Buying a home is one of the largest and most important purchases of your life. It can impact financial future and personal happiness for decades. I wouldn’t base the decision on relatively minor differences in related taxes. More important factors are things like for how long are you confident that you’ll want to stay in the area? How much debt would you take on and what portion of your income would go to interest and maintenance? How would that compare to renting or other alternatives? How much would you personally benefit over renting from intangible benefits such as having a yard for your dog to run around, being able to have a garden, being able to have a man cave, or similar? How is the housing market in your area – stable/unstable, likely to go up/down, underpriced/overpriced, etc.? …
If your son hasn’t even graduated yet, it’s probably too early to talk about buying a home. This is especially true, if he has college debt.
Paying mortgage can be just as big of throwing money away as paying rent. You may think you are building an equity, but not if the price of real estate keeps on going down. Owning a house can also limit a young person’s mobility.
I think it really depends on the market. Where my son is living rentals are scare so if he switches jobs in a couple years he can always rent it to another young couple or a single who is not ready to buy. Buying vs, renting is always dependent on a number of factors.
One of my kids bought a house in June. He didn’t really ask for advice. He and his spouse are locked in to their current location for at least three years, and as a practical matter it’s overwhelmingly likely that they are there for a much longer term. Their mortgage payment is about what their rent would have been if they had stayed in the (quite nice) apartment where they lived last year, but of course they put a bunch of savings into equity. There’s room for children, that they don’t intend to use right away. It didn’t seem like a dumb decision to me, although they may not have enough mortgage interest and charitable donations to justify itemizing (and if they do, it will be a minor benefit, not really much of a tax subsidy for home ownership).
My other kid would love to buy something and to stop renting. But she and her fiancee are in NYC. They have pretty good incomes, but not investment-banking incomes, and that puts almost everything within a hour’s commute of their jobs out of reach unless it’s in a neighborhood with 0 functioning schools. They wish they could afford Harlem or Bedford-Stuyvesant! Their rent is relatively cheap, because their apartment is relatively tiny and awful, albeit in a hip, but inconvenient (and ugly) neighborhood. Where they couldn’t even dream of affording a one-bedroom condo.
D1 bought a house right out of college. She wanted an attached garage and the privacy of a SFH vs. an apartment. Timing was bad, but she still came out net ahead when she sold to upgrade to a new house. We looked at her original purchase price, total cost of improvements, HO ins., prop. tax, extra utilities, yard service, etc. and the net sold price vs. rent on a 2 bd. apt. for the same amount of time. The house sold quickly at a fair price for the market at that time.
Rent vs. buy is about so much more than money. In this case, we knew D1 had no intention of moving elsewhere. If her employer had insisted on transferring her to one of their other facilities, she had other options for work. OTOH, we have nieces and nephews in their 30s who are happy to rent because they continue to want to be mobile for work and/or they have no desire to maintain a house.
@JHS, they might want to look in Riverdale/the Bronx.
One of my nieces and her H bought a nice 2br apartment in an elevator building on Broadway just a couple of blocks beyond the last subway stop (actually the elevated at that point). They are across the street from Van Cortlandt Park, just a few block south of the Henry Hudson Parkway. It is easy to hop on the HH and drive to Westchester or upstate, or CT or downtown, or hop on the subway (#1, IIRC) and go downtown. You can actually park a car on the street, although they now rent a parking space. (Both of them have jobs with unusual hours–he’s a DJ, she’s a dancer at the Met–which means they are often coming home in the wee hours.) They subsequently sold their first place and bought a larger 3BR one next door. I don’t remember the prices, but I’m fairly sure the first one was in the $325-350K range.
They are sending their kids to public school. (Both of them went to private schools.)
No, it is not a hip neighborhood. But they are not willing to pay 3x as much (or likely more) for a hip neighborhood. (They sold their first apartment in Clinton Hill to move there and more than doubled their space.)
@Consolation : Yes, that’s precisely a current debate. They don’t believe Riverdale is in range anymore, though, and they are not quite ready to look elsewhere in the Bronx. This is influenced by my daughter’s years of teaching in the Bronx.
@JHS, certainly parts of Riverdale, deep in the leafy areas, are much more expensive. But Broadway, not so much. On the other hand, their apartment looks straight across the street to a huge park, and it is quiet. I think they should go up there and look around. With an agent, perhaps. Do a Zillow search in Riverdale and Fieldston for $100-400K. There are some REALLY nice apartments
@ucbalumnus , buying may be trading rent for mortgage, but there are a number of positives associated with homeownership. H and I bought our current home in our mid-20’s. It’s been paid off for years, so we haven’t taken a mortgage deduction on our taxes in a long time. But we will go into our retirement without a mortgage payment hanging over our heads. Sure, we have costs associated with our home (repairs, taxes, etc). In the long run, though, it has been a really good investment for us. I am happy that our D is in a position to purchase a home. At least in our midwest area, it is a wise investment for many.
Being a couple or single is part of the equation. He should not plan to buy anticipating a future mate will want to live there. Planning on staying in the same part of town for years is another consideration. Taking on maintenance for a house with a yard, a condo with fees… Many variables. Available housing is another.
Seattle is booming and will they overbuild condos? Would “last year’s” be hard to unload in the face of brand new? Will the building become surrounded by taller ones? Anyone want to hijack the DC aspect to give opinions on Seattle? Thread title allows…
Whether it is a wise investment or not depends on a lot of variables and for most people a good amount a luck. For example, I know a guy who has the same type of analytical personality that I do and I’m sure went through a lot of related financial considerations when buying a home. However, he purchased in early '07 in the Vegas area, so looking back on it, it doesn’t seem like as wise a decision for him. The home is still not worth anything close to what he paid a decade later. Getting underwater on a big mortgage can be devastating for a young person, especially if combined with home maintenance expenses, property taxes, and college debt.
When I purchased my home, I waited until I could buy it without a mortgage (I realize this is often not possible, especially in more expensive real estate markets). I also waited until the housing prices were out of what I believed to be bubble territory and close to post-WWII market trends. I also spend months looking for the best possible home for my situation with all the criteria I wanted as well as a price well below market value. My realtor let me log in to his database, which had tools beyond public sites, and I’d have a list of homes for us to visit each weekend. The home I selected had all the features I wanted and was also well below market price. I closed on the short sale on the day before it became a foreclosure, which gave me a good amount of negotiation flexibility. While the financial investment is a consideration, the key benefits for me have been more intangible such as having a yard and trails for my dog, being able to build the theater that I’ve wanted to create since I was a small child, etc. It worked out well for me, but it doesn’t for everyone.
OurS has been thinking of buying for a few years now. He mainly likes the particular unit he’s living in tho it is only a 1-bedroom. I ask him to consider what he will do if he had a partner and/or spouse, whether he wants to be tied to the area va moving back to HI, whether he REALLY wants that specific place long term, how much flexibility on price the seller will offer, etc.
I don’t have any good answers, just lots of questions for the young adult to ponder and weigh. Our D us not in any position to buy anything.
There are affordable houses in the inner suburbs of NYC. 15 minute drive to the Bronx. 30-40 minutes to Grand Central. Our neighborhood is full of people who left Brooklyn because it was too expensive.
And my S and DIL just closed on an apartment in Brooklyn in late September. Their concern given the tax bill was not so much the impact on them now (their mortgage doesn’t reach the threshold and they can still deduct their interest) but on the possible resale value down the road. I do believe they will stay for a minimum of 5-7 years so, in the end, I suspect it will be fine. If they hadn’t already bought this place I’m not sure what I would advise, and the same goes for my younger two (who also live in Brooklyn) who have been starting to talk abut buying rather than renting.
OP here - thanks everyone. This isn’t a decision he will make for at least several months, but it is interesting to hear different people’s perspectives. My son will only be 22 when he graduates, but he will have no student debt, has a perfectly functional car (2012 model, so should be OK for at least a couple of years), and can stay on my very good insurance for the next couple of years. He has never really taken care of a house though, meaning mowing the lawn, painting, small home repairs, etc. Neither my husband nor I are great at that stuff either. My son’s plan would be to buy a place, and rent a couple of rooms out. if I had to guess, he will likely stay in the area long term, but he would want to move up to a nicer home when he could afford it. He has a lot to learn, but it’s worth considering.
Some folks like buying a place that is in a building and has monthly association dues instead of maintainung a yard, etc. Depends on the area—s is considering buying the condo in VA he’s been renting for some years.
DD and spouse bought a stand alone condo. With rental prices here being so high, they get an extra bedroom and An extra 1.5 bathrooms for the same monthly payment as rent. And condo means that they don’t have to maintain exterior. They are thrilled to be in their own place.
Son might have a hard time getting a good loan without significant credit history or several years of good income tax returns. Unless he plans to pay all cash for the home.
I think the bigger concern for me, especially with the younger generation, is the amount of diligence and maintenance required. You have to be prepared to fix things at any moment and spending weekends with projects. I know my D is not prepared for the amount of time and effort it takes to maintain the investment. The value of a home can go down quickly with significant “deferred maintenance”.