Sample Calculations for Home Buying

Trulia trulia
Oct 7 41 Comments

Hi,

Married couple here, no kids, early 30s, plan to have at least one kid in a year or so (maybe one more in future).
TC: $425K/annum, good credit score (750+).
Home budget: $800-850K

We are thinking about buying a condo in MTV/Sunnyvale area or in San Mateo county (husband works in the city, wife works in the South Bay (SFH is out of the question for that budget).

Note, we plan to buy and live in the house for the next 6 years. We don't know what we would want to do or where we would want to live after 6 years.

Let's take this particular house as an example: https://www.zillow.com/homedetails/2255-Showers-Dr-APT-184-Mountain-View-CA-94040/19510850_zpid/

Assuming it goes for the listed price, Zillow's mortgage calculator shows monthly costs to be ~$4K with ~25% down (we have that handy).

It would cost almost the same to rent a 2Br1Bed apartment.

So, why not buy the house?

1. We are breaking even on rent vs monthly payments.
2. It would allow us to raise the first kid and accommodate visits of the other family members.
3. Even with 1% annual appreciate, if we sell it after 6 years, we would break even (as 5-6% seller agent's fees would need to be paid).
4. We are aware of SALT deduction cap, so we are not even factoring those calculations in.
5. While alternatively the 25% downpayment money could be parked elsewhere and a higher return could be earned (Vanguard, etc.), frankly at this stage with an incoming kid, the convenience and peace of mind that we would at worst be breaking even short and long term is worth paying 25% downpayment upfront. I think 1% annual appreciatation for the next 6 years is probably not a bad assumption to make.

Let us know if we are missing any crucial points.

Thanks, Blind community!

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TOP 41 Comments
  • Microsoft
    RIFraf

    Microsoft

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    RIFrafmore
    You don’t buy a house to sell it, you buy to hold and rent to residual income as it appreciates over decades - that’s what you do if you know what you’re doing. Even if you move out of state property managers are cheap, everything is online these days.. build an empire.
    Oct 7 5
    • Verizon Media Atinlay6
      You act like that’s a guarantee.
      Oct 7
    • Trulia trulia
      OP
      Yes, but we are not quite sure of our long-term stay in the Bay Area. So, we want to factor a potential sell after 6 years in our equations.

      Ideally, yes, we would hold it if that doesn't turn out to be the case.
      Oct 7
    • Microsoft
      RIFraf

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      Well, don’t buy in Michigan 😂 but urban well known areas are always going to be okay
      Oct 7
    • IBM / Data bbWI22
      On scales of decades, it is actually pretty much guaranteed, as long as you pick the right house.
      Oct 7
    • Verizon Media Atinlay6
      Until they aren’t
      Oct 7
  • Cisco ipf
    $4k rent for 2Br? Where are you renting ? If in Sunnyvale or Mountain View , you can get decent 2Br for <2500 . You just need to search at right places
    Oct 7 2
    • Trulia trulia
      OP
      Thanks. Yes, there does indeed seem to be some stock available for <$3K, but not as good quality. But you are right if we would be willing to downsize our expectations of the apartment community, we could potentially rent in way less.
      Oct 7
    • Depends on how you define ‘decent’. No way you find a decent 2br with less than 2500 in the area u mentioned
      Oct 7
  • Microsoft
    RIFraf

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    Dude I bought a home in 2010 thinking the worst was over and then took 100k market correction - so I was like ohfffffuuuuuu but now 10 years later it rebounded really well and I’m over 100k over what I paid - ultimately property goes up. I’ve been renting the damn house the past 5 years at a profit too, so I know it’s daunting but if you do it smart you can’t lose w real estate.
    Oct 7 1
    • Trulia trulia
      OP
      Thanks. Our equation is slightly different I guess.

      1. We have 6 years of runway vs 10+ in your case.
      2. We are buying at the top of the market (plateau or worse, a potential dip in house prices in sight).
      Oct 7
  • Qualcomm libertarin
    If your total compensation is 425k, why aren't you buying a 2 million house? No homeowners fees on a house
    Oct 7 2
    • IBM / Data bbWI22
      I believe their down payment can finance 800-900k
      Oct 7
    • Lyft EJtG75
      Property taxes man!
      Oct 12
  • Microsoft
    RIFraf

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    LoL I put rent to see wtf people say but buy a house dude
    Oct 7 2
    • New J3sus
      Are you a homeowner?
      Oct 7
    • Microsoft
      RIFraf

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      I have 4 properties but rent where I live; I’m in Manhattan so it’s imposible to be an owner here - my rent is covered by the rental properties in CT & NJ tho..
      Oct 7
  • AT&T MsdR32
    Big reason not to buy a house - repairs and depreciation. You may have big repairs needed, like a new roof, plumbing or electrical issues. Also, house prices may go down.

    It's a gamble.
    Oct 7 0
  • Netflix
    retired19

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    retired19more
    I wouldn't buy that small place specially with plans to have kid. That is a 899 sq feet apt, I pay $3500 for a 1600 sq foot SFH that I have been renting for 3 years now. For $4k a month, you can rent a good SFH.

    Few things to consider,
    1. With downturn in sight, having that 25% in cash will provide you great investment opportunities - both in equity and real estate.
    2. If you're selling during downturn, consider the cost of property being empty for 5-6 months.
    3. In my own personal experience, kids love in SFH much more than in apartments/condos as they can run around in the backyard.
    4. You didn't seem to include maintenance cost at all, it can run you down $500 a month easily (over 6 years of owning).
    Oct 9 1
    • AT&T MsdR32
      Also note for a first time home buyer it's not a consistent $500 per month. Usually it's months of nothing, then bam, 2k roof repair, etc
      Oct 13
  • New J3sus
    Would you be okay with the house depreciating if the market were to take a hit? It's been going up since 2008 and only recently started to plateau, but where it goes from here is anyone's guess...
    Oct 7 1
    • Trulia trulia
      OP
      @J3sus: Thanks for pointing out the risk.

      If it plateaus, we lose 6% (realtor fees).
      If it drops, we lose even more.
      If it appreciates at a modest 1% annually, we break even.

      I guess, at this point, it is anybody's guess as to whether which of these 3 scenario plays out.
      Oct 7
  • AT&T MsdR32
    Have you considered buying a duplex/triplex and renting out the other units? It is often a much better financial decision.
    Oct 7 0
  • Voya / Finance
    Blind867

    Voya Finance

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    Voya Financial
    Blind867more
    Besides the fact that you should buy

    Your calculations are off. Your monthly mortgage payment includes principal, so calculate your equity you're paying yourself in your breakeven as well. It's actually 3 years if you have 1% growth because each payment (assuming 600k loan @ 3.75) you're getting 903/mo towards principal.

    Also in your calculations verify tax (zillows calc is usually off) and maybe run a condo quote just to know a good estimate for insurance (condo is usually cheap).

    If rent and mortgage are equal you're ahead because of that principal payment, and if you can one day rent out higher than your payment thats great too.

    Additionally check with multiple financing companies and see if you can put down 20 and what mortgage ins looks like if you out less. For our recent purchase it was only 35/mo to put down 15 rather than 20, and that 5 will earn better at market rate.
    Oct 7 0
  • IBM / Data bbWI22
    If you have 25% down, consider buying a SFH in Redwood City with 20% down instead. lack of HOA can make up the difference in some circumstances
    Oct 7 4
    • Trulia trulia
      OP
      Thanks, I'll look into that.
      Oct 7
    • IBM / Data bbWI22
      https://www.zillow.com/homedetails/518-Scott-Ave-Redwood-City-CA-94063/15566715_zpid/

      My house cost the same amount as this, and I pay around $4500/month including utilities and taxes (but there are 5 adults in the house, so your cost will be lower)
      Oct 7
    • Trulia trulia
      OP
      @bbWI22: By "my house", you mean you currently own this house? Or $4500/mo is your rent?
      Oct 7
    • IBM / Data bbWI22
      No, I own my own house that I got for the same cost as the one I listed (899k). $4500 is the total payments made each month including property tax, utility, and mortgage, just to give you a real world estimate of costs given 20% down.
      Oct 7
  • Amazon sRMG32
    Also another thing to consider, you lose 6% in realtor fees when you sell the house. Plus maintenance throughout your living.
    Oct 7 2
    • Amazon sRMG32
      Also consider the returns on your down payment if you decide to rent. Calculate everything. If you plan to stay in the house long term, it’s good to buy.
      Oct 7
    • Trulia trulia
      OP
      Are realtor fees still as high as 6%? I thought they were coming down to 4.5-5%.

      Secondly, yes, I did factor that in in my assumptions. I'm assuming a modest 1% of annual appreciation for next 6 years (after which we may sell the house).
      Oct 7
  • Facebook enzuyah
    Are you factoring in property taxes every year?

    That said, if your monthly rent and mortgage would be nearly equal purchasing would most likely be best in the long-term. Obviously this assumes some kind of home value appreciation.
    Oct 7 2
    • Trulia trulia
      OP
      @enzuyah: The monthly payment of ~$4K accounts for principal + interest + property taxes + homeowner's insurance + HOA.
      Oct 7
    • Fannie Mae / IT mdarkroom
      Also factored in repair costs and increase in taxes and HOA? 20 years old. Howevrr well maintained, problems are bound to come.
      Oct 8
  • Verizon Media Atinlay6
    Do you have enough savings to cover all expenses for 6 Months?

    Don’t forget the HOA.

    If the market dips. These will be the hardest hit.

    With that said, don’t offer anything over 775k for something like that. It’s already overpriced
    Oct 7 2
    • Trulia trulia
      OP
      @Atinlay6: Thanks for not posting the standard smiley as a response!

      Yes, we won't offer the current listed price, but just wanted to run the house as it is listed an an example.
      Oct 7
    • Verizon Media Atinlay6
      Also look at the price history for the true story of how the demand is for these places
      Oct 7
  • Google QmTN21
    The value of that condo looks awful to me. Your tc can let you increase your budget quite a bit.
    Oct 12 0
  • If you guys are planning on having a baby, u should definitely buy. Also, you need to count in the rent raise too for at least 3% a year and that leans more towards buying
    Oct 7 0
  • New justgo
    Just buy it if you have money then. However, I don't think it's worth it. https://www.trulia.com/for_rent/Mountain_View,CA/
    Oct 7 0

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