Rent vs Buy dilema - need input from those that went through it..

Off Topic
10yFollow

Rent vs Buy dilema - need input from those that went through it..

Paul Gilo
Orlando, FL · Member since 2016 · 74 posts · 22 votes

Hi everyone, been considering purchasing my fist home and the numbers just dont add up for me. So I was wondering if you guys could look over them and let me know if my math is right or wrong. Or perhaps I am missing something

Currently living in Orlando FL, paying 1400/mo for a townhome rental. Plan to be here for another 2-3 years and then probably have to move on to another location, due to job opportunities. So its good for us to be nimble...

Did some shopping for a house and found few that we liked, made some offers and ultimately were either too slow or didn't offer enough... so we didn't get them... 

So I started doing some numbers... and came up with this. 

We found 2 townhomes... few doors down from each other and pretty much same sqft. One is renting for 1600, the other is selling for 290k. 

So to rent is simple... 1600x24mo = $38,400 total. 

----------

To buy... here is my math. 

290k purchase price.

20% down = 58k + 10k in closing costs.

monthly payment with principal, interest, tax comes out to about 1550. 

monthly HOA is about 350/mo

1% for maintenance (heard thats a good rule.) so its another, lets say,  250/mo

To sell... 

so lets say in a couple years we have to move and we sell it for 300k. 

6% goes to agent = 18k

2% selling closing costs = 6k

interest paid per year will be about 8k a year, so 16k for 2 years. 

Cost of ownership...

now the fun part... 

So to own the house for the 2 years we would be paying. 

10,000 in origination and closing fees to buy.

8,400 in HOA fees, over the 2 years

6,000 in maintenance and repairs, over the 2 years.

18,000 in interest (750/mo x 24), over the 2 yeas. 

6,000 to close on the sale of the house. 
---------
$48,400 - this is the money I will never see again (cost of owning the house for first 2 years).

$58,000 - I will have tied up in the house, in form of "equity"? :)

I really would like to "own" a home, I like the idea of it. I like the though of stability and doing whatever you want to it... but the numbers definitely kill the motivation :) Some would argue the aspect of appreciation, perhaps that would be true, but we dont know the future, so its kind of hard to say IMO.

Am I missing something?

TIA

0Reply
27 views

Most Popular Reply

Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
10y

There are people who argue each way. I think ownership does have benefits, but the math doesn't always add up.

As I get older, my position is now this: if it makes you money buy it, if it only costs you money then rent it. I only live in my primary mortgage home because it's going to be a rental soon. I don't plan to buy another house that I couldn't turn into a rental shortly after either.

[email protected]Podcast Guest on Show #301
2Reply
See this reply in the discussion

17 Replies

Jump to latestLatest
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    10y

    There are people who argue each way. I think ownership does have benefits, but the math doesn't always add up.

    As I get older, my position is now this: if it makes you money buy it, if it only costs you money then rent it. I only live in my primary mortgage home because it's going to be a rental soon. I don't plan to buy another house that I couldn't turn into a rental shortly after either.

    [email protected]Podcast Guest on Show #301
    2Reply
  • J P.
    Orlando, FL · Member since 2015 · 44 posts · 6 votes
    10y

    Hello! 

    I'm a newbie as well who is currently going through this. I thought of all the money I pay to rent and how I could be putting it into something that I will own. This brought me to real estate investing. As Alexander above, I plan to rent it out vs sell. Do a search online. I found a calculator that will give you a breakdown of rent vs buy and how you might save. Looking at your numbers, I think you'd be better off getting a house. I have eliminated condos and townhomes from my search due to the high HOA fees. That is what seems to be making your numbers not work out well, IMO. If you are set on a townhome, then perhaps look at others and see if you can find a lower HOA fee. It may also be better for you to continue to rent until you are somewhere more permanently or at least for a longer period to be able to truly see appreciation (although most say don't base purchase on this).

    Best wishes with your decision!

    ~J

    0Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @Alexander Felice - That is great advice. Sounds something like Grant Cardone would say :)

    @J P. - I think your approach is great if you stay local. I have some concerns about having 200k of debt sitting hours away from me in a SFH. This would limit my ability to get something nice at the new location. Also for me to rent something, it has to cash flow pretty good. In this scenario, this is not going to happen. Paying retail is not going to happen in Orlando, I would have to score a great deal for all of this to work out. Appreciate your input and the fact that your in Orando, it make is that much more relevant. :) Thank you.

    0Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    I guess one thing to mention is that, if we do end up renting. The money I would have put into my home, I would like to put into some investment... perhaps buy a multifamily that cashflows well. I guess when you have 60k on hand there are a lot of options. Thanks.

    0Reply
  • James Paine
    San Diego, CA · Member since 2015 · 136 posts · 62 votes
    10y

    @Paul Gilo I like where you heads at! I own about 30 rental properties that cash flow and I rent 1 home that wouldn't cash flow. (The one I am renting for $3100/month that would cost me $6900/month PITI). Rent Bro! Buy a solid cash flowing deal if your primary isn't going to cash flow.

    The one exception to my advice above is if you are starting a family or have a family and plan on staying in that neighborhood for years. 

    2Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @James Paine - Thanks! Seems like your doing well your self. Great deal on the rental, I must say. :) Sounds like your landlord is pretty much loosing money on it. I figure if I get a 4plex bringing in 2500-3000 in rent each month, I can get a management company to handle it and I would be more comfortable doing that remotely. 

    We would like to settle down, but its going to probably be 3-5 years until we can do that. 

    1Reply
  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    10y

    @Paul GiloI own cash flow rentals, but I currently rent where I live. I live in a community where prices start at $275,000+ (Baldwin Park). The numbers didn't make sense to me if I purchased a place in the community. My current rent is $2150. At first I was looking at places to buy around $335,000, I would of had to put down 5% ($16,750) plus closing costs and then with HOA, taxes, mortgage etc my expenses would be around $2500. Never mind if I had to replace something. If I wanted to rent out the place after I would only get maybe $2700. I would rather use my cash for investments. Plus calling someone to change your light bulb is pretty sweet.

    1Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @Erin Legler

    Baldwing Park looks very nice on google maps. I'm now to Orlando, so I will have to check it out. Any specific streets areas you think I would enjoy? I like walking around and exploring, it seems to be that kind of place.  

    What kind of investment/cash flow rentals would you recommend in the Orlando area? Would something that rents for 2-3k per month be just as marketable as something that rents for 1k per month? From what I have seen, the cheaper places are usually easier to cash flow. 

    ... but yeah... it does seem like everyone is making a compelling argument to rent, instead of buying. I guess my math makes sense. 

    Thank you!

    0Reply
  • J P.
    Orlando, FL · Member since 2015 · 44 posts · 6 votes
    10y

    It's great that we all agree on something! LOL

    0Reply
  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    10y

    @Paul GiloYou can walk down the main rd, New Broad St.  It has restaurants and shops and at the end there is a lake that people jog around.  I love living here because you can walk everywhere.  

    0Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    Thank you.

    0Reply
  • Curtis YoderPro Member
    Rental Property Investor · Tulsa, OK · Member since 2014 · 241 posts · 187 votes
    10y

    You make money in REI long term. RE is not typically a get rich quick scheme so you have to look down the road. If you are moving a lot it makes it quite a bit more difficult to buy and hold properties. Not impossible, but difficult to landlord from afar.

    My first observation is that you are measuring town homes. Get away from them for this exorcise.The resale is pretty solid and you can't get upswing due to the close surrounding comps that tend to drive the cost. The HOA's are also never going to leave.

    So check out some SFH's that fit your budget. You may even find a nice neighborhood without HOA's. That will allow you the most room for appreciation in the short 2 or 3 years and not have a ton of fees biting at your heels.

    You make money on day one, and day one only. You have to buy the property right if you want to make any money. So keep looking, every day, and a deal will come to you. Did I say keep looking, every day? Yes, that is the hardest part, but it works. Good luck to you!

    0Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @Curtis Yoder

    Since your from the area, I know you have things in perspective. Even the SFH we considered were just about in that price range with HOA being 400-500 per quarter (We were looking at Stonebrook West and Westyn Bay), not quite the 350/mo as it would be in Windermere. To get into a home that my wife would be good with is still putting us into high 200s and ultimately monthly costs would be higher than the quoted rent. Not to mention the cost to buy and sell.

    You make a valid point about looking every day and especially about buying it right. I check the MLS listing within our criteria almost daily.. very few properties that come through are appealing for the price they are asking. The ones that we did consider sold at or very close to their asking price. So it seems to be very difficult to pick something up at a discount.

    Thank you for your comments and time.

    0Reply
  • Eddie T.
    Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    10y
    Paul Gilo never buy any rentals with an HOA bad idea. Own what you rent and rent where you live. Watch this show with grant cardone http://grantcardonetv.com/video/cardonezone/buying-a-house/
    0Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @Eddie T. - I think this is the episode that made me start reconsidering my purchase :)

    0Reply
  • Chris Romany
    Orlando, FL · Member since 2014 · 93 posts · 35 votes
    10y

    Paul,

    If you planning on moving in the next couple of years, I would consider staying in a rental. Anything longer than that, you should look at buying a home, and it should be one with long term investment in mind. 

    I know the numbers may not seem to point towards buying a home (vs renting), but there are other factors to consider with home ownership, depending on your personal situation, which will add to your quality of life that cannot be quantified. This should be weighed alongside the numbers, and then you determine what's best for you.

    0Reply
  • Paul Gilo
    OP
    Orlando, FL · Member since 2016 · 74 posts · 22 votes
    10y

    @Chris Romany- valid point. we would love to get into a home, mainly due to unquantifiable factors. but since we do plan to shift gears around the 2 year mark its kind of difficult to make that commitment. i would have loved to get one if i knew that after 2 years of living it, we could make it cash flow for us.. but thats kind of difficult with the numbers and the must haves we have on our list. 

    Thank you for your response.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free