Rent vs. Buy

intothepolis · Jan 1, 2013

I would like to ask for some opinions. I know the rent vs. buy question varies greatly depending on where you live. I'm currently a college senior and I'm graduating in June with 30,000 dollars in student loan debt. I live in one of the most expensive parts of the country and home prices are very high. I can live in a very nice apartment for much less than what I would be able to buy the same place for. Should I rent the nice apartment and have the nice lifestyle I want or would I be doing myself a financial disservice? The only houses I would be able to afford in my area are in bad neighborhoods and they're very old and need a lot of work. Property is just very expensive here. But, I know that a lot of people think buying is better no matter what. What are your thoughts?

In case it helps, I'll give some background info. My expected pay for my first job is between 15-20 dollars an hour so I'm not dealing with a very high salary here or any kind of trust fund money. I'm essentially starting with nothing plus the 30k in debt and a BA degree. I do have the option to go to graduate school but the program I'm being offered is 150k and the salaries after are not guaranteed. So, potentially, I could be making more money in the future but I'll also be spending more money due to the high student loan repayments.

The bottom line is I feel like renting would give me a better lifestyle in a nicer place. Buying just might not be for someone in my situation and living where I do. What do you guys think? Thank you for any advice, I appreciate it all.

ECUpirate44 · Jan 1, 2013

I'm a junior so ill be in your shoes in a year. IMO, I wouldn't buy right out of college. With the way the job market is now, you never know if you're going to be laid off, relocated, etc. Its much easier to get up and go if your place is rented. I'd be scared to buy unless you feel absolutely secure where you are for a decent amount if time. Good luck.

spork183 · Jan 1, 2013

Good news is, mortgage rates will likely never be lower than they are now. Bad news is, mortgage rates will likely never be lower than they are now. With no down payment, buying likely undoable right now. Geographically, where are you? Big difference between expensive in San Francisco, and expensive in Des Moines. Other factors to consider:
1. Do you want to rent to roommates to offset home ownership costs?
2. Is lifestyle more important than ownership? (You mentioned it a couple of times.)
3. Can you defer gratification on lifestyle now, for better lifestyle later? (assuming you can swing a house with little employment history, minimal downpayment, etc.)
4. Watch Suze Orman. The hairstyle sucks, but she has good commonsense advice....

nabwong · Jan 1, 2013

If you don't put down 20% down on purchase, you'll be paying a mortgage interest. Ideally your mortgage budget should be less than 30% of your pay. Any more and you won't be able to save for rainy day and for maintenance needed on the house, AC, plumbing, yard work, roof, painting, etc. don't forget yearly property taxes. You also don't have job security which means, if you happen to lose your job in 2-3 years, you'll lose a lot of money in realtor fees and transfer taxes. You might have to owe the bank more than you paid because in the first few years, you pay a higher percentage towards interest. Have I scare you enough yet?

Renting is better for now. If you happen to find a job in another city, you can just pack and leave. Also, renting prevents you from accumulating stuff. Also Zero liability. Advise is to pay most of your student loan first, save towards 20% down payment, establish job security. The market goes in cycles though there are exceptions like living in a major location eg. Next to independence hall, Philadelphia or Central Park, Ny. An exception is there are Rent to buy places. Take it for what it's worth. I am a landlord and my wife's a real estate professor.

Vetvito · Jan 1, 2013

If your folks haven't put you out or haven't redone your room, move back home. Simple as that. Gives you time to try things and not settle for just any job.

When I graduated I got two nice apartments and a car note. Car paid for, but I feel like I'm in the rat race.

intothepolis · Jan 1, 2013

spork183 said:
Good news is, mortgage rates will likely never be lower than they are now. Bad news is, mortgage rates will likely never be lower than they are now. With no down payment, buying likely undoable right now. Geographically, where are you? Big difference between expensive in San Francisco, and expensive in Des Moines. Other factors to consider:
1. Do you want to rent to roommates to offset home ownership costs?
2. Is lifestyle more important than ownership? (You mentioned it a couple of times.)
3. Can you defer gratification on lifestyle now, for better lifestyle later? (assuming you can swing a house with little employment history, minimal downpayment, etc.)
4. Watch Suze Orman. The hairstyle sucks, but she has good commonsense advice....

I live in San Diego, CA.

1. No. I want to be able to afford my housing on my own single income.
2. I think lifestyle is more important to me than ownership but long term sustainability is also important to me. I feel like owning would be better in the long term. However, I feel I may be able to rent and invest in other ways in order to help myself in the long term. Roth IRA, broadening my investment portfolio, etc.
3. I'm already graduating at 30 years old. I may not have much leeway in waiting for my home to appreciate enough to the point where I could finally buy a home that's nicer than what I could rent.
4. Indeed, I'll check her out.

0098386 · Jan 1, 2013

I'd never rent, I just feel the money goes nowhere.
But it all depends on what you want. Do you think you'll be moving a lot in the future? Are you one to settle down in one spot?

Koodauw · Jan 1, 2013

Your first goal is to pay off the student loans.

Rent for now, but not the cushy apartment you want. The cheap one that is in a decent area and is decent inside.

Pay off debt. Save up for a down payment of at least 20%. Have a steady income. Then you will be ready to buy.

You have no idea where your life will take you, and real estate in SD is expensive.

ucfgrad93 · Jan 1, 2013

Koodauw said:
Your first goal is to pay off the student loans.

Rent for now, but not the cushy apartment you want. The cheap one that is in a decent area and is decent inside.

Pay off debt. Save up for a down payment of at least 20%. Have a steady income. Then you will be ready to buy.

You have no idea where your life will take you, and real estate in SD is expensive.

This is terrific advice, and I second it.

Rodimus Prime · Jan 1, 2013

Dagless said:
I'd never rent, I just feel the money goes nowhere.
But it all depends on what you want. Do you think you'll be moving a lot in the future? Are you one to settle down in one spot?

such a miss understanding of how rent works. People who make that argument miss so much.
Remember in renting you do not have to deal with maintenance cost or property tax. If something breaks you tel the land lord and they pay to fix it.

ucfgrad93 · Jan 1, 2013

Rodimus Prime said:
such a miss understanding of how rent works. People who make that argument miss so much.
Remember in renting you do not have to deal with maintenance cost or property tax. If something breaks you tel the land lord and they pay to fix it.

Don't kid yourself, if you are renting you are the one paying for the property tax. A landlord isn't going to rent something at a price that doesn't cover all of the expenses of that property.

Rodimus Prime · Jan 1, 2013

ucfgrad93 said:
Don't kid yourself, if you are renting you are the one paying for the property tax. A landlord isn't going to rent something at a price that doesn't cover all of the expenses of that property.

true but is all rolled into the rent check. plus no dealing with the crap

Mr. McMac · Jan 1, 2013

If you can afford it, definitely buy. I rent my basement out which pays all the bills and most of my property tax. (which I have to pay tomorrow!)

DakotaGuy · Jan 1, 2013

Rodimus Prime said:
such a miss understanding of how rent works. People who make that argument miss so much.
Remember in renting you do not have to deal with maintenance cost or property tax. If something breaks you tel the land lord and they pay to fix it.

Well the rent versus buy argument really depends on where you live and how long you plan to be there. I rented a small house for several years because I did not plan on staying there for long term. When I moved to a new area I rented an apartment for awhile until I knew that this is the place I would remain long term. At that point a mortgage with taxes and insurance only cost me about $200 more a month. Considering the apartment I had was a "junker" it was worth it. One thing I did have going for me was that I qualified for a VA loan. That makes things a lot easier if you don't have the money for a large downpayment. I also selected a house that was priced within my budget.

Of course I was in my mid 30's when I finally decided to buy. I am not sure I would have been ready to do so right out of college.

smithrh · Jan 1, 2013

Most of this thread is moot as the OP almost certainly wouldn't be able to get a mortgage, and he/she doesn't have the cash or income to buy a home outright.

Macky-Mac · Jan 1, 2013

intothepolis said:
I live in San Diego, CA.

.... I think lifestyle is more important to me than ownership but long term sustainability is also important to me. I feel like owning would be better in the long term. .....

So what's the current trend with real estate prices down in San Diego?

Southern California real estate has spent so much time upside-down over the last 20 years. You don't want to get stuck with a house that's worth less than you paid for it

Roller · Jan 1, 2013

To the OP: Unless you're in an area where real estate is appreciating significantly, buying will saddle you with a burden that may be very hard to get out of. So I recommend that you rent an apartment in a safe area. That way, you'll have no long-term commitment. If you can find a roommate to defray costs, all the better, though that can be challenging. Work out a specific plan and budget that will let you live comfortably, begin to pay off your debt, and hopefully even save a bit.

4JNA · Jan 1, 2013

Koodauw said:
...Your first goal is to pay off the student loans

Rodimus Prime said:
...in renting you do not have to deal with maintenance cost or property tax. If something breaks you tel the land lord and they pay to fix it.

best posts of the lot. pay off the loans, build up the savings, done.

for the record, used to live in Escondido. if you have to pay PMI, you should not be buying. VA loan was the only reason i was able to buy at the time. windows, siding, roof, etc... there are lots of extra expenses involved with owning a home. if you own it, you have to maintain it.

get free, save lots, rent for now, buy when you are ready. best of luck.

heehee · Jan 1, 2013

Dont buy for the sake of buying. There is absolutely nothing wrong with renting unless you have a nice down payment. If you dont have a good chunk on down payment, 80% (i dont have the exact percentage but im sure its around there) of your mortgage is going towards interest alone.

snberk103 · Jan 1, 2013

Absolutely agree about paying off your debts substantially before considering buying a home. You will have much better luck with a mortgage showing a good repayment history. I don't see mortgage rates moving much in the next couple of years. Too many economic issues to be resolved... though I suspect there will be some short rises, followed by some drops. At least a year, probably 2 or 3 years. I'm not a real estate pro - but I have had a knack for predicting trends in the past.

Also - and maybe this is a Canadian thing - but when you are ready to buy, consider a condo. You get the predictability of fixed payments for repairs and maintenance - which is done by somebody else, unless inside your unit. Plus, you get to start building home equity.

Also know that when and if you get a mortgage the absolute best thing you can do is to make every single privilege payment (extra payments to the capital portion) you can afford in the 1st year. The 2nd best thing is to make privilege payments in the 2nd year. Those payments, even if small, are amplified hugely over the next 10 or 20 years - and will have more effect on getting out from under the mortgage early.

senseless · Jan 1, 2013

Don't buy in a bad area unless it's on the way up. You're better off saving for a better property you won't have to move out of in a few years. Buying and selling costs are very high.

JLatte · Jan 1, 2013

I recommend getting those loans taken care of first as well.

I'm in San Diego, I'm not sure where you're looking but there are some reasonably cheap places to rent if you don't mind a small 800ish square foot 1 bedroom apartment. I was living in a 1 bedroom in Normal Heights for $800 / mo. Now I'm in a 2 bedroom house for $1500... North Park, Normal Heights, University is a nice community, and is decently priced.

prostuff1 · Jan 1, 2013

Rodimus Prime said:
true but is all rolled into the rent check. plus no dealing with the crap

Um, so is my house payment each month. I write one check and it goes towards my mortgage and my property tax.

I am a fan of buying, as I never saw the point in paying someone for a place to live that I would not/could not ever own. With that being said, in your situation, I would follow Koodauw's advice.

TwoBytes · Jan 1, 2013

It's about life as well. If buying is so expensive that your lifestyle suffers so much you don't enjoy it as much, then rent. You want money to travel, to go out, to spend on iPhones..

ugahairydawgs · Jan 1, 2013

Rent the cheapest place you can find (and live comfortably) and get yourself out of debt. Then start saving for the down payment on a house.

If you hate renting that's good....it's a terrible use of money. But piling up debt in the name of avoiding paying rent is just as silly. Let that desire to buy be your motivation to get rid of the debt ASAP. Get a 2nd job if necessary.

Rent vs. Buy

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