions to cover extremes and average to get a sense of the range.
I actually think you’re focusing on the wrong thing. I get this is a financial board. We are all here (I think) because we want to invest in index funds.

The problem is that assumptions are assumptions. You have no idea what will happen to the economy, housing prices, etc. Everything is a huge unknown.

I’d focus more on the lifestyle you want. Living in a rowhouse is different than in a condo. Do you want more space for your family? Do you want a small yard? Do you want more families around? Where do you see your family living in the future...is it in a condo like the one you’re in now? There is no wrong answer.

You’re actually kind of comparing apples and oranges if you’re looking at 2,000 square foot plus rowhouses versus living in a 1000 square foot apartment.

Topic Author
FriedFire
Posts: 88
Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 11:01 pm

Sam1 wrote:
Sun Feb 02, 2020 10:56 pm
Also have you faced rent increases frequently? Many people on here who rent seem to rarely face rent increases. You may be in that category. I always had landlords increasing my rent! It really added up over the years. I love having a fixed mortgage payment.

Maybe you could look at renting a place in a similar neighbor as a better comparison? There are rowhouses for rent although a lot harder to find and not as good of a deal usually. The few rentals I’ve seen have been $7-8k per month or more.
That's what drove me to consider buying. Rent increases 7-10% year on year and I negotiate down to 5-7% but that's still 5-7% yoy increases. Also the minute you go to 3 bedrooms then the supply of apartments becomes extremely tight and you get forced into renting a row house which as you said go for $7-8k!

cochlearboy
Posts: 84
Joined: Sun Jul 07, 2019 12:11 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by cochlearboy » Sun Feb 02, 2020 11:05 pm

KlangFool wrote:
Sun Feb 02, 2020 10:36 pm
cochlearboy

<< Washington DC Metro area is one of those places where housing prices will not drop too much in a recession. >>

There are many places in the Northern Virginia/DC Metro area that the housing had not recovered from the 2004/2005 level. So, that must be a big drop from 2004/2005. Just go into Zillow and check the price of the house that had existed in the 2004/2005 time frame. This is obviously a false statement.

KlangFool
I don't think that this is a fair characterization. There are obviously some bad neighborhoods in the DC Metro area (i.e., northeast dc where the green line of the metro goes). Of course, housing in that area has not recovered.

But, if you're in the good areas of DC where the good schools are, and where they are redeveloping new buildings (i.e., Navy Yards, for example). Housing has definitely rebounded and then some.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 11:07 pm

KlangFool wrote:
Sun Feb 02, 2020 10:58 pm
Sam1 wrote:
Sun Feb 02, 2020 10:46 pm
FriedFire wrote:
Sun Feb 02, 2020 10:43 pm
KlangFool wrote:
Sun Feb 02, 2020 10:39 pm
That calculator is useless because you can assume an appreciation of X% to justify buying any house. Please note that my rule of thumb assumes 0% appreciation. The purchase decision is purely based on imputed rent.
Makes sense. I'll run your rule of thumb and I'll also use the NYT calc with 0% appreciation assumption
It doesn’t make any sense to assume 0 percent appreciation.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
Sam1,

<<It doesn’t make any sense to assume 0 percent appreciation. >>

How does this statement make any sense?

It is very simple.

If I can justify buying a house and making money with a 0% appreciation assumption, I got a great deal! I could only make more money if the house appreciated.

And, it does not matter how long I plan to stay at this house. I make money from imputed rent every year.

<<If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. >>

The 20% to 30% discount on PITI takes care of that too.

<<Both are extreme assumptions.>>

If I can buy a house with my assumptions. It meant that I got a great deal! What is the problem with that? The alternative is to overspend on a house and pray that there are enough appreciation to make it worthwhile. Aka, "buy and pray".

There are two choices:

A) You make money when you buy it.

Buying the house that is significantly cheaper than renting. You earn money from your imputed rent every year. You do not need any house appreciation. The house pays you from your rent savings every year. Your cash flow improved after you bought the house.

B) Buy and pray

Buying the house is more expensive than renting. You pay more every year when you buy the house. The house takes money from you every year. You pray that when it is time to sell the house, the house appreciates enough to pay you back.

I choose (A). Many people choose (B). Hence, people like me get to shop for a great bargain in every recession.

KlangFool
Very interesting.

I own my home because I can afford to live here, my neighborhood is beautiful and I can still invest heavily in the market.

I can’t live a life where assuming a 0 percent home price appreciation dictate where I live. I also can’t NOT invest in index funds because they could return 0 percent indefinitely. If everything was about money then I would be living in a box on the street and showering at work in the gym.

Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Sun Feb 02, 2020 11:14 pm

FriedFire wrote:
Sun Feb 02, 2020 11:01 pm
Sam1 wrote:
Sun Feb 02, 2020 10:56 pm
Also have you faced rent increases frequently? Many people on here who rent seem to rarely face rent increases. You may be in that category. I always had landlords increasing my rent! It really added up over the years. I love having a fixed mortgage payment.

Maybe you could look at renting a place in a similar neighbor as a better comparison? There are rowhouses for rent although a lot harder to find and not as good of a deal usually. The few rentals I’ve seen have been $7-8k per month or more.
That's what drove me to consider buying. Rent increases 7-10% year on year and I negotiate down to 5-7% but that's still 5-7% yoy increases. Also the minute you go to 3 bedrooms then the supply of apartments becomes extremely tight and you get forced into renting a row house which as you said go for $7-8k!
Then absolutely buy. I experienced the same thing. One time the rent increase was $400 a month.

I don’t know where I’d rent a family home here. I could find an inexpensive two bedroom unit, but I don’t want to live in a two bedroom with my kids. It would be impossible to work from home. I would not want to be trying to find a three bedroom unit to live in DC. I would only do that if I couldn’t afford to buy a home. Except you can. So what are you waiting for?

I personally think doubling your square footage will be a huge game changer. As will having some outdoor space. Just having a deck for kids to do stupid art projects and kids stuff on is worth it. Grilling out on my OWN grill. Having more bedrooms than kids.

Another reason I wouldn’t buy is if I didn’t plan on staying here longer term. I can’t remember what you said about that.

Topic Author
FriedFire
Posts: 88
Joined: Tue Nov 07, 2017 7:33 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by FriedFire » Sun Feb 02, 2020 11:21 pm

Sam1 wrote:
Sun Feb 02, 2020 11:14 pm
Another reason I wouldn’t buy is if I didn’t plan on staying here longer term. I can’t remember what you said about that.
10-15 years so fairly long term

rich126
Posts: 1549
Joined: Thu Mar 01, 2018 4:56 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by rich126 » Sun Feb 02, 2020 11:22 pm

It never hurts to bounce ideas off others , just in case you find an interesting new perspective or thought. Obviously it is a decision you need to make base on what you desire and not a mathematical decision anymore than trying to find the perfect mate via input to a computer.

I’ve lived in MD for a long time but over in Ellicott City where home aren’t as bad price wise. In many of the more desirable areas not only have home prices recovered but they are easily 30% higher. Can’t comment on your location because I don’t know that’s market.

Personally I think think real estate is getting high in most areas but often if you buy and plan to stay long term you can often ride it out. I’ve done that. As long as you aren’t over extended you can survive. What you don’t want to do is to buy at the top with a nearly 100% loan and not have any savings and then you sell after a large drop due to job relocation.

I was out in AZ and lived through the 2003-2011 doubling or more of house prices only to watch them fall 50-75%. I rode it out by renting my house out and now see it valued back at peak prices or close to it.

Only you know your job security, willingness to take risk, etc. most families wouldn’t be willing to take in renters and if you are willing to do that I think you have a pretty good sense about finances.

And 1 bathroom? Geez, I wouldn’t accept that either, especially with a family. Not to mention things such as only 2 bedrooms or only a single bathroom greatly diminishes resale value.

Good luck.

KlangFool
Posts: 16640
Joined: Sat Oct 11, 2008 12:35 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Mon Feb 03, 2020 8:15 am

cochlearboy wrote:
Sun Feb 02, 2020 11:05 pm
KlangFool wrote:
Sun Feb 02, 2020 10:36 pm
cochlearboy

<< Washington DC Metro area is one of those places where housing prices will not drop too much in a recession. >>

There are many places in the Northern Virginia/DC Metro area that the housing had not recovered from the 2004/2005 level. So, that must be a big drop from 2004/2005. Just go into Zillow and check the price of the house that had existed in the 2004/2005 time frame. This is obviously a false statement.

KlangFool
I don't think that this is a fair characterization. There are obviously some bad neighborhoods in the DC Metro area (i.e., northeast dc where the green line of the metro goes). Of course, housing in that area has not recovered.

But, if you're in the good areas of DC where the good schools are, and where they are redeveloping new buildings (i.e., Navy Yards, for example). Housing has definitely rebounded and then some.
Check the price of the place that you claim to be reboonded. Compare the price versus 2004/2005 level.

Once you use the word: rebound, it meant the house do not always go up.

KlangFool

epargnant
Posts: 62
Joined: Wed Dec 06, 2017 10:34 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by epargnant » Mon Feb 03, 2020 8:38 am

+1 with Klangfool. I’m not as familiar with DC/MD, but many houses/condos in Northern Va (Arlington/Fairfax/Loudoun counties) are not back to their highest sale prices. A condo we bought in 2007 (when it was well below its 2005 sale price) is barely back up to what we bought it for, and is still not where it was in 2005. Many friends have the same problem with houses they bought.

The wisdom of our parents, that as long as you hold a home for 5 years, you will make money, is no longer sound advice!

KlangFool
Posts: 16640
Joined: Sat Oct 11, 2008 12:35 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Mon Feb 03, 2020 8:49 am

Sam1 wrote:
Sun Feb 02, 2020 11:07 pm
KlangFool wrote:
Sun Feb 02, 2020 10:58 pm
Sam1 wrote:
Sun Feb 02, 2020 10:46 pm
FriedFire wrote:
Sun Feb 02, 2020 10:43 pm
KlangFool wrote:
Sun Feb 02, 2020 10:39 pm
That calculator is useless because you can assume an appreciation of X% to justify buying any house. Please note that my rule of thumb assumes 0% appreciation. The purchase decision is purely based on imputed rent.
Makes sense. I'll run your rule of thumb and I'll also use the NYT calc with 0% appreciation assumption
It doesn’t make any sense to assume 0 percent appreciation.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
Sam1,

<<It doesn’t make any sense to assume 0 percent appreciation. >>

How does this statement make any sense?

It is very simple.

If I can justify buying a house and making money with a 0% appreciation assumption, I got a great deal! I could only make more money if the house appreciated.

And, it does not matter how long I plan to stay at this house. I make money from imputed rent every year.

<<If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. >>

The 20% to 30% discount on PITI takes care of that too.

<<Both are extreme assumptions.>>

If I can buy a house with my assumptions. It meant that I got a great deal! What is the problem with that? The alternative is to overspend on a house and pray that there are enough appreciation to make it worthwhile. Aka, "buy and pray".

There are two choices:

A) You make money when you buy it.

Buying the house that is significantly cheaper than renting. You earn money from your imputed rent every year. You do not need any house appreciation. The house pays you from your rent savings every year. Your cash flow improved after you bought the house.

B) Buy and pray

Buying the house is more expensive than renting. You pay more every year when you buy the house. The house takes money from you every year. You pray that when it is time to sell the house, the house appreciates enough to pay you back.

I choose (A). Many people choose (B). Hence, people like me get to shop for a great bargain in every recession.

KlangFool
Very interesting.

I own my home because I can afford to live here, my neighborhood is beautiful and I can still invest heavily in the market.

I can’t live a life where assuming a 0 percent home price appreciation dictate where I live. I also can’t NOT invest in index funds because they could return 0 percent indefinitely. If everything was about money then I would be living in a box on the street and showering at work in the gym.

Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.
Sam1,

1) I can either buy or rent in order to live in a neighborhood. So, in many cases, where to live and whether to buy or rent are two separate decisions.

<<I can’t live a life where assuming a 0 percent home price appreciation dictate where I live.>>

2) That is your choice. Others do not have to make the same decision as yours.

<< If everything was about money then I would be living in a box on the street and showering at work in the gym. >>

3) I bought a house in a neighborhood that I want to live in and the house pays me back every year with the rent savings. Just because you choose not to do this, it does not mean others cannot do it.

<<Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.>>

4) You missed a key point that I made.

A) Regardless of whether your mutual fund appreciate, it pays you every year via the dividend and interest. You do not have to sell your mutual fund in order to make money.

B) Meanwhile, you have to spend a lot more than renting to buy and own your house. The house takes money away from you every year. You have to pray that the house appreciates enough to compensate for the money that you spent on the house over the years. Aka, "buy and pray". You need appreciation in order to breakeven.

KlangFool

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Mon Feb 03, 2020 9:20 am

KlangFool wrote:
Mon Feb 03, 2020 8:49 am
Sam1 wrote:
Sun Feb 02, 2020 11:07 pm
KlangFool wrote:
Sun Feb 02, 2020 10:58 pm
Sam1 wrote:
Sun Feb 02, 2020 10:46 pm
FriedFire wrote:
Sun Feb 02, 2020 10:43 pm


Makes sense. I'll run your rule of thumb and I'll also use the NYT calc with 0% appreciation assumption
It doesn’t make any sense to assume 0 percent appreciation.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
Sam1,

<<It doesn’t make any sense to assume 0 percent appreciation. >>

How does this statement make any sense?

It is very simple.

If I can justify buying a house and making money with a 0% appreciation assumption, I got a great deal! I could only make more money if the house appreciated.

And, it does not matter how long I plan to stay at this house. I make money from imputed rent every year.

<<If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. >>

The 20% to 30% discount on PITI takes care of that too.

<<Both are extreme assumptions.>>

If I can buy a house with my assumptions. It meant that I got a great deal! What is the problem with that? The alternative is to overspend on a house and pray that there are enough appreciation to make it worthwhile. Aka, "buy and pray".

There are two choices:

A) You make money when you buy it.

Buying the house that is significantly cheaper than renting. You earn money from your imputed rent every year. You do not need any house appreciation. The house pays you from your rent savings every year. Your cash flow improved after you bought the house.

B) Buy and pray

Buying the house is more expensive than renting. You pay more every year when you buy the house. The house takes money from you every year. You pray that when it is time to sell the house, the house appreciates enough to pay you back.

I choose (A). Many people choose (B). Hence, people like me get to shop for a great bargain in every recession.

KlangFool
Very interesting.

I own my home because I can afford to live here, my neighborhood is beautiful and I can still invest heavily in the market.

I can’t live a life where assuming a 0 percent home price appreciation dictate where I live. I also can’t NOT invest in index funds because they could return 0 percent indefinitely. If everything was about money then I would be living in a box on the street and showering at work in the gym.

Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.
Sam1,

1) I can either buy or rent in order to live in a neighborhood. So, in many cases, where to live and whether to buy or rent are two separate decisions.

<<I can’t live a life where assuming a 0 percent home price appreciation dictate where I live.>>

2) That is your choice. Others do not have to make the same decision as yours.

<< If everything was about money then I would be living in a box on the street and showering at work in the gym. >>

3) I bought a house in a neighborhood that I want to live in and the house pays me back every year with the rent savings. Just because you choose not to do this, it does not mean others cannot do it.

<<Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.>>

4) You missed a key point that I made.

A) Regardless of whether your mutual fund appreciate, it pays you every year via the dividend and interest. You do not have to sell your mutual fund in order to make money.

B) Meanwhile, you have to spend a lot more than renting to buy and own your house. The house takes money away from you every year. You have to pray that the house appreciates enough to compensate for the money that you spent on the house over the years. Aka, "buy and pray". You need appreciation in order to breakeven.

KlangFool
I like my home and neighborhood schools. There are many factors at play that you haven’t considered. For example, private tuition is $45k plus per child. By living and owning my home, I know I have X years of “free” tuition. No one can force me to move from my home. I also can easily bike everywhere. No matter what happens to the metro or traffic in the area, I can get around on bike paths! Having my children in good public schools and being able to commute via bike is worth a lot of “money” to me.

But not sure what you want me to say.... I should be renting my home instead? That everyone should follow your path in life? That I’m wrong and you’re right?

I don’t understand why you’re convinced I’m spending MORE money to buy than to rent. A similar home in my neighbor will rent for $6-7k per month. My mortgage is $3,500. My take home pay is close to $20k per month not including bonuses or stock. I can easily afford to live in my home and invest heavily.

I’ve offered advice since I probably have a lot in common with OP. I have children. Value walkability. Made a similar income when we bought our house.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by Sam1 » Mon Feb 03, 2020 9:26 am

KlangFool wrote:
Mon Feb 03, 2020 8:49 am
Sam1 wrote:
Sun Feb 02, 2020 11:07 pm
KlangFool wrote:
Sun Feb 02, 2020 10:58 pm
Sam1 wrote:
Sun Feb 02, 2020 10:46 pm
FriedFire wrote:
Sun Feb 02, 2020 10:43 pm


Makes sense. I'll run your rule of thumb and I'll also use the NYT calc with 0% appreciation assumption
It doesn’t make any sense to assume 0 percent appreciation.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
Sam1,

<<It doesn’t make any sense to assume 0 percent appreciation. >>

How does this statement make any sense?

It is very simple.

If I can justify buying a house and making money with a 0% appreciation assumption, I got a great deal! I could only make more money if the house appreciated.

And, it does not matter how long I plan to stay at this house. I make money from imputed rent every year.

<<If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. >>

The 20% to 30% discount on PITI takes care of that too.

<<Both are extreme assumptions.>>

If I can buy a house with my assumptions. It meant that I got a great deal! What is the problem with that? The alternative is to overspend on a house and pray that there are enough appreciation to make it worthwhile. Aka, "buy and pray".

There are two choices:

A) You make money when you buy it.

Buying the house that is significantly cheaper than renting. You earn money from your imputed rent every year. You do not need any house appreciation. The house pays you from your rent savings every year. Your cash flow improved after you bought the house.

B) Buy and pray

Buying the house is more expensive than renting. You pay more every year when you buy the house. The house takes money from you every year. You pray that when it is time to sell the house, the house appreciates enough to pay you back.

I choose (A). Many people choose (B). Hence, people like me get to shop for a great bargain in every recession.

KlangFool
Very interesting.

I own my home because I can afford to live here, my neighborhood is beautiful and I can still invest heavily in the market.

I can’t live a life where assuming a 0 percent home price appreciation dictate where I live. I also can’t NOT invest in index funds because they could return 0 percent indefinitely. If everything was about money then I would be living in a box on the street and showering at work in the gym.

Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.
Sam1,

1) I can either buy or rent in order to live in a neighborhood. So, in many cases, where to live and whether to buy or rent are two separate decisions.

<<I can’t live a life where assuming a 0 percent home price appreciation dictate where I live.>>

2) That is your choice. Others do not have to make the same decision as yours.

<< If everything was about money then I would be living in a box on the street and showering at work in the gym. >>

3) I bought a house in a neighborhood that I want to live in and the house pays me back every year with the rent savings. Just because you choose not to do this, it does not mean others cannot do it.

<<Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.>>

4) You missed a key point that I made.

A) Regardless of whether your mutual fund appreciate, it pays you every year via the dividend and interest. You do not have to sell your mutual fund in order to make money.

B) Meanwhile, you have to spend a lot more than renting to buy and own your house. The house takes money away from you every year. You have to pray that the house appreciates enough to compensate for the money that you spent on the house over the years. Aka, "buy and pray". You need appreciation in order to breakeven.

KlangFool
You’re incorrect that you can always rent or buy in a certain neighborhood. In NW DC, there are many neighborhoods where it’s extremely difficult or impossible to find a rental. There are one bedroom basement apartment rentals but that’s really it. It’s also very hard to find three bedroom condo rentals which is one of the reasons OP gave for considering buying.

One of the reasons it’s so hard to rent as a family is because there are so many students and young professionals in DC. A house in my neighborhood can be rented for a lot because the landlord can charge $1,500k per bedroom to recent grads. This is happening all over DC. Renting a family home in this area is very expensive.

KlangFool
Posts: 16640
Joined: Sat Oct 11, 2008 12:35 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Mon Feb 03, 2020 9:37 am

Sam1 wrote:
Mon Feb 03, 2020 9:26 am
KlangFool wrote:
Mon Feb 03, 2020 8:49 am
Sam1 wrote:
Sun Feb 02, 2020 11:07 pm
KlangFool wrote:
Sun Feb 02, 2020 10:58 pm
Sam1 wrote:
Sun Feb 02, 2020 10:46 pm


It doesn’t make any sense to assume 0 percent appreciation.

If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. Both are extreme assumptions.
Sam1,

<<It doesn’t make any sense to assume 0 percent appreciation. >>

How does this statement make any sense?

It is very simple.

If I can justify buying a house and making money with a 0% appreciation assumption, I got a great deal! I could only make more money if the house appreciated.

And, it does not matter how long I plan to stay at this house. I make money from imputed rent every year.

<<If you assume 0 percent home price appreciation then you should also choose around 1-2 percent stock market appreciation for the downpayment funds using the calculator. >>

The 20% to 30% discount on PITI takes care of that too.

<<Both are extreme assumptions.>>

If I can buy a house with my assumptions. It meant that I got a great deal! What is the problem with that? The alternative is to overspend on a house and pray that there are enough appreciation to make it worthwhile. Aka, "buy and pray".

There are two choices:

A) You make money when you buy it.

Buying the house that is significantly cheaper than renting. You earn money from your imputed rent every year. You do not need any house appreciation. The house pays you from your rent savings every year. Your cash flow improved after you bought the house.

B) Buy and pray

Buying the house is more expensive than renting. You pay more every year when you buy the house. The house takes money from you every year. You pray that when it is time to sell the house, the house appreciates enough to pay you back.

I choose (A). Many people choose (B). Hence, people like me get to shop for a great bargain in every recession.

KlangFool
Very interesting.

I own my home because I can afford to live here, my neighborhood is beautiful and I can still invest heavily in the market.

I can’t live a life where assuming a 0 percent home price appreciation dictate where I live. I also can’t NOT invest in index funds because they could return 0 percent indefinitely. If everything was about money then I would be living in a box on the street and showering at work in the gym.

Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.
Sam1,

1) I can either buy or rent in order to live in a neighborhood. So, in many cases, where to live and whether to buy or rent are two separate decisions.

<<I can’t live a life where assuming a 0 percent home price appreciation dictate where I live.>>

2) That is your choice. Others do not have to make the same decision as yours.

<< If everything was about money then I would be living in a box on the street and showering at work in the gym. >>

3) I bought a house in a neighborhood that I want to live in and the house pays me back every year with the rent savings. Just because you choose not to do this, it does not mean others cannot do it.

<<Many of us who own rowhouses in NW DC are sitting on ridiculous amounts of equity, including myself. There could be a major housing correction - or not. Same could happen to my brokerage portfolio. But it’s very extreme to say I have to pray that I can sell my house and make money.>>

4) You missed a key point that I made.

A) Regardless of whether your mutual fund appreciate, it pays you every year via the dividend and interest. You do not have to sell your mutual fund in order to make money.

B) Meanwhile, you have to spend a lot more than renting to buy and own your house. The house takes money away from you every year. You have to pray that the house appreciates enough to compensate for the money that you spent on the house over the years. Aka, "buy and pray". You need appreciation in order to breakeven.

KlangFool
You’re incorrect that you can always rent or buy in a certain neighborhood. In NW DC, there are many neighborhoods where it’s extremely difficult or impossible to find a rental. There are one bedroom basement apartment rentals but that’s really it. It’s also very hard to find three bedroom condo rentals which is one of the reasons OP gave for considering buying.

One of the reasons it’s so hard to rent as a family is because there are so many students and young professionals in DC. A house in my neighborhood can be rented for a lot because the landlord can charge $1,500k per bedroom to recent grads. This is happening all over DC. Renting a family home in this area is very expensive.
Sam1,

<<So, in many cases, where to live and whether to buy or rent are two separate decisions.>>

I did not claim that it is possible in all cases.

KlangFool

KlangFool
Posts: 16640
Joined: Sat Oct 11, 2008 12:35 pm

Re: Struggling with deciding whether to buy a house in DC or keep on renting

Post by KlangFool » Mon Feb 03, 2020 9:43 am

Sam1 wrote:
Mon Feb 03, 2020 9:20 am


I don’t understand why you’re convinced I’m spending MORE money to buy than to rent. A similar home in my neighbor will rent for $6-7k per month. My mortgage is $3,500. My take home pay is close to $20k per month not including bonuses or stock. I can easily afford to live in my home and invest heavily.

Sam1,

1) Then, you should not argue against my point about buying the house when the PITI is lowered than renting.

2) Or, you bought this house long ago.

Please explain what is your point? I am confused.

KlangFool

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