Buy in hot market or pay high rent?

Buying & Selling Real Estate
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Buy in hot market or pay high rent?

Nicole A.Pro Member
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes

Hey BP! So I have a question that I never thought I'd have. Recently I have relocated full-time to Tampa, FL. As many other places, the RE market is super hot. People are buying homes site-unseen and paying more than they appraise for. I am currently renting, and my lease is not up until April 2022.

In FL, there is no rent control. My current rent is around $1600, but I see on the complex's website that my apartment is now *starting* at around $2000. So in April, my rent could increase by $400. I don't like this possibility.

But I also don't like the thought of over-paying for a house. But at least the money would be going towards an asset rather than rent? There is a house I like that is going for $425K and I feel it's truly worth more like high $300s, but that doesn't matter because people will pay the asking price or more. I'm sure this house will be pending soon and that's ok because there's always another nice house.

What would you guys do? High rent or over-priced home?

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
5y
Originally posted by @Nicole A.:

@Theresa Harris While people are willing to pay asking and over, there are many cases where the house indeed isn't worth that much because it doesn't appraise. This is where these types of buyers are paying the gap with their own cash and mortgaging the rest.

Yeah, I think for $425K, my PITI mortgage would roughly be around $2300-$2700... depending if I put 20% or not.

Which leads to another question. Put a full 20% down to avoid PMI or keep my cash but pay a higher monthly mortgage?

 It all depends on what happens to the market.  I bought in one area a few years ago and people were surprised at the price for houses.  Fast forward 5 years and they have kept increasing and are now not quite double.

20% vs 5% is a good question and depends on your goals. If you think you will use the 15% difference to buy another property in the short term (ie you wouldn't have time to save it up), you might be better paying the PMI. I've always put 20% down (on the two primary homes I've bought where I have that option) because the price for the insurance (I'm in Canada and terms may be different) ends up being more than the 15% by the time you are done.

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  • Ronald Allen Barney
    Real Estate Agent · Tampa, FL · Member since 2020 · 411 posts · 373 votes
    5y

    Just moved up to Jacksonville from Tampa a few months ago.  I think it should be fairly easy to find a place renting out for even less than $1000 if you look around, with the same eye as you look for investment deals.  I was paying $1450/month until March for a pretty high-end 1 bedroom near Urban Center and saw ads at the time for like $850 to rent a 2 br house about a mile from where I was.  Had I been staying in Tampa I would have gone for that rental.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    If the market is selling them at $425K then that is the value at the moment.  When the market is hot it is hard to adjust what we think a house is worth vs what it is currently worth as we base it on the history.

    I'd rather own than rent as it gives me more security.  Having said that if I was going to be moving around every couple of years, I didn't have the money for a down payment/couldn't get a mortgage for the amount of a home, I'd rent.  On a $400K mortgage, you'd be paying $1700 a month plus your property taxes.  Does the house have a suite or could you rent a room to decrease your living costs (the latter depends on if you'd want a roommate and not everyone does).

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  • Nicole A.Pro Member
    OP
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    5y

    @Ronald Allen Barney When you say "Urban Center", are you referring to "Urban Centre" on W Kennedy Blvd? That is the only thing I see pop up on Google Maps for that area. I work at MacDill AFB and my current commute is only 10 minutes, but I'm willing to live up to 30 mins away.

    Where did you see an ad for a 2BR house for $850/month? That sounds very fishy.

    The $1450/month for a nice 1-bed sounds about right in general for Tamp. My $1600ish is for a 2bed/2 bath which is pretty nice with lots of nice amenities too.

    Another thing, not to be picky, but not sure I want to move around just to rent again...what a predicament. 
    I suppose I could also talk to the leasing office and ask them up front if I should expect a ~ $400 rent increase in April or if they would work out a better deal.

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  • Nicole A.Pro Member
    OP
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    5y

    @Theresa Harris While people are willing to pay asking and over, there are many cases where the house indeed isn't worth that much because it doesn't appraise. This is where these types of buyers are paying the gap with their own cash and mortgaging the rest.

    Yeah, I think for $425K, my PITI mortgage would roughly be around $2300-$2700... depending if I put 20% or not.

    Which leads to another question. Put a full 20% down to avoid PMI or keep my cash but pay a higher monthly mortgage?

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y
    Originally posted by @Nicole A.:

    @Theresa Harris While people are willing to pay asking and over, there are many cases where the house indeed isn't worth that much because it doesn't appraise. This is where these types of buyers are paying the gap with their own cash and mortgaging the rest.

    Yeah, I think for $425K, my PITI mortgage would roughly be around $2300-$2700... depending if I put 20% or not.

    Which leads to another question. Put a full 20% down to avoid PMI or keep my cash but pay a higher monthly mortgage?

     It all depends on what happens to the market.  I bought in one area a few years ago and people were surprised at the price for houses.  Fast forward 5 years and they have kept increasing and are now not quite double.

    20% vs 5% is a good question and depends on your goals. If you think you will use the 15% difference to buy another property in the short term (ie you wouldn't have time to save it up), you might be better paying the PMI. I've always put 20% down (on the two primary homes I've bought where I have that option) because the price for the insurance (I'm in Canada and terms may be different) ends up being more than the 15% by the time you are done.

    1Reply
  • Ronald Allen Barney
    Real Estate Agent · Tampa, FL · Member since 2020 · 411 posts · 373 votes
    5y
    Originally posted by @Nicole A.:

    @Ronald Allen Barney When you say "Urban Center", are you referring to "Urban Centre" on W Kennedy Blvd? That is the only thing I see pop up on Google Maps for that area. I work at MacDill AFB and my current commute is only 10 minutes, but I'm willing to live up to 30 mins away.

    Where did you see an ad for a 2BR house for $850/month? That sounds very fishy.

    The $1450/month for a nice 1-bed sounds about right in general for Tamp. My $1600ish is for a 2bed/2 bath which is pretty nice with lots of nice amenities too.

    Another thing, not to be picky, but not sure I want to move around just to rent again...what a predicament. 
    I suppose I could also talk to the leasing office and ask them up front if I should expect a ~ $400 rent increase in April or if they would work out a better deal.

    Yes, sorry, I misspelled "Urban Centre".  To more fully disclose I was at Mosaic Westshore near the St. Pete causeway.  LOVED it there, didn't so much love what it cost relative to what I was making at the time.

    The ad IIRC was for a house on St. Louis Ave., near Euclid, probably rented by now.  That whole area is lower end cost but not high crime at all.  Depending on what your needs are you should still see something affordable in that area.

    Another thing you might want to look into is house hacking in that area.  The crazy prices might not allow the rent to fully pay for the mortgage but it can at least pay most of it.

    1Reply
  • Ronald Allen Barney
    Real Estate Agent · Tampa, FL · Member since 2020 · 411 posts · 373 votes
    5y

    One of the frustrations I had had with the Tampa market was that housing prices were sky high to buy relative to what you could get for renting them out.  As a wannabe investor that soured me on that market, but for someone looking for rental housing that's still good news in general.

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  • Scott CheekPro Member
    Investor · Philadelphia, PA · Member since 2016 · 13 posts · 11 votes
    5y

    @Nicole A. I think you are going to get a wide range of opinions here because ultimately where and how you choose to live/invest can be a very personal decision and vary based on personal values, desired lifestyle, investment strategy, etc. A few things to consider:

    - How long do you plan on living in Tampa, in that particular neighborhood? Personally, I don't mind renting as I view it as paying for convenience and mobility.

    - Would the house serve as a good rental property if/when you choose to move? Run the numbers based on it being a rental property - my preference is long term rental with the potential for short term rental being a bonus. The current cost of capital and inflation ahead are in your favor here.

    - Could you take the money that would go towards a down payment on that house and invest it in a rental property that helps pay your rent? Also keep in mind the additional tax benefits of this option and that the property pays for the expenses, taxes, insurance, etc, not you.

    I like your approach in being proactive with your property manager and having a discussion.

    Finally, and maybe most importantly, what would make you happy?

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  • Charles Renn
    Real Estate Agent · Los Angeles, CA · Member since 2021 · 215 posts · 103 votes
    5y

    Hi @Nicole A., 

    There is a lot of good feedback here. If I was to add anything, I'd say that according to some economists the strong housing market will continue for another year or so. I say this because that $400k+ house today will be worth another 5%+ next year before the market cools off. 

    Definitely check with local real estate professionals to get more accurate numbers, but in my example you'd gain about $20k in equity over the course of the year. Whereas renting, you could be paying an additional $400/month.

    Another way to look at it is an estimated $400k mortgage is around $2,500. If you rent out a room, maybe you're paying less per month house hacking toward your mortgage than you're currently paying in rent..?

    Hope this helps!

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  • Bradley Dosch
    Real Estate Agent · Seattle, WA · Member since 2019 · 301 posts · 188 votes
    5y

    I always vote for starting now rather than later. If you can find a house hack which significantly lowers your monthly living expenses, the cost of the home doesn't matter too much. Plus, if you hold on to it for 20-30 years, the purchase price also doesn't matter too much. Hope this helps Nicole!

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  • Jeffrey Donis
    Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
    5y

    @Nicole A. Rental might be more flexible, and you can move if you need to. That's what I would do.

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  • Jeremy Powers
    Member since 2021 · 15 posts · 5 votes
    5y

    @Nicole A.

    A house is worth what people are willing to pay for it. If every house had a set price nothing would ever appreciate.

    I just bought my first house and my new mortgage is less than my rent was.

    The answer to your question is simple for me. Buy.

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  • Marc RiceBusiness Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    It sounds like you have time on your side - I wouldn't rush into buying something if you have until next year. Prices could soften over the winter and worst comes to worse you can just find another $1,600 rental for the time being somewhere else until you're ready. Just my $0.02

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