Tuesday, December 01, 2009

Buy or Rent

Entire webpages are dedicated to helping people figure out whether to buy or rent. However, my circumstances are unique.

Reasons to buy:
  • I would buy with cash, so there would be approximately no closing costs.
  • If I keep the purchase to just half my net worth, then the risk is not so big.
  • I save about $6,000 per year in rent costs.
  • I would have a home that I am free to play with, modify, practice my carpentry skills, paint murals on the wall, make lots of noise, be less bothered, totally pick my own housemates, accumulate possessions, etc.
  • Option of renting to earn about $300 (fairly conservative estimate, say one housemate in a 2 or 3 bedroom).
Reasons to wait:
  • Risk: Value could fall, or I could end up leaving so soon that the house is more hassle than benefit.
  • Maintenance would likely be around $500/year. (excluding major renovations, whose value most likely would be regained in the sale)
  • Taxes of about $1000/year.
  • Hassle with roommates.
  • Higher utilities if I don't get lots of roomates, maybe $200/month average with internet.
  • Greater distance to school OR paying up $1500 per year for parking + maybe $500 for driving costs, which would make distance mostly irrelevant.
  • Maintenance hassle.
  • Any possessions I accumulate to furnish the house now could be a pain to deal with when I move to the next place.
Summary without a roomate:
  • Annual savings = $6000, annual costs = $4-6,000, depending on whether I'm far enough to buy parking and drive much. Savings: 0 to $2,000.
  • Lots of fun, a whole house to myself, easier to host people, throw loud parties, invite a friend in transition to live with me a few months, sleep in great peace and quite, play house.
  • Lots of hassle: I won't always want to deal with maintenance.
Summary with a roomate:
  • Annual savings of about $4,000, midrange estimate.
  • Less freedom to rule the house, but necessarily less fun if the roommate is excellent.
Bigger investment picture: Chances are good that the housing market will rebound somewhat in the next few years. To be more abstract and specific, if I buy a house in a particularly crappy neighborhood, there is the potential for gentrification, led by me, to drastically increase the value. The value of a house in a swanky neighborhood, by contrast, has lesswhere to go but down.

5 Comments:

Blogger Mama JJ said...

Buy. Definitely.

9:54 AM  
Anonymous goodbadi said...

Well...money aside, footloose and fancy free has a lot of advantages!

6:24 PM  
Anonymous Mountaineer said...

I think it's a reasonable risk and wish you'd be at least close enough to the university to ride bike usually. (And closer to the train station!) Do you have properties in mind?

Forward your post to D and C for their thouerghts.

4:45 PM  
Anonymous Anonymous said...

Are you househunting or still just flapping your brain around about this? It's very exciting. But my husband says you also must factor in insurance.

Anna Schlonneger

5:54 PM  
Anonymous Anonymous said...

Corrections: Forward your post to D and K for their thoughts.

7:51 AM  

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