As most of my close friends know, for about the past 7 months, I have been looking for a home to buy. With the home prices at rock bottom, and the $8,000 Obama wants to give me for being a first time buyer, I thought it made perfect sense that now is the time to buy. Or is it?
I would of told you that you were a fool to think twice about renting over buying, until I came across this blog post:
Does Renting Make Sense?
First a little background on this website; Around late November of last year, a friend told me about this site. "I read this one finance blog religiously - Get Rich Slowly - This guy has completely reshaped how I think of money," he said. Ever since, it has been one my bookmarks that I go to everyday. Next to Gmail and Digg, I feel like my day isn't complete until I have read the latest post on Get Rich Slowly.
I have always thought this home buying myth was true; "If you rent, you are throwing away money." The second time I had moved out of my parents house in March 2007, I moved into a small 2 bedroom, 1 bathroom duplex with a friend. Rent was cheap, around $550 a month, including utilities. But I always had a feeling that I wasn't getting a return of any kind. There was no investment at all. I was giving some dude money to live under his roof. When I moved out, there would be nothing to show for it, other then I can provide for myself. I moved back into my parents' home the following year without ever thinking about moving out again. A year later, I would change my mind again.
The blog post from Get Rich Slowly made me think twice about buying a home a few days ago. Was I making the right decision? In June of last year, I didn't even think twice about buying a home. I thought it was the way to go. I had money saved up and I was ready to be on my own forever. Fast forward to the present day, I find myself a bit more in question about it. Overall, I still think buying a home at this point in my life is the way to go, but something I never considered was when will I break even for buying a home, compared to renting? Using the New York Times Buy Vs Rent calculator, the answer is 4 years for me. The current home I am going after, if I get it, is $134,000. I am putting down 3.5%. My interest rate will be around 4.875%. I left the annual appreciation and annual rent difference at 1% and 3%, respectively. This may not be true at the time I buy but only time will tell. I decided the cost to rent would be $900. $900 may seem high to some people, especially if you rent and live with a roommate to split the cost, but I plan to do the same. For now, I will calculate as if I was living alone. I also didn't factor in factor in the $8,000 tax credit, which is pretty hugh.
To me, owning my own home will mean many things to me. It is the single biggest personal investment I'll ever make. It will be a symbol of wealth, instead of just a place to stay. Every time I enter my dwelling, I will remember how hard I have worked for it. It will be my own space to personalize. It is a place of stability and peace. Nothing can bother me in my sanctuary.
-Dan
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