Rent an Apartment, Buy House, Buy Mobile Home or a Trailer?

[YoshiMoshi]

So I just got out of college and have about 15k or so saved up. My job pays me about 65 k a year. I have no debt and own my car. I'm most likely going to move out of my parents house in a few months. I think it would be best not to buy a house for at least another decade, maybe two, and take out a 200k loan. I think this is so because who knows, if I never get married and never have children, I don't really need a large house. Not to mention I'm young and might need to move in the future to a different state. I could get fired from my job and it wouldn't exactly be fun trying to pay off a 200k loan working at a gas station. The only thing that is certain is what I currently have and own. So I think it would be best to at least rent for the next decade or possibly two instead of purchasing a house. Since I have money saved up, I was considering possibly other options for living. I know I could live in a trailer park, which would cost less than a mobile home, and purchase a trailer. I would than have to pay lot rent of a couple hundred. I don't think I would want to live in a trailer park the rest of my life just because of the environment. So I was thinking the next step up was to purchase a mobile home. Mobile homes in my area go as low 8k to 20k to 100k +. A single wide mobile home would have three times the living space as the apartment that I rented while completing my undergraduate. So It's a significant more amount of space. Lot rent would be only a couple hundred dollars, I've seen as low as $200 a month. I plan on splitting the lot rent with my girlfriend who would be living with me. So I think this might be a cheaper way of life. Once I have enough money saved up I could even buy a house in two decades plus maybe, if I even ever have the need for one. I know that mobile homes aren't really mobile and cost up to 10k to move. If I ever do buy a house I could move it to my property, rent it out or sale it. I know that mobile homes don't really retain value that much, but still it's something. If I never have the need for a house I could just live in it, well until I die. I would prefer to purchase the land the mobile home is on but that's very expensive. It seems that livable land costs a lot. I thought about buy a blank plot of land to put a mobile home on, but found out that it would cost several thousands dollars to hook up to the electric grid, install septic tanks, and hook up to the towns sewage systems. I even thought about buying a RV from the 1980s for under 20k and just living in that. But the problem with that idea is that I would need to refill the water tanks, and hook up to some electric system, I wouldn't be moving the mobile home much, just living in it.

Given the other options that are out there instead of renting an apartment for the next two decades, I would like to consider them to save money. I don't like the uncertainty of taking out a 200k loan and purchasing a house, especially if I need to move! I'm not as old as some of you are and was wondering what you guys think is best? If it's really a good idea to rent for $1000 a month for the next 2 decades or so, purchase a house and having to take out a large loan, buying a mobile home in cash, buying a old RV from the 1980s in cash and trying to find some way to live in it, or buying a trailer in cash and living in that.

What do yall think? Please share your wisdom and knowledge that I don't have.

 

[russ_watters]

If you have the stomach for living super-austere, go for it -- it probably makes the most economic sense. Beyond that, the choice between buying and renting is generally pretty clear-cut toward renting when you don't know if your situation is stable and buying when you are pretty sure it is. Also, no, you don't need to buy a big house: when you are single, buy a condo or townhouse.

 

[Spinnor]

Do you make the decisions for the two of you? What does your girlfriend think. I like the economics of a moble home if you have good neighbors, I think you could put away a bundle.

Good luck with your future!

 

[Astronuc]

when you are single, buy a condo or townhouse.

Good advice. In addition, look for a low price in a good location, so that selling it quickly would be easy if necessary. Put down a reasonable down payment, use the mortgage deduction, and live frugally.

I had two colleagues who did that. One rented his out (great location near a university/medical center and about 5 miles from the beach) when he got engaged, then his wife rented hers out (or sold it), and they bought a house. The other eventually sold his condo and bought a house when he got married.

 

[Buckleymanor]

Would it be possible to buy a building plot and put a mobile home on that with the long term view of having a property built on it. Any service paid for and connected like water sewage and electric could be offset when you eventually build.If you don't and you decide to sell the plot it should be worth more with these connections.

 

[edward]

Would it be possible to buy a building plot and put a mobile home on that with the long term view of having a property built on it. Any service paid for and connected like water sewage and electric could be offset when you eventually build.If you don't and you decide to sell the plot it should be worth more with these connections.

Mobile homes don't hold their resale value the way houses do. Having one on it's own lot usually does a bit better as far as depreciation. I don't know how the zoning situation is where you live, but in the Tucson AZ area it is difficult to find a lot zoned for mobile homes without driving far out into the country side. or to the wrong side of town.

If you make a substantial down payment on a house it will rent out for more than enough to make the mortgage payment, and you will get a lower interest rate. That will cover you if you have to move.

 

[tfr000]

Buy. Think of it as an investment. It doesn't have to be anything big and grandiose.

 

[YoshiMoshi]

But see my problem is I don't know if it's really a good idea to spend so much money on a home. I know that most people take out a loan for a home and then pay it off over a long period of time. I was looking at this site http://www.bankrate.com/calculators/managing-debt/annual-percentage-rate-calculator.aspx. And if I took out a 200k loan at 3.9% a year fixed for 30 years, that would be a monthly payment of 944.48. Which seems to be about the cost of rent in my area per month. Not bad. I then look at the total amount of money that I would have spent on a 200,000 loan and it would be 340013.73 or ~70% more than the actual value of the home. I just don't like the sound of spending so much money on something than it's actual value.

I also have to take into consideration inflation. Even if in 30 years I'm able to sell the house for 250,000. Sure I get more money, but I would even argue that I lost money on the house due to inflation over 30 years. There's also the yearly property tax I would have to pay for owning the home that I wouldn't have to pay if I was renting. There's also the unpredictable amount that I would have to spend on repairing the home, something that I wouldn't have to do if I was renting. Not to mention buying new appliances just to replace old ones. I don't know if having a 30 year old plus oven is a really good idea if I wanted to sell the home. Sure it would work, but I think most appliances would have to replaced even if they are working to sell the home after I finished paying it off. I just don't know and think I would save more money renting until I have enough cash to purchase a home in one payment. Its something long and hard I have to think about. Something that most people only due once or twice. I have no experience with it and lack lots of knowledge so I'm hoping some of you could share the knowledge I lack. Do you regret buying a home instead of renting? Or possibly the other way around?

 

[russ_watters]

But see my problem is I don't know if it's really a good idea to spend so much money on a home. I know that most people take out a loan for a home and then pay it off over a long period of time. I was looking at this site http://www.bankrate.com/calculators/managing-debt/annual-percentage-rate-calculator.aspx. And if I took out a 200k loan at 3.9% a year fixed for 30 years, that would be a monthly payment of 944.48. Which seems to be about the cost of rent in my area per month. Not bad. I then look at the total amount of money that I would have spent on a 200,000 loan and it would be 340013.73 or ~70% more than the actual value of the home. I just don't like the sound of spending so much money on something than it's actual value.

You didn't actually compare the two options to each other. In the case of buying the house, you flushed $140,000 down the toilet and kept $200,000. If you rented at the same monthly rate, you would have flushed all $340,000. So by buying the house instead of renting it, you saved $200,000. And, of course, after that you are saving an additional $11,000 per year

I also have to take into consideration inflation. Even if in 30 years I'm able to sell the house for 250,000. Sure I get more money, but I would even argue that I lost money on the house due to inflation over 30 years.

Houses tend to appreciate even when considering inflation.

There's also the yearly property tax I would have to pay for owning the home that I wouldn't have to pay if I was renting. There's also the unpredictable amount that I would have to spend on repairing the home, something that I wouldn't have to do if I was renting. Not to mention buying new appliances just to replace old ones.

Yes, these things do have to be factored in. My taxes are rolled into my mortgage payment, which makes it easier to deal with. And I haven't bought a new appliance in 10 years.

You are listing downsides, but don't seem to be listing any of the upsides to owning a house -- seems almost like you are trying to argue yourself out of the idea, rather than fairly listing pros and cons. Several pros (besides the money):
-You can do almost anything to modify the house that you want without permission.
-Nobody can walk into your house unannounced because they own it.
-You never have to wait for a landlord to fix anything for you.

 

[lisab]

YoshiMoshi, take Russ's comments to heart. He's talking good sense.

Keep in mind that if you rent, landlords are in the landlord business to make a profit.

 

[Vanadium 50]

Lisa and Russ are right. And renters do pay property taxes - just not directly. The landlord pays them, out of your rent.

I think the best reason not to buy a house is if you plan to move in a few years. Then the equity you have built up goes into commissions.

 

[Evo]

I haven't seen the fact that you can deduct the interest on your mortgage payments from your tax returns. This can be a sizeable savings.

Also taxes are generally deductible.

 

[SteamKing]

But see my problem is I don't know if it's really a good idea to spend so much money on a home. I know that most people take out a loan for a home and then pay it off over a long period of time. I was looking at this site http://www.bankrate.com/calculators/managing-debt/annual-percentage-rate-calculator.aspx. And if I took out a 200k loan at 3.9% a year fixed for 30 years, that would be a monthly payment of 944.48. Which seems to be about the cost of rent in my area per month. Not bad. I then look at the total amount of money that I would have spent on a 200,000 loan and it would be 340013.73 or ~70% more than the actual value of the home. I just don't like the sound of spending so much money on something than it's actual value.

So, you've discovered the miracle of compound interest.

There's more to making the financial decision of whether to rent or buy a home than simply adding up all the rent/mortgage payments mad over time.

By renting an apartment, all of that rent money goes straight to the landlord. You don't own anything more at the end of your tenancy than when you started. You don't get any tax breaks by renting an apartment, like you would paying a mortgage on a home, and you are not responsible for paying local property taxes, except what portion is charged in the rent.

By buying a home, even one with a mortgage, there are certain tax breaks and other financial advantages which you can use.

The basic costs of buying a house are coming up with a down payment, getting the mortgage, buying insurance on the home, and paying local property taxes on the assessed value of the home and land. The down payment plus the principal paid off out of the mortgage payments represent the equity in your home that you have. This is a tangible asset which you can borrow against if you need to raise cash. If the value of your home goes up, the additional value represents an increase in the equity in your home, i.e., you just got incrementally wealthier for no additional investment.

Every year at tax time, the mortgage interest you pay on your home is eligible to be deducted from your taxable federal income. The amount you pay in local property taxes can often be deducted when figuring taxable income under state income tax rules. You can't make any of these deductions when you rent, no matter how expensive the rent is, whether it's a tent in someone's backyard in San Francisco or a closet you rent in New York City for $2000 a month.

I also have to take into consideration inflation. Even if in 30 years I'm able to sell the house for 250,000. Sure I get more money, but I would even argue that I lost money on the house due to inflation over 30 years. There's also the yearly property tax I would have to pay for owning the home that I wouldn't have to pay if I was renting. There's also the unpredictable amount that I would have to spend on repairing the home, something that I wouldn't have to do if I was renting. Not to mention buying new appliances just to replace old ones. I don't know if having a 30 year old plus oven is a really good idea if I wanted to sell the home. Sure it would work, but I think most appliances would have to replaced even if they are working to sell the home after I finished paying it off. I just don't know and think I would save more money renting until I have enough cash to purchase a home in one payment. Its something long and hard I have to think about. Something that most people only due once or twice. I have no experience with it and lack lots of knowledge so I'm hoping some of you could share the knowledge I lack. Do you regret buying a home instead of renting? Or possibly the other way around?

If you want to sell your home, it's really up to you if you want to include your appliances in the sale. People are looking to buy the house, not the stove which comes with the house. Most people buying a house want to put in their own stuff anyway, so your appliances would likely get sold or tossed.

Sure, appliances wear out and need repair or replacement, but what item doesn't?

If you can save enough money while renting to buy a house for cash straight up, then you don't really need to worry about this stuff. You can hire someone to figure it out for you.

 

[JonDE]

You didn't actually compare the two options to each other. In the case of buying the house, you flushed $140,000 down the toilet and kept $200,000. If you rented at the same monthly rate, you would have flushed all $340,000. So by buying the house instead of renting it, you saved $200,000. And, of course, after that you are saving an additional $11,000 per year

Houses tend to appreciate even when considering inflation.

Not disagreeing with Russ here on his statement that houses appreciate faster then inflation, just adding to it.
If the house appreciates only as fast as inflation, and inflation is exceptionally low, say an average of 2% for those 30 years, at the end of the 30 years that house would have a value of $362,000, so no need to look at it as a loss of $140k, instead its a straight gain of 22k. If inflation is 3% over that time, your house is worth 485k at the end. A whopping 185k increase. Of course due to inflation your house is relatively more expensive at the beginning and much cheaper at the end of this loan, especially when you factor in closing costs etc...

So to me, the main factor is whether or not you are planning on living there long term or not. You seem uncertain on this, so I can't really give good advice. Just two other things I want to point out. If you buy, make sure you are able to set aside money each month for repairs. If your compressors on your AC goes out, it will cost more then $1000, you will probably want several thousand set aside for needed repairs. The other thing I want to point out is about renting. Renters will generally try and raise your rent every year, it can be quite a hassle fighting with them about it. After the first year I rented an apartment, my rent went from $650 a month to $700, that's a 7% increase in just one year, the next year I learned to fight better and kept it at $700, but it was still a pain.

 

[russ_watters]

That's a really great point (which I missed), but there is a more direct/immediate way to see it if you look at it from the opposite direction (from the payments instead of the value):

Your mortgage payment (not including any added costs like taxes that you roll into it) is the same for the first payment through the last payment. But rent goes up, at a rate at least equal to inflation and probably faster. That means that as you own your house, it gets cheaper to live in over time, in real terms. At today's value, the OP's example of $944/month and your optomistic 2% inflation, it drops to $787/month after 10 years of inflation and $526/month at the end of 30. The total payments at today's value add up to $257,600, a savings of $82,000 vs renting just in the monthly payments (before you even include the value of the house)!

This benefit hasn't been noticeable for me yet because I've only been in my house 8 years and had a re-finance and other adjustments (PMI, different term) that have changed the payments a few times. But at 2% inflation, it only takes about 6 years for the rent to rise by $100 a month. That's real money to most people. And it is another way you are at the mercy of your landlord: you don't know when or how much the increases will be.