Comments on purchase decision model?

Started by NoCrystalBall
almost 13 years ago
Posts: 13
Member since: Aug 2007
Discussion about
Hi all, I'm looking at whether to buy right now. All emotional reasons and needing a place to live aside, I wanted to look purely at the financial implications. I know there are many rent vs buy calculators, but I wanted to be specific to my situation. Here's what I've come up with. Can anyone tell me if I'm missing any part of the equation? I'm comparing buying to renting if I stay for 5 years.... [more]
Response by zizizi
almost 13 years ago
Posts: 371
Member since: Apr 2007

It's a pretty good picture. Of course you need 2 numbers to plug in - inflation and home value appreciation/depreciation. With the right values you can show anything you want to show.

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Response by sydney
almost 13 years ago
Posts: 18
Member since: Jul 2007

Also remember to add the costs of selling your apartment. As a renter, you don't really incur any material costs when you leave (other than moving costs). When you sell, there are huge costs, including taxes and the broker's fee.

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Response by anon3
almost 13 years ago
Posts: 309
Member since: Apr 2007

don't forget taxes or underestimate closing costs/fees - if it is over 1MM you have a "mansion tax" you have to pay, in addition when you sell there may be a "trasnsfer fee" which can be 2% or more of the sale price. Closing costs alone can be huge (my friend just bought a condo and paid 80k down and 80k in closing costs).

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Response by robocop
almost 13 years ago
Posts: 104
Member since: Jan 2007

also, include one to two months of lost mortgage payments if the probability exist that you move from the apt before the closing. (unless you intend to have perfect timing). If you run the model like me, I find the 1BR to favor buying while the 2BR/2BA favors renting.

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Response by tavistmorph
over 12 years ago
Posts: 52
Member since: May 2007

The problem with purchasing models is that the two most important factors are complete unknowns -- namely, 1) what is the likely appreciation of the apartment while you own it, and 2) what is the likely ROI on the stock market where you could have invested your down payment instead. As zizizi said, plug in the right values for those two variables and you can prove anything you want.
But the truth is, it doesn't even matter. Most people who are buying do so for emotional reasons rather than purely financial ones -- there are intangible benefits to owning that many people seek.

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Response by JuiceMan
over 12 years ago
Posts: 3578
Member since: Aug 2007

Intangible benefits to owning? I thought it was all about the millions you can make investing your down payment money? Seems to me the the best formula is to rent forever, hell it probably makes sense to live with your parents since it is so much cheaper. Just think of all the money you would have free to invest in gold while mom cooks dinner and does your laundry.

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Response by spunky
over 12 years ago
Posts: 1627
Member since: Jan 2007

Well MMAfia is makes lots off his down payment. He has most of his down payment in what he refers to is his "slush fund". His "slush fund" is comprised mostly of Gold Bullion. This he feels is a much better way to use his down payment as opposed to throwing it out on an over priced apt in the city. Presently, he rents in a 3 family house near Elizabeth NJ with his wife and makes fun of people who own Manhattan real estate.

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Response by JuiceMan
over 12 years ago
Posts: 3578
Member since: Aug 2007

See, that makes sense. I had a hard time sleeping last night because I was thinking about all the equity I have and the fact that it really wasn't working in the market for me. When I woke up this morning I told my wife we that we should sell, decrease our monthly expenses by renting, and invest the equity in gold. With the money we make, we could rent an even bigger place. She wants to take a vacation, but I told her no because we need to invest that money in more gold. She is very understanding and even said something regarding cold days in hell which I think is a good sign.

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Response by vicsing
over 12 years ago
Posts: 21
Member since: Oct 2006

agree fully with tavistmorph. I've analyzed rent vs. buy decisions for over 10 years and have used over 20 models and built my own. While you overanalyze every variable it all boils down to two variables: 1) Expected future % appreciation of the property over the time you are expected to stay and 2). your after-tax (yes after-tax) return on your own capital assuming you invest it yourself (in bank deposits, or the stock market or gold or art) if you did not buy over the same future time period. All models are very very sensitive to these two variables and a small (1-2%) change in the return assumptions can change the story dramatically.

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