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ShaneMcKenna

Trying To Convince My Brother To Buy Vs Rent

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Hello everyone. I've been on here a few times in the past. I'm about to turn 21 years old, and I have about a year left of College. Then I'll have my degree in business. Realestate has always interested me. I've even went to a few seminars in the past.

Anyway my brother is 24 years old and he is wanting to get into his own place. (we still both live with our parents) He has been set on looking at apartments mostly because you'd only be in a lease, and if you need out within a year or so, all you lose is a months rent. Is that true?

Where as if you get in over your head with a house you may have to sell it quick for less than what its worth...

Anyway a two bed room apartment in our area is pry going to cost around $900 a month.

If you rent you won't have to put any money down, pay insurance, or property tax right?

 

Then if you own, you have to pay say $150-$200 property tax on a $155,000 house, you'll have to pay pmi, and home owners insurance. Thats another $100 a month roughly. And I'd assume it's good to put at least $5,000 down. So I see where he's coming from how it may look better to rent/ get an apartment.

 

But I always thought owning a home was so much more beneficial. You will see a benefit on your taxes if not each month, at the end of the year you should get some decent money back. Depending on what you buy, you are free to do an addition, or make a change to the house. Most importantly, if you buy in the right area, the house can only go up in value. If we want to get a cheaper mortgage, would we qualify for an interest only loan if it's our first mortgage?

That would put our payment right around $750 a month, and we could use the extra $150 we save for taxes.

 

I know renting is for certain people and its great at certain times. I would much rather get into a nice little condo, the two of us, and go from there. Without getting in over our heads, I think that'd be worth the extra pennies.

What do you suggest?

Thanks, Shane

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Hi, Shane. Interesting question. Generally speaking, owning is advantageous over renting for the reasons you have already noted: the tax benefits and the appreciation.

It seems to me the question for you and your brother is affordability. And to best answer that question, why not speak with a trusted mortgage broker? He'll go over all your options and explain what financing programs are available to you two. You'd be surprised at what is being offered these days, Shane.

I suggest you contact someone local, and also to contact fellow board member and money man Mike Pine. Good luck.

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Thank you for the reply. I have been looking around my area, for a townhome for between $145,000 and $165,000 I hope to find something in that price range.

 

I'd like to put down $10,000 if I find a home for $165,000 that would mean I would need a loan for around 95%, is that financable with a credit score in the high 600's?

 

My 2nd question is could I request an interest only payment for the first 5-10 years? Can you tell me if I'd qualify and also the advantages and disadvantages of doing that for my first loan.

thanks, Shane

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Shane, those questions can best be answered by a mortgage broker.  Call around, and remember they work for you.

Thanks for the reply. Last night I called the mortgage exchange I am going to try to sit down with them and talk more about it and ask them my questions sometime next week. I am interested in an interest only loan.

thanks for the help, Shane

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I'd like to put down $10,000 if I find a home for $165,000 that would mean I would need a loan for around 95%, is that financable with a credit score in the high 600's?

 

 

I have to second MichaelC, off hand the answer is you should be able to do that. But, it takes a lot more info to give a real answer. You need to work with someone who will spend the time getting you in to the right program.

 

Mike Pine would be a good choice of people to call. He is an investor so he is always looking for programs that fit with investors.

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Guest Guest

I've spoken with a few mortgage companies and people in real estate. It's coming along. I just got my credit ran and they said it is right in the middle, 675. So now I just need to get in and get pre approved. Thank's for all the help. One other question I had, I didnt want to start a new thread...

 

My question is on equity in a home.

I was looking to spend around $160,000 on a town home, and put $10,000 down. I have been running the #'s and that is around $850 a month mortgage, and

$300 a month give or take for property tax. I have ran the #'s and

set some money aside, and that is what I can afford.

 

My question is when everyone says you can't lose in real-estate. (I

see how it is much better buying property than a car because the home

appreciates while the car decreases in value) But can someone correct

me on my #'s below?

 

Say I am in the home for 5 years, I buy it for $160,000 and over the 5

years in P and I pay $51,000 ($850 * 60)

On top of that I pay property tax of $3600 a year, but I won't factor

that in yet. For me to just break even, I will need the home to have

increased $50,000. I didn't expect it to increase that quickly

especially a town home. I figured if anything, it'd be worth around

185,000 or so.

Either way if I didn't make money, I was expecting to break even. In

this case if I sell the house for $185,000 after 5 years, yes I gained

$25,000 in equity. But that $25,000 in equity cost me $51,000 over

the 5 years.

Can you tell me if my numbers are correct?

 

I know it takes money to make money but I don't want to get into a

situation and I have to wait a few years for the house to appreciate

before I can sell it. When you think of equity do you not keep in

mind what you put into it over the years?

On paper going from $160,000 to $185,000 looks great, but it isn't

like you aren't paying interest on that loan. On top of the interest

you are paying taxes on the property, and in my case I put $10,000

down. Over the 5 years including the down payment, taxes and mortgage

I am paying $78,000.

$10,000 down

$50,000 mortgage over 5 years (850 * 60)

$18,000 taxes over 5 years (3600 a year or $300 a month)

 

That is totaling $78,000 there is no every home will go up that much

in 5 years, what can you do to ensure yourself you're getting into a

safe situation? My main question is when you think of equity do you

not keep in mind what you put into it over the years?

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Shane, from a purely mathematical standpoint, your calculations are correct. But, you can't see the forest for the trees, so to speak.

For starters, everyone needs housing. It isn't an option or an expendable commodity. I mean, we all need a place to hang our hat. So, then, buying is surely advantageous over renting. You also have not calculated into your figures the tax benefits of home ownership, which are substantial.

If you pay $850 month mortgage, versus $850 month rent, the advantages to you are enormous. There are the aforementioned tax benefits, appreciation, and control, (you own the property; it's your's; do what you want ;) )

If you need cash a few years down the road you can always refi and pull it out that way. If you want to move but don't want to sell, or can't sell, you can always rent the property. I'm just rambling off the top of my head here, but I think you can see the advantages far outweigh the disadvantages of owning property, particularly your own personal residence.

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I would think that with an interest only (100% tax deductable) loan your payment would be lower.

 

any way, a quick and easy thought process; you buy a house you make payments when you move you make 25k vs. you rent a house you move (does your LL pay you 25k?)

 

Say your payment is 1k a month it will increase a few bucks w/ taxes vs. rent maybe 1.2k and can go up every year.

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