Should I buy instead of rent for a 2 year period, and cash out my equity at the end?

Question

Me and my girlfriend need to be in town for 2 more years before moving for her masters degree program. We have saved up a down payment living with parents, and are ready to move in. Should we just rent? My family said it would be a shame to lose 24k in rents the next 2 years and that I should buy, because what if we could buy a nice home, get two years out of it as a primary residence, then at the end either rent it out (If I could get lucky and find a way to make a 1,250$ mortgage for an area that rents for like 950-1000$ work) or in the likely scenario I cannot get my mortgage rate down to 800$ in two years, we could sell. And make back the 15-20k we sunk into it and maybe then some? Is this reasonable? Or are there ways to decrease a mortgage like that? Thank you much, thanks!

Samuel Diouf · Answer

If you plan on buying, I suggesting doing a house hack with a 2-4 unit multifamily home. You will be able to live at a discounted price and possibly for free if you find a good enough deal.

Theresa Harris · Answer

It isn't just the rent, but look at all of your costs.

Closing fees, realtor's fees when you sell, property taxes and interest (though I think that is tax deductible in the US).  If house prices remain stable, you will likely lose money if you buy and sell in two years time.

You could look for a duplex and rent the other half.  Of look to buy a home that will be a long term rental (depends on where you will be moving to or if you can find a good PM).

Also after 2 years, you won't have paid much off on the mortgage. Almost all of the payments at the beginning go to paying interest, not the principal.

Tatum Littleton · Answer

This is a tough question although many people on here will never let you rent and would always advise you to buy... I don't totally agree nor do I totally disagree. Everything is dependent upon you and what you are comfortable doing, you know your spending and saving habits more than anyone. Of course, buying a house now and when you move out using it as a rental property is a great option, I would encourage you to do it IF you can and are comfortable doing that with the money you have. BUT, renting is not the end of the world like many make it out to be. Renting can allow you to live in an area you really like that you normally wouldn't be able to live in and save some money to live a good life and I think that's worth maybe not buying.

I have no perfect answer and no one on these forums will but do your research and what you can afford, talk to lenders about how much you can get, and do some realistic projections for renting it out in the future. Putting down as much as you are comfortable and able to do will help with your mortgage. If it will make you happy and feel like you will have a good start to your family, go for buying and continue to save like you say you can. You said you're young so you have time to learn and do different things. I wish I could answer for you but this is where growth happens! Good luck!

Steve Vaughan · Answer

If you can rent something decent for $900-$1000/mo, do that.

Even in a rising home value environment, 2 years usually isn't long enough to recoup your buying and selling costs.  The loan alone will cost about $3500.  Selling costs 8% or so.

Then you'll have responsibility costs ie all repair and maintenance.

The other risk is you'd be buying with a partner.  How?  Tenants in common?  Ever seen roommates try to split a house fairly?  That's all you'll be legally.

Caleb Scott · Answer

The tricky part is my mortgage would be about 1,200$ and the rents of the area is more like 950-1000$ so that’s been a big discouraging factor as I believe if In 2 years I could find a way to reduce my mortgage to allow for renting it out for cashflow I would feel better, but as it looks I don’t see anything on the market That would work for long term rentals for a 3% downer. Time to start learning to flip! That’s why I was curious if I could just sell it worst comes to worst and get my equity back out. And if not rent it at a loss until the market improves potentially?

Benjamin Sulka · Answer

Caleb,

I guess it depends on what your market is like.

If you could buy a SFH and do a live-in flip you could sell it after 2 years and not have to pay capital gains. That's assuming appreciation though and you shouldn't ever assume that there will be appreciation.

How much is rent in your area and how does that compare to how much you'd spend owning a home?

Jonathan R McLaughlin · Answer

@Caleb Scott as soon as you know where you are going buy there to execute your "live-in flip." I think renting makes sense right now.

However, you could buy now as your primary, she could move in with you (2 years to qualify for tax exemption), then she could buy in the new grad program location as her primary, you move in with her and rent out the old place ("mom, dad...wanna property manage?").

That strategy is probably too clever by half and not worth the effort, and it only works if you can come up with 2 down payments in 2 years. Probably need a cosigner if she is in a first time grad program.

TLDR: buy in the new place

Denis Ponder · Answer

I will second @Steve Vaughan here.

Caleb Scott · Answer

House hacking was my original plan, looks great on paper but just doesn’t work out. we sat out 2 years waiting for a multifamily and saving. There’s not many in my small rural town and When the numbers work it’s because the place needs totally renovated. The ones that are livable are way over my price range. There’s only been a handful for years of searching In my area and they almost always need gutted. I’ve been in a relationship 5 years so I need a home to get married in and be nice for my partner. If I was a single guy i wouldn’t care if I live in a rougher place but I have more than me to care for now. Trying to find the best way I can provide a nice home for my girlfriend at the same time not totally mess myself up in the future. We thought since I can barely get us into a livable home for 150k at 5% down like 13k maybe every 2 years we could sell and level up. Technically like a live in flip. We’re coming to the city in 2 years maybe there will be more opportunity there. Should I just eat it and pay rent?

Lucia Rushton · Answer

Househacking is the best way to get on the Real Estate Ladder, in my opinion.

Make sure you are working with an Investor Specialized Realtor who understands what you are wanting tot do.

Best wishes!

Should I buy instead of rent for a 2 year period, and cash out my equity at the end?

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