OK, I'll try to make this as simple as possible:

I've never bought a house before, and the whole process kind of intimidates me. I've done a good job saving money all these years and here's the deal:

I've been renting because I don't want any complications involved if/when I get a transfer from my current duty station. A very nice house in a desirable area went up for sale by one of my coworkers who is transferring out. He wants to unload the house immediately and is asking a very fair price for the house. In fact, other houses in this area are selling for about $10K more. If I buy the house, not only do I think I should be able to sell it easily, but also at a slightly higher price.

Should I even be THINKING about buying right now when I could transfer out of here within the next two years? I'm paying about $8000 a year in rent and am really anxious about getting a transfer. I AM NOT interested in renting this house out if/when I leave - I don't want the hassle involved. If I leave, I will sell it.

Do you think it's worth the hassle/trouble/expense of buying a home only to sell it a year or two later, just to avoid wasting that money in rent? If so, would you recommend paying the minimum down payment if you can handle the high monthly payment? I was thinking of putting down a larger down payment to avoid the private mortgage insurance (PMI) fee and keeping the monthly payment more manageable.

I have enough money saved that I could buy the house for cash, but this would deplete my savings that I have liquid. Of course, I wouldn't do this, but this is my financial situation. I'm the kind of guy who likes to save and have minimum monthly payments. I don't like to feel financially pressured. This is why I would prefer a large down payment with lower monthly payments, but this only seems to be a good idea if I'm planning on staying in this house for a long time.

Well, that's my question, and this has already become too long. Any advice would be much appreciated, as I feel this house will sell quickly and need to move on it if I am to buy it.

Coastie

 

having bought and sold houses, i would say it depends on a lot of variables. if you're sure you're not going to be there longer than 5 years, then get interest only type loans so your monthly outlay is less. finance as much as possible - putting liquid money into real estate that you might need to get rid of quickly in a few years is not a smart thing to do. you get tax benefits for the interests, and the payments might be worth it after you take the tax benefits out (vs. rent).

but before you do all of that, i suggest that you look around the neighborhood and check the prices of the past 10 ~ 15 years. pay attention to when pricing peaked and buttomed to see what percentage gain or loss you might be looking at - it's not going to help a whole lot with the future, but the past usually helps with a glimpse.

good luck!

 

First talk to an appraiser, not a real estate agent, to see average sales times.

Second you have to ask yourself WHY? Is it really a good price or does it just appear to be a good price. If the seller could get an extra $10,000 WHY isn't he doing it, provided sales times are very good. It could be that sales times aren't as good as you hope which changes the whole equation.

3rd look at location, location, location. You may say that this neighborhood in general sells quickly, but certain locations within that location will sell quicker yet.

Corner lots, houses that are very near or on busy streets, houses that back up to or are near apartments, houses on or near railroad tracks, houses that back up to shopping, houses that are very near schools, or the worst thing in the world - houses near those high tension power lines.

All of those things affect desirability and sales times. Don't believe me, just go look at rental properties and see where they are located. A very high percentage of houses that can't be easily sold end up as rental properties. So just look at where you find most rental properties and those are the places you want to avoid.

Yes, it is harder to sell a home than break a lease if you get transferred, but you also get privacy, equity and you get to decorate how you like. You also get to mow the yard and fix that leaky faucet.

We won't even mention the tax advantages and pride of ownership. People who own their cars like them more than people who lease them.

I am not just a savvy homebuyer, I have been a real estate broker since 1974, a certified real estate appraiser since 1987, owned a mortgage company since 1984 and owned a for sale by owner company since 1989. These observations come from listening to many a homebuyer and the problems that come for trying to get value on appraisals on home and problems trying to get home loans sold on the secondary market where they scrutinize the appraisal very, closely. The purpose of the appraisal isn't just to determine value for the homebuyer it is actually to tell the lender if and under what conditions the house can be sold if you don't make your house payments.

 

If you are fairly certain that you will be transferred in the next 2 years, I would advise against it. To avoid an argument about who decides what the home is worth, and down payment, and tax benefits, just remember that your true borrowing costs far exceed your down payment. You will possibly be paying 2 sets of transaction costs in only 24 months, once when you buy, once when you sell. If you do sell within 24 months, you will probably pay capital gains taxes on a profit you see from the sale of the home. You also have to furnish the home, and that won't be cheap, especially if it much larger than your apartment. And as mentioned, if something breaks, it is now your responsibility to fix it. I would just advise to keep your money in the bank, and wait until you are certain of your employment status before buying a big ticket item. Look at your co-worker as a perfect example. He/she is getting transferred, and has to unload their house quick at a below market price to sell. Do you want to be in the same position in 2 years? The real estate market is slowing down all over the country, I think you are better off renting until the employment situation is determined.

Just my thoughts.

 

You never had to pay capital gains on a house unless you didn't buy another. I was told that they had changed the capital gains tax and now you didn't have to pay it at all, but since I own a home and will always own a home I never bothered to check it out.

He is right that you will have 2 sets of closing costs to pay, that is why it is so important that you be absolutely sure the property values are rising and that you are getting that great deal you talked about. Usually the "good deal" aspect evaporates when you do your research and you find out that apples for apples sales don't show the $10,000 below market claim. That's why I said talk to an appraiser. He doesn't have to do a full appraisal ($300ish) he can do some market research for probably $100.

And no the real estate market is NOT slowing down all over the country. In my particular area the prices are hot. I am in the process of building a new home and the lot next door just sold for twice what I paid for mine less than a month ago. Due to delays in finding a lot and building times I have had 2 different appraisals in just under a year and have seen over a $35,000 increase in value of my present home. What is it doing in your area? Once again the appraiser can tell you.

Yes, if you don't have enough furniture you might have to buy more, but that has nothing to do with buying a home. If you moved to a larger apartment you'd also have to buy furniture.

The biggest flaw in your system is the uncertainty of how long you will remain. If it truly is 2 years then things can work out for you IF you are buying it at a good price and IF the market is going up in your area. BUT look at it this way - is there a chance you will be transferred in 1 year or 3 years? Both change the equation by large amounts.

Whether you decide to stay or buy it is a crap shoot, only hindsight can tell you if you made the right choice. Right now you have to use the best data available and then not second guess yourself later.

One other flaw in the Don't Buy column, interest rates. A year ago I got a 4.75% fixed rate mortgage. The best I can do today is 6.125%, the economists tell me that I will have to pay something close to 7% when my house is completed in the fall. The higher the rate the less home you can qualify for and the higher the payment so if a home is in your future do it now not later.

None of us can tell you what to do, we can only give you the data that allows you to make up your own mind. I am firmly in the "buy a home if you can and it makes sense" column because I have seen too many people rent forever and lose major $$$. I have also seen people buy who shouldn't and that can be just as bad. It is going to boil down to your best guess.

I see your sig is CoastieTX, if that means Galveston then you have been in a depressed area, but I am told that is changing rapidly which add to the Buy column.

 

With such a short horizon of two years I would stick with renting. 2 years is just too short of time, the market could fluctuate a lot in two years and it's not worth the risk, IMO.

 

2 things....

First of all.....10K is nothing when it comes to real estate. Saying houses around that one sell for 10K more doesnt really mean much. Its like getting an s2000 with $500 off...not a big deal.


Next, if you are planning to sell it soon (inside 3 years) the house wont have time to appreciate, and the little bit it does will cost you in capital gain tax. Factor in the interest, and you are back at square one. You will at best break even (all this is assuming you are selling inside of 3 years)....

Not a wise investment if you ask me.

 

Correct, but also depends on the state. In NY, you do pay capital gain, and then get it back (if you buy another house) You could avoid it alltogether if you do it all in one transaction with one bank.

However, 90% of the time, you do pay capital gain. Basically, it is shown as an investment, and the profit, if reinvested, is tax free.....for now.

(I buy specks on the side, renovate, and sell.)

 

Gentlemen,

As an accountant, I felt obligated to chime in with some clairification on the tax issue. I cannot comment on individual states (consult your local CPA), however with federal capital gains, the Homestead Exemption is $250k ($500k) if you're married. However, the home must have been your primary residence for at least 2 of the last 5 years. If you have lived there for at least 2 years, any gain (up to the limits) that you realize on the sale will be exempt from federal capital gains.

Regards,
Slacker

 

What if the house is over 500K to begin with?