To buy or rent?

[Puritan Sailor]

Perhaps some of you seminary grads can help me out. I'm getting out of the Navy soon and will start my seminry studies shortly after. But I have a decision to make, to buy a house around the area I'm going to seminary, or to rent an apartment or house. Part of this is because I do not wish to throw away money on an apartment and I'd like to start building up some equity. But seminary will only last 3-4 years and I don't know if 3-4 years of equity would really be worth the hastle of buying and selling. I know I will still be working part-time either way cause the bills have to be paid and I have no rich benefactor to pay all my expences. So, anyone have any experience in this area, or some sound advice?

 

[New wine skin]

A house can and usually does require lots of ongoing maintenance etc... You will not want this while in school if your trying to go full time. And yes, building equity is nice, but a home can depreciate and leave you in a financial pickle. I have seen it happen. Now the last few years have been unusual since the low interest rates and depressed stock market tended to push real estate up in most parts of the country. In the short term, people will feel "left behind" and percieve real estate as a great investment, which it can be so long as you buy low and sell high, however entrance into real estate today, can be somewhat risky if your buying in a overbought market, such as CA, or east coast. Also consider that closing costs, taxes, insurance, repair costs, etc can often become very expensive. I am currently having to replace an AC unit which is the cost of a full semester of tuition. Don't forget to buy a lawn mower, fridge, washer/dryer etc.

Now for the good news... Buying a house now you may lock in under 6%, which can save thousands over the life of a loan. If you ever need to move you can always rent the house. There is something to be said for privacy and not having a loud neighbor living above you. The interest is tax deductible. You can also get a roomate to help off set expenses.


Hope this is helpful and provides a balanced view of both sides.

Blessings
Scott

 

[C. Matthew McMahon]

I would go the house route.
After 2 years of residence you can seel the house and not pay taxes on the transaction if you have lived there for that time, and then use the money to put a partial payment, or part of that money as payment, on the next house. So if you live there 4 years the cost of the home will obviously go up (you will make money.) You may also want to think about a townhouse or condo instead of a house. As stated in the above post, houses take time and maintenance. fininding a two bedroom condo is often easy, and if it is in a good location then the equity will build up, and a roommate could help with the cost.

 

[Puritan Sailor]

Well, I already have 3 roommates. My wife and 2 kids So I don't think that route is possible unless I found a duplex for a good deal. But thanks for the advice so far. It's helpful.

 

[wsw201]

Puritansailor,

I have been in banking and finance for over 24 years and based on my experience a house is not the best investment. A mortgage guy told me long ago that you should buy a house because you want to live there, don't look at it as an investment. You will only make money on a house based on market equity. The principal portion of your mortgage payments are very small through the first half of the mortgage and throwing in the downpayment, you are not really gaining any equity. When you sell all you are doing is getting your money back. You can look at this as a forced savings plan (assuming the RE market doesn't go down and selling costs are not too high). If the RE market in the area is rising faster than the inflation rate it might be worth looking at but you would need to consider all the costs of owning, ie; downpayment, closing costs, maintenance, furnishings, etc.

You are not necessarily throwing away any money if you rent. A cardinal rule of financing is "CASH IS KING!". The only deductions you get from owning a house are RE taxes and interest. Based on your tax bracket, look at the after tax costs plus ownership costs and compare them to the costs of renting. If renting is lower, (and you can find an apartment or house that will work for your family) go with renting, you'll save money in the long run. Cash flow is what you need to consider.

 

[Gregg]

Are you going to seminary to become a pastor, or to just further your education?

 

[Craig]

I'd consider a house...buy something inexpensive (as those houses can appreciate more quickly)

Maybe even buy a duplex or more...let someone else build up most/all of your equity and sell it.

 

[fredtgreco]

Patrick,

In my opinion, having just faced this decision, it is NOT a financial decision. There are pros and cons to both sides (as has been pointed out). What is CRITICAL is to find out what living accomodations are like. Here are RTS Jackson, for example, except for the down payment, the monthly cost of owning is about the same as renting. You get about 500 sq ft more in the house, and the privacy for a family is priceless. In fact, nearly every student here I know that is a bit older than usual (say in his 30s) and has a family has either tried to find, or taken as soon as possible, an internship or any job that came with a manse. This is true even if the manse was 1+ hours away from school and made a commute.

I live 5 minutes from school, in a nice-ish neighborhood, in a modest ranch and we are the envy of many. Our kids can play in the backyard, we don't have to worry about noise, and we can easily practice hospitality.

If you buy, there is one most important consideration. The SINGLE vital thing is resale. Do not buy a condo if they don't move VERY quickly in the area. Don't spend too much even if you can afford it - cheap to mid level houses move faster. An incoming student might be a potential buyer. Get a GOOD real estate agent, and drill them - "I only care about resale. I need to live in this house for 3-4 years, not the rest of my life. I need enough market growth to cover broker's fees when I sell."

We bought not to invest. We only wanted a break even, with the benefits of the home. You can get an unbelievable rate - you should not pay more than 4.5% DO NOT get a 30 year loan. You will probably only live there 3-4 years, so take out a 3 or 5 year ARM. Mine was 3.75% !

 

[ChristianasJourney]

If you consider the well being of your family--and the raising of your children in a Godly enviroment and under controlled circumstances--I say the house wins hands down!

From a monetary view I still think the house is better. But even if it wasn't -- I would make the financial sacrifices necessary to put my family in a house as opposed to an apt. More so if you homeschool, or intend to homeschool.

 

[Gregg]

[quote:e72aceb00e][i:e72aceb00e]Originally posted by ChristianasJourney[/i:e72aceb00e]


From a monetary view I still think the house is better. But even if it wasn't -- I would make the financial sacrifices necessary to put my family in a house as opposed to an apt. More so if you homeschool, or intend to homeschool. [/quote:e72aceb00e]

Reply...

That's right, especially if some states don't recognize "apartment schooling" as appropriate schooling.

 

[Gregg]

[i:eb83489434]Originally posted by New wine skin[/i:eb83489434]

There is something to be said for privacy and not having a loud neighbor living above you. The interest is tax deductible. You can also get a roomate to help off set expenses.

_________________________


Reply...

That's right. You may have a neighbor living above you practicing his bagpipes at 0530 in the morning..

I have a friend who built a race engine in his apt. The kitchen and pantry was the engine room and the bedroom was the transmission room. He rebuilt a snowmobile in there also.

[Edited on 2-17-2004 by Gregg]

 

[exscentric]

If you go for the house, be sure to look into a VA loan as there are some breaks and also be sure to ask the finance people about first time home buyer programs and any other assists that might be around. Depending where you are settling in there may be local assists available.

If going for an apartment, consider managing one. You get cheap to free rent plus some pay.

Just some thoughts.