OK, some people might find this post pretty boring. Consider yourself warned!
Since rent takes up a lot of $$bling$$ from everyone, I figured some people might be interested in the subject.
I was talking to Petter the other day, and we were trying to figure out if buying a place was really worth it. Well, google helps if you just want to figure out the numbers. Sure, there's lots of things to think about besides the numbers, but it's a start.
Here's some Rent vs. Buy calculators I've tried out and thought were kinda handy. Any thoughts on the matter?
Link 1
Link 2
Link 3
It makes it a lot easier if you assume that your house price will not go down by the time you sell. Now, buying right now kinda freaks me out, cause I think the market is in for a drop, and I can therefore not be certain the value of what I buy will go up. It also depends on how long you intend on owning the place. If you only wanted it for 2 years, I think buying right now would be risky. If it was for 10 years, I can't see prices going down.
Just figuring out how long you'd like to own the place is a large problem for me! Buying a place really ties you down. However, I suppose if you needed to, you could always rent your place out to pay for your mortgage payments.
What do you guys think?
well, something important to consider is the length of your mortgage--it's probably not the best idea to assume a 30 year mortgage (as was done on the 2 websites--i couldn't use the second one), because it increases the cost a lot, and is really on the high end anyway. also, 10% downpayment is only a minimum, and it's better to save up a larger chunk to put down.
making a larger downpayment and taking a shorter mortgage will save you a lot of money in the long term. and then if you want to sell the place, you won't have lost as much to interest either.
i wouldn't worry too much about how long you're going to keep it though--say you think you'll want it at least 5 years, you should still be able to sell the place without much trouble, and chances are you won't really have lost more than you would have paying rent.
it's all about the downpayment--if you have a decent downpayment saved up, then it makes the most sense. if you don't, then it's not such a good idea. plus you need an emergency fund for repairs, or incase you lose your job for some reason, so you have to have some cash saved for that too. if you don't have much in the bank, then it might not be the best idea.
Posted by: midge on March 23, 2005 01:20 PMAgree with most of Midge's points. Here's a couple of additional comments.
Pros:
1) Rent not down the potty
2) Mortgage rates are close to the lowest they've been in 20+ years. A lot of people (financial folks, not just me) believe that rates are going to climb. Some think back up to 1980's rates (ie. %15+). So, that's incentive to buy now, and to lock your rate in for as long as possible (most banks will let you do 5 or 7 years before re-negotiating the rate), and pay off as much as you can before you have to re-negotiate (note some mortgages permit lump-sum payments once a year too).
3) Once you have a house, banks look at you in a new light. The equity you have in a home gives you new abilities to take out loans (for major repairs OR to buy a Hummer), buy more houses, etc. The bank's position is: "Hey, let's lend this guy money. If he can't pay us, we'll just take his house." That being said, you can wind up screwed if you lose your job.
4) With 2010 olympics approaching I would presume that the housing market will be bullish (ie. house prices increasing). Of course, that's not for sure. If you buy a chalet in Whistler than it might be a surer bet than a place in Aldergrove.
5) Renting is a totally good way to take care of the mortgage payments if you don't want to live there (or if you do and want some roomies). If you end up leaving town then finding a care-taker is an option. Also make sure your tenants don't have a grow-op, unless you get a cut of the profits ;-)
There's cons to all of the points above:
1) Renting is easy, someone elses headache if sh*t breaks down, and you can pick up and go with a month's notice. But you don't make no money throwing your rent into a hole.
2) Rates may go up, may go down. You are at the whim of the economy. Which unfortunately reacts alot to the decisions that some guy down south, who can't pronounce "nuclear" correctly, makes.
3) Without job security, debt becomes a dangerous thing.
4) Prices may be over inflated already. I heard that some places in Squamish jumped by 150% 3 weeks before Vancouver even won the bid. Whether they continue to increase... who knows?
5) If you don't want to rent the place out if you decide to move, then whether you make or lose cash really depends on the housing market at the time.
If you can find yourself a real-estate agent whom you like (and trust somewhat) they can provide a lot of useful information.
-r.
Posted by: rugged on March 23, 2005 01:48 PMHey Midge,
I agree that a good down payment is great. However, what if you don't have one? The calculators show that even without one, you can still make money on your place after say, 5 years. Also, if it is your primary residence, any of the value incease is a capital gain, and non-taxible.
I guess I'm thinking that buying a place even with the intention of selling after 2 years can still make you a fair bit of money. Though there is obviously risk involved...
Word Rugged,
I guess it all depends on how transient you want to be...
Even when you own a home, it still costs a lot though, that's what sucks. Repairs, Tax, etc cost more than renting a place on an expensive year!!
Buy buy buy.
Take your millions of dollars and skip the mortgage.
That's what I'm going to do.
Posted by: Ciavarro on March 23, 2005 06:10 PMDon't forget home insurance, mortgage insurance, taxes, and legal fees for getting the deed signed.
Posted by: Parveen on March 23, 2005 07:50 PMI'm a commitmentphobe.
Posted by: carla on March 23, 2005 10:48 PM