city appreciation is 3% max and I will stay here for only 3 year. Do you think still it is good buy house here

Question

This city small with stable economy in Midwest. I will be in this city for atleast 3 years or more. Since city is small appreciation is 3% max and study and intereste is 6%. If I buy house and sale it after 3 years. Will it be profitable or is it profitable to keep renting

Answer 1

Rent is cheaper.

Remember buying and selling houses incurs closing costs.
You will not likely get enough of a return on your investment to even cover those closing costs (typically about 5% if memory serves), let alone interest, taxes, and insurance.

Generally, if you plan on living somewhere for less than 5 years, and don't really have a substantial down payment, you will not build up much equity.

If you know you plan on staying for 3 years, you can probably get a good deal on an apartment.

Find a good apartment/house, and tell them you want to sign a 3 year lease, if they will let you do so. They might not want to tie themselves up for that long, but 2 years is very doable and advantageous to the apartment/house owner.

Remember, the less often a landlord has to turnover a property, the fewer expenses they incur, so your offer benefits you both, and this gives you leverage to bargain a bit more than you would otherwise.

There is also the very real possibility of fallout from the rest of the real estate market reaching even small, stable cities.

You would be better off renting, taking the difference, and investing it in stocks at 8-15%. This is the important part. Take the difference and invest it.

At this moment, the balance favors renting, based on the information you have given.

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In regards to building up extra equity:
If the house will at most earn 3% appreciation, why not invest that in a CD that will earn more, or even better yet any conservative mutual fund that will do even better?

Economically this is called an opportunity cost, i.e. the cost of the next best alternative.

Home ownership is nice, but that equity should be a SMALL part of your overall portfolio. Diversify, diversify, diversify.

Answer 2

Given what you have revealed, it would make sense to purchase a house. Over three years at a 3% annual appreciation, you would realize an approximate 10% increase in valuation. Your costs to market and dispose of the property using a real estate professional will be roughly 7% of that value, leaving you with a 3% gain. Furthermore, if you stay in the house for at least two years as a primary residence, any gains you realize are exempt from capital gains taxation.

Your most important concern is the condition of the real estate market in the city in which you are going to purchase. Investigate how long it might take to sell the property when it is time for you to move on. And insure that the property you purchase is one which is most easy to sell. Avoid any 'unusual' houses which would not draw a goodly amount of interested buyers when it is time to sell.

Answer 3

I would think if you are going to be there for 3 or more years then it would be in your best interest to buy a house. Also, try to pay more on the mortgage so when you are ready to sell you'll have more equity built up. If you rent for 3 years you won't get any return on your investment. If you buy a house you should at least make a little bit.

Answer 4

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Answer 5

It's on the edge. Factor in the 6% sales commission you will pay to get rid of it in 3 years.

Answer 6

yeah if the 3% appreciation is gaurenteed

Answer 7

Random Guy from Texas has it right.

RENT - RENT - RENT.

3% appreciation (max) for 3 or 4 years will be MAX 12% increase.

Real estate appreciation ...........................12% (Max)
Closing costs to buy .................................... 3% (about)
Closing costs to sell (6% Realtor) ...............9% (about)
Two months vacant while selling ..................2% (about)
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SAVINGS FOR HAVING RENTED .............PRICELESS!