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Buy New Condo or Rent New Apartment on Same Block?(20 posts)

Buy New Condo or Rent New Apartment on Same Block?Fez
Nov 11, 2003 10:33 AM
This question probably applies more to those without children. I have the unique opportunity of buying a brand new condo or renting a brand new apt. Both units are nearly identical in all respects. Buildings have identical amenities.

Does anyone actually prefer the lifestyle of renting over owning?

Buying new right now is so expensive that the monthly payment is over 60% higher than renting. Prices have gone up so much in the last 2 years that I think future appreciation potential will be a bit slow for the near future.

Buying will be substantially more expensive, even after the tax deductions for interest and taxes.

Am I crazy? I actually kind of like the convenience and peace of mind of renting. I also like the mobility and freedom of knowing I could move anyplace else with minimal hassle.

I do invest in other areas and if I rent I would be investing the difference. Anyone else think renting is a good idea?
I would rent,TJeanloz
Nov 11, 2003 10:38 AM
Depending on where you are in life, and where you're going, renting may make more sense. The "American Dream" would have us believe that owning your dwelling is the epitome of financial prudence, but it isn't necessarily. A lot of people irrationally buy something because they emotionally want to own - even if it doesn't make financial sense.

If you're planning to stay in the same place for a long time (more than 5 years), it begins to make sense to buy. If your future isn't so clear, it usually makes more sense to rent.
5 yearsFez
Nov 11, 2003 10:56 AM
Is the 5 years something you pulled out of good common sense?

Or do you figure it usually takes at least that much time to "amortize" the huge settlement costs (in and out) and realize some appreciation on the property?
5 yearsTJeanloz
Nov 11, 2003 11:04 AM
5 years was sort of a general conclusion I came to after running the numbers many times on many properties. It depends on expected price appreciation, your earnings (hence the impact of the tax deduction), property taxes, other costs, etc.

Every scenario I looked at sort of gravitated to a 5-year breakeven horizon. Your results might be different.
and that's just the financial end of it (nm)ColnagoFE
Nov 11, 2003 11:25 AM
I'm not single but I think I'd rentColnagoFE
Nov 11, 2003 10:45 AM
Unless there is plenty of opportunity for appreciation or at least getting out of it what you paid (doesn't sound like it from what you said) then you are risking getting stuck with an expensive mistake. Just rent until you plant some more roots.
Buyfiltersweep
Nov 11, 2003 11:32 AM
On issue is simply that when you buy, your purchase price is fixed- unlike rent that increases annually (usually, unless the housing market is unusually soft).

I purchased a house about 6 months ago with about the same percentage increase. It will be a huge tax savings for me.

Don't kid yourself about appreciation- sure property costs have risen disproportionately in the last 2 years, but around here it is a bubble that has yet to burst. I randomly explored property sale prices in my neighborhood when I was shopping (at the county website) and prices are doubling at a fairly consistant interval. The longer you wait, the higher prices will continue to reach.

There are several online calculators that will show the total savings to you.
Numbers please53T
Nov 11, 2003 12:15 PM
I'd be curious about your actual numbers. For instance, in the same neighborhood the purchase price of an apartment will typically be 7 times the annual rent. This is a good check on the prices you are using for rent and buy scenerios.

What state are you in? In Mass we deduct a a portion of our rent from our state taxes, this skews the math a little. What tax braket are you in? The more you earn (pay income taxes on), the more the deduction is worth.

Do you have a planning horizon for this domicile? Another poster mentioned 5 years for brek-even, you asked ever so politly if that number was pulled from good commnon sence, where I would have asked if he pulled it out of his ass. I envy your tact. What is you planning horizon?

You must remeber that your estimates of real estate values in the near future are garbage. Don't take it personaly, since everyone's estimates of short term future values are garbage.

You are not crazy (disclaimer: based on what you have posted here). However, deriving peace of mind from renting (don't forget your lease obligations!) may be a sign of fear of commitment.
7 times rent?TJeanloz
Nov 11, 2003 12:41 PM
"in the same neighborhood the purchase price of an apartment will typically be 7 times the annual rent"

In Back Bay / Beacon Hill, a 1 bedroom is at least $1,250 / month (and that would be a crappy one), but you couldn't dream of buying a 1 bedroom for 7x that ($105K). You'd be hard pressed to find a studio for $105K. You'd be hard pressed to find a garage parking spot for $105K.

I ended up buying my house, but only after I decided that I wanted to be in Downtown Boston for a long time.
7 times annual rent would be heavenFez
Nov 11, 2003 1:53 PM
Some real numbers.

For a rough example, rent is $2,000 per month. That means the purchase price at 7x annual would be $168,000. I'd race out the door right now, immediately, and do whatever it takes to buy it. Then I'd pick up a few spares as investments as well.

But unfortunately, the actual purchase price for the condo is just under $400,000.

BTW, I have never heard of the 7x rule of thumb.
You've heard of it now!53T
Nov 11, 2003 6:07 PM
Well, it looks like renting is a bargain in the back bay, since the units are selling for over 16 years rent. This is purely real estate speculation pricing the units out of real tenants market price. At 16X you cannot buy the place (even for cash, or 4% variable rate loan) and make any money renting it out, so the only explanation is speculation of appreciation, a rich man's game.

I live in Mass, I've worked all over Boston. Living in the BB is nore of a lifestyle choice than a rational investment in real estate. It's kind of like driving a BMW sport utility. You spend the money just because you want to, not because it makes any sense. By way of example, $2000 per month would get you a mortgage (P&I, plus taxes and insurance) on a on $275,000 condo (assume 10% down) in Brookline, about 10 miles West of the BB. 275K in Brookline is a nice unit. Here is a calibration unit for much less:

http://www.realtor.com/FindHome/HomeListing.asp?snum=1&frm=bymap&st=MA&typ=1%2C+2%2C+3%2C+4%2C+5%2C+6%2C+7&poe=realtor&mnbed=0&mnbath=0&mnprice=0&mxprice=250000&js=off&pgnum=1&fid=so&mnsqft=&mls=xmls&ct=Brookline&ss_aywr=no&areaid=90008&sid=01D10B6E27F6C&snumxlid=1031880850&lnksrc=00001

Here is another:
http://www.realtor.com/FindHome/HomeListing.asp?snum=7&frm=bymap&st=MA&typ=1%2C+2%2C+3%2C+4%2C+5%2C+6%2C+7&poe=realtor&mnbed=0&mnbath=0&mnprice=225000&mxprice=275000&js=off&pgnum=1&fid=so&mnsqft=&mls=xmls&ct=Brookline&vtsort=off&ss_aywr=no&areaid=90008&sid=01D10C2A7384C&snumxlid=1029633323&lnksrc=00001

Good luck!
Yeah, but,TJeanloz
Nov 12, 2003 6:29 AM
$275,000 will get you a 'decent' unit in Brookline, but $2,000 in monthly rent will get you the pimpest pad in the entire city. $2K/month in Brookline in rent would get you a LOT more than the same $2K in a mortgage.
Rentmohair_chair
Nov 11, 2003 1:16 PM
If all you are doing is buying the same box you'd be renting, you might as well rent it. That way you can walk away a lot easier if you hate it. You are throwing away money, however. If you buy and stick around for a few years, you will usually get most of your money back in appreciation. If you rent, kiss that money goodbye, even if you invest the difference, as you claim you will do (Good luck with that!). I think you are deluding yourself on that point. I can't imagine what you would invest the difference in that is as safe as real estate, with as high as a return. Might as well buy the place instead.
You might want to look at P/E ratio of home purchasekilimanjaro
Nov 12, 2003 11:29 AM
I have an article by Edward Leamer, Director of UCLA Anderson Forecast that compares rental price versus purchase price from the perpective of an operating business' PE ratio.

Even tough I purchased over eight years ago I found the article very enlightening. If you e-mail me at kilimanjaro@rocketmail.com I can forward you the pdf file.
is this it?Fez
Nov 12, 2003 12:04 PM
from june 2002?

http://www.uclaforecast.com/uploads/forecasts/2002/june/articles/bubble.asp
As someone who is now shackled to a mortgage paymentFree2Pedal
Nov 12, 2003 11:52 AM
I just reviewed what it is costing me to own this place. (Don't ask why I didn't do this BEFORE buying--I have no friggin clue.) Anyway, even if I keep it for 5 years--and it may be that long before condo's begin to sell again--I will still expend over $700/month cash after selling. Now that's ONLY if I pocket the profit. If I, instead, use the profit to buy another home--which will likely be the case--then I'll have expended over $850/month cash. Is 700 SF worth it? I would have said yes 2 months ago--when I had a job--but now, I'm not so sure. Chicago is said to be a real estate trend setter. Well, let me inform you that condo's are not selling right now. My neighbor has had his on the market for 14 months. You are not crazy. Now is a good time to rent. Though housing is still gaining value, the prices ARE inflated and equity is suposed to begin to level out.
As someone who is now shackled to a mortgage paymentDuane Gran
Nov 12, 2003 12:42 PM
Well, let me inform you that condo's are not selling right now. My neighbor has had his on the market for 14 months.

This sounds like a great time to buy a condo as an investment property, but it may not be ideal as a primary residence. As they say, you make your profit when you buy real estate not when you sell, so it may be possible to get some condos for at a good deal right now.
ChicagoFez
Nov 12, 2003 1:33 PM
I have a friend in Chicago. He makes so-so bucks. He bought a new luxury condo in city, not too far from the lakeside and all the ritzy stuff. He said the builder was offering incentives, offering 5-figure price discounts and was very motivated to sell.

Sounds pretty odd, since here in the DC area, condos are usually sold out before they even break ground. And the prices are very high. Even resales sell very quickly.

Wonder why the market is so soft in Chicago?
reason the market is softColnagoFE
Nov 12, 2003 1:53 PM
glut in people selling, rising interest rates, and people getting let go from jobs.
Yeah, uh-huh...Fez
Nov 12, 2003 2:43 PM
But why Chicago more than other places?