Home Buying in New Jersey>Question Details

Sam, Home Buyer in Hackensack, NJ

At age 60, with a fairly large sum in savings, is it better to rent or buy a townhouse

Asked by Sam, Hackensack, NJ Sat Apr 11, 2009

Our monthly payments on rent are high,more than our monthly mortgage. We could put 40% down but that would mean going into our only savings. The monthly payments would not give us ability to save, Should we keep renting and keep the savings in safe investments such as cds. or are we spending too much on rent with no return, We would like to stay long term at the new townhouse but don't know whether to use our only savings. thanks nina

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Bobby Bukowsky’s answer
Are you nina or sam?

I don't know about dust settling and bottom being here but it isn't a bad time to start looking, it's definitely a buyers market and there is a lot to choose from and some deals to be had.

I wouldn't advise dipping into your savings to put down 40%, especially if there is a chance the market can dip again, you'd lose that investment. Use the banks money just in case and pay the PMI, many people in trouble with their mortgages now that used those 80/20 loans and other schemes to avoid paying the mortgage insurance are regretting it now.

Depending on the price range you are shopping in 40% may be too much to put down, at most put down 20% but if you can get affordable payments by only putting down the FHA minimum required amount 3.5% I'd do that. Why put your own money at risk when you can use the banks instead?

I'm an investor and have bought properties in the high $200K range that people bought for $600K 3 years ago, one guy put down over $100K of his own cash needless to say he regrets doing that now because when the value went down he lost his money instead of just the banks.

How much do you have in savings, what price range or how much are you willing to pay for a townhouse?
What is your monthly income? Are you living with any children?

I would look into some of the adult communities, you may be able to get into some very nice new homes that would cost most other people 3 times the amount just because they are younger then you. These communities are much like any other except your neighbors are in your age range and older. You don't need to be 65 or older, in many cases you can be in your 50's and be able to get into adult communities. Adult communities are not like the dreaded old age homes you may be thinking of. It's worth the look.
1 vote Thank Flag Link Mon Apr 13, 2009
At 60 years old, conservation of capital is the primary concern. The market is clearly dropping in northern NJ. The local outlook with respect to jobs is poor. Real estate is prone to very long cycles, so a loss now will probably not be recouped by a 60 year old.

There is really no compelling reason I can think of for a 60 year old to buy real estate in this environment. The tax deduction cannot come close to compensating for the risk. I disagree that there is no return in renting. The return for a 60 year old with no time to recoup is foregone losses. That amounts to a huge positive return.

Marc Paolella
Relocation Director
Member, Worldwide ERC
Licensed Realtor NJ
Licensed Appraiser NJ & NY
Century 21 Joe Tekula Realtors
Agent of the Year 2008
Owner: Sands Appraisal Service, Inc.
Phone (direct): (973) 584-4235
Search the Garden State MLS: http://www.marcpaolella.com/SearchMLS
1 vote Thank Flag Link Sun Apr 12, 2009
At your age, I would hold on to the cash and rent. Values are still dropping and at 60 it is not intelligent to risk capital losses. The correct answer is rent.


Marc Paolella
Relocation Director
Member, Worldwide ERC
Licensed Realtor NJ
Licensed Appraiser NJ & NY
Century 21 Joe Tekula Realtors
Agent of the Year 2008
Owner: Sands Appraisal Service, Inc.
Phone (direct): (973) 584-4235
Search the Garden State MLS: http://www.marcpaolella.com/SearchMLS
1 vote Thank Flag Link Sat Apr 11, 2009
I agree with John entirely that low taxes are key for you. I neglected to bundle into my statement that the combination of taxes, association fees, etc - are all the same to your bottom line and thanks to him for pointing out my error. Townhomes also can have high association fees and taxes too.

The total carrying costs needs to be very low indeed, for it to make sense to buy as an active senior. NJ is not known as a good retirement state overall. My last thought was for you to consider if staying in NJ is really the best thing for your needs or if it's time to consider moving South of NJ to a place really known for a much lower cost of living. But for all I know you may want to stay in this area to be close to your kids, grandkids, etc.

In any case, you'll have a lot to consider.
0 votes Thank Flag Link Mon Apr 13, 2009

There are people telling you to look into retirement communities, well they have not done their homework.
Most of the "retirement communities" although very nice.. are ridiculous on taxes.. 6000 -7000 a year on average, high monthly maintenance fee's, initiation fee's and other nonsense. The communities that have low taxes were built in the early 1990's. Yes, there are some cheap units you can buy.. but ugh, nothing , absolutely nothing like the newer "active adult" communities that have the great layouts and clubhouses. The cheap ones are the dreaded old age communities that you think of..

This is why I tell people to do their due diligence... The two people below me here talk about adult communities and low taxes.. they do not go in the same sentence and they are not cheap to buy either.

My opinion is that once you hit 55 your taxes should drop to a maximum $2,000 no matter where
you live. These adult communities, the towns that allow them are ripping off the elderly.
0 votes Thank Flag Link Mon Apr 13, 2009
Hi Sam,

If you buy just put down 20% - there won't be an advantage to doing more. With your situation, a new area with very low taxes is what is vital to you, to minimize the money you are throwing away on school taxes etc.

If you wish to stay in NJ that will likely mean moving down way South and target 55+ communities. You should seriously think about a big relocation at this point if you are retired - someplace with low taxes and a great area for your active lifestyle. Start thinking about what would really work for you.
0 votes Thank Flag Link Mon Apr 13, 2009
Which is cheaper? And, by cheaper, I mean is it cheaper to rent or own using a down of 20% and paying the monthly Principal, Interest, Taxes and Insurance along with the HOA . If you can rent the same or similar unit for less than rent it. Just keep in mind that the landlord can raise the rent when the market improves and by then the inventory will be less and the prices will have risen almost over night.
Web Reference: http://GregoryBain.com
0 votes Thank Flag Link Sun Apr 12, 2009
If, with a 40% downpayment, your monthly mortgage payments would take so much of your income that you would not be able to contribute to savings, perhaps you should consider a lower price range. Rent payments do not give you a return on your investment like owning a home does but do not jeopardize your future by buying over your financial comfort level. A financial advisor could help you allocate your current investments into the vehicles that provide the appropriate level of risk for you. A realtor can advise you about current and historical property values in your area. If there are homes available in which you would enjoy living that are maintaining, or increasing, in value, then perhaps you could consider buying. Speak with your accountant before reaching a decision so you can also weigh the tax consequences.
0 votes Thank Flag Link Sat Apr 11, 2009
re last couple of posts, NY was probably the last market to fall and Ca as well as Fl have had a free fall of values. My market isnt Hackensack so I wont comment about there but I will say in my market things are heating up. In many areas investors are making up a large proportion of buyers. Speak with local agents about the market you plan to purchase in. If you can buy for less than renting with a minimal down payment do not wait. Interest rates will go up, we are at rates we havent seen since the 40s. If nothing else you will have an investment that covers it's carrying costs. In nj even with the declines we have seen of 20-30 %, real estate is still in better shape than most peoples 401 accounts.
0 votes Thank Flag Link Sat Apr 11, 2009
Sam, there are some tax benefits that you will realize from buying a housse, and I am sure the RE Pros here will point that out to you.

However, I am sure you do realize that price of home ownership is not just the monthly mortagage you pay. Rent on the other hand is a number that is clear and transparent.

1) First, unless you are paying cash for the house, you need to pay for financing costs for the loan, which include the closing costs (points) and also the interest that you will need to pay for the life of the loan. For example, a $200K loan will cost you around $200K in interest over a period of 30 years on top of the principal.

2) As Laurie pointed out below, please be prepare to lose value for your house in the first few years. Let's say it will depreciate 5% in the next two years. On a $300K house, that's more than $30K you will lose just in those two years.

3) You will need to pay taxes. I am not sure what NJ rate is, but let's assume 2% . On a $300K house, that equals to about $500/month in taxes.

4) You will need to pay for insurance for the house. (usually around $100)

5) Townhouses usually carry high HOA fees, make sure you know how much that is per month. (usually between $100-$200).

6) Something broke? Well, you have to fix it out of your own pocket. Can't just call the landlord to come and fix it for you at their cost.

7) And when you are buying the house, you will be giving 3% to your buying broker, and when selling the house you will be paying another 3% to your selling agent.

Only you know the numbers for the above, so just make sure you do take them in consideration when calculating "monthly payments" comparisons between renting and buying.
0 votes Thank Flag Link Sat Apr 11, 2009
I would go with buying a place and putting as little down as possible.

First you get an interest rate of 4.5 to 5 percent, of which the interest and property taxes are -- at this point -- tax deductable. There are still interest-only loans available, if you want to maximize tax benefits and keep minimum payments low.

Second, you leave most of your money in your savings, and as rates rise, which they will, roll them into higher yielding CDs (or whatever your financial advisor or accountant recommends)

Third, if you have stocks, they are probably way way down. So unless there is some reason to plunk down 40 percent, don't bother.

Finally, to get a reverse mortgage, I believe you need to be 62 years old and you need a huge amount of equity. So i don't see that as an option, although it might be a possibility for you down the road.

Ruth Bonapace
mortgage specialist
0 votes Thank Flag Link Sat Apr 11, 2009
Hi Nina,

I would go for the purchase. ( I would not put 40% down...) Prices are down, interest rates are low and If you make a smart choice of properties you could wind up a winner in the long run and walk away with your intitial investment, your payments and then some. Due diligence is the key to the answer. You must do your homework and cross all of you financial T's and dot the i's before moving forward.

The fact that you are thinking of it and asking questions right now is a good start. If you want to discuss further feel free to email or call.

John Sacktig
Broker / Manager
Orange Key Realty
Office: 732-863-6969
Cell: 732-213-1409

0 votes Thank Flag Link Sat Apr 11, 2009
There are a number of tax benefits to owning (unless Corzine takes them away) If your long term plans will keep you in your current housing and it is cheaper to buy than rent, buy. If you have been able to save paying rent and your mortgage payment will be less than rent payment ,again buy. The savings you have are earning interest so remember to include the lost interest in your calculations. Predictions are for interest rates to rise so I would put as little down as possible when calculating.
0 votes Thank Flag Link Sat Apr 11, 2009
this is a question that only you can answer. if this is the only money you have, keeping the money in the bank would give you flexibility in case you decided to move elsewhere or were forced through unfortunate circumstances to have to move elsewhere. at this point in your lives do you really want to be responsible for the upkeep and maintenance of a house never mind the unexpected costs?
there is possibly another solution which would be to buy a home and take out a reverse mortgage which would give you either a line of credit, a monthly annuity until death or a monthly income for a fixed number of years. this is especially attractive if you are not concerned with leaving anyone anything substantial when you pass(which will hopefully be many, many,many years from now!)
good luck
0 votes Thank Flag Link Sat Apr 11, 2009
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