Renting vs Buying

[donoAZ]

Hey friends--
I'm starting at University of Colorado this fall and have been debating -- help would be helpful. Anybody have advice regarding renting vs buying a home during school? I realize I'm not talking to realtors here, but in terms of school workload and trying to maintain a home, lawn, etc, and not losing money, vs the ease of renting an apartment. Anybody been down both roads? Anybody have good luck with buying? Commentary form people in the Denver area are especially helpful Thanks.

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[KY2007]

I am not in Colorado, but I can still give you my two cents. I think that if you are able to buy you should. I bought a new house so I don't have to worry about maintenace, and mowing doesn't take much time. About half of the people in my class own their own homes. It's definately better than throwing money away with rent.

 

[DDS2BE]

I have exactly the same debate in my mind. There is always work to do with a house no matter if is new or used. On the other had, there should be a lot less hassle with a condo (no lawns to make), but on average condos go up in price a lot less than houses and in some cases might even go down in price.

So, anyone, please help us make our minds 🙂

 

[dentite001]

You will pay 3X the principal with all of the interest. After a 25 year mortgage, a 300k home may cost you 900k. However, if you are able to buy a home with many rooms and rent them out, you should be able to pay the mortgage and even make a small profit.
Before you make a decision, shop around for the lowest interest rates and get it locked in. You may want to purchase at the end of summer when new students start looking for housing in the fall.

 

[openwyd22]

I would advise you to buy rather than rent if it is financially possible. You really need to punch some hypothetical numbers with cost of the home, interest rate, etc. You can win with buying in many ways. Some, granted, it is a small amount at first, but some of your payment will go towards the principle. With renting, you get none. Right now, we are accruing about 230 dollars a month in principle. $2760 per year. At the end of 4 years, we will have $11,040 more than with renting. Along with all of that interest payments and taxes, you get a tax break which usually will equate to 100-200 dollars per month cheaper. ( PM me if you want to know the exact details of how this works) Plus you have the huge potential of appreciation with buying your own home. If you educate yourself on real estate, interest rates, and the area market, you can be very successful. Icing on the cake is the fact that you have the pride of being a homeowner and you will most likely be happier. I always hated hearing other renters, whether above, below, or on the sides of my apartment.

I am in the same boat as KY2007. My wife and I bought a new home for a few reasons. With a new home, you have a better chance of nothing going wrong (plumbing problems, leaking basements, or having to get a new roof). They could happen, but they are not likely.

You also get to live in a home that you will love. When renting, a lot of times, you must settle for what is there and you also can't make any real changes.

Another thing we considered is that their is a chance of us moving right when I am finished with school. If this is the case, you want to have a home that you can sell reasonably fast. An older home may take longer to sell and you may not get your asking price.

Overall, there are positives and negatives of home ownership, but the benefits far outweigh the risks if you are an educated, intelligent buyer.

 

[podarski]

how do you afford the payments while you are in school, do you just use the loans you take out or what?

 

[SPBest]

My answer would be, it depends. A lot of it depends on where you are looking. In my case I live near Ft Lauderdale, FL. My wife and I rented a 2/2 apartment for one year, after that our rent was going up so we looked for a house. Because of the market in South Florida we found a home that met our needs this past May. Based on recent home sales in our area with comparable features we have already made about $30K jusst on appreciation. A classmate of mine has seen his home appreciate by about $80K in 1 1/2 years.

To make it more affordable you could consider a 5 year ARM. You end up with smaller payments because you are paying only interest, no principle. Depending on your market this may be a good option, I'd look into it.

As far as the amount of time on maintanance. That's a tough one. I have a larger yard so it does take some time, and I have to mow year round. My friends with newer homes have smaller yards and it's not an issue with them. But watch out for Murphy because he'll kick your ass. Of the 4 hurricanes that hit FL this year 2 were close enough to cost me alot of time and some money. Things will occasionally go wrong, but I would still buy a home, knowing what I do know.

 

[ncalcate]

Based on recent home sales in our area with comparable features we have already made about $30K jusst on appreciation. A classmate of mine has seen his home appreciate by about $80K in 1 1/2 years.

To the OP, I just want to play devils-advocate here. Real estate doesn't always go up. Just ask anyone who bought real estate in the late 1980s. For those people, after the bottom fell out, many of them had to wait 10 years before their home went back up to the price at which they ORIGINALLY paid.

It is true that real estate has been a great investment over the past 15 years. But then again, so was the stock market in 1999, and we all know what happened there. I remember lots of people telling me in 1999 how much money they made buying tech stocks, and they lost their shirts.

My point is, don't buy in assuming there will be price appreciation. I would do an analysis like that of openwyd22 - see how much you would pay down the principle over 4 years. Then, see if that amount would exceed that which you would have to spend in closing costs, attorney fees, etc. So if you think you could pay down the principle by say $15K over 4 years, weigh those costs against all the costs associated with the transaction (loan origination fees, 6% broker fee when you sell, attorney fees, appraisals, points, etc.). If you come out ahead, then that's great. If not, then you might want to reconsider.

Sure, there is a chance for price appreciation, just like SPBest points out. But it's not guaranteed. Don't jump into a purchase thinking that your house will automatically jump in value.

Good luck in your decision.

 

[ItsGavinC]

I agree with many of the above posts. It depends on where you are living, in a broad sense and in a smaller sense. Home here in the Phoenix area are appreciating at an *average* of 35% each year, and there is no sign of slowing anytime soon.

Because of that, buying has been a wise investment for many people. It isn't for everybody, though, and simply doesn't fit the budget of every student.

 

[JavadiCavity]

I owned a home. We acutally owned it for a length of time similar to dental school. Unfortunately, we didn't see sweet appreciation or get a stellar price on the home. In fact, we lost about $7,000 on the whole deal--thanks to the new developments that sprung up right next to our neighborhood (why would people want to buy an older home in an adjacent neighborhood, when they could have brand new home for only $10,000 more?).

I agree with the above. In the short term, buying a home can be risky. Interest rates are still fairly low, but as the economy gains more steam, interest rates will rise. When that happens, the market will soften signifcantly (i.e. prices will come down). That's good for buyers but bad for sellers. Therefore, assuming that your investment is going to appreciate by X% in four years is a gamble. It would be like assuming that just because in the late 90's portfolios were climbing 60%+ a year that the trend will continue indefinitely--obviously not the case in the early 2000's.

The argument that buying over renting prevents you from throwing away money isn't 100% accurate. During the first 10 years, the majority of your payment goes toward interest (money you'll never see again). In fact during the first years, 90%+ goes to interest.

Renting is a good deal. The monthly payments are fairly similar to mortgage payments and you don't have to worry about selling or maintenance.

However, if you can get a 4-plex or a duplex for a good price and rent out the other units, it might be worth it. In fact, if I were going anywhere besides San Francisco, I'd probably pick that option.

 

[podarski]

how do you afford the payments while you are in school, do you just use the loans you take out or what?

Anyone have an answer for this

 

[JavadiCavity]

yeah, you use your loan.

 

[USAF_Dentman]

I would just rent...not worth the hassle of buying.

Get yourself an efficiency/studio or share a room with your buddies (assuming you're not married)..It'll save you money and the hassle.

 

[bouncy_ball]

I would just rent...not worth the hassle of buying.

Get yourself an efficiency/studio or share a room with your buddies (assuming you're not married)..It'll save you money and the hassle.

What is an efficiency?

 

[USAF_Dentman]

What is an efficiency?

Its a big single room w/ kitchen and a bathroom

 

[Dr.BadVibes]

I bought a place....best move Ive ever made!! Its totally gonna pay off in the future!

 

[jmac81]

How does buying affect your fin. aid? Will I get less financial aid if i buy? I am thinking about it because rent is riduculous out here in cleveland

 

[ncalcate]

How does buying affect your fin. aid? Will I get less financial aid if i buy? I am thinking about it because rent is riduculous out here in cleveland

From what I understand, it shouldn't impact your financial aid package. If you have equity in your home, that is NOT considered an asset that will impact your EFC. For example, if your home is appraised at $150K and your mortgage is $100K (which means you essentially have $50K in equity), that $50K is not considered in your EFC. You won't even be asked this info on your FAFSA.

So for all of you rich trust-fund babies out there (I doubt there are any), this is a great way to hide money.... just buy a home with cash, and then you no longer have to report that cash as part of your net worth.

 

[SPBest]

Just to puts minds at ease, I never said buying was the answer because you will make money. First off I said it depends. The market in South Florida is ideal. The bottom will not fall out because many people want to live here and there is no where else to build.

You may not find the similar situation where you are. That's why it depends!

 

[openwyd22]

To the question asked earlier, you do pay for the home payments with your financial aid money. If you're married that helps a lot, bc your spouse can be a huge help. In a lot of cases, the financial aid money delegated to pay for rent/living expenses can equal a mortgage and associated costs. This is because of the interest rates. I know others in my area that pay the same or even $50-100 more per month to rent than I pay for my mortgage, taxes, and insurance.

As far as the appreciation goes:

Try to make an educated decision on buying a home. Having that potential for appreciation is one of the reasons for buying a home, but you can't count on it. I think you should compare and contrast buying vs. renting and leave appreciation out of the equation. If buying sounds better at this point, I wouldn't hesitate to buy b/c of the potential appreciation as a backdoor kicker. If you do your "homework" right, you will have a great chance for an increased value.

 

[bouncy_ball]

I bought a place....best move Ive ever made!! Its totally gonna pay off in the future!

Were you able to buy a new house in Philly? Or are all the houses there old?

 

[jdcinza13]

I was born and raised in Colorado, within 10-15 miles of where the new dental school is being put in. Typically, you won't be purchasing a large house, or even a house with a large yard, so I wouldn't worry too much about upkeep on the yard. The snow will start to fall around the mid-end of September and typically last throught the end of April. This is going to put the majority of your "upkeep" time when you are out of school for the summer...You will have an overlap of course, but it shouldn't be too bad.

I would recommend purchasing if you have a down payment, but only if you have a down payment so you don't have the PMI, but over a 4 year period, even that becomes negligible in the amount of equity you will gain just because of real estate increases. Ultimately, look at your budget and decide what you can afford. Don't worry too much about upkeep.

 

[Geezer99]

I would recommend purchasing if you have a down payment, but only if you have a down payment so you don't have the PMI, but over a 4 year period, even that becomes negligible in the amount of equity you will gain just because of real estate increases. Ultimately, look at your budget and decide what you can afford. Don't worry too much about upkeep.

I agree with you that upkeep should play little role in the decision, but you should also take into consideration whether you will reap any of the benefits of owning...ie. Tax benefits. If you are a true student and you are unmarried or your spouse does not work, then there is absolutely no tax benefit to owning a house. (as I understand it...I may be wrong) I have looked at the $200,000 range and about $700-800 every month goes towards interest...great for a tax write-off...but otherwise fairly consistent with rent. The denver housing market has not increased too much in the last 5 years....barely enough to cover the cost of selling.

If you really want to be in a house, then buying would probably be the thing to do, but if you are just as happy sharing an apartment with roommates then you should definetely rent. Aurora housing market is probably not the best investment right now (but who knows) Rent, and then put the extra money that you would use to buy into a mutual fund....my bet is you would make more money.

 

[donoAZ]

I was born and raised in Colorado, within 10-15 miles of where the new dental school is being put in. Typically, you won't be purchasing a large house, or even a house with a large yard, so I wouldn't worry too much about upkeep on the yard. The snow will start to fall around the mid-end of September and typically last throught the end of April. This is going to put the majority of your "upkeep" time when you are out of school for the summer...You will have an overlap of course, but it shouldn't be too bad.

I would recommend purchasing if you have a down payment, but only if you have a down payment so you don't have the PMI, but over a 4 year period, even that becomes negligible in the amount of equity you will gain just because of real estate increases. Ultimately, look at your budget and decide what you can afford. Don't worry too much about upkeep.

That's helpful, thanks. I'm married; my wife was a loan officer for 2 years, so believe me, she's all over the numbers and a 3% per year appeciation (which we thought was pretty modest) would make the home we're looking at building profit 18k over 4 years. That's on a 3/1 arm, interest only payments, and 10% down. Financially, it looked like a no-brainer, though the caviat must be made that appreciation is never guaranteed, and we realize this. That's why the question was reduced, for me, to whether or not I wasnted to deal with home maintenance, which it sounds like I could probably handle. At this point, it looks like we'll probably go ahead and build this place, and take our chances on appreciation. Thanks everybody for the input.

 

[albuquerquegirl]

Question:

When everyone says they bought a house before or while they're in school, did you guys (or gals) actually sign the loan paperwork? Or did somebody do it for you?

Do banks actually loan you money for a house when you will just be paying for it with more loan money, and you won't be working 🙄 ?

Please explain.

 

[rocknightmare]

i think parents usually become co-signers

 

[albuquerquegirl]

Even if there was someone else that cosigned, that still means that a bank was willing to loan money to a full time student. This still doesn't sound right.

Is this the case?????

I'm thinking that when most people say they bought a house they mean "My parents bought a house," or "My wife bought a house."

 

[SPBest]

Question:

When everyone says they bought a house before or while they're in school, did you guys (or gals) actually sign the loan paperwork? Or did somebody do it for you?

Do banks actually loan you money for a house when you will just be paying for it with more loan money, and you won't be working 🙄 ?

Please explain.

No, actually my wife and I bought this past summer. Luckily for us she works. However, her income was not enough to qualify for the loan so after talking to a mortgage broker got a loan by stated income (which will raise your interest a percent or so). In this way we qualified. but banks won't give a loan knowing that it will be paid with money from another loan.

 

[albuquerquegirl]

Thanks. I knew it was too good to be true.

 

[jdcinza13]

That's helpful, thanks. I'm married; my wife was a loan officer for 2 years, so believe me, she's all over the numbers and a 3% per year appeciation (which we thought was pretty modest) would make the home we're looking at building profit 18k over 4 years. That's on a 3/1 arm, interest only payments, and 10% down. Financially, it looked like a no-brainer, though the caviat must be made that appreciation is never guaranteed, and we realize this. That's why the question was reduced, for me, to whether or not I wasnted to deal with home maintenance, which it sounds like I could probably handle. At this point, it looks like we'll probably go ahead and build this place, and take our chances on appreciation. Thanks everybody for the input.

Just out of curiosity, why would you do a 3/1 ARM? I understand the reasoning behind an ARM, but in your case, you will be in school for 4 years. Why not do a 5 yr ARM that may be a little bit more each month, but not that much more and have your interest rate raised while you are still in D-School. If you do a 5 yr, you will be set for all of school and it will give you some breathing room out of school. With a 3 yr, your interest rate will go up by almost 2% in the in the same period with a 3 yr where your 5 yr will stay the same. Over the 5 yr period, you are looking at less money total....