Home Buying in 07432>Question Details

Laurie, Other/Just Looking in 07432

Next question--Is it better to just keep renting if I don't plan to stay in the area more than a year or two?

Asked by Laurie, 07432 Thu Jul 17, 2008

I currently rent a house in the town where I grew up, but after my daughter graduates high school in 2009, there is no reason I HAVE to stay there...I commute to Manhattan and could live somewhere less expensive when she goes to college. The thing is there's a house on the market I really like and even with taxes it would only be about $400 more a month in payments. I realize the risk is that I might not be able to sell. I also realize that I wouldn't build equity in so short a time, but then again, paying rent isn't building any either. Does the income tax break make it worth it? And are property taxes deductible as well as interest on the mortgage?

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Stay where you are...based on the information you've provided. To touch on a few points

The transaction cost in selling a property is, roughly speaking, around 10%. That means that, if you buy at market value, the market has to appreciate about 10% before you break even. Although no one has a crystal ball, and I don't know your geographic area, in many areas I think it's safe to plan for some further price declines, then a leveling off, then perhaps a slow climb. If there is a dip, it could take 2-4 years to get back to today's prices, and another year or two to see 10% appreciation. Sure, I could be wrong. But I really don't think that in the next 12-18 months values will appreciate by 10%. And remember: You need that 10% appreciation just to break even. So, to use some hypothetical numbers, let's say the house you like costs $600,000. You buy it. It declines 5% in value over the next 18 months. It's now worth $570,000. You decide to sell it. You might net, very roughly, $517,000. But you owe $600,000. Are you prepared to bring $83,000 to closing? (I know; you'd put some money down, but you'd still be out $83,000.)

But let's suppose prices just stay flat. No decline. You're still out about $60,000. Meanwhile, you've been paying $400 a month more for the pleasure of owning. Over 18 months, that's $6,000. Yes, you have saved some on the tax benefits--the interest and tax payments. Still, spread that $66,000 over 18 months, and (pre-tax) you've spent $3,667 a month more for the pleasure of owning.

Check with an accountant to determine the tax advantages of buying--it'll be affected by your taxable income and by the amount of deductions for interest and taxes. I suspect, though, that you might be better off, financially, renting.

Now, if you can get a fabulous deal on the house--say 20% or so below the comps--then you probably could buy, survive a further (moderate) decline in the market, and sell in a year or two and at least break even. Still, do you want to go through the hassle of buying, then trying to sell, meanwhile facing the uncertainty of the market? That's your decision, but a fair number of people would answer "no."

Consider waiting until after your daughter graduates from high school. You'll have a better sense of market conditions, then. You'll also probably have a better sense of whether you want to stay where you are or move somewhere else.

Hope that helps.
1 vote Thank Flag Link Fri Jul 18, 2008
Don Tepper, Real Estate Pro in Burke, VA
If it were me (and I own several properties) I would stay put in your rental.

Yes, there are financial benefits to owning, but there are also expenses. A local agent can tell you how "good" a buy you would be getting for the home you are interested in, but keep in mind that in general, housing prices are still declining--some towns at a slower rate than others--you will have to pay for any maintenance issues that arise when you own the home, and you will have to pay a commission to an agent when you sell (unless you FSBO) You might want to take the numbers to an accountant and run them by him/her for a professional financial opinion.

If you told me that you would be renting for 5 years or more, I would tell you to buy.
Web Reference: http://www.dianeglander.com
1 vote Thank Flag Link Fri Jul 18, 2008
the expenses associated with the purchase and sale of a home are fairly substantial. Spread pver a number of years - which you would normally expect to do - they become acceptable but I wonder if you would find it worthwhile to absorb those expenses over a year. Especially with the market in its current state you might well be unable to sell the home a year from now. Much as it goes against my normal advice I tink you wouold be better served by staying where you are and saving toward a purchase later ( and if your kid is going on to college your expenses are going to be pretty high for a while.
1 vote Thank Flag Link Thu Jul 17, 2008
Does the house suit your needs and wants? Can you absorb the additional 400 per month? Is this a great buy that will appreciate when the market rebounds in 2009 -10 ?

Answer these questions to yourself and then read Joan's answer below.
0 votes Thank Flag Link Thu Jul 17, 2008
You dont "have" to, but would you like to live there? There are benefits to owning both financially but also in having the control over painting, planting, and in general just living. If you dont plan to stay more than a couple of years in any event it is likely better to just rent. Currently in most areas it still costs less to rent than buy and you dont have to deal with the hassles of maintenance and ownership. In addition where I am prices are falling. If you bought now and sold in a year or two and if the decline continues as it has been, you will lose 10-20%. This can really make a difference financially.
0 votes Thank Flag Link Thu Jul 17, 2008
There is a tremendous income tax advantage to owning rather than renting. You pay rent with after-tax income, and you pay a mortgage, mostly with before tax money. It's like the govt. paying $1 of every $4 your monthly mortgage comes out to. That's every year. Yes, property taxes are deductible.

If you sell after you've lived in a house for 2 years, you even get a break on any gain you do have. You can have up to a $250K gain and not pay capital gains tax on it.

Joan Prout, MBA
Broker Associate
Jersey City, NJ
Web Reference: http://www.JoanProut.com
0 votes Thank Flag Link Thu Jul 17, 2008
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