Classic Rent vs Buy (Among the crazy market currently!)

Dallas, Texas
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Classic Rent vs Buy (Among the crazy market currently!)

Sam FowlerPro Member
New to Real Estate · Dallas, TX · Member since 2021 · 18 posts · 3 votes

Hi All,

My fiancé and I live in the DFW area and are currently renting a 1 bed apartment unit. Our lease is up in Feb of 2023 and we're going back and forth on whether we should extend our lease or begin the process to search for a house. I don't currently invest in real estate, but my goal is to hopefully force some equity through a light rehab on a primary residence, and then leverage that equity to begin investing in other properties. 

Obviously there's a lot of uncertainty in the real estate market and economy as a whole right now. With all the craziness happening, would it make more sense to jump in anyway and purchase a house, to then use to buy more real estate? Or should we continue renting while saving and see what happens with interest rates and the market as a whole?

I feel like we'd have to make a decision fairly soon with our lease being up in February. Tough situation cause we'd either have to buy now, or wait another lease term (another year).

Thanks for all your insights!

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y

Do you plan on living in the area for a few years?  If the answer is yes, then look into buying.  Talk to a bank and find out how much you can afford for a mortgage.  You don't need to (and shouldn't) go to the maximum.  The timing is good as you have a few months to look at places and close.  Prices often go down in the winter.

The first place I bought when it came time to sell, prices were a bit lower than when I bought it, but I'd lived there for a couple of years, so even if I sold at a loss I had lived 'rent free' for a few years. I kept it and used it as a rental instead of selling it.  I sold it ~15 years later for 2.5x what I bought it for AND my tenant had paid off my mortgage for me as well as cash flow each month.

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  • Joe FunariBusiness Member
    Real Estate Agent · Keller, TX · Member since 2017 · 850 posts · 825 votes
    3y

    @Sam Fowler I would recommend purchasing a home now versus renting. Yes interest rates are slightly higher. But when you secure a loan it will remain "fixed." In a few years when you have built enough equity and interest rates have dropped you will refinance to a lower rate and use that cash from the equity to pay down debts or ideally purchase another rental. Continuing to rent only builds the landlords equity. I would recommend you reach out to my preferred lender @Andrew Postell. He is a my preferred lender here in Texas and a fellow investor. He has a lot of great loan products to help you get into a primary residence. Also, I would recommend you start searching for your primary residence now. May take a month to two moths to find a primary residence. But most landlords will let you break a lease if you show them an executed purchase contract and the date you want to move out. Because landlords know they will be able to get higher rents when you move out. The demand is very high right now here for rentals. Especially if you ensure you leave the rental property in the same condition you moved in. This will ensure the landlord will be able to lease it quickly. I will be happy to help you further with your search too. Hope this helps you and your fiance with your decision. 

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  • Ryan KellyBusiness Member
    Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    @Sam Fowler when you rent, you are paying 100% interest with no equity gains. Even with higher interest rates, you would only be paying 7-8% (could end up lower) and would then have the opportunity to gain equity AND have a future rental property. Don't focus on short-term equity volatility as home prices can always go up or down. Look at the long-term growth of housing equity and the opportunities you will have to build wealth for yourself. We bought our first home in September 2008 (right when the last housing bust was happening). We still own that property and it has tripled in value. If you plan to be in a property for 3 years or longer, I always recommend buying over renting.

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  • Kez Strong
    Investor · Member since 2022 · 21 posts · 7 votes
    3y

    I would suggest starting the home buying process. Get a preapproval, connect with a realtor and know what you are looking for. If you want value add make that clear to the agent. If you want to house hack let them know if you would like multifamily or SFH. As long as you're buying long term it's always smarter to buy. You can always refi when rates come back down.

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    Do you plan on living in the area for a few years?  If the answer is yes, then look into buying.  Talk to a bank and find out how much you can afford for a mortgage.  You don't need to (and shouldn't) go to the maximum.  The timing is good as you have a few months to look at places and close.  Prices often go down in the winter.

    The first place I bought when it came time to sell, prices were a bit lower than when I bought it, but I'd lived there for a couple of years, so even if I sold at a loss I had lived 'rent free' for a few years. I kept it and used it as a rental instead of selling it.  I sold it ~15 years later for 2.5x what I bought it for AND my tenant had paid off my mortgage for me as well as cash flow each month.

    3Reply
  • Randy Gutierrez
    Investor · NY · Member since 2019 · 171 posts · 80 votes
    3y

    Definitely buy especially if you are thinking long term. I wouldn't be surprised if interest rates hit 10% next year. There are no benefits to renting apart from flexibility and offloading some of the responsibility in regards to maintenance.

    2Reply
  • John Jung
    Homeowner · Durham · Member since 2020 · 4 posts · 1 vote
    3y

    Are you open to renting out part of your home? or using part of your home for airbnb? That could make buying your home a lot safer and easier on the pockets. Also I feel like buying home is a safe bet if it's a great deal to where you could rent it out fully and break even (including expenses and vacancies).

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3y
    Quote from @Ryan Kelly:

    @Sam Fowler when you rent, you are paying 100% interest with no equity gains. Even with higher interest rates, you would only be paying 7-8% (could end up lower) and would then have the opportunity to gain equity AND have a future rental property. Don't focus on short-term equity volatility as home prices can always go up or down. Look at the long-term growth of housing equity and the opportunities you will have to build wealth for yourself. We bought our first home in September 2008 (right when the last housing bust was happening). We still own that property and it has tripled in value. If you plan to be in a property for 3 years or longer, I always recommend buying over renting.


    be sure to also calculate the write offs against your earned income.. you can write off your interest and your tax's up to 10k  this will lower your tax burden some and you need to calculate that into your overall number that its costing to own vs rent. 
    however there are a lot of other considerations that folks go through.. Location commute schools stability pride of ownership  no one telling you what you can and cant do with property your living at etc etc.  its not always about dollars and cents.
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  • Christian Gibbs
    Member since 2022 · 32 posts · 14 votes
    3y

    We are in the same situation but we are in Carlsbad, CA ( San Diego). We are renting out here but own a home and some acreage in upstate , NY which we rent out . 
    The interest rates are scaring us a bit but we are buying to live here for the good schools and plan to stay till the kids are grown. With less competition in the market now, we are gonna pull the trigger and buy . As many others have mentioned , can always refi later . Some sellers are agreeing to interest buy downs as well. 

    yes the mortgage payment will be high because of interest rates and there will always be some debbie downers ( friends and family ) telling you not to do it but in the end paying towards your own equity and not your landlord is always the smartest move .

    Also we have to break our lease on our apartment as wellwhich will cost us $2900 but I still think it’s a small price to pay.

    Best of luck !

    Christian

    1Reply
  • Ray Johnson
    Irvine, CA · Member since 2016 · 545 posts · 614 votes
    3y

    @Sam Fowler I would say look to buy now. As a buyer you're going to be in a good position as properties are sitting on the market longer, and selling after multiple price reductions.

    In regards to all of the interest rate talk, we are still below the historical average on mortgage interest rates. Purchase now and if rates were to lower in the future, you can always refinance.

    Lastly, your lease expires in February, I've had great success buying in January, February, and March as there is far less competition. The year-end equity placement buyers are done, and the family buyers are waiting for Spring/Summer.

    1Reply
  • Randy Gutierrez
    Investor · NY · Member since 2019 · 171 posts · 80 votes
    3y

    The only thing with refinancing is I would try to maintain the same timeline and not reset the clock. If you lock in a 30 yr mortgage and by the 10th year interest rates drop by half, try to acquire a 20 yr mortgage at that point. Refinancing is a great tool for investors because that cash is redeployed again to acquire more properties but for your average typical homeowner it's usually a trap. Their timeline is being reset and that cash isn't being deployed to net a return or produce income.

    1Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    I rent where I live. In the eyes of these lenders I am a first time home buyer, even though I own 6 rental properties. My thinking is if I have cash it's 100x more effective in a investment property than a homestead 

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