I agree that it's good experience, and that the rates are low now, and I don't know the state of prices in the chicago market, so can't speak to them...and that is a very important consideration. Another consideration to make is that interest paid on your mortgage can be written off your taxes. You also generally get to pay real estate tax on your home as well...which can often be 1-2% of the home's value each year (depends on market) - on a $400,000 house, that's an extra $4k a year. Not a small consideration
My diagreements with Rich's point are in my first post...but let me reiterate. While it is true that gaining equity is nice...are you paying more for the benefit of owning the house than you're gaining in equity? Most mortgages are front weighted with interest, so something like 90% of your first payments are interest payments. Not until the later stages of a mortgage do you actually start gaining large percentages of your payments in equity. It's easy enough to calculate your equity gains.
True - it can take years, perhaps around a decade until your mortage payment is actually hitting the principal. For most people, the first 5-10 years of payments is going toward the interest.
So consider that you can rent a place that is of similar convenience/quality to you for $2k a month, or buy for a mortgage payment of $2500 a month. Chances are, no more than $500 of your payment is actually equity (nor will it be in the 4 years you plan to own it) so your "wasted" payment either to rent or interest is very similar. Then, with your other fees, HOA, Insurance, Tax (minus tax deduction benefits) you are likely "wasting" a good bit more money, and that's not even considering the one time costs (closing costs/RE agent fees), or costs of upkeep and repair that are generally covered when you rent. Again, if you change the $2000 and $2500 numbers, based on the actualities of the market, the equation should change.
An interesting angle, and I agree with this statement.
I'm not saying buying a house is a bad idea...I'm saying that buying a house for 1-4 years is generally a bad idea in a weak/questionable market...especially under current conditions...and the hassle of it shouldn't be underrated. I'm also saying that given the market, and whether it's a renters or buyers market should play into your decision. That is market dependent...and is easy to do if you have an idea of a place you'd want to rent, and a place you'd want to buy. You can sit down and do the math. Even if it DOES appreciate a little bit over the next 4 years...it is very unlikely it will appreciate much, because the housing market will compress over the next few years, as the demands for mortgages (20% down, etc) have suddenly taken a large percentage of previously "qualified" buyers out in the market. As the supply stays the same, and demand drops down significantly, the prices are going to have to drop further to compensate. I don't think it'd be unreasonable at all to say that home prices would stay stagnant for an extended period of time, both to reflect this shift in policy, and to adjust for the rapid price increase that occured as a result of the former policy.
I would say, if you thought you were going to stay in a house for 10+ years...then go for it,whatever the market conditions. At that point you start to have some strong equity payments from your mortgage, and market fluctiations will likely even out over that period of time. In a strong market, buying a house for 3-5 years can make sense. Ever buying for less than 3 years, unless you're just trying to flip in an explosive growth market, just doesn't seem to make mathematical sense to me.
Exactly - much like with investing in stocks, if the time horizon is very short, say less than 5 years, it is hard to say what the market will look like. For all we know, it could be flat for another few years. However, if you look at a house a LONG-TERM investment, then it really doesn't matter. Chances are the house will appreciate over long stretches of time.
As to rich's last comment. Logically, it makes as much sense to give $1000 a month to a landlord as it does to give that to a mortgage company in interest payment, the government in real estate taxes, the HOA in fees, and the insurance company in HO Insurance... The extra $500 in equity makes no sense unless you're getting a better return on that investment than you would investing that money elsewhere.
Plain and simple...there is no answer to this question without having specific data to calculate - specific properties to compare, your specific preferences (as they relate to the hassle of it, etc.), the time period you'll be in the property, and assumptions of the market growth rate over that time period... If you find an awesome deal on a property to buy, maybe it makes sense... It's worth it to evaluate both options further, and do the math and evaluate your preferences...and make your choice off of those. I'd be happy to help if you go that route...
However, assuming you're not sitting on a lot of disposable income, there's a good chance you're considering buying a place that's a bit more modest than you could afford to rent... but that sacrifice will lead to equity in the home over time. Right? To really be fair, don't forget that you could make a similar sacrifice and rent a property more like the one you're thinking of buying, and invest the monthly savings in any number of things from stocks, bonds, mutuals, metals, your own business, etc.
