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I rent and can't help but feel that I'm wasting my money. With the prices for condos so competitive currently, I'm wondering if it would make sense to stop contributing to my 403b and save up for a down payment.

I only suggest this because my employer has excellent benefits and is paying in 12% of my salary to my retirement account regardless of whether or not I'm paying anything in.

So, I'm effectively depositing about 20% of my income into my retirement account. Seems like perhaps it might be better to invest in property and quit wasting my rent money every month.

I figure I'll likely be here in this city for the next five years, and if I can't sell I would rent out the property.

Thoughts?

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    Do you really really want a house, or are you just trying to do the best thing with your money? – MrChrister Nov 23 '10 at 18:47
  • Net worth = Assets - Liabilities. It is a big picture thing. That is, income is just a portion of your net worth. – George Marian Nov 23 '10 at 19:12
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    If you buy, remember the mistake of the housing bubble. The capital gains you can get on a house/condo are generally pretty modest; the real win is the fact that you get to live there. But buying a more expensive house isn't going to give you any return in the form of money; it's going to give you a return in the form of "housing". You have to consume this "housing" immediately or it's lost forever; you can't save it up for later or anything. Buying more than you need is just spending, not an investment. With that in mind we now return you to your regularly scheduled discussion. – user296 Nov 26 '10 at 16:35
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First off, I'd highly recommend looking at this nytimes rent vs buy calculator. This calculator gives you some great flexibility (for example, estimating what will happen with a 7% return in the stock market, and comparing renting vs buying). Secondly, I have personally gotten a lot out of this wall street journal book. Check it out at the library or buy it and read it cover to cover.

My personal opinion is that buying a house or condo is mostly a lifestyle choice. Some specific caveats with your situation:

  1. Realize that renting out a property is easier said than done. Many tax laws (homestead laws, etc) are setup so your property taxes are substantially lower if you live on the property vs rent it out
  2. Condos will tie you down into a specific area, but will save more money over the long haul. If you're looking for flexibility and investment, rent. If you're looking for owning your own living space, look into buying a condo.

A sidenote: One of my friends who bought a condo in chicago is considering moving to a different city and is very much regretting buying a condo, even though he got the $8k housing credit, because renting isn't as easy as it looks (you can do it and do it profitably but you darn well better consider that BEFORE buying a condo)

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So there's no extra money from your employer if you contribute extra to your 403(b)?

My answer will be a bit different than most others, but I'd recommend not paying another dime into your 403(b). Pay your taxes now, and be done with them.

Retirement saving does not need to be in a tax-deferred or tax-free account.

Rent vs. buy is another question. Buy from a distressed seller at a heavy discount. You have time. Don't panic or rush in.

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I'd probably say "buy" for most situations.

Unless you have a long-term lease, you're going to be saddled with elastic/rising rents if the market tightens up, while with a purchase you usually have fixed expenses (with the exception of property taxes/condo fees) and you are gaining equity.

As I've gotten older, the prospect of moving is more and more daunting. The prospect of being essentially kicked out of my home when the landlord decides to sell the property or raise the rent is a turn-off to me.

  • Many people seem to get averse to moving as they get older. On the other hand, you wouldn't necessarily want to be stuck in the residence that seemed like a good idea when you were, say, 25. So, if you're starting to feel you'd like a home for the long term and you know what kind of place that is, buy. – poolie Nov 24 '10 at 22:54
  • Getting stuck? You can always sell. I'd say renting makes you more likely to get "stuck" -- looking for a new home at a time when you have no control. When you have children, that could potentially mean disruptive changes like changing schools midyear. – duffbeer703 Nov 25 '10 at 19:04
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    It's spurious to say that you can always sell. For example, if you owe more on the home than it's worth and the bank won't do a short sale and you lack the funds to cover the different, selling is not an option. You can always let the bank foreclose on the property, so that might be a better maxim. – Scott Mitchell Nov 27 '10 at 22:27
  • @Scott Mitchell: You're making the exception the rule. I rented for about a decade, and on average the rent went up in my market 5-7% a year. Plus, you get the added bonus of getting booted when the property is sold or the landlord decides not to renew your lease. That's pretty consistent in many parts of the country for extended periods of time. – duffbeer703 Dec 1 '10 at 18:08
  • I'm not making it the rule, just saying you shouldn't discount it when making the rent/buy decision. Just like you shouldn't discount the fact that if you have to move for any reason, owning can make things much more difficult. I'm not saying renting trumps owning (or vice versa), but rather that both options have their pros and cons. – Scott Mitchell Dec 1 '10 at 23:05

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