Home Ownership and Being A Student Is Lame

[JavadiCavity]

My wife and I bought a really nice starter home about 15 months ago. We got a good rate, 5%, and a good price. Over the last 15 months, we've reduced our principle by $1,000, but we've paid $8,000 in interest. Also, this morning, our water heater broke, which is going to cost me $500. Over the past year, we've had to replace carpet ($500), fix the dishwasher ($100), repair a cracked window ($1,000). Anyway, aside from other incidentals, the cost of home ownership is starting to get pretty steep. Lastly, the value of our home has only increased maybe $1,000. So, to summarize, I've spent $10,000 during the last 15 months on interest and home maintenance! For those of you who think that buying a home while you're in school is better than renting a home or apartment, beware!!! And now, we are trying to sell the house so that we don't have to worry about payments during dental school. Selling the house is another nightmare because the area has seen a lot of growth from newer homes being built. A larger market makes getting a good price for my home more difficult.

If we had rented a home over the last 15 months in our community, we could have easily found something for $550 a month. So, the total cost would have been $6,600. Any maintenance problems like carpet, dishwasher, water heater, etc. would have been paid by the landlord. So, I'm seeing a cash flow savings of $3,400 (I can't realize the increase in my home value because I haven't sold the home yet).

I think, except in a few circumstances, it's almost wiser to throw your money at rent rather than to worry about the headaches of owning a home. And, at the end of 4 years of dental school, you can walk away from the place without worrying about selling. If you're worried that you are just giving your money to someone else (i.e. the landlord), that's not a great argument. In reality, between 85% to 97% of your mortgage payment during the first 5 years of owning a home goes to interest. Interest is money that you will never see again.

So, I've decided that we are going to rent our pad at dental school, unless we find a really good deal on a 4-plex (although that has plenty of problems too). I think owning a home is too much work and that the supposed savings are too elusive or small or non-existent to merit the increased headaches.

What do you guys think on this subject?

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[DrTacoElf]

Realestate is quite interesting. If you find the right place it can be a goldmine, if you find the wrong place it can be just an ok investement or even a poor investment. I plan on buying a home when i head to school. I'm going to do extensive research on the town where I will be moving and look for somewhat of a run down house in an area that is improving. I think this is usually possible to find, and if you find the right place over the course of four years you can actually get back a nice return .

I still have tons to learn in this area though!

 

[trypmo]

I can definitely see the increased headaches as well as the increased costs. The time and worry that it would cost, not to mention the money, would be the killer for me. This is probably because I'd want to do all the maintenance work myself and wouldn't hire someone to come fix things, so there goes a LOT of time down the drain.

Hmm, so maybe it's a good thing not to be in a financial position to buy a home?

How old is your house? Just curious.

 

[Col Sanders]

What do you guys think on this subject?

Hindsight is 20/20. My wife and I bought our condo 16 months ago for 128,000 and we just got it appraised last week for 245,000. How did we luck into buying during a year of %80 appreciation I don't know, but we never anticipated it. We knew that a mortgage would be about the same as a rental (rental prices fluctuate but for comparable properties they should be near the same price per month as a mortgage.) We bought because we calculated the savings we would achieve in writing off the interest on our taxes (if I remember its around 200 a month), we bought anticipating the national average of %6 appreciation (higher with newer properties in newer areas lower in older properties in older areas), we bought because a historic low in interest rates, we bought for the freedom to do things like paint walls different colors, we bought because neighborhoods of owners are safer than neighborhoods of renters. The 100 grand appreciation in 16 months was a huge bonus for us, but it still would have been the right thing to do even without the appreciation.

 

[phosphorylation]

My wife and I bought a really nice starter home about 15 months ago. We got a good rate, 5%, and a good price. Over the last 15 months, we've reduced our principle by $1,000, but we've paid $8,000 in interest. Also, this morning, our water heater broke, which is going to cost me $500. Over the past year, we've had to replace carpet ($500), fix the dishwasher ($100), repair a cracked window ($1,000). Anyway, aside from other incidentals, the cost of home ownership is starting to get pretty steep. Lastly, the value of our home has only increased maybe $1,000. So, to summarize, I've spent $10,000 during the last 15 months on interest and home maintenance! For those of you who think that buying a home while you're in school is better than renting a home or apartment, beware!!! And now, we are trying to sell the house so that we don't have to worry about payments during dental school. Selling the house is another nightmare because the area has seen a lot of growth from newer homes being built. A larger market makes getting a good price for my home more difficult.

If we had rented a home over the last 15 months in our community, we could have easily found something for $550 a month. So, the total cost would have been $6,600. Any maintenance problems like carpet, dishwasher, water heater, etc. would have been paid by the landlord. So, I'm seeing a cash flow savings of $3,400 (I can't realize the increase in my home value because I haven't sold the home yet).

I think, except in a few circumstances, it's almost wiser to throw your money at rent rather than to worry about the headaches of owning a home. And, at the end of 4 years of dental school, you can walk away from the place without worrying about selling. If you're worried that you are just giving your money to someone else (i.e. the landlord), that's not a great argument. In reality, between 85% to 97% of your mortgage payment during the first 5 years of owning a home goes to interest. Interest is money that you will never see again.

So, I've decided that we are going to rent our pad at dental school, unless we find a really good deal on a 4-plex (although that has plenty of problems too). I think owning a home is too much work and that the supposed savings are too elusive or small or non-existent to merit the increased headaches.

What do you guys think on this subject?

thank you so much for this insight.

 

[JavadiCavity]

Hindsight is 20/20. My wife and I bought our condo 16 months ago for 128,000 and we just got it appraised last week for 245,000. How did we luck into buying during a year of %80 appreciation I don't know, but we never anticipated it. We knew that a mortgage would be about the same as a rental (rental prices fluctuate but for comparable properties they should be near the same price per month as a mortgage.) We bought because we calculated the savings we would achieve in writing off the interest on our taxes (if I remember its around 200 a month), we bought anticipating the national average of %6 appreciation (higher with newer properties in newer areas lower in older properties in older areas), we bought because a historic low in interest rates, we bought for the freedom to do things like paint walls different colors, we bought because neighborhoods of owners are safer than neighborhoods of renters. The 100 grand appreciation in 16 months was a huge bonus for us, but it still would have been the right thing to do even without the appreciation.

If only we could all be so lucky!

 

[ItsGavinC]

Ownership here in Arizona, just like the students in Vegas, is a huge plus. The LOTS themselves have gone up $20-30,000 in the past 4 months.

 

[Sprgrover]

Ownership here in Arizona, just like the students in Vegas, is a huge plus. The LOTS themselves have gone up $20-30,000 in the past 4 months.

Purchasing is not a bad idea if you are going to go to school in a real-estate 'hot' zone, such as Vegas, the Phoenix area, etc. Examine past trends in the real-estate market, job growth, the tax system, and the demographics for the area to get a good idea of what kind of community you are buying into. Doing so will give a more or less clear picture on the prospects for selling in the future and the amount of profit that could be made.

 

[BONAFIED]

My situation:

Bought a home 1 block from residential university campus for for 110k. Built pre-1900. In UT that is a very old home btw. 1/3 arcre lot zoned for multi-family medium density (has room for 4 units total). Beautiful wooded yard and exterior. Inside, is less than desireable. I'm puting in new plumbing and electrical, as well as converting it to a duplex.

I put the home on a 7 year ARM @ 4.25%. My payment is $460 a month. I'll have roughly $20k of improvements in it when I finish. I've done almost all the work myself. The value of the land this house sits on is around $80k. So worst case scenario, (the house falls to the ground) my total risk is only about 40k.

The combined rent for these two units will be at the very least $1200. Minus ~20% for insurance & maintenance: 1000-460 = $540.

My advice for potential home buyers is to be PATIENT when looking to make short-term (4yr) real estate investments. It takes time and good luck to find a genuine value. If it doesn't come along -rent. Be wary of the Lexus-driving-RE agent-flunky who tells you that you should buy a place quickly because real estate prices went up 30% last year. In 99.9% of all RE markets, this kind of growth is not sustainable. I also have doubts that this wild inflation in prices will be maintained when rates go back up. Just think back to 1999, when your friend decided that working was so "old economy", and thought he had special skills in day trading. Different game -same old rubes.

 

[ShawnOne]

If you got into the real estate market 2-3 years ago, you are sitting pretty (ie Col Sanders). However, since values have gone through the roof the past 2-3 years, it is risky to buy now. Even in Las Vegas the property is cooling down. Here is an article sent to me from my real estate broker recently...

The California speculators who drove up prices in Las Vegas 45% from November to May have moved on. The reason they exited offers a lesson. While they were bidding up the prices of two-bedroom houses from $190,000 to $275,000, the investors, who often never even saw the houses they were buying, tried to rent them to cover their carrying costs. But the fundamentals caught up with them. "Rents not only didn't rise, they actually dropped," says Linda Rheinberger, a Las Vegas broker. Stuck with rents that weren't high enough to cover taxes and interest, many investors bailed. Since May, the number of homes for sale in Las Vegas has soared from 4,000 to 14,000. It now takes several months to sell a $300,000 home, vs. a few days at the height of the fever. "It was like a disease," says Rheinberger. Selling prices of new homes actually dropped 1.2% in July as buyers lobbed in lowball offers and many builders accepted them.

Remember the stock market boom and bust of the 90's? I doubt real estate will fall as hard, but a correction is imminent IMO.

 

[JavadiCavity]

ShawnOne is right. I was in the stock market and the real estate market for two years as a broker. We made an educated decision about our home, the location, the price, etc. My point is that it is not the norm to expect your home to increase in value 20 to 30% while you are in school. While I worked as a broker, we told buyers/investors to expect the historical return on their home over the next 30 years of 5% per year. That sounds great, and it is in the long term. But the short term market is a lot more finicky. Buying a house can be a great idea if you are able to sell it for more than you put into it. However, on a month to month cash flow basis, it's just the same as renting. You are throwing away most of your money to interest or rent, but with buying YOU are responsible for all of the homeownership costs that I explained originally.

The whole purpose of my initial post and the point of this thread is to open people's eyes to both the GOOD and the BAD of buying or renting. I know I've only stated mostly the BAD, but that's because the GOOD is pretty well known.

I think the biggest misconception that people have is that renting is as good as burning your money, whereas buying is puts that money to work. It just isn't true in the SHORT TERM (on a cash flow basis). At school, we have our student loans to pay all of our expenses, but what do you do when you've got to replace the water heater or a leaky roof? Where is that money going to come from? It's a myth that old houses are more risky than newer houses--they both have problems that cost money.

When you sell the home at the end it MAY or MAY NOT work out to be in your favor. Hopefully, it does!

 

[Sprgrover]

...I think the biggest misconception that people have is that renting is as good as burning your money, whereas buying is puts that money to work. It just isn't true in the SHORT TERM (on a cash flow basis). At school, we have our student loans to pay all of our expenses, but what do you do when you've got to replace the water heater or a leaky roof? Where is that money going to come from? It's a myth that old houses are more risky than newer houses--they both have problems that cost money.

When you sell the home at the end it MAY or MAY NOT work out to be in your favor. Hopefully, it does!

Good post(s), JavadiCavity, thanks.

 

[ItsGavinC]

The trend of the market cooling, may indeed be occuring, but if so it has yet to happen in the Phoenix area. The average sale time for a home here is 2 days, and there are 212 people moving to the area each DAY, according to the county.

The one thing that is holding up building is the lack of cement, due to it being shipped to China as they prepare for the Olympics.

 

[Veneto]

The trend of the market cooling, may indeed be occuring, but if so it has yet to happen in the Phoenix area. The average sale time for a home here is 2 days, and there are 212 people moving to the area each DAY, according to the county.

The one thing that is holding up building is the lack of cement, due to it being shipped to China as they prepare for the Olympics.

I can vouch for that. The home I own has raised 25,000 in value over the past 2 years. I think buying a home is always worth it if it can be afforded. There are ways to put more of your payment toward the loan amount instread of interest like adding a 50-100 amount to your monthly payment, and homes never really depreciate, they atleast go up with the inflation rate.