It's tough to say without your full financial picture.
For instance, yes - you'll get some tax deductions. In the scenario you're describing, perhaps $13K worth of deductions ($10k in interest, $3k in property taxes). However, you may well lose the standard deduction ($10,900 for couples) by doing so. Unless you have other itemized deductions you can take - the net tax savings could be trival (~$550/yr).
Second, what's the real cost of the monthly? Is $1,100 the cost of the mortgage alone, or does it include property taxes (~$250/month), maintenance ($100-$400 per month, unless something major goes wrong), various insurance, etc?
Third, you say "3 to 5 years" in the home. Assuming the home managed to hold the same value, you'll lose about 6%, or $15,000 on commissions when you sell. If you hold the house for 4 years then sell, the loss in commissions you'll face is the equivalent of $312/month for each of the 48 months you were there.
Finally there's the opportunity cost of your down payment. Assuming by "good down payment", you mean 20% - you'll lose the income you could have made with that $50k. At 6% a year, after 4 years your talking $9500 in lost income. at 4.5%, about $7K
So let's pretend:
- You bought at $250K with $50K down
- a 30 yr mortgage at 5.2% ($1100 monthly mortgage)
- 1.25% property taxes
- are in the 25% income bracket and have few deductions,
- you could make 4.5% on average investing elsewhere
- are selling in 4 years.
Over that time you'll spend:
$40.3K in interest
$4K in insurance (guessing)
$12.5K in property taxes
$7K in opportunity cost of down payment
$20K in maintenance
$15K on the sale of the home in 2013
.. and saved around $2400 off your taxes over that time.
Grand total is $96.5K spent for 48 months, or just over $2K per month.
If you could rent the comparable unit for $1350/month on average over the timespan, the home would have to be worth $280K at time of sale in four years for you to even out financially.
At $1500/rent, $273K
At $2000/rent, $250K
Obviously the equation will vary based on the balance of your financial picture. Your tax status, comparable rents, duration spent in home, etc. But, unless rents in your area are excessively high, you'll need to see somewhat substantial appreciation to make the purchase a wise financial choice.
I would really like to help you, however, I do not know the home that you are question about so location will be of great value. I do have extensive knowledge about San Leandro, I have lived there all my life. If I am correct, you are basically asking if you are getting a good deal. When reviewing current comps it basically means nothing, you need to know where the San Leandro RE market is headed. There are alot of fundamental factors that can address that. A 3-5 year time horizon is a possibility, but please know a house is not an asset, not in this market or any other prior market. People have gotten really lost within the past several years of what a home is supposed to be. When can we make an appointment? I would be happy to review your goals
I just wrote a blog post about 2 identical units in Alameda that sold for essentially the same price 11 years apart, one in 1988 and the other in 1999. It amounts to a $215,000 shortfall over 11 years compared to inflation (i.e. before we even start talking about appreciation above inflation).
If you buy now, you'll be living in a house that's too small, needs cosmetic updates, and will likely be depreciating for a long time. I'd stay put in my rental if I were you.
Unless you have a crystal ball that can actually predict when market values are going to stop plummeting and start stabilizing before it appreciates again, all anyone can really do is keep a close eye on what's happening in the market.
For example, as of this writing, there are 247 homes for sale in San Leandro.
190 are detached single family homes
81 are short sales, and 41 are bank-owned for a combined 64% of total homes for sale.
That leaves 36% being sold as regular sales who have to compete with the short sales and bank-owned properties that drag the prices down.
Until that inventory of short sales and foreclosures go down to a manageable level where the regular sales won't have to compete for the pool of buyers, one may expect that the prices are going to stay where they are, or even go lower if more distressed homes are put up for sale.
As I stated before, our monthly payment would be less than our rent now. Does this purchase make financial sense?
I would be happy to discuss this further on the phone if you would like and I can also provide graphs showing the inventory number also.
Hope this helped.