Assuming someone graduates and plans to work 5-7 years in a certain location before pursuing an MBA (likely in a different city), would the smart thing to do be to rent an apartment or buy?
It seems like the consensus is to rent, but that feels like throwing away money to me. (2500/month * 6 years) = 180k.
What are people’s experiences/thoughts?
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how are you going to have the money to buy an apartment out of college? I barely have any money to do anything apart from my internship savings that I'm going to use to build a nest.
I'm pretty sure the buy referred to a home; however, I wouldn't discount the possibility of buying an apartment if one has an inheritance, a large amount of money in general, or they find a partner to purchase the apartment building with.
With record low mortgage rates, it could be a good idea to buy a house in an area that has a good opportunity for appreciation. I'm thinking about it when i get out
Well I assume I’d be buying a shitty studio or 1 BR, and after 1 year or so I should have 120k+ saved up including my current savings. That’s enough to make a down payment on a 600k apartment
This is the op btw, to avoid confusion
5-7 years should be a long enough time to realize some gains from it. I would go for it if you think property is going to appreciate in that area.
Hi. This appears to be a common question and the answer you give appears to be common guideline. Unfortunately, many people may not be experienced enough to know if property is going to appreciate in an area.
I figure cities will probably always have property appreciate in value if its large enough and future environmental risk is low enough. But, that doesn't mean that employer concentration, and both economic and industry risk, for the purpose of employing the population, won't apply.
Would you be able to touch on evaluating employer concentration risk and industry risk?
I mean it really just comes down to a factor of supply (amount of housing) vs demand (amount of people that want housing).
Cities with high population growth usually see increasing home prices, until they get over built, like Seattle did recently. Cities like Detroit have more housing than they need, since they have had a declining population, resulting in housing prices going down. Phoenix is a good example of a city that has had really high population growth and only moderate building, resulting in a housing shortage, which gave it the highest or top 3 rent growth year over year for the last few years.
If you have the money, then sure. Most of us rent due to a lack of capital and for the flexibility it provides
graduated recently and going to try and buy as soon as i can.
renting isn’t throwing away money. many pros.
You’re considering only your rent vs. your mortgage payment. You need to think about 20% down, closing costs, potentially PMI, property tax, HOA, insurance, maintenance... renting is a luxury
How is it a luxury?
It’s a luxury because you are paying for services (doormen/security, trash, grounds upkeep, maintenance/repairs), liquidity (down payment, prop tax, homeowners insurance vs. cheap renter’s insurance, fees, etc), and the flexibility to leave whenever you so feel like it. If you take out a mortgage, you are obligated to the terms for multiple decades even if you move elsewhere.
Subletting is also a dick because you need to pay brokers or management companies, risk letting it unrented while you’re still paying the mortgage + payments for wherever else you’re living, have to deal with boards and their wacky fees/process if you’re in a condo, etc.
That is, unless you want to remain in the house that you could afford at 30 when you’re 60 years old. Then by all means.
If you put 20% down I’m pretty certain you don’t need PMI. Plus the 20% is equity in the building. Not to mention the i rates are low right now and the cost of buying (mortgage+insurance+taxes+potential HOA fee) is nearly identical to the price of renting a similar place.
And why wouldn’t it be? The people who are renting to you aren’t going to give you a deal.. they want you to pay their mortgage, insurance, taxes and whatnot. And you’ll still need renters insurance. If you can afford the down payment and avoid the PMI, shop around and find low mortgage rates and take out a 30 yr loan. Consider paying it off on a 15 year amortization if you can and at the end of the day sell it if you need to or use it as rental property.
(Obviously check out the rental market, expected price appreciation, and see how long those places tend to stay on the market)
Yep, no PMI on 20% but that 20% down could also be invested elsewhere too
And, sorry, I’m thinking in terms of NYC condos — taxes for just existing, $1.5k+ just for HOA/tax/insurance, closing costs for everything imaginable, etc. All for someplace that I wouldn’t live in for the long term and would be a pain in the ass to be given permission to sublet by the board overlords.
doesn't need to be 20% down, can do fha loan with 3.5% down. (will include pmi tho)
I wouldn’t buy until you’re approaching your 30s. 1) you likely won’t be able to afford anything remotely decent so you’ll live in some small shit hole, 2) takes away a lot of flexibility if you don’t want to work a high pay / high stress after doing it for a couple years, and 3) in most cases you’d probably get a better return in the market.
If you’re in a low COL area and it makes sense, go for it. But if you’re in NYC / SF / BOS, rent with a couple buddies and enjoy your early / mid 20s with financial freedom. When you’ve got a better idea on your career path during your late 20s / early 30s - take that plunge
Your life is going to change drastically over the first 5-7 years out of college. First, what you can afford your first 1-2 years out of school will be drastically shittier than what you could afford 3-4 years out (and even more so with each coming year). Do you want to live in a shitty studio when you’re a third-year associate or first/year VP clearing over $400k? Probably not.
Additionally, there are huge changes that will come in regards to what you enjoy doing and what neighborhoods you like. Do you want to lock into the same neighborhood 22 year-old you enjoys when you’re 28? Probably not.
Also if you’re going to get into a serious relationship or start a family that fucks that all up too.
So really - if you’re in a cheap enough area to buy something flexible for that, go for it. If you’re in NYC it makes no sense, your life is too dynamic for a 5-7 year hold period in your 20s.
rent so that you can keep mobility early in your career
I think 9/10 times it's not a good idea to buy right out of college.
1) Taking a mortgage to buy a property is the equivalent of levering up to buy a stock. Now the prices of real estate in some parts of the US won't fluctuate as much as some stocks, and will probably follow a slow and steady trajectory upwards. However, what if you lose your job? As a fresh graduate, you don't have any stability yet. Pretty risky to take on this much leverage considering that.
2) In NYC, it'll take you 7-8 years to break-even due to the origination and brokerage fees of buying and selling an apartment. During those 7-8 years, you'll have to follow a strict budget, not be able to travel or enjoy your life, as well as being forced to stay where you are. If you ever get the desire to live in a foreign country, too bad. You won't be able to unless you can find someone to rent your place, which is contingent on whether you're allowed to rent your place to someone, and if you can handle managing the property in addition to your other life priorities.
3) You're a fresh graduate/adult that doesn't know much outside of the world you lived in. You don't know what you want, where you want to live, what you like. Buying a place will eradicate any flexibility you once had. The party vibe of East Village might be great for someone in their early 20's, but maybe later on you'll learn that you value peace, quiet, and vomit-less sidewalks, so you'll prefer to live somewhere else that aligns with your values.
....
Don't buy. For all the reasons stated above but also because a house is something very personal and even though you might not feel like it, you are probably too young to know you what you actually want out of a house (not to mention that you yourself will change a lot and you don't wanna find yourself stuck with the house your 22yo-self thought was a good idea to buy). This is one of those cases where experience is everything.
Is there an age where we really SHOULD own a house and not be renting?
When you have kids/ are thinking about havings kids and want some level of stability in where you are living. From my experience, it's also nice to have a 30 year fixed rate locked in knowing that inflation will eat away at a good chunk every year.
The very premise of the original question is deeply flawed. The decision of where to invest in real estate is never "at what age should I own my own house/ apartment?"
Do NOT invest in real estate for living purposes! Later in life, you want to buy a house as a consumption good? A swank pad to chill in or put your family in? Have at it.
But that's not an investment. It's a consumption good.. An investment is income producing real estate, where people pay you, not you go pay a bank. Apartment buildings, office buildings, industrial projects, or if you're at early stages in your career - condos/rooms that you rent out.
The idea that a fresh grad with nascent skills and a small bank account would leverage himself/herself to the hilt to buy into an apartment, lock themselves into a particular location, and then fail to reap income from that property, and instead get into the cycle of paying out a mortgage is very questionable.
Yes, by all means **invest **in real estate. But don't worry about buying the place you live, unless it's an apartment building where you just happen to own a room.
Man makes plans and God laughs.
Moving to Chicago in July. Thought about this alot because of the cheap property compared to other big cities and low mortgage rate. Ultimately decided to rent. If you told me entering college I was going to move to Chicago I wouldn't have believed you. Also, I don't want to be tied down to an illiquid asset if I get a good buy side job in a different city. Seems pretty limiting this early in a career path where the turnover is so high.
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