Break apt lease to buy house? 2 moves < 6 months

[latestartearner]

How does one factor in moving and apartment early lease termination fees into consideration on a home purchase?

Background context
- Sold home in March 2023, received $180k back in equity
- Moved to new city in Feb 2023, currently renting. $3.7k/mth (partner gives $1.6k/mth)
- Annual expenses: $60k not including housing
- Total Comp: $400k/year (includes variable stock and bonus). Only had this level of comp/income for a couple of years.
- Cash/CDs: $377k. [Cash (83k) + CDs ($230k + $67k)]
- Retirement/Investments: $380k
- Age: 38

New Home
- Found a $650k small SFH in great neighborhood that would be perfect for medium-term needs with large enough lot/yard size to expand in future if desired. Necessities in walking distance, close to metro, commuting time is 38 minutes by train or 30 minutes by bike.
- Considering putting down 50%, and 30yr mortgage (with hopes of refinancing in future or paying down aggressively).
--> Total monthly $3.2k/mth. (PITI: $2.2k/mth, Taxes $715/mth, Insurance: $172/mth)
--> I would be sole owner of home, and partner would still pay me rent $1.6k/mth.

New Stage in life
- My work stress is high, and I'd like to construct an exit plan over next 1-2 years that allows me to drop down total comp to $150k-$200k range and work more years in a sustainable manner. Fixing expenses and lowering monthly housing costs would be an anchoring point towards that strategy.
- Apartment life is convenient but noisy, would love to have a yard for the dog and easier parking options, etc.

Next few months
- Each year, I frontload my retirement contributions and will hit my goal of maxing out all retirement contributions next month. This frees up an extra $5k/month in after-tax pay.
- Expecting total additional $70k (after-tax) in stocks by Dec 2023.

[Oddball]

How does one factor in moving and apartment early lease termination fees into consideration on a home purchase?

I have never had this issue, but I would think in the greater scheme of things this would be rounding error. Talk to your landlord and try to get out early. If not, pay the fee for leaving early and just move on.

[runninginvestor]

As a renter who has bought, sold, rented again I've always just included about 6-9 months in rent onto the cost of buying a home. Thinking that if we were to find a house to buy, the day after we resign the lease, we could probably push closing for two to three months (9 months rent). Best case scenario would be someone re-renting the unit but can't always rely on that. In either case, there's not a whole lot to do but add to the cost of buying a house as a renter.

[DiMAn0684]

Does not really answer your question, but does buying make financial sense for medium-term needs? Is there an option to rent a SFH for a comparable amount of money?

[latestartearner]

As a renter who has bought, sold, rented again I've always just included about 6-9 months in rent onto the cost of buying a home. Thinking that if we were to find a house to buy, the day after we resign the lease, we could probably push closing for two to three months (9 months rent). Best case scenario would be someone re-renting the unit but can't always rely on that. In either case, there's not a whole lot to do but add to the cost of buying a house as a renter.

Very helpful framing, thank you!

[latestartearner]

Does not really answer your question, but does buying make financial sense for medium-term needs? Is there an option to rent a SFH for a comparable amount of money?

Medium-term needs would be 7-10 years. Honestly, could see myself staying in that home forever as well.

[adamthesmythe]

What do yo mean "factor in?"

Some cost associated with moving is inevitable. If you follow the frequent advice given around here to "rent first" you can expect at least a month or so of extra rent when making the transition, and possibly more, possibly much more. There is no reason to expect to terminate a lease early without penalty. And attempting to exactly coordinate the end of a lease with occupancy requires a remarkable degree of luck.

It's worth losing some $ in the short term to get the right house.

Besides a month or so of overlap facilitates things like painting and flooring installation if you feel these are needed.

[leeks]

Does not really answer your question, but does buying make financial sense for medium-term needs? Is there an option to rent a SFH for a comparable amount of money?

Medium-term needs would be 7-10 years. Honestly, could see myself staying in that home forever as well.

Buy the house.

Lease break fees are just part of the transaction costs and you can afford it. If lease break fees were going to make or break a home purchase, I would say that person couldn't really afford the house. It is unlikely that lease and purchase would ever align perfectly.

But do negotiate with the landlord about the fees and possibly look for a subletter to take over your lease if that is an option. Often by advertising on social media or word of mouth through your personal network, you can find a new tenant to save some penalties.

[BrooklynInvest]

OP,

My understanding of the law in my state is that the renter is liable for the lease until end date BUT the landlord is required to make a good faith effort to re-rent the apartment. A tenant leaving does not give the landlord the right to rent it twice.

In my case two tenants have left early and I've re-rented quickly.... at higher rent if I remember correctly. The first tenant ate the cost of the gap (was a week or so in one instance I think but experiences will differ.)

Plus, things can usually be negotiated. Good luck!

[latestartearner]

Thanks, everyone, for the responses! Was kind of surprised, thought folks would discourage the home purchase. Sticking to my budget it seems like if it is the right home and a good long-term play (solid +5 years) then it may not be a bad move after all.

[Watty]

How does one factor in moving and apartment early lease termination fees into consideration on a home purchase?

You read the details of the lease to see how much it will cost.

Even if the lease says that you need to keep paying for the full lenght of the lease there is a good chance that you will not need to.

As I recall most states require the landlord to make a good faith effort to release the property and that can relieve you from paying for it for the full length of the lease. Many rental markets are real tight right now so they may not have any difficulty in finding a new tenant.

In some situation you may also be able to sublease the place for the remainder of the lease but there are risks with that since you may need to pay for any damage or if the person does not move out when they should.

The best thing to do would be to talk to your landlord so see how they would like to handle it. They could even have a waiting list of people looking to rent places like that and would be glad to work something out with you.

[LeftCoastIV]

To directly answer your question, you factor in the cost of breaking your lease into the house purchase, as irrecoverable costs. Watty describes the process to discuss with your landlord, and to determine your rights.

You may want to change your original post if your actual question is, "Should we buy this house given our circumstances?".

[Marseille07]

How long is your lease and what are the conditions of terminating early? I mean, if you intended to buy a house soon then hopefully your lease is a short one.

[Sax32]

How does one factor in moving and apartment early lease termination fees into consideration on a home purchase?

Background context
- Sold home in March 2023, received $180k back in equity
- Moved to new city in Feb 2023, currently renting. $3.7k/mth (partner gives $1.6k/mth)
- Annual expenses: $60k not including housing
- Total Comp: $400k/year (includes variable stock and bonus). Only had this level of comp/income for a couple of years.
- Cash/CDs: $377k. [Cash (83k) + CDs ($230k + $67k)]
- Retirement/Investments: $380k
- Age: 38

New Home
- Found a $650k small SFH in great neighborhood that would be perfect for medium-term needs with large enough lot/yard size to expand in future if desired. Necessities in walking distance, close to metro, commuting time is 38 minutes by train or 30 minutes by bike.
- Considering putting down 50%, and 30yr mortgage (with hopes of refinancing in future or paying down aggressively).
--> Total monthly $3.2k/mth. (PITI: $2.2k/mth, Taxes $715/mth, Insurance: $172/mth)
--> I would be sole owner of home, and partner would still pay me rent $1.6k/mth.

New Stage in life
- My work stress is high, and I'd like to construct an exit plan over next 1-2 years that allows me to drop down total comp to $150k-$200k range and work more years in a sustainable manner. Fixing expenses and lowering monthly housing costs would be an anchoring point towards that strategy.
- Apartment life is convenient but noisy, would love to have a yard for the dog and easier parking options, etc.

Next few months
- Each year, I frontload my retirement contributions and will hit my goal of maxing out all retirement contributions next month. This frees up an extra $5k/month in after-tax pay.
- Expecting total additional $70k (after-tax) in stocks by Dec 2023.

To me it seems as though if you were to buythis new home and pay off the mortgage aggressively that would free up 2.2k a month, which might help your stress level and going down with your income level. Might help you sleep better at night, while stocking a pile of cash that would have been put towards your mortgage. That's what we are trying to do right now. We save very well for retirement, are millionaires, paid for cars, pensions and have 80k left on our primary. I cannot wait for the day when that mortgage is gone, it will be very rewarding and free.

[sperry8]

I have terminated leases early multiple times and the landlords said they'd end my lease early as soon as they found a new renter. In one case, I found them one... in the other they found one. Both times, it only cost me one extra months rent. Just talk to them, they understand these sorts of things. You're not the first renter to leave early. And they don't want the headache of chasing you around for rent when you don't live there or the legal expense of doing so. So if they're able to re-rent it, they'll let you go

[l8_apex]

Typically folks have a hard time finding a home that they're as enthusiastic about as you seem to be about this one. So that plus the fact that you can afford it tells me you should buy it.

Also note that this is going to give you a lot more clarity on your retirement plans and salary needs for the future too.

Don't skip inspections, make sure you know as much as possible about the home before the purchase.

Oh, and if there is some work that needs to be done to the house, you would be wise to get that work done while the house is empty and you're still in your rental. (example - refinishing wood floors)

[THY4373]

I found my perfect home while I still had many months on my lease late last year. I just built in the cost of extra rent and utilities into my overall purchase cost. I was able to negotiate with my landlord a mutually beneficial solution. As noted by others you can use some of the overlapping time to address things like hardwood floor refinishing and the like. I did some of that. I have no regrets.

[adamthesmythe]

I think it cost me 2.5 months of rent the last time I bought, some of which was used for painting/ carpeting/ etc. I was figuring to wait closer to the lease end but the wife wanted out of the apartment. Well I did too, apartment living sucks. Worked out just fine in the end.

[Wwwdotcom]

Lease break is no biggie.

I would get mortgage quotes for 5-10% down and 20% down first. There is a good chance the rates will be lower. Put down the money later if this is true.