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Originally Posted by Lord Snooty
thingstodo wrote:
Every day you wait is giving away money for rent rather than gaining the tax deduction, paying into equity and gaining appreciation on your home - of course you need to but in an area when the prices aren't dropping. And even if they did drop, it would be part of a cycle.
The first line of that reply is the one most often used by desperate realtors trying to make a sale... just watch the tv real estate adverts that are now flooding our screens on since sales took a dive.
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Too true - most people get into a house thinking it's going to be hands-down investment gold. So not true! For many people it is a good investment, but that's not everyone.
Look at it this way:
How much money are you paying on rent right now? How much are you likely to spend over the next, say, 5-7 years? How much money would you be able to save in that 5-7 years? If you invest it in a reasonable-yield CD or money market, how much do you have?
Now take a mortgage. Figure out (there are amortization tools) how much you would pay in a down-payment, mortgage, increased utilities, and taxes in 5-7 years. Look at how much money you would be able to save/invest in that period paying the higher cost of the morgtage. Assume (big assumption) that your house increases in value 2-3% each year, and you sell it for your asking price. How much money do you have now, including the profit from sale and the equity you built up in the house with principal (non-interest) payments? Is it equal to the amount you would have saved in that 5-7 years paying, presumably, lower rent and saving more money each month?
In many cases it is, but it's a crapshoot because you're betting on that 2-3% increase. If you're going to stay in a home for the long haul, it's absolutely a good bet. But if you're getting out within 3-5 years, you are hoping and praying that the value of your home goes up more than the rate of inflation, and enough to get you out of the sale with more money than you would have saved/invested in the renting scenario.
And don't think the tax deduction for interest is going to save you - unless you're paying a shitload of interest, it's probably only going to help you exceed the standard deduction for the first few years.
Buying a house can be a great value, but you need to do your math for your particular situation. It's hard to factor in intangible factors that, for me, were important: having a fenced yard for our dog, being able to paint the walls and "nest," not sharing walls, etc. But if you're just looking for a place to live and don't care about the house vs. apartment lifestyle, let the numbers guide your decision. There's a bit of prognostication involved, but you seem like a savvy guy who can figure it out.