Over time, all things being equal, most people have found that it is better to buy than rent. Briefly, the benefits of home ownership include, but are not limited to:
1 - Holding an equity stake in a valuable asset
2 - Building wealth over time with an inflation resistant asset
3 - Realizing substantial tax savings (consult with a qualified tax advisor)
4 - Having control over your domain and not subject to the whims of a landlord
5 - Establishing roots in a community
The time frame you mention creates a special challenge and urgency. It really depends on the personal choices you and your spouse want to make. Some questions worth asking yourself are:
1 - Are you completely satisfied with your current lifestyle?
2 - Would you be comfortable spending 35-45% (before tax breaks) on housing? You now spend around 10%. The difference is closer when tax savings are factored in (consult with a qualified tax advisor)
3 - Are you sure you are leaving in 2 to 3 years and will you never come back?
4 - Would you have to sell when you leave, or could you keep the home as an investment, or hold it until you return?
5 - Is it possible that 5 to 10 years from now, you are still living here and may decide to stay forever (I know people in this situation)? Would you regret the decision you made in 2008?
The implied question you seem to be asking is "Will I be able to recover my investment if I have to sell in 2 -3 years?â€ No one has a crystal ball and no one can make ironclad predictions. The best we can do is provide historical data and assess current conditions. In general locally, real estate booms have lasted 3 - 5 years and shown gains of 50 - 100%, while downturns have lasted 2 - 6 quarters and shown losses of 5 - 15%. I recently attended a seminar where a respected real estate analyst stated that we are 6 months into a downturn that will probably last 12-18 months (most likely 18 mos.).
To be fully diligent, you need to focus on micro-markets and analyze the prospects for the exact neighborhood you are interested in. For instance, parts of Cupertino are very strong despite turmoil in other parts of the county. Engage the services of a qualified real estate professional to get this local data to make an informed decision on whether it's worthwhile to buy now and do your risk assessment to judge how you should fare in the future. Again, this should be done in the context with your overall lifestyle needs and your comfort with assuming risk.
I hope you find this advice useful and interesting.
Simple quick answer, for two years, don't buy! But only if it was that simple. This is something you need to look at details and analyze the data carefully. I'd be happy to sit with you and go over different scenarios to help you make a decision.
I personally believe its a pretty terrible time to buy in general but with your max of 3 years, there is no way you could make up the ground of the 3-5% closing costs to buy and the 6% commission to sell. If you were going to be here much longer, then it could make sense if you were extremely diligent and found a good place in a great location and made sure you didn't overpay, but on your time horizon, this very likely isn't possible.
Without knowing your other requirements, i do not want to give you any suggestions. But when you Buy you have costs attached to the Purchase, and when you Sell, you have about 8% selling costs attached to that. So if you buy in Cupertino in an excellent area where your property value does go up evey year, you may break even in costs i 3 years when you Sell.......atleast you wont loose money!
here is a Buying V/s Renting pros and cons....
Advantages of Buying vs. Renting
Rents are not deductible for income tax purposes.
The portion of the monthly mortgage payment that represents taxes and interest is income
tax deductible, within certain limits.
Without home mortgage interest deductions, many taxpayers do not have enough other
qualified deductions to â€œitemize.â€ Once you have more deductions than the standard
deduction, every additional qualified amount is deductible. This often changes previously
unused deductions into beneficial tax deductions, such as amounts spent for medical,
state tax, DMV fees, charity gifts, safe deposit fees, job seeking, and employment-related
For taxpayers with roughly $30,000 to $100,000 of taxable income, the tax bracket might
be 28% federal, plus 9.3% California, for a combined state tax rate of 37.3%. This is
approximately the savings of any deductible amount spent.
Rent =$1,500 / month (no deduction, net cost = $1,500)
Mortgage = $2,500 / month
Deductible: $2,300 / month (assumed amount for interest & property tax) x tax rate @
Tax savings = $858 [net cost to buy = $1,642]
Additional benefits of buying include control of the property and improvements, as well
as the economic growth as the property appreciates during ownership.
HOPE THIS HELPS.....check out my website at: http://www.ninadaruwalla.com and do contact me, lets talk, then you can decide what you want to do!
Be well and safe,
Since there have been a number of posts concerning your question, it would be interesting to hear your reaction to this information and the direction you might be leaning.
Believe it or not, I try to give brief answers, so I won't waste valuable space here with detailed statistical analysis. Anyone, such as Zack, who is interested can email me directly through my profie.
Others have tried to tell you what to do and I won't do that either. I try to provide useful information that allows you to make an informed decision that is in your best interest.
I read a study by the NAR the other day as suggested in another thread and it made mention of much higher volatility in home prices in metropolitan areas so this may remove some of the flat times.
Your post did deserve best answer, it was well written and thought out. I was wondering if you have any data to support this claim:
"In general locally, real estate booms have lasted 3 - 5 years and shown gains of 50 - 100%, while downturns have lasted 2 - 6 quarters and shown losses of 5 - 15%."
I just put together a graph of the Case-Schiller index for SF metro area from 1987 to present and there is about a 50% run up from '87-'90, followed by a slight decline that doesn't get back to the peaks until '98. Jan '98 to Jan '01 had a runup of about 66% followed by a dip of about 10% until July '02, then the rocketship bubble took off with another 66% increase until 06' where we're 20%. I realize the index has limitations but most of the data (I usually look at national and NYC area data) I've seen show the downturns being about the length you describe, but following them are very long periods of zero growth while inflation will eat at your real spending power. Often 6+ years of 0 appreciation. I'd be interested in seeing some more localized data if you have it also but since I have no intention of moving to california, and won't be earning you a commission , I wouldn't expect you to spend too much time on anything. :-)
You're post was very good and I'd be very interested in seeing some data even if it is only local to San Jose which i know is a very desirable place to live.