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Our house is definitely more expensive than we thought it was going to be. Even though we have just the bare necessities, we rarely eat out, always pack our lunches, wait for our birthdays and xmas to get things we want, and drive as little as possible, we barely make it by, which makes it difficult to save much for traveling. My question is:... Which option would reap the most $$$ rewards:

1. Keep our house 2-3 years longer, put a little cash into savings each month, and cash in on the home's appreciation when we do decide to travel

OR

2. Sell our house now and put the cash from the home's appreciation into stocks, rent a cheapo apartment, and put as much cash as possible into savings each month

Somebody around here who's smart with numbers and finance - I am soooooooo not that guy - will come around and give you good advice. But basically, I think you need to do what one of those smart money people would call a cost/benefit analysis, or something clever like that.

In a crude nutshell:

OWNING: mortgage + insurance + property taxes + maintenance/upkeep + ???? for X number of years will cost you: FIGURE A

RENTING: Whatever you would pay in rent over the same amount of time = FIGURE B

(You would also probably save additional money because utilities, etc. would presumably be lower in an apartment.)

Over that time period, you assume your house will appreciate by x% each year. So compound out price appreciation for whatever length of time you're using. Then upon sale, when you subtract figure A from that presumed housesale total--MINUS the costs associated with selling the house, and they are not insubstantial--that will give you your profit.

If you choose to rent, for however much money you save (and invest), you need to apply a realistic rate of return on that money. That would give you the total you'd have if you rented over the same period of time, rather than owned.

Compare the totals and you have your projected, if all things go the way you think they will and by the way sometimes stocks go DOWN, and houses don't appreciate at the same rate consisitently, answer.

There are a lot of variables/wild cards in all of this. (Just a few include what interest rates *might* be like when you choose to sell, the condition of the local economy, etc.) But the two biggest are rate of appreciation on the home, and return on investments from any money you save/invest if you choose to rent instead.

One of these websites might help.

Renting versus Owning

Good luck.

P.S. I didn't look at those links, but I'd avoid any of them that look even remotely like they might be in the business of selling mortgage products.

A couple of things in addition to what NTFT mentioned.

1. you need to account for the income tax deductions you get from owning a home. These are substantial.

2. there is no absolute correct answer for each person. You do have to do the calculations as everyones situation varies.

3. When doing the calculations, probably the best analysis is determine where the percentage returns for owning a home and renting break even. For instance, if your calculations indicate that you would need a yearly 20% return on your house and 3% return on your investments for the two to even out, you obviously get rid of the home. Now, if your calculations indicate you need a 20% return on your investments and a 3% return on your house, you keep the house.

There is more, but I have a plane to catch.

Ok, that's what I needed to know. Now, I just have to pull my math skills out of the recesses of my brain and figure it out. Thanks a bunch!

When making your decision on when to sell your house, keep in mind that if you have lived there at least two years, your profit on the sale will be tax-free. If you sell before the two-year mark, you will have to pay taxes on any of the profit.

beyond the pure financial numbers, how do you feel about the "hassle factor?" --Owning a home is more work than renting, and potentially more risky (think: storms, damage, repairs, etc) -- be sure to include that in your "calculation." However a home is also an excellent way to build value if you are in a growing area and you got a good deal buying your home (good price, seller paid closing costs, etc) - beyond the money, factor in the lifestyle you want for the coming few years. By the way, how long have you owned the house?

Also, owning a home is often considered "forced savings" -- if you rent, do you have the discipline to actually save and invest the extra money you'd free up?

Regarding this comment:

quote:

If you sell before the two-year mark, you will have to pay taxes on any of the profit.

not entirely true. there are exceptions to every rule. -- and three exceptions you can read about via that link could let you exclude some profit even if you sell in less than two years.

My point is, unless you really know what you are doing, I'd say find a reputable CPA or CFP with lots of knowledge of your local area and let them give you their opinion, preferrable via a referral from a known, long-time client. This may cost you a few hundred dollars, but that's cheaper than making the wrong decision and losing thousands.

Or at the very least, do thorough research and read lots of sources to gather information. This thread is a great start, but be sure to expand your search for info.

Bottom line, for a short time horizon of just two or three years, it's a bit of a crap shoot. Good luck and best wishes.

quote:

One of these websites might help.

Renting versus Owning

Good luck.

P.S. I didn't look at those links, but I'd avoid any of them that look even remotely like they might be in the business of selling mortgage products.

yes, please please be careful with those links - the first one I opened was adamant that people are better off renting than owning. the site was the "National Multi-Housing Council," and with a little digging, I found their true purpose: "The Washington, DC-based National Multi Housing Council (NMHC) is the apartment industry’s leading advocate and strategic consultant." -- so there ya go...

RENTING: When the money is gone...the money is gone/

OWNING: Even if you sell at a loss you'd still get some back. PLUS the tax benefits.
Not knowing your situation...sounds to me like you bought too much house to begin with.
But thats my opinion.

I rent an apartment and love it! Personally, I don't feel like my money is gone. It goes to the consumer Twilight Zone, like food and telephone money. I bought it, I used it, its worth it.

The many expenses/responsibilities of owning a home is too much baggage. My suggestion is to put your home up for sale at a decent price. If it sells, move to a temp rental (or sublet!!) and invest the money in a CD. If it doesn't sell, you've got time to keep trying. Better to do it now then in a hurried panic before traveling (which may force you to drop your asking price)!

The answer is highly dependent on the cost of homes vs. the cost of renting in your area, your tax bracket, property taxes, etc.

Owning is probably the best long term solution, but transactions costs in buying and selling a home can eat up any appreciation you've realized.

There's no perfect rule of thumb, but if you're only planning to be in a place for a few years I'd be less inclined to buy.

You know....I admit that I don't know much about this kind of stuff, but....

Why don't you rent out your home AND get a small apartment? That would help if the value goes way up, and it would also keep cash coming in if you rent it out for more than you pay in rent.

I guess you also need to look beyond pure finances to why you brought a home.

In my case I brought because I did not want to pay rent, renew contracts and put up with rental inspections my whole life. So it was a 'I don't want to rent my whole life so I need to buy and pay for a house before I retire.' type thing.

I found the first few years tough and I was just keeping my head above water so to speak. Now I'm paying for my house and have no problems stashing money into three different savings accounts (yearly holiday account, RTW holiday account & Gernal Savings account).

I guess my point is if you have not had your house for long and you haven't truly overextended yourself you will get used to the payments and then start saving again.

Then again in the 5 years I've had my place the value has tripled. I was lucky and brought just before the market started going up. I would not be able to afford a house if I had to buy one today.

In the long run - owning will always be the best option - in my opinion/experience.

Depending on the rental market - the previous poster has a good suggestion - to rent out your home (then even cash flow losses are deductable from your income) and rent a more modest place.

I've invested in real estate and probably owned in the area 12-15 properties since about 1975 and the one thing I wish I had done - looking back - was NEVER sold a single one of them.

If I had held on to them I would be fully retired right now at age 55 with a VERY comfortable income instead of heading to semi-retirement. Of course, I would not have bought so many in the buy-sell-buy thing - but I would still be FAR ahead of where I am now.

I own three income properties now - five units in total and I RENT - I like someone else taking care of the hassles. I have excellent property managers for my properties - and they are real pros - and the headaches are theirs to deal with. A good property manager costs nothing as their will maximize the earnings of the property and minimize the costs - easily earning their 10% of the gross income.

Others will argue these points - but they are my experience. And what allows me right now - to live on a tropical island and contemplate retiring in about two months still at age 55. I won't have near as much income as I would have had - had I not sold anything. But I will be doing just fine semi-retired playing with my websites.

I think it depends on the market your in, if you can expect a reasonable appreciation it's probably better to stick with it, if it's iffy you might feel better renting. Renting definitely means more savings you can see in the short run, but in a reasonable market you'll get a lot more to show from your home, probably. It's really worth talking to a financial adviser to work out a plan to suit you.

Is there anyway you can buy a cheaper house instead of renting?

It depends what your local housing market prices are. For example I live on the shore in Connecticut. Housing prices are insane! I pay a low rent for my apartment and would not be able to buy a decent house for less then $300,000! I am banking as much money as I can and investing it, instead of paying interest on a 30 year loan. My plan is to retire in 12 years, pay cash for a house in Vermont(for half the price) and be a ski bum. I love cash in the bank!