Buying vs. Renting : My specific situation

tjt · Post by **tjt** » Sat Mar 26, 2011 7:00 pm

I'm planning to move soon and take a new job, partially because I want something new, but mostly because they will pay my expenses to move and cover my closing costs as I step out of this ridiculous $400K house and trade it for something MUCH smaller.
I'll probably only stay in that city (Colorado Springs) for 2 years, maybe 3 unless we fall in love with it. After 2 years, I retire early (extremely!).
So as we look at houses and I run the math, I'm trying to figure out the best option. Here are my calculations, I want to see if anyone sees a flaw in it.
A house that is acceptable to my wife (she's not as ERE as I am) will cost $140K. I'll pay cash, so I'm assuming no closing cost fees to the bank and hopefully the ability to negotiate a lower price with the seller. When I sell it will cost me about 5% in realtor fees: $7000. The opportunity cost, assuming a 7% ROI of having that $140K sunk into the house is $19,600, so the overall cost for 2 years is: $26,600. Now I need to add insurance (~1%) and property taxes (1%), which gets me up to $28800. This comes out to $1200 per month over 2 years, with that number dropping the longer I stay.
Renting should be about $1250 per month. So buying is cheaper, but seems like a wash to me.
As I look at tie-breakers, I think that home ownership offers inflation protection and also has a better benefit if we do decide to stay longer. Afterall, 2 years flies by. However, home ownership also comes with more work and some risk to major fees if something breaks.
Seems like a wash, so I'm leaning towards home ownership since I think there's a reasonable chance we like it out there and decide to stay after I retire.
So what do ya'll think? What am I not considering?

AlexK · Post by **AlexK** » Sat Mar 26, 2011 7:37 pm

What if the market goes down while you are in the house? I think this is very likely. There are still closing costs if you pay with cash: title insurance, escrow fee, recording fee, inspections. Expect at least $1500. The realtor fee is traditionally 6%.
A good strategy would be to buy a house that has potential for good rental income, that way you don't have to sell it later. Unfortunately the best rentals for income are not in the best neighborhoods.

chilly · Post by **chilly** » Sat Mar 26, 2011 7:43 pm

The only worry I'd have is what I expect to be a continuing decline in the housing market. A quick glance seems to indicate Colorado Springs has been a pretty stable market though, so in your shoes, I think I'd go with a home too. That's if your $140k ~ $1250/month comparison is fairly assessed... that seems like a good own/rent ratio to me. If you intend to reach your ERE goal while in that residence - then you wont' be in a rush to sell or move on - so flexibility of renting isn't really an issue either.

George the original one · Sat Mar 26, 2011 7:50 pm

I'm going to weigh in on the side of renting (this time). You're moving to a town that you're not familiar with and it's very likely that the first home you move into will be "wrong". It might be too expensive or in the wrong neighborhood or not laid out for the lifestyle that you end up choosing. Purchasing a house right away is a rushed commitment for a large chunk of capital... take some time in a rental (3-6 months) and learn the market before jumping into a purchase.

Jeremy · Post by **Jeremy** » Sat Mar 26, 2011 8:12 pm

If you own, you also have to do your own maintenance.
The realtor fee is usually 6%, both when you buy and sell, although it is usually split between the seller and buyer. Expect to have closing costs if/when you sell in 2 years as well
The big question is what are the odds on you actually moving in 2 years?

mikeBOS · Post by **mikeBOS** » Sun Mar 27, 2011 4:00 am

I like George's thinking. Get a month to month or sign a 6 month lease somewhere, get to know the town, where the deals are. Watch the real estate market in the area for six months, then buy.
I know when I move to a new city I always end up wanting to move to a new part of town within a few months once I've gotten to know the place, where the markets I like are, where the buses go, where the traffic is at different times of day, etc.

Less_Is_More78 · Post by **Less_Is_More78** » Tue Mar 29, 2011 3:08 pm

Hands down, I would rent. Selling a home can be very difficult and stressful. I am in a home that I cannot sell right now and I think that the market is only going to get worse. You don't want to be stuck in 2 years when you want to move.