Am I better off renting or buying?

Question

I'm 25 years old, college grad 2 years ago, and still live at home with the parents in the suburbs of St. Louis Missouri.
Right now I'm grossing approx $2900 per month and taking home approx $2200.
I have no debt and $40,000 in cash.

Financially, which is the better option ?

1. buying a small fix-it-up house in the 130,000 range that I would not particularly be happy in...and then hopefully sell it off in 5 years. Having no handiman or real estate experience, I would make the necisary repars hoping to up the value and then let the real estate agent sell it. The downfall would be giving up the fees to the agent, thus washing out potential profit on appreciation.

#2. I can rent an apartment (which is also not my favorite option because I don't like confined space), but the lower rent per month would allow me to save additional cash for a better house in a few years.

Financially speaking, which sounds like the better choice in the long term???

I was looking to put 25000-30000 for a down payment and keep the other 10000-15000 liquid for emergencies and other investment.
Depending on which route I take and how much money is needed, I may also be buying a new vehicle next fall.

The money I make now is high for my industry around here. If I was to find a new job, I may not be able to get my same wage. So I am also trying not to squeeze me too far on that.

Answer 1

There is no guaranteed perfect answer. The answer is primarily dependent upon appreciation rates and time.

If your time frame is five years, that's usually long enough to make a good profit, but first you need to evaluate:

What does historical appreciation average in your area?

What's the economic prognosis for the next few years?

At $90-100k, you're looking at a mortgage of about $600 per month, plus property taxes and insurance. How does that compare to rents in your area? Will it leave you enough to make those repairs?

Finally, there's the question of what your market is like *now* Are sellers begging and pleading for buyers, like they are around here? Or is your area one of the few that's still doing well for sellers? In the former case, it's likely a good idea to buy. In the latter, not so much.

I'm in California, and know nothing about the St. Louis area market. But these are the kind of questions that need answering. Find yourself a good buyer's agent if you decide to buy - a listing agent is working to get the seller the highest possible price.

Answer 2

Renting is for chumps.

What 25 yr old has experience in anything. Give yourself some credit, the experience will come.

Selling a house is not rocket surgery. You can sell by owner or with a discount real estate company.

You can get a loan with a payment of $800 per month. You can buy a house worth about $150K.

Get a copy of your credit report and FICO score. (www.annualcreditreport.com) It goes along way in pre-approval. Go to a bank, savings and loan or credit union. Stay far (far, far, far) away from mortgage brokers or anything online.

As a first time buyer w/ $40k, you are in charge.

Remeber there are tax advantages to home ownership. Namely the deductiblity of Interest and taxes. You can increase your exeptions and get more take-home pay. You can't take those deductions when you rent.

Answer 3

You've done well for yourself. U.S. savings rate is in the negative. So with that said, the housing market seems to going down hill nation wide. I would keep my eyes open for the homes your interested in and watch to see if the price comes down to where you believe it's worth. It could be 6 months from now or 2 years from now but at least you'll have a good idea what houses cost around the area your interested in. Be patient.... better yet if your could save 20% of the down payment on house your looking to buy. You'll be better off. No piggyback loan or mortgage insurance. It wouldn't hurt to read up on some good real estate books about the loan process.

As for renting I would suggest staying with your parents and save more money (20% down payment). Usually you'll need to have a lease on any property you rent. If you were to find your dream home in the mist of you lease, you might end up breaking a lease. Which could be costly.

HAPPY SAVINGS FOR YOUR BIGHTER FUTURE.
Your parents must be very proud.

Answer 4

you are in a great financial position and will do well as you have proven this far for your age. to answer your question i would need to find out more about your long term goals and objectives. owning a home will give you many tax advantages and will give you more cash flow each month. if you buy put as little down as you qualify for (tax reasons) and invest the difference in a tax free investment. you will need a trusted advisor to help you with this. i am not suggesting stocks or mutual funds. if you make a good decision with your money now you will put yourself in a position to generate an income for life and not worry when you want to retire. my 23 years in this business may be of help to you by helping you create a plan. i am a licensed real estate agent, mortgage broker and insurance agent and have helped many generate an income for life. i can be reached at [e-mail]

Answer 5

I wouldnt buy a house until i have 20% to put down, and dont mind investing a lot of extra cash into fix ups. You have the cash, but do you really want to spend it on a house?

Apartments are nice because if something breaks, you call the manager and they fix it for you.

Sounds like it's a matter of if you really want to spend your spare time fixing on a house, or if there are other things you would rather do instead. Would you find great satisfaction in selling it in 5 years knowing how much you put into it?

Answer 6

.... You have $40k in cash and bring home $2200/month... Why would you buy a small fixer-upper? Why not buy a half-decent house that you could sell with minimal maintenance? You have an excellent amount for downpayment, and your mortgage would be reasonable.

Buy a half-decent house, and invest your home equity. Otherwise I would suggest renting a house (since you don't like small areas), and invest the $40k cash you have in investment bonds and save that for a house 5 years down the road.

Answer 7

Since you are younger and unmarried, a well alternative might be to shop for a duplex or a minimum of a condo with additional bedrooms. You would get a few individuals to hire from you and use the cash to repay the loan.

Answer 8

I have always felt that buying was the better option, if you rent, you have nothing to show for your money.

If you buy, you are building equity, and benefiting from the increases in real estate values over the years.

Answer 9

buy you pay yourself in that deal
rent you can burn the money on the bbq stand.
rented for 18 months moved across country
now have a house and happy again.
plus you get great tax breaks from the govt.