Friday, April 15, 2011

Frugal housing

This is a subject that many people have odd ideas about. Or perhaps I should say that they tend to let culture set their expectations, and US popular culture recently has been mostly controlled by the idea of profit.

I have to admit that I believe a lot of the housing bubble was the result of people confusing housing, the necessity, with real estate, an investment. The reality is, even if you buy a house that increases in value, so do your expenses and so do the value of other homes. When you go to sell that house, you're going to spend as much as your "profit" when you buy the next house, unless you sell in a particularly high value area and can move to a much cheaper area. In my non-professional opinion, there were very few people other than realtors and bankers who really benefited by sky-rocketing housing prices. 

However, to leave that somewhat controversial subject behind, let me make some simpler points. Buying and selling houses costs realtor fees and loan fees and other expenses. If you may move in less than 3 years or you're likely to have to sell to move on relatively short notice for a job, forcing you to sell at a loss if the housing market is down, really think twice about buying a home. You will probably have little to no equity and probably spend more in the long run than renting might have cost. It *may* make sense to go ahead if your income is high, you have a good down payment, and you can get by with a house that's substantially less than you can actually afford, especially if the house has good potential to be rented out temporarily if you have to move quickly. It *may* also make sense if you have a large family that would be difficult to house in rental housing that may limit the number of people per bedroom. 

If you're a single or a childless couple, and you expect to need to move within a short time, seriously consider renting as an option. The biggest drawback to this may be if you have to leave mid-lease. Some places, you may be able to get out of a lease for this reason, but in others, you'll still be responsible for the balance of the lease if it isn't re-rented. If you're going to be in the same place for at least a year, some small landlords will consider a one year lease then (assuming you've been a good tenant) continue the lease month-to-month with 30 days notice to move out or short term extensions to the lease. They'll often consider the expenses in the turnover against the savings of having a known tenant. Large apartment complexes tend to have set-in-stone rules, but sometimes you can continue a lease month-to-month for a surcharge. 



Ami said...

When we got ready to buy a home, we pre-qualified. And the realtor wanted to know what our limit was. Then, she wanted to show us homes that were at the very top of our range.

We ended up buying a home that was much much lower in price (only one bathroom, two bedrooms... we made a 3rd one with existing space)

And when the 'bubble' burst, we still owed less on the house than what it was worth.

Dawnfire said...

That's all too common, and it has inspired a third post on this topic...