Even though I fully intend on owning a home -free & clear- by the time I retire, it’s becoming increasingly clear that home ownership in the next 3-5 years isn’t necessarily compatible with my future goals/plans. Unless the housing market drops 20% and I can suddenly buy condos for under $250,000, that is.
I ran an analysis on New York Time’s Rent or Buy calculator:
–> Monthly Rent: $1,100 (that’s actually almost $350+ more than what I’m paying now. But I can get a one bedroom apartment for $1,100 in the area where I want to buy, whereas right now I have a roommate).
–> Home Price: $300,000 (If I buy, I’ll probably buy a one-bedroom apartment. If I buy a 2-bed/2-bath, the price will probably be around $450,000+ in a good area).
–> Down Payment: 15%, or $45,000
–> Mortgage Rate: 6.25%
–> Annual Property Tax: 2.25% to account for HOA fees.
–> Annual home appreciation: 5%. That seems like a reasonable assumption.. no?
–> Annual rent increase: 7% (a little on the high side).
Under these assumptions, buying is better than rent after 10 years. Is that.. good? I was looking for more of the 7-8 year range. If I buy a 2 bedroom ($450,000) and still put down 15%, buying will be better than renting after 20 years. That’s practically a kid.
The reasons why it wouldn’t make sense for me to buy would be: I want to travel. I might go back to graduate school. I want to preserve liquidity at this point in my life. Even though I love my area and it’s close to my parents, I don’t know if I want the commitment of home ownership right now. I don’t want to become house poor.
From an opportunity cost perspective, home ownership probably would not be the right move for me, given the assumptions listed above. There’s really no rush, right? I’m only 23. Even if I wait 10 years to buy, I’ll still ONLY be 33… which, at that point, 30s will be the new 20s.
I am still concentrating on building a cash (is king) reserve for short-to-medium term goals in my money market fund. Buying in 2 years (when the real estate market is supposed to “bottom out”) may be a good investment if prices heat up again, but I’m of the view that a primary home is not an “investment” – certainly not in the way that a well-diversified portfolio or rental property is.
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