Advice Please! Young couple needing to relocate (rent or buy)?

**srblanco7** · 02-22-2009, 12:18 PM

You have debt and no savings to speak of. Find a cheap place to rent and get your debt paid off. While paying off debt keeping contributing to 401k - to at least the match. After debt is paid off, save for downpayment on house.

**sillyoleme** · 02-22-2009, 01:05 PM

Thanks srblanco7, we appreciate the advice. I agree that paying off our debt is a major goal. We always make timely payments, and always more than the minimums on the credit cards. Our balances have been steadily decreasing for over a year now.

The only issue is, there is no cheap place to rent in this area. The absolute cheapest apartment we've found is $500 plus utilities, and they don't allow pets. It's also in a slightly scary part of town. Besides that, there are houses for rent for about $750 (built in the 1920's-1930's), but they look like they might be about to fall apart, and we don't know the neighborhood there. And of course there are townhomes and decent duplexes for rent, at a rate from $800-$1400.

Before we moved to Maryland, I was renting a decent one bedroom apartment for $450/month. You just simply can't find that price level around here.

So, taking into consideration that we will end up paying $800+ for ANY type of housing, I can't seem to make it make sense that we'd be paying off our consumer debt any faster by renting. And as for the downpayment, with our tax refunds and $1,000 from savings, we could have about $3,000 to put down, which is over the 3% required for an FHA loan. Or perhaps there will be some other 0% legislation in the coming months.

Anyway, the situation is complicated, and I am a pretty conservative person, so I'm not taking the plunge into home ownership lightly. But I also don't want to keep renting and throwing my money into someone else's pockets while I wait and try to get into the perfect position. Stress!

**Ima saver** · 02-22-2009, 01:19 PM

I understand the stress about the rent, but you really need to have a bigger emergency fund before you consider buying a home. Too many things can go wrong.

**jIM_Ohio** · 02-22-2009, 01:22 PM

Income:
My Salary: $42,500
FI's Salary: $19,750
Total: $62,250 (5,187/month)
Net Take-Home Per Month: $3,233 (conservative estimate)

Our total monthly payments to debt are about $631.

Here is my suggestion- send 20 percent to debt right now- meaning pay $1000+ per month towards the debt (cc in particular) until paid off.

Renew the lease- see if there is a 6 or 9 month option (as opposed to 12 months).

Once debt is paid off, look to buy townhouse.
Once debt is paid off (cc) make sure the retirement accounts (401k and Roth) get 15 percent of gross income
Once debt is paid off, put 5 percent of gross into short term savings.

**Seeker** · 02-22-2009, 01:31 PM

If the chances are good that you'll be moving in another year or so (when promoted again), then I would not recommend buying.

Buying is a losing situation always when you have to be mobile for the short-term. Unless you can see staying in an area for 5+ years, don't buy.

**sillyoleme** · 02-22-2009, 01:36 PM

Thanks to everyone for their advice.

Seeker - can you explain why buying is always a loss in the short-term? I'm trying to understand all that I can, so that I don't miss anything in the decision.

**jIM_Ohio** · 02-22-2009, 01:40 PM

Originally posted by sillyoleme View Post

Thanks to everyone for their advice.

Seeker - can you explain why buying is always a loss in the short-term? I'm trying to understand all that I can, so that I don't miss anything in the decision.

2-10k to buy in closing
maybe 10-18k to sell in closing and realtor fees

Unless house goes up 28k in year, in value, very tough to come ahead unless tax bracket is real high.

**sillyoleme** · 02-22-2009, 02:05 PM

Thanks, Jim_Ohio. I apologize for what are probably obvious questions, but like I said, we're trying to gather all the information we can to make a good decision.

One thing my fiance brought up... what if, if we did have to move in a year, we rented out the townhome for a while? The amount of rent charged for basically the same townhome in the same neighborhood is about $800-$900, which would theoretically be enough to cover our mortgage/taxes/insurance. I've heard that you can pay someone to manage the property & collect rent for you, at a rate of 10% of the rent or similar. Any thoughts on that?

Also, what if we were not paying closing costs to buy the home (we've looked at many foreclosures, and the realtor said the bank would more than likely be willing to cover closing costs). Would that make it a better short-term investment (assuming it doesn't devalue alot in the mean time)?

**Ima saver** · 02-22-2009, 02:14 PM

speaking as someone who has had 3 rentals, I would strongly advise against them. All three of mine got trashed by the tennants and I had to sell them all at a loss. You need to live in the same city and being very handy at repairs to make money on a rental. Especially right now.

**Seeker** · 02-22-2009, 02:37 PM

Jim is right.

In addition, one year is not enough time to make up for the continuing of lower home values in this economy (so in all probability you will be paying more now, just for the market price, than you can sell for in a one year future -- assuming that you can even sell in that future).

Historically, the prices of new houses have risen over 250% in the last 20 years. They are still overpriced. Demand determines price in each location ; and while some areas are in demand more than others, the risk in the short-term is huge.

The realization of saving by not paying someone else (ie renting) is only realized long term... because the costs are balanced over the term of the home. You save rent money and end up in the end with property that you can live in... but it only works when "settled".

Renting a house out to other people, and even outsourcing the management of property upkeep, can also balance that cost, but only if you can get renters. That really depends on the location and the economy in that location. You will have competitors and may end up lowering rates to attract renters.

At the same time, you will have a lot of $'s tied up in the first place, and what will you be doing to finance the place where you'd live in the future at another location? Do you then rent?

**MiikeB** · 02-22-2009, 05:16 PM

Really I have no idea how you think buying is even an option at this point.

Credit is tightening on mortgages, you have a good chunk of debt and not even 3% down.

Just tough it out and rent.

**Rainelli** · 02-22-2009, 06:03 PM

I think you can afford to buy your own house now,based on your monthly income,it's better to pay then it will be yours,than keep on renting for it will goes up.

**creditcardfree** · 02-22-2009, 06:35 PM

If you are pretty sure you will move in a year after purchasing, I would NOT buy a home for reasons mentioned earlier. It will most likely cost you too many dollars on both the buy and sell side of the transaction that you are unable to recoup.

I think you should rent. It is just a matter of where.
Current Apartment
Apartment in your current town
Apartment in new work location

Best wishes!

**jIM_Ohio** · 02-23-2009, 05:17 AM

Originally posted by sillyoleme View Post

Thanks, Jim_Ohio. I apologize for what are probably obvious questions, but like I said, we're trying to gather all the information we can to make a good decision.

One thing my fiance brought up... what if, if we did have to move in a year, we rented out the townhome for a while? The amount of rent charged for basically the same townhome in the same neighborhood is about $800-$900, which would theoretically be enough to cover our mortgage/taxes/insurance. I've heard that you can pay someone to manage the property & collect rent for you, at a rate of 10% of the rent or similar. Any thoughts on that?

Also, what if we were not paying closing costs to buy the home (we've looked at many foreclosures, and the realtor said the bank would more than likely be willing to cover closing costs). Would that make it a better short-term investment (assuming it doesn't devalue alot in the mean time)?

I would caution digging you debt hole to deep.

You have cc debt and do not own even one property now.
I would look at two things short term:

1) eliminate the cc debt- until you prove to yourself you can spend less than you earn, no need to spend even more.

2) Once the cc debt is eliminated re-assess the whole situation. Buying might make sense... with your income your "tax benefit" to owning is low, so rushing into a decision might be a mistake.

Owning a house will mean you are required to pay the following you do not pay now:

1) trash
2) water (maybe- some condos might include this with HOA fees around $100-$300/mo)
3) property taxes (between $1000-$10,000 per year)
4) roof repairs (might change for condo- check HOA)
5) hot water heater
6) inside structure (walls, ceiling repairs)
7) carpet and surfaces (counter tops and carpet wear out over time)
8) siding and landscaping (HOA might require outside to look a certain way and that costs money)

If you spend every penny you have now, what makes you think you can tackle the added expenses of home ownership?

Renting is not a short term answer... as the solution which renting is fixing has not even presented itself to you yet. Solve the problem immediately in front of you.

My suggestion was 20% of gross pay to debt each month. In 10 months you are probably debt free and then you could look to buy a house and save for retirement.

Advice Please! Young couple needing to relocate (rent or buy)?