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My SO and I moved out to a new city while she's in med school. We're currently in an apartment paying ~$1,300/mo (after utilities, etc...). However, the other day I realized 2-3 bed houses here cost 95-120k, which--from where I'm from--is mind blowing.

For the first time in my early 20's life, I'm seriously considering getting a house. But here's my problem, I have no idea what the math should look like to figure out whether or not it would be worth it. On the one hand, instead of "throwing away" ~$1300 a month, I'd be putting it toward a mortgage that I would be able to (partially) recoup after I sell.

On the other hand, what if I can't sell or the housing market crashes and since we're forced to move out I'm forced to sell at a huge loss. Not to mention that I'm sure there are many hidden cost of being a homeowner (what if the fridge breaks or a pipe bursts?).

How can I do some back-of-the-envelope math to determine whether this is an option I should be looking more into?

For the complete numbers: I make $2,000/paycheck after deductions and I usually spend ~$500/paycheck on things not apartment related (food, luxury, etc...). An example house in a nice area with amenities I'm looking for that I found by throwing darts at Zillow has a value of $106k and property tax of ~2.5%. By the time I buy this (sometime next year), I'll be able to put 20% down and I'll likely have a mortgage rate of around 4%1.


1. This is probably the number I'm least sure of. I have a very strong credit score, but I haven't seen any mortgage calculators/estimators that help you calculate this percent.

  • Not enough for an answer - try running the numbers yourself using this link from the NY Times nytimes.com/real-estate/mortgage-calculator – Grade 'Eh' Bacon Nov 16 '18 at 20:44
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    @Grade'Eh'Bacon the top answer over there doesn't really apply to me (bullets 2-7 are all almost the polar opposite of my situation in fact). That being said, the linked answer there is indeed helpful! I'm just not sure if all of these losses from a short-term buy outweigh the benefits of paying less for a mortgage (~$900 for 15yr fixed if I'm using the calculators correctly) than I am currently for rent! – user78918 Nov 16 '18 at 21:01
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    @DavidThornley even if my expenses on the house come out to exactly the same as what I'm paying for an apartment (I end up throwing ~$1300 into a black pit every month), in my opinion it would still be worth getting a house for 3 years for the experience of managing my own property (financially and physically) and for the additional space/backyard/etc... – user78918 Nov 16 '18 at 21:12
  • @Grade'Eh'Bacon heh that's exactly my fear. Which is why I'm asking here--how can I do my research so that I don't end up having exactly the wrong kind of life experience? Or what questions should I be asking? – user78918 Nov 16 '18 at 22:01
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    I have to say that overwhelmingly you should just do it, @user78918. You're talking about an absolutely tiny risk. Note that if you try to carefully quantify and amortize the cost of new doorknobs etc over three years, you will end up with an incredibly carefully calculated figure down to a penny ................... and the the next factor you'll throw in is "oh and the price could vary by 50% either way". Much like with marriage, buying a property is a massive judgement call which will (almost always!) have spectacular positive effects on your life, and can't precisely be quantified. – Fattie Nov 20 '18 at 1:14
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There's no simple answer because there are a many of variables involved.

From the real estate aspect, what's the condition of the house? Roof, carpet, appliances and AC unit reasonably new? How are the taxes and the cost and availability of home insurance?

Are you reasonable handy and willing to make repairs or at least willing to learn (sweat equity)?

Forget about what homes cost where you came from. How's the cost of the home compared to local comps? Is the neighborhood stable? Are sales occurring in a reasonable amount of time?

Are you planning to live in the area after your SO completes medical school? Chances are, you have a 3 year window since there's no way to know where her residency, etc. will be. Are you willing to rent the home if you have to relocate? What's the price-to-rent ratio in the area? Are rentals in demand?

Yes, the housing market can crater. I've lived through a few of them and renting the homes kept me afloat until price appreciated enough to warrant selling.

Assuming that you have the down payment and qualify for a reasonable mortgage, will you have some cash reserves as well?

Is your job secure enough so that you can be assured of your income?

Like life, owning a home offers surprises. BTW, if a fridge breaks and that puts you in a financial bind, you shouldn't be considering this. As an aside, I had a rental property and 8 days after I sold it, water began seeping out of the concrete garage floor. The water pipe had corroded and blew. That's the risk you take with ownership. Unforeseen and unknowable events can and do occur. I got off lucky. The new owner was a landscaper so he rented a jackhammer and did it himself. A $2k plus repair cost him a few hundred bucks (sweat equity?).

Some number crunching and some self assessment will get you closer to a decision. AFAIC, owning a home is a good investment, at least compared to rent donation.

  • Thank you!! You've spelled out very well a lot of the questions that I need to be asking--this is a great answer! Most of those I can find, but do you have any advice on where I can look for answers to whether "sales are occurring in a reasonable amount of time" and the demand of rentals? Are there easy-to-access resources for this? – user78918 Nov 16 '18 at 22:24
  • The best source for this information would be local realtors. Though it's a slow process, you could also get some info from home sellers whose homes you look at. – Bob Baerker Nov 17 '18 at 13:14
  • "where I can look for answers to whether "sales are occurring in a reasonable amount of time" " glance on zillow – Fattie Nov 20 '18 at 1:16
  • You can get used fridge's for far less than the difference in rent to mortgage the OP described, FWIW...yeah sweat equity can help a lot there too :) – rogerdpack Jul 24 at 16:00
  • The big picture issue isn't the cost of the fridge but whether one is overstretched. One needs a buffer for unexpected expenses. – Bob Baerker Jul 24 at 21:35
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If you bought a $100,000 house, put down 20% and got a 30-year mortgage at 4% you'd have $25,401 equity in the house after 3 years if the value of the house remained static.

Your base mortgage payment would just be $382/month. Then add maintenance/repairs/insurance/taxes/utilities which will take some research to determine/estimate.

Cost to sell a house is frequently 6-8% of value (research the average cost to sell in your area), so assuming no change in value that's potentially $8,000 to sell after 3 years. You can just divide that by 36 and add that $222 to the mortgage and other expenses for comparison purposes.

There's also opportunity cost, if instead of putting $20,000 down on a house you invested it, what could you get over those three years?

If you own a house for 15-20 years, you can reasonably expect to replace the roof once, the HVAC system once, major appliances once, etc. If you live there 3 years you may still have to replace all those things but won't get to enjoy their full lifespan (and typically don't recoup those costs when selling).

Then there's the real estate market that you're buying into. If your house appreciates significantly over those 3 years then you'll love yourself for having purchased. If the market dips substantially you may end up with a house you don't want but can't afford to sell for what the market dictates it is worth. That scenario results in many people swearing off buying. You can research average time on market, and Zillow shows how long a house has been listed.

From my perspective, it sounds like your rent is pretty high if a comparable property can be purchased for $100,000, typically that means you should favor buying over renting, but without knowing your specific market I wouldn't make a recommendation on that alone.

  • Even if (incredibly) the price plummets, the rental price OP can get will hardly plummet at all, it will go up if anything. – Fattie Nov 17 '18 at 4:43
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    @Fattie I don't think you can support that claim, after 2008 rent did go down and vacancy rates went up in the US. The national averages don't make it look too bad. The bigger risk in some low-cost cities is that the local economy could rely heavily on one business, that business fails and the city is in shambles for years/decades. There is risk, it is not always best to buy a home, regional markets vary wildly. – Hart CO Nov 17 '18 at 6:43
  • It's a good point about those "one horse" cities. I have to say there are very few places where the answer would be "No", IMO. – Fattie Nov 17 '18 at 6:57
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Here are some factors to consider, OP

  1. Everyone worries about the "price changing" but it's a complete, total, absolute, utterly irrelevant, non-issue. If the price dips for a few years (A) the price you can get renting it out will go up if anything and (B) you will never need to sell this house, it will be a terrific little asset all your lives. Conversely let's say it does suddenly skyrocket! 30%. No, 50%!! So, the price skyrocketed 50%! So what? What does it mean? You're not going to suddenly sell it to "claim" your few dollars profit. If you're swapping to another property everything else would have risen anyway, so ... so what? It's a total non-issue. Forget it.

  2. You will have repairs. As soon as you buy it the dishwasher will break, you'll suddenly realize the dangerous tree has to be removed, and literally as you are walking in the door your wife will instantly state that the smelly ducting on the ground floor has to be replaced.

  3. Downside of inexpensive houses. A dramatic problem with inexpensive houses is repairs cost as much as on an expensive house. If you have a $million house and you replace the dishwasher for $1000, you laugh wickedly like Uncle Scrooge, because for an irrelevant amount of money you've significantly improved the property; whereas a $1000 dishwasher on a $100,000 house is very depressing.

  4. Massive upside of inexpensive houses. You probably already know that as a pure investment, cheap houses or apartments are far better than expensive ones - the percentage rental return is vaster. You'll feel like a genius from now until the day you die for buying this place.

  5. Cost of transaction. It's annoying that you will have your hand in pocket for this and that to buy the house. The first year you'll be p'd off that you didn't just keep renting - but after about a year you'll feel like the cleverest person in town, and you will be. No more rent.

  6. @!&@ing PMI. The whole scam is about mortgage insurance. The quoted percentage rates given in mortgage advertising are simply the most blatant case of false advertising in our era. The rate you pay is the quoted "rate" plus PMI. As soon as humanly possible, get your equity up to where you don't have to pay that. Then, you are kicking ass. Note - it sounds like you may avoid PMI - fantastic.

  7. Sexual intercourse. Almost all male impotence is caused by financial insecurity (this is a self-evident evolutionary stance). Surprisingly, high incomes, little cash windfalls, etc don't increase the feeling of financial security. But renting does drastically decrease the feeling of financial security. 90% of human life is about sexuality and procreation, the most major step in financial security that can be taken from the situation described is to purchase that nice little house.

  8. The overwhelming advantages of owning a house (i.e., even just with a mortgage, not outright). There are just spectacular advantages. It is like having a driver's license or a passport, but far more so. The blunt reality is that renters are just second-class citizens.

Be very aware that sophisticated investors will offer you the back and fore points of renting versus buying - every. single. one. of these people already own their "first" house (or more). It's then easy to talk in the abstract about subtle spreadsheet pros and cons of owning versus buying.

  • With a planned 20% down payment, PMI won't be an issue from the jump. – Hart CO Nov 17 '18 at 6:31

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