Should i buy?
I have about $200k in savings and can use it to buy a house. My rental pay is $1600 and TC $180K. Is it a good idea to invest in a $500k house in Seattle?
A good rule of thumb is that owning costs about 5% of the property's value per year (property tax + maintenance + mortgage interest + opportunity cost of your equity). So if yearly rent divided by purchase cost in your area is around 5% it doesn't matter much whether you buy or rent, financially speaking.
Yeah doesnt make sense if you plan to sell within 5 years. Else not, and will end up saving more long term if the property is in apreciating zone
@bergey, ($1600*12)/$500k = ~3.x% so itโs not worth it!? Thanks for the rule of thumb!
What can you buy for $500k that's not a crack shack?
Thatโs all I can afford for now.
Nah, with a 180k TC and 200k in the bank they'd lend you 650-700k easily, placing your house buying power at 850-900k total
If you plan to live there at least 7 years then absolutely. Get that free money while rates are low.
Canโt say for sure. Iโd like to move around. Converting to rental later is not an option?
It is and can be a good option if you live there for a year to get the lower loan rate.
Yes.
Can you share your reasoning? Thanks.
You have the savings for 20% down payment and you are planning to buy a house reasonable for your TC. /reasoning
Buy >>> Rent
I wonder how this ๐๐ผ is true with the Uber economy doing so well.
You should have bought a rental property a while ago my dude that cash is just sitting
Itโs in the stock market with 20% IRR.
Wow op. You are very smart!
You could probably afford a 2 or 3 bedroom place in south Seattle, west Seattle, or north Seattle. With those numbers you could probably afford $600-$700k and rent out or Airbnb a few of the bedrooms.
Cash flow is the only thing that matters. Assume no property appreciation in your calculations. Look at how much you will be able to rent the house you are considering buying for and compare it to your monthly costs including mortgage payments, property tax, insurance, etc. Rents rarely decrease substantially but home prices may fluctuate over the years (though over the long term they tend to appreciate at rate of inflation and you can make an argument that in the cities it will beat inflation in long term). This calculation means that (1) even if you move out of your place you will be able to carry your costs while still accumulating equity every month (ie you are not stuck) (2) any appreciation is a bonus but isnโt necessary to make it worthwhile (3) you are never speculating by buying an investment property in a place you donโt understand just based on cap rates. The house you buy Are will be good enough for you so surely it will be good enough for a similarly minded tenant (4) rents will almost surely go up in the medium run, which means even if you are at 0 cash flow to start, it will soon be a source of cash as well. We have 6 doors we have bought over the years where every time it was our principle residence for a while. We are feeling pretty good about our position.
thanks for taking time to write a long post, I recently started thinking about buying a home so it is all new research for me
@OP, What did you decide finally? please share your research. I am need to it and also saved 20% down payment and since it would be only once in a life time purchase of home, I want to take decisions wisely.
House is not a investment, itโs a place you live. Rental properties are investments.
Unless your house increases in value as you live there?? Plus it can become a rental later too
It has too high carrying cost to be called a investment. Any appreciation only matters if you sell it, but again you would need some other place to live.