Purchasing a condo vs renting when monthly payment is very similar

Question

Basically my mother wants to move closer to us and rents range from $1900-$2000/month for a 2br place. Condo's similar size with mortgage, insurance, taxes, hoe, etc come out to be $2k-$2.2k/month.

She's 66 so assuming she lives another 10 years in where ever she moves that's $240k in rent paid or $264k paid out if she buys (counting everything). After the ten years she has $0 to show for renting it but should have ~$55k in principle plus any appreciation with the condo. Not sure if I should count this but since we're in the 33% tax bracket if I'm on the loan I can deduct the mortgage interest and get back $3500/year in tax too contribute to the condo which brings the monthly payment down right back down to the cost of renting. It seems like a no-brainer to buy if we can but I'm worried I'm missing something. Does this math work out, what obvious things am I missing?

Answer 1

One thing you may be missing is the possibility of a special assessment on the condo. If the foundation cracks, you may be looking at tens of thousands to cover it. This would largely depend on the condo board's reserve funds.

Speaking of reserve funds, have you remembered to factor in condo fees?

You may also be forgetting to factor in property taxes and closing costs (legal fees and realtor fees). The latter, you'll have to pay when buying and when selling.

Now, ten years is a good length of time. If your mother really will live in the condo for ten years, there's a very good chance it does indeed make more sense to buy than to rent. It's very possible you already factored in everything I mentioned above.

Answer 2

What you haven't mentioned is the purchase risk.

You say that she will buy but then say you will be on the loan. If you are on the loan, essentially you will be purchasing a rental property and renting to your mother.

So that is the analysis you need to consider. You need to be financially able to take on this purchase and be willing to be a landlord.

The ten year timeline looks good on paper. This may not be realistic, especially with an aging parent. What if after 4 years, she can't stay in that condo?

What renting buys is flexibility. If she needs money for any reason, it is not tied up in an asset and unavailable. She is able it move if necessary. If she won't need the money, she should buy in cash. That, by far, gives her the best deal.

Answer 3

The other thing that you may or may not be considering is the fact that when she moves or otherwise ceases to live in that condo, you could then rent the unit out to others at the inflation adjusted rent price for the area. You could continue to build equity in the property for a fraction of the cost, and it would continue to be a tax write-off once your mother is not living there. While you have more maintenance and repairs cost when renters live there (typically, anyway), if inflation continues to carry on at about 4-5%, then you would be potentially renting the unit out at between $2,500 and $2,850 by the 10th year from now. Obviously, there are other considerations to be made as well, but those are some additional factors that don't seem to have been addressed in any of the above comments.