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Author: flybuys Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 886519  
Subject: big decision - need advice Date: 1/27/2002 3:26 AM
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Oh wise Fools, I need some guidance.

DH and I have been living abroad for 2 years, renting an apartment.
It looks like we'll be here at least another 1.5 years, maybe a bit longer before returning to the states.

We live in a beautiful area but the rent is high. While we've enjoyed it, we feel we need to cut down on living expenses.

So we've been talking (and disagreeing) about buying a house vs. moving to a cheaper apartment.

I don't think it makes sense to buy considering we know we're leaving and don't want to keep a house as a rental.

DH thinks we'll save money by purchasing a house.

While our monthly mortage payments would be less per month than what we're paying in rent (assuming we can buy within our budget) my concerns are we have to lay out thousands of dollars for a downpayment (which could be invested instead), and of course closing costs, and unforeseen expenses of owning a home. Plus there's the uncertainty of being able to sell in a reasonable amount of time when we leave here.

DH acknowledges the costs and says even if we consider the costs AND the house depreciates a bit, we'd still come out ahead because (and he starting quoting figures) basically a loss would still be cheaper than paying 1.5 years of rent.

Maybe he's right. I don't know. But assuming he is I told him then I feel we should spend more than we originally budgeted so we can purchase in a really desirable area and have a greater chance of selling the house when we leave (which of course means more downpayment, higher monthly payments, etc).

I don't know which option makes sense.

Advice is very much appreciated.

Thanks,
flybuys

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Author: Antqcolctr Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233042 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 9:05 AM
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I'm no expert, but I would think that when you take into account the $ and time involved in buying and selling a home, and combine that with the fact that you expect to be in your current location only for about 1.5 more years, buying a home doesn't seem to be worthwhile.

You don't mention where you currently are. Is there a possiblity that you will return there for vacations/business? Have you made friends there that you will want to go and visit? If that's the case, and you really want to purchase something, maybe you should consider going condo/townhouse and renting it out when you don't need it as a primary residence.

Just my $0.02

Tammy

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Author: hbogart Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233049 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 10:12 AM
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My personal opinion is it's not likely to be worth the hassle. Remember that you'll be responsible for maintenance/upkeep/repairs if you own, which presumably you are not while you rent. Where are you living?

HB

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Author: RiverCityFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233059 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 11:16 AM
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Personally, I wouldn't go through the hassle of buying and selling (with the chance of not selling and being an absentee owner/landlord) a house for 1.5 years.

Are there any absentee owners that need long-term housesitting? I'd look into that before buying.

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Author: thinx2mch Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233071 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 11:51 AM
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Dear Flybuys,

I'm with you.

The transaction costs of purchasing a home take a while to recoup. In our area, where housing prices are rising, it still takes 2-3 years to recover the initial transaction costs. even here, financial advisors do not recommend puchasing property unless you expect to live in the property for five or more years.

You make excellent points about the opportunity costs, too. You could use your nest egg for investments during the next 18 months, rather than tying it up in a property.

There's also the hassle factor of trying to sell the property when you want to. It isn't unusual to find you need to move before you find a buyer. that means carrying the mortgage, utility, and other housing costs until a buyer can go to settlement.

In your position, I would rent for the next 18 months.

++thinx

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Author: imfelbi Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233141 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 3:11 PM
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flybuys,

It would be difficult to give any advice without more information. Seems like your decision is a more emotional one and your DH's one has numbers behind it. So you will have to give us more info to work with. What are the numbers? Where do you live, under what circumstance...etc.

By the way, if you are there for an assignment for you or your DH's company, you may consider asking the company for assistance in shelter cost.

Just my 0.02 dollars.
Felbi.

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Author: sandinid Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233147 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 3:29 PM
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I'll give you my two cents:

Check out:

Cashing in on the American Dream: Retire at 35.
by Paul Terhorst
Bantam Books, New York, NY, 1988

The book is out of print, but I found a copy at my local library. I am a Retire Early guy (scheduled for 4/2003), and I found Paul's analysis of home ownership enlightening. I made about $200,000 on the one house I ever bought, and I only held it for 2 years. I was VERY LUCKY and would never advocate such a strategy. Rent as cheap as you can, and wisely invest the rest. Right now you do not need the hassle.

By the way, you must hold the house and live in it for 2 years to quilify for the IRS tax deduction on your primary residence (you DO qualify for this even living overseas). Only holding it for 1.5 years, will not qulaify you for the deduction.

I am single and I make over $110,000, plus the $80,000 tax exemption for living overseas. I live in Heidelberg Germany. I could live anywhere I want, buy or rent. I CHOOSE to live in a one bedroom apartment, in a not so nice, but conveiniently located section of town, and pay ONLY about $500 a month. The idea is to save the difference, invest wisely, and retire EARLY.

I think any died in the wool LBYMer would recommend renting: CHEAP.

My two cents:

Dan

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Author: flybuys Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233149 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 3:32 PM
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here's a bit more infor since imfelbi asked

We're living in New Zealand. DH is a contractor doing post production work on Lord of the Rings.

Right now we're paying $27,950NZD per year in rent. Looks like we could buy a decent house for around $250K (NZD) more or less depending on the area.

Neither of us has ever owned a house before. Maybe because this is such a big unknown to me, I think the decision is more than just math and there are probably things we can't foresee.

I'm hoping you experienced home owning Fools could help us sort this out.

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Author: flybuys Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233175 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 4:36 PM
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Check out:

Cashing in on the American Dream: Retire at 35.
by Paul Terhorst
Bantam Books, New York, NY, 1988



Thanks, Dan. Sounds like an interesting read.


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Author: retireearlyboi Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233183 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 5:08 PM
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>>>> Thanks, Dan. Sounds like an interesting read.

NP: Just remember to click on the smiley!

:-)

-d

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Author: starvingcomposer Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233228 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 6:39 PM
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You're right. He's wrong.

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Author: retireearlyboi Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233231 of 886519
Subject: Re: big decision - need advice Date: 1/27/2002 6:46 PM
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>>> You're right. He's wrong.

Regarding????

-reb

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Author: WebEagle Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233323 of 886519
Subject: Re: big decision - need advice Date: 1/28/2002 12:49 AM
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Right now we're paying...rent. Looks like we could buy a decent house ...

I'm hoping you experienced home owning Fools could help us sort this out.


As a home owner I have to say that owning is MUCH better than renting. Aside from the tax benefits, you are building equity with each payment. With every check you send to the bank, a portion of that money is actually being kept by you in the form of equity. You really are paying yourself. And in reality, even renters are paying mortgage, it's just somebody else's mortgage they're paying. Also you can't be subjected to a landlord's whims about pets or visitors, your monthly payment can't be “raised”, and your terms can't be changed by a new, different landlord.

Now having said that, I'd also have to say that in your case, I don't think it would be a good idea to buy. As has been mentioned in a previous post, it takes a few years to recover the closing costs. Also there is almost always a time lag between putting the house on the market and making a sale. In other words, you may not be able to get rid of it on your preferred time table, at least not without going seriously below fair market value, which you don't want to do! Realtors can smell “motivated sellers” like blood hungry sharks. (I really do like Realtors, but only when they're working for me!)

From among the options you've mentioned, I'd say rent cheap and invest for 18 months.

Best Wishes,

WE


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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233339 of 886519
Subject: Re: big decision - need advice Date: 1/28/2002 4:21 AM
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Hm... Let's throw together a hypothetical.

Let's say you can buy a nice house for $100,000 and get payments of $1000 a month. You'll have, very roughly, $1500 in closing costs (1.5%). You live in the house for 1.5 years (18 months). During this period you have repairs costing $1000 (which quite a lot of people will tell you is rather low for the first 18 months in a house). Then you sell the house for $100,000 and pay 7% commission or $7000.

Your total expenditure on the house is $1500+18000+1000+7000 = $27,500, or $1527 a month.

Can you rent a $100,000 house for $1527 a month or less?

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233345 of 886519
Subject: Re: big decision - need advice Date: 1/28/2002 5:16 AM
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<<Can you rent a $100,000 house for $1527 a month or less? >>


In most cases, you can rent such a house for much less than $1527.


The rough rule of thumb for those renting out real estate is to HOPE to get 1% market value in rent per month ---which would be $1,000 in the example you gave. In most cases, this is not possible to do.


I currently rent out a house with roughly $160,000 market value for $1200/month.

The bright side of that is that I paid $38,000 for that house in 1987. In addition to the price appreciation of the house, I had total rental income of around $160,000 during that time.

That means my original $38,000 investment has increased in value to something like $320,000 in fifteen years. That doesn't include taxes or expenses of ownership, nor does it include the opportunity to invest that rental income in other investments.


So my experience is that buying a house can be a good investment, but probably is a poor investment over the short term as in your example because of the high costs of buying and selling real estate.



Seattle Pioneer





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Author: ncharge Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 233483 of 886519
Subject: Re: big decision - need advice Date: 1/28/2002 12:55 PM
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The ex and I bought a house in Germany when we lived there. While I enjoyed the house and the cost savings, it took us nearly 2 years to sell it. We had to find someone we trusted to look after the house and manage the renters. That would have been OK if the house were in the States or anywhere near us, but having so much money tied up overseas was positively nerve-wracking. I always worried that something would happen to the house and I wouldn't be able to deal with it on a timely basis. I wouldn't do it again.

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