Deciding to Buy or Rent

Should we buy or rent

I’m at a crossroad right now and am trying to decide what the best course of action would be moving forward. I just graduated college last week. I’m about to start my brand new job. The questions now revolve around the housing situation moving into the future. We need a place to live! The top three options include:

  1. rent an apartment
  2. purchase a new home
  3. purchase a duplex

Overall I am intrigued by the duplex option. We would purchase the entire building and live in one side, then rent out the other side. If we go the route of purchasing a home or duplex, we still have the option of renting an apartment temporarily, month-to-month, until the purchase close date. This has been offered to me through my real estate agent.

Our financial situation seems solid. My salary will be $53,000/year and my fiance’s will be $30,000/year. I have worked with a local bank to determine financing options. Going through the entire qualification process resulted in a pre-approval for a purchase up to $240,000 (with 20% down payment) with loan terms of 30-years @ 5.90%.

Here is the rest of our current situation:

  • Minimal student loan debt
  • Small car loan (through family)
  • No credit card debt
  • $40,000 cash sitting in money-market accounts (moved over from mutual funds)
  • Ability to raise additional $10,000 through family gift (really loan, but avoids taxes)

I consider our financial situation to be very fortunate and above average compared to my fellow graduates. We both saved quite a bit of money in high school and college.  Now here we are, talking about making a home (or duplex) purchase with a 20% down payment.

After recently reading the book “Rich Dad, Poor Dad” by Robert Kiyosaki, I feel inspired to go the rental property route. Financially it feels like a great option. Of course, it’s tough to say “no” to a very nice $200,000 home and instead say “yes” (and convince my fiance) to buy a $240,000 duplex instead. The home would have all the space and features we want. The duplex would be much smaller. That emotional feeling aside, I want to maximize our overall financial situation moving into the future.

The current state of the housing market in the city is strong and balanced between buyers and sellers. If anything, it may skew a little more towards a sellers market more than anything else. But there still appears to be a solid amount of inventory, with SEVERAL houses for sale. There are very few “good” duplexes or other multi-family homes for sale though. Many of the rental-type properties for sale, to be perfectly honest, look terrible. They are old or in undesirable neighborhoods.

With the market the way it is currently (and the potential for higher interest rates looming in the future), my fiance and I are trying to weigh the options and make the best choice. If we go the route of purchasing a home, the size, location, and features will be easy.  We know what we like and what we want!  But for the rental-type properties, the analysis has to include a little bit more.  All of a sudden we need to consider size, location, and features in a different way.  Since the duplex route is more unknown, I wanted to share some details of the properties we have looked at:

  • New construction duplex (3 bed/2 bath, 1300 sq. feet per side) for $240,000
  • 3-5 year old duplex (2 bed/2 bath, 1250 sq. feet per side) for $195,000
  • 31-40 year old duplex (2 bed/2 bath, 9000 sq. feet per side) for $158,000
  • 2-5 year old duplex (3 bed/2 bath, 1400 sq. feet per side) for $200,000 (rents for $750/side)
  • 3-5 year old duplex (2 bed/1 bath, 900 sq. feet per side) for $175,000 (rents for $725/side)

If we ultimately go the route of purchasing a duplex, my grand idea (and promise to my fiance) would be to live in one side and rent the other side out for 2-years. During that time, because of our lower cost of living in the duplex, we could continue to save up money towards a down payment on a future home. We would then have the option to purchase a nice home, while keeping the duplex entirely as a rental property.

Decisions, decisions! Once again, I feel very fortunate to be in this current financial situation. I want to make the right decision with my fiance that will set us up for future success. I am continuing to research the rental rates for newer vs older properties. I like the idea of a newer property, but since they typically cost more, I’m worried about my ability to charge enough rent to offset that higher price. With older properties, will it become a maintenance nightmare for me? And above all, I also want to have a nice living space for my fiance and me to call our home.

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