benjamin413
New member
MY BACKGROUND
Hi! 28F professional living in Houston, TX here. Stable job with a salary of $135,000 annually + a bonus of around $55,000. My credit score is around 750. No student debt or car loans, basically no debt. I currently have around $110,000 in savings, most of which is cash on my bank account (I am not great in managing it frankly). My monthly saving rate is around 40% of my salary. I do not own any real estate. I have an old car that I bought with cash. No dependents.
THE CASE
I've been renting for the past 2 years and I am wondering whether to buy my own apartment or to whether to continue renting. My monthly rent is currently around $1100 for a townhouse. The lease expires this February and I have an option to extend it for another year at the same price. So that's the Plan A: another year of ~$13,000 (12 x $1100) spent on rent.
My Plan B is to NOT extend the lease and buy a similar property. I've found one for $200,000. I can put $50,000 now as a down-payment, so I'd take a loan for $150,000. I am already pre-approved for a 30-year fixed rate loan at 7.3%. My monthly payments would be
• Principal & Interest: $1020,
• Insurance: $200,
• Property Tax: $300,
• HOA: $440
• Utilities: $100
So around $2100 in total.
The property has two bedrooms, so I can probably bring this down to $1300 if I rent out one of the two bedrooms. Also, I save a lot and I have high annual bonuses, so I will probably be able to pay the entire loan of $150,000 within 3 years.
ANALYSIS
I have been always told that it is better to buy than to rent. However, I was told this in the Free Money Era when mortgage payments were almost everywhere lower than monthly rent. I feel like the paradigm has changed and this decision is no longer so obvious (thanks Jerome Powell). Having this in mind, we can see clearly that renting will be cheaper in this case. In fact, by following Plan B, I will pay more for a lifestyle downgrade: I will likely have to get a flatmate in order to keep the monthly payments at a similar level to today.
On the other hand, I am planning to aggressively pay the mortgage in 2-3 years. I am quite confident that I will be able to do that. I have calculated that in 3 years I will have paid $160,000 in total of interest + principal. Yet, once I do that I will still have the monthly fees of home insurance ($200), property tax ($300), HOA ($440) and utilities ($100). That amounts to a total of $1040, which is around how much I am paying now in rent. If I keep having a roommate, I can probably bring this down to $250 monthly, so around $3000 a year. That would mean that I'd make back the cost of interest rate payments in one year, assuming that I pay the loan in 3 years.
So, what do y'all think: Plan A or Plan B?
Hi! 28F professional living in Houston, TX here. Stable job with a salary of $135,000 annually + a bonus of around $55,000. My credit score is around 750. No student debt or car loans, basically no debt. I currently have around $110,000 in savings, most of which is cash on my bank account (I am not great in managing it frankly). My monthly saving rate is around 40% of my salary. I do not own any real estate. I have an old car that I bought with cash. No dependents.
THE CASE
I've been renting for the past 2 years and I am wondering whether to buy my own apartment or to whether to continue renting. My monthly rent is currently around $1100 for a townhouse. The lease expires this February and I have an option to extend it for another year at the same price. So that's the Plan A: another year of ~$13,000 (12 x $1100) spent on rent.
My Plan B is to NOT extend the lease and buy a similar property. I've found one for $200,000. I can put $50,000 now as a down-payment, so I'd take a loan for $150,000. I am already pre-approved for a 30-year fixed rate loan at 7.3%. My monthly payments would be
• Principal & Interest: $1020,
• Insurance: $200,
• Property Tax: $300,
• HOA: $440
• Utilities: $100
So around $2100 in total.
The property has two bedrooms, so I can probably bring this down to $1300 if I rent out one of the two bedrooms. Also, I save a lot and I have high annual bonuses, so I will probably be able to pay the entire loan of $150,000 within 3 years.
ANALYSIS
I have been always told that it is better to buy than to rent. However, I was told this in the Free Money Era when mortgage payments were almost everywhere lower than monthly rent. I feel like the paradigm has changed and this decision is no longer so obvious (thanks Jerome Powell). Having this in mind, we can see clearly that renting will be cheaper in this case. In fact, by following Plan B, I will pay more for a lifestyle downgrade: I will likely have to get a flatmate in order to keep the monthly payments at a similar level to today.
On the other hand, I am planning to aggressively pay the mortgage in 2-3 years. I am quite confident that I will be able to do that. I have calculated that in 3 years I will have paid $160,000 in total of interest + principal. Yet, once I do that I will still have the monthly fees of home insurance ($200), property tax ($300), HOA ($440) and utilities ($100). That amounts to a total of $1040, which is around how much I am paying now in rent. If I keep having a roommate, I can probably bring this down to $250 monthly, so around $3000 a year. That would mean that I'd make back the cost of interest rate payments in one year, assuming that I pay the loan in 3 years.
So, what do y'all think: Plan A or Plan B?