Rent vs Buy

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WilliamRice
Posts: 21
Joined: Fri Nov 13, 2009 10:20 am

Rent vs Buy

Post by WilliamRice »

My wife and I both work in downtown Boston. She makes 56 and I make 46 thousand a year. The only debt we have is her two student loans (200 and 140 a month. We just found out that we are six weeks pregnant. Right now we rent an apartment for 1550 a month. We know that we have to get a two bedroom at some point in the future. I have found some places in downtown Lowell (2bdrm) for around 100k. We have 20k saved so far just for savings which we could use for a down payment to beat PMI. I feel like this is good because the mortgage is cheaper cheaper than the rent and the condo is tow blocks from the train to take a 30 min commute into Boston for work. Opinions please:

Other details: We don't own a car and she would like to take time off work (6months - 1 year) I am also looking for a new job with higher pay and I can freelance being a designer.

Sorry if this is all jumbled but I feel a little overwhelmed with life a bit right now. Thanks!
Bob's not my name
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Joined: Sun Nov 15, 2009 9:24 am

Post by Bob's not my name »

You have $30,000 of debt at 6.5%. You were advised to pay that off. Is there a reason you haven't?
slick_dealer_05
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Post by slick_dealer_05 »

I think your $20K savings are at a lower interest rate than your student loan interest. So, why not pay that first? (Perhaps you need to make a phone call to Dave Ramsey to figure it out)
Buying a 100K house compared to a $1550 monthly rent seems to be a no-brainer financial decision.
Hope, this house is not a 'handyman special'. A new baby can take up a lot of time, so be aware that you won't have time to do yard work, fixing house, etc. New homeowners tend to grossly underestimate the time required in house maintenance.
El Jefe
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Joined: Tue Jan 27, 2009 2:40 pm

Post by El Jefe »

Hmm. I am a little skeptical that this is the right place for your young family in the longer-term. (BTW I'm not dogmatic about the rent v. buy -- it just sounds like you are a good candidate for renting at this stage.)

You seem to emphasize the cheap aspect of this particular property. But have you looked into other cities or neighborhoods, or other properties in this particular neighborhood? If so, have you considered schools, parks, etc? Usually these amenities are first-order priorities for first-time homebuyers, not mere afterthoughts to the low pricetag of the property. Ignoring these aspects may be penny wise (low mortgage costs) but pound foolish (high private school fees).

Be sure you are making roots in the right place. If you aren't sure what you want yet, that's perfectly okay to admit (in fact, I would argue not enough people own up to this feeling because of social pressure, etc).

I personally would hold off and continue renting. Save more cash for your downpayment and moving costs; it seems you can never go into your first home with too much cash. Think of your continued renting as savvy: You are paying for a valuable option until you have a better idea of what would best suit your family and where they will be happy to be rooted and grow together.

Whatever your decision, I wish your family the best.
maxfax
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Post by maxfax »

Have you included all the costs in your calculations.
* the cost of the commute.
* the cost of buying a car for the stay-at-home parent who needs it to go anywhere at all.
* the cost of changes you will really, really want to make the house YOUR home.
* the costs of childcare after 6-months.
* the impact of rising interest rates on your debt.
* your ability to live below your means (indicated by the exitence of your debt).
* theoperating rate of return from the RE vs the risk free return from paying off the debt.
* new job may not be an easy commute.
rainyday1
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Location: London

Post by rainyday1 »

We just had our 3rd baby and here's what I would say. When you have the first baby, you have no idea how your needs will change over the next few years. What looks good when you have a baby may not look good in 2 years, or even in 1 year. As someone else mentioned, before you know it, you'll be thinking about schools, parks and having neighbors with small kids.

You also may decide you want more or fewer kids than you initially thought, which would certainly influence the size house you buy.

Also, when your wife has been home all day with a screaming newborn, she may not be thrilled that you're commuting 30+ minutes each way. We were also not too excited about doing yard work or house stuff when we had been up all night.

My advice would be to stick close or even stay where you are until you get things a little more figured out. Babies don't take up nearly the amount of space you would think. For the first couple months, you can stick a bassinet in the hall and maybe a swing and bouncy seat. They really take up space when they get toys and siblings!

My advice is to start looking around once the baby comes and you figure out the income situation and what your needs will be. You'll have more money saved and a better idea for the long-term. Like I said, things look much different for a 2 year old than a newborn and those transaction costs of making a mistake are extremely high!
tim1999
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Post by tim1999 »

Since you mentioned you're looking at a condo, how much are the maintenance/HOA fees per month?

I don't know property values in the Boston area. But in my area, the cheaper condos are usually older, with very high monthly fees compared to newer ones. Like the old condo costs $100,000 to buy, but you pay $400/month in fees PLUS property taxes. The newer condo might cost $200,000 but the fees are only $200/month.

Just something to consider in your decision.
Harold
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Location: San Francisco

Post by Harold »

rainyday1 wrote:My advice would be to stick close or even stay where you are until you get things a little more figured out. Babies don't take up nearly the amount of space you would think. For the first couple months, you can stick a bassinet in the hall and maybe a swing and bouncy seat. They really take up space when they get toys and siblings!
I just learned recently that my brother slept in a desk drawer in the New York City apartment where my brother and I were babies.
Topic Author
WilliamRice
Posts: 21
Joined: Fri Nov 13, 2009 10:20 am

30,000 in debt at 6.5%

Post by WilliamRice »

The reason that is not paid off yet is because I have been told by many people that it is best to have as big as possible war chest for any upcoming complications with having a baby.

To the others - you are correct, the low price tag is the main draw here. Don't get me wrong, the area seems very nice but it the price most of all for a starting out home. I guess that I have over looked all other cost and the most important thing, paying off my debt, which was my greatest goal. I think that I am in a different mode right now with upcoming events.
MrMiyagi
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Joined: Wed Jul 15, 2009 3:28 pm

Post by MrMiyagi »

I'm with the rest when they say renting is probably the way to go for now. HOA fees can be quite high, especially for condos! 100k sounds too good to be true for Boston, and probably is.

I'd take a glance at this site before you decide buying:
http://patrick.net/housing/crash.html
It paints a somewhat negative picture on real estate purchasing, but he makes many good points.
You may find this useful too:
http://www.nytimes.com/interactive/busi ... lator.html

The main thing is, young people tend to move, especially since you mention looking for a new job.
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LadyGeek
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Post by LadyGeek »

You can find a good list of things to consider in the wiki. Be sure to check the forum discussion thread references at the bottom of the page.

Please see Owning vs Renting on the Bogleheads Wiki.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Independent
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Post by Independent »

When thinking about costs, be sure to include periodic replacement/repair on the following:

Roof
Furnace
Water heater
Air conditioner
Clothes washer
Clothes dryer
Refrigerator
Stove
Garbage Disposal
Plumbing, both and out, for all the faucets and toilet stools
Garage door
Garage door opener

These items have a way of failing at the most inconvenient times, and requiring immediate attention.
The house price may indicate that the current owner expects problems in the near future.
Note that the HOA may decide to replace the roof and raise your fee to compensate without your approval.
pkh01l
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Joined: Thu Oct 29, 2009 11:30 am

Post by pkh01l »

Another here that believes you should rent for now. Perhaps just look for a more affordable locale where you can get a 2 bedroom. Don't forget that buying locks you into that community for a while and I usually advise against that when your new in your career.
dorokhin
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Post by dorokhin »

I'm guessing your 1550/mo rent is not in Lowell....why don't you compare renting in Lowell vs. buying in Lowell? Also, in a couple years you're going to have to think about schools - it's been a while since I looked at all of those school rankings but Lowell doesn't inherently strike me as the place I'd want to send kids...
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