So when will you be ready to buy a house?

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So when will you be ready to buy a house?

Postby mking » Thu Apr 15, 2010 10:21 am

Us: rented for three years. Have to move b/c landlord didnt use our rent money for his mortgage. New owner MIGHT want us to stay, but some other important factors are indicating a move is in our future, either to another rental or a purchase.

We have looked for other rentals (single family homes only, at our point in life apartments and townhouses are not reasonable options). For the type of rental we want, asking prices are pretty close to what a mortgage would be w/ 20% down. And the nicer places look like houses the landlord intended to flip but cant, and experience suggests such landlords might be doomed. Long term landlords are out there, but their properties tend to be less updated than failed flips.

Prices in the area we are looking (Rentonish) have come down significantly. Average homes are not quite priced at 3X meidan income, but not far off. We think if we wait, we will have more selection (banks seem to be more serious about selling REOs) and somewhat lower prices, moderated a bit by higher interest rates.

We have found a house that is 3X our annual income that would work well for us.

Looking for comments regarding what you would do, and why, in a similar situation. And if you wouldnt buy now, what factors would tip your decision from rent to buy?

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Re: So when will you be ready to buy a house?

Postby Markor » Thu Apr 15, 2010 1:57 pm

I'm in a similar boat. After owning, renting for ~3 years now. I'd buy today at the right price. But of course prices are still bubblish (2005). I don't want to eat $50-100K if I can help it. I'd consider buying something in the bottom 5% of prices I see now, but that limits selection and I'm picky. I'm aware of burning rent such that house prices have to fall about 3% to break even, plus there's the opportunity cost too (can't change much).

I'm in a holding pattern now. If prices fall a lot further more people may get put out of work, such that the bubble overcorrects. Still I'd take that chance for a 2003, maybe a 2004 price. I've got a good landlord, but the rent's getting to be on the high end. I'm eyeing other rentals for a lot less, wondering if I should commit to renting for another year.
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Re: So when will you be ready to buy a house?

Postby Dave0 » Fri Apr 16, 2010 2:31 pm

Whether to rent or buy right now depends on how long you plan on living there, which depends on how likely you will need (or want) to move. If you will probably live there for 10 years, consider buying, otherwise rent.

If you pass the long-term test and considering buying is reasonable, think about whether renting or buying is a better deal. Keep in mind that there are more costs to owning than simply the mortgage, so comparing mortgage payments to rent is not enough. There are also property taxes, homeowners insurance, maintenance and utilities that are covered in the rental situation you are comparing.

Using rough figures to come up with a quick general comparison: principal & interest is usually around 5% per year, maintenance is usually 1% per year, insurance is usually 0.5% per year, taxes are usually 1.5% per year and lets say utilities such as water, sewer & garbage (or HOA dues that would include these) are 2% per year. That's 10% of the property purchase price per year that you will need to pay if you buy; or you could pay rent.

Thus, you can generally figure it will cost 1/120th (1/10th per year, divided by 12) of the purchase price per month to own a place. You can use this information when you are house shopping by looking at the asking price, and dividing it by the rent of an equivalent place you can find on the rental market.

People are generally willing to pay a premium to own rather than rent since owning means they won't have to deal with a landlord, so its very rare that this purchase price to equivalent rent ratio gets down to 120. A reasonable ratio is around 150 to 200. If you find a place with a purchase price to equivalent rent ratio of under 150, consider it a good deal. If you can't find anything with a ratio under 200, you'd be better off renting and waiting for prices to get cheaper.
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Re: So when will you be ready to buy a house?

Postby deprogram » Thu Apr 29, 2010 10:40 am

Having just left a rental in Renton, I have to say it's still way overpriced for where it is. Especially the bottom tier. I guess this is because it has a reputation for being an affordable neighborhood?

Our [former] landlords paid $260k in 2007 for their 1800 sq foot 4 bed 2 bath rambler. Then sank a bunch of money into fixing the foundation and pouring a patio, and it still didn't have proper heat and the roof was completely rotten and leaking.

They want $325k for it. Hah.

There's simply no way that property will get back to proper pricing without a serious correction somewhere.
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