Rent or buy in same neighborhood...

It's only on rare occasions that you can buy with nothing down for less than you can rent. A $200,000 property @ 6.375% IO on the 80 and Prime + 1 on the second (IO as well) would be $1158.33 per month...add in $50 for insurance and at least $167 in taxes per month...

Looking @ $1375.33 per month assuming there are no HOA dues...yes there will be deductions he can't get with a rental, but each month you will spend more.

It'll all come down to appreciation in the property. And plenty of people LOSE as well as gain. You just don't here them talk about it.

 

Dont forget tax benefits

 

Who said that?

Agreed. Even if this is done, I wonder if it's the right move for a single male who is unlikely to be there for very long. Even if he IS there a long time, it's difficult to quantify a real 'gain'.

For example:

Zero money down, 5% rate I/O for 10 years. Actual tax deferred rate is about 3.5% at best.

Property appreciates at 6% annually for those 10 years.

Taxes and insurance over that period, I'm guessing, will be about $3-$4k per year. Figuring you'll get a deduction on the taxes, We'll call it $3k for both. That's $30k. I have not included opportunity cost on the money lost for taxes paid annually, but theya re a factor.

The gross unrealized 'gain' on the property is 2.5% per year. If you paid $250k for the place, your actual gain, less tax deferred interest, is $70k.

The property, meanwhile, has appreciated to just under $450k. In order to sell the place, you'll likely pay a 6% fee. That's about $27,000.

Net gain after realtor's fee to liquidate = $43k.
Net gain after realtor's fee and taxes / insurance = $13k

Also - 10 years of living in a place, you're bound to have maintenance. I don't really see how this can be less than $1500 per year, for lawn care or equipment, gutter cleaning, painting, yada, yada, yada, but I'll be frugal and call it $1000 per year. That's $10k.

Now the net gain is $3k......which would have likely been wiped out by closing costs or some other expense.

So - now that you sold it - where do you move? How have those areas appreciated over the same 10 years? More? Less?

How much was your rent over that period? What type of return did you get on the money you invested, considering your rent should have been less than the cost of your mortgage / taxes / insurance / maintenance / realtor's fee?

Lots to consider.

I think the key, in Gutter's case, is the time frame. If i was single, I'd be a renting ************.

 

I don't think he did.

 

It's the way to go if you know what you are doing and do your homework.

You are right, a lot of people lose their ass but it has nothing to do with the loan structure, they were doomed before closing.

 

Single male has less to do with it than what is his cash position and what is his debt/income ratio. Also, the most important factor, where and when you buy.

There are hot spots all around the county line that are layups right now.

 

I said single male b/c single males tend to move around alot more, or prefer to have the ability to move with ease. I think it's worth noting that he's looking for a home, not a business opportunity.

The where and when is absolutely correct, but is not relevant to Gutter b/c he is speaking of a particular neighborhood where renting is cheaper.

Also - from a business standpoint - you seem to have a grasp on the market. Gutter is looking for a home. I think that while money can obviously be made on primary residences, people who make a business of real estate will likely do much better than people who do not make a business of real estate ( like me, and like Gutter. )

I'm not arguing that real estate is a bad business - not at all. I'm pointing out that being a homeowner is not always a better deal than being a renter, which is what the initial question was. Interestingly, the people that always make money on homes are the agents of the homeowners - those in the business of real estate.

 

Pricing on the 2nd on an 80/20 is typically Prime plus, which is the killer in the equation.

Check into some credit unions and other zero down programs. Yes, idiots get burned by them, but there are some really great rates on 97-100% single facility loans out there. They're a tad higher (maybe .25%) than a typical 80% first, but much cheaper than the effective rate of an 80/20. I saved up a bunch of cash to put down on a house but did a 97% at .15% above the 80% rates I got quoted. So I was able to invest the dp money and am earning a fat 1% (lol) spread above my imputed "cost of funds". It's still better than renting or tying up principal.

And yeah, you do have to have pretty good credit. 750+ helps.

 

How so?

 

Appreciation + tax advantage.