It’s amazing how much better this house looks in the picture vs real life… but it’s one we drove by on our initial search!
With Mrs AB’s acceptance letter to her PhD program (hopefully) on it’s way, we have turned our thoughts towards where we are going to live for the 2-4 years she will be in school. We are currently renting a place that is close to her job so she can come home for lunch and be available for on call emergencies. With my job I can live pretty much anywhere, as long as I am nearish to a major airport. The PhD program is full time for at least the first two years, so Mrs AB will have to quit her job assuming she gets in. The school is about 30 miles from our current house, and if neither of us has a job to keep us here, our plan is to move close to her school. This brings up the next question – should we rent or buy?
Conventional wisdom states that you shouldn’t buy a house unless you plan on staying there for a minimum of 5 years, and some will tell you 8 or more. With the PhD program, it will be about 2-3 years of solid school and then another year or so of wrap-up work, so we’re talking somewhere in the 2.5-4 year range. At first I just started looking at cheap rentals located close to her school. My thought was that this would minimize her commute as she’d be spending most of her time at school. Unfortunately, most of the housing near campus is either really old, really crappy, or really expensive – not great options to choose from!
Stroke of Genius!
After looking through all these crappy options I decided (just for fun) to see what was available to purchase. Surprisingly, there were quite a few reasonably priced houses that looked interesting. As my wife and I don’t know much about the area, we’ll need to spend some time driving around to figure out where exactly we want to live, but this is promising news. My thought is that even if we buy something and only live there 3 years, we could still be better off than renting.
If we were to buy a house for $125k, and then sell it for the same in 3 years it would cost us around $21k ($10k for taxes, $2k for insurance, and $9k for selling expenses/Realtor fees) assuming nothing went wrong. If we wanted to rent something equivalent it would probably cost around $1250/month (probably more, but we’ll be conservative here). So for three years we’d spend around $45.5k ($45k for rent, $.5k for insurance) – almost $25k more than buying!!!! So even if we had to do some major repairs to the house during these three years, we’d still come out on top.
At this point you’re probably saying to yourself – “this is too good to be true, where’s the catch? What’s missing?”. Well, you’re a smart reader, and the catch is that I’m not including any mortgage costs in my purchase calculation. If we bought a house we would just pay for it with cash from our growing stockpile! We’d need a few more months of savings, but we’d be able to get to $125k pretty quickly. To be fair, we could rent a place and invest the $125k, but we’d have to get at least a 6.66% return (25000(3 year savings)/125000(house cost)/3(number of years)) to make it a better deal – and I don’t know any investment guaranteeing an almost 7% investment return right now! Also, with owning our own home again we’d have the freedom to do what we wanted with it – paint it, change things, rent it out, sell it, etc – all the freedoms you don’t have when you’re a renter.
For now this is all just a concept in my mind, but as soon as the acceptance letter makes it, we are going to be out in full force looking for a house. I’m really excited by the prospect, and hopefully we’ll be able to find something like a foreclosure or a short sale where we can get a great deal and put in some nice features that we can really enjoy! In the end, if we end up buying a house it’ll help us increase our contentment and also go a long way towards financial independence. On a $125k house in Texas, taxes and insurance are typically less than $350/month, so we can drastically reduce our budget and increase our savings at a faster rate!
So, do any of you out there have experience with this? Did you decide to buy because renting was going to be the same price or even more expensive? I’m always interested in other perspectives – especially if you can talk me out of making a stupid decision! Thanks for stopping by.