The adult part inside of me decided that it was time to do the responsible thing and buy a place. Oh, the rent or buy conundrum. Always wondering, “when’s the right time?”. Timing can definitely matter, especially depending on your life situation. For myself, I finally started to wise-up and crunch numbers and began to realize something…
I can live more adequate and save money at the same time!
How is this possible?
Well, I was renting an expensive place in the city as one 20 something year old tends to do when they have a bunch of money to throw away.
In all honesty though it was a nice place; 1 bedroom, 1 bath w/parking included for $1850. Yes, I know it’s a lot, but this was actually very reasonable in the area. Go look at San Francisco prices and get back to me!
I had been renting for several years before too. Always bouncing around lease by lease. I was just a 20-something year old having fun. Nothing wrong with that except I didn’t know that I was digging my own grave. Maybe not digging my grave so much as delaying my freedom. That independence that I knew I wanted, but didn’t really know how to let it come to fruition.
Why did buying make more sense?
The rental market had gone up quite a bit over the years in the area and as the lease was running out the rents were getting higher. I had enough with the pick-pocket man named Rent.
I started to look at home/condo prices. At first glance it wasn’t all too impressive to look in the same location. While it still came out to be a bit cheaper to buy, that was assuming it was a very long term commitment of sticking around. The undecided part in me wanted a shorter term commitment (just in case).
How did I find a short term commitment home?
I moved 20 minutes away from the city. This was a sacrifice I was willing to make although a lot of you may not be willing to make such crazy changes to your life! Yes, it’s a change (but not that big) and one that I was willing to make.
The result? Instead of skyscrapers I actually see trees out my window and hear the birds in the morning and I couldn’t be happier about the decision. To be honest, all I need to do is hop on a 20 minute train and I’m right downtown. On top of that, the condo I purchased was less than half the cost of similar condos in the city. Huge difference!
Everyone has their own reasons for their purchases whether it be location, price, etc..
Why I didn’t buy in the city
- Higher HOA fees for condos
- Huge cost for very little space
- Higher taxes
Why didn’t I buy a house?
A lot of reasons:
- Property taxes
- Rental potential
- Commitment length
- Debt size
- Additional maintenance
- Probably more I’m not thinking of
This comes back to the idea of minimalism. I don’t need a giant house so why should I get one to fill in the space with things that I don’t need?
Take a look at how the NerdWallet calculator looks when crunching the numbers below.
By using the default settings, you can see that instead of throwing money away I now own an asset and it costs less than what I was paying in rent (by quite a bit). These numbers figure in a variety of things including maintenance costs over time, taxes of a home, cost of selling the property, etc..
Do I rent or buy?
The biggest thing to note: It’ll NEVER be cheaper to buy vs rent! Now, obviously I’m not ignorant. I do understand that owning lends itself to a slew of liabilities that I did not once have. To be honest, that doesn’t bother me one bit though. If anything, I enjoy tinkering around.
To top it off, I have a potential rental property if I decide I want to get into the landlord business. Or hell, I could just get a roommate and cut the cost in half.
How much am I saving each year?
Just purely off of the calculator it comes to…. 1,867-1,493 = 374. Right off the bat I save $374 per month. Converting that per year makes it $4,488 which I can use to put into investments! Not to mention that the payment also reduces my mortgage payment which puts money into my new asset (the condo).
At the end of the year, I have the added benefit of writing off the interest (although now I know the new tax laws are not as beneficial for the future).
An update on my living situation a year later
I’ve lived in the condo for almost a year at this point. It’s larger than my previous place and genuinely nicer. There has been very little maintenance to be done besides my general interest in handy projects.
My actual monthly payments are lower than the estimated buy that the calculator figured in. This is also due to the fact that I pay HOA dues and that money goes toward the general maintenance of the building. The actual bill comes to $1,140 per month excluding electric and cable. Add those in at an extra $100 and we’re at $1,240 per month all in.
Just doing these quick calculations it comes to $627 per month which then comes to $7,524 per year. Say I invest this money into index funds with a robo-advisor like Betterment and get a 4% return. Over 10 years compounding the interest that comes out to $101,471.31!
Would I go back 10 years with this knowledge?
I’d definitely do things differently, but I wasn’t ready mentally. Maybe a few years earlier, but not 10 years. After all, life is about the experiences and less about the money isn’t it?
I’m sure we could argue all day on that loaded question. However, I sure as hell am glad that I made the choice now to buy for my future. I don’t miss out on much of anything not living straight downtown either. Plus, my place now is actually larger and cheaper with an extra bedroom and there’s plenty of cool restaurants and bars to visit nearby.
How does the housing market compare after one year?
It’s better. The estimated property value is up about 6% and that seems about right looking at the comps. I could get out now without any issues and have saved myself a few bucks. That’s in the same time window as a typical lease!
What if the housing market crashes again?
I’d still be okay unless something completely unprecedented happened. Even if the property devalued drastically I would be okay with renting out the property if I wanted to go elsewhere. Or like many in the previous decline stay living in the area until the market recovers (not that I’m sure I’d be willing to wait).
The Verdict – Should You Rent Or Buy?
Obviously there are several questions you can and should ask yourself before deciding whether to rent or buy a home. Everyone’s situation is different and in many cases renting can make more sense. As Captain Planet would say, “The power is yours!“.