A couple of nights ago, after seeing what felt like the gazillionth torn up crappy house (it was actually only the 7th), I got fed up. All this insisting that I must buy, and well….maybe it just isn’t going to happen? Maybe it shouldn’t? While I would totally love to own the place I’ll be living in, I think I finally saw the light that told me perhaps buying isn’t always the best option. (Or it might just be another case of me trying to take “the easy way” out?)

Anyway, I thought long and hard that night, I actually didn’t sleep very well because it was bothering me so much and I decided I needed to really look at my numbers.

Starting with my budget. There are several things I’m kind of stubborn about budging on. I want to still be able to save 10% of my income towards retirement. I still want to have at the very least $200 left to save after all of my expenses. I don’t think that’s too unreasonable, just because I don’t want to feel trapped and I don’t want my savings to suffer just because I want to own a house. I mean, how else would I be able to save for vacations, or special occasions when they come up?

That would leave me with $1,966. Take out $200 for food, and $200 for utilities (very rough estimates) and I’m at $1,566. That would need to cover the mortgage payments, property taxes, HOA (if needed), and insurance or whatnot. Based on this ($300 HOA, $400 taxes, $70 insurance) I can “comfortably” cover an $800 mortgage. Which translates to slightly less than a $140,000 loan. Take into account a $24k downpayment and I can get a $164k apartment. Not completely terrible. I’ve seen some relatively nice apartments at that price.

Now, back to the rent vs. buy argument. Based on a few comments from my real estate agent I could possibly rent a nice 1 bedroom apartment for $1,200. When I say “nice”, I mean in the downtown area…..which is literally blocks from my work, most buildings are less than 2 years old, and not to mention the “it” place to live and hang out. Problem is people are having a tough time selling their places, so they’re renting them at good rates.

Here’s where it gets tricky. When I think of the benefits of buying, I think “I might as well build equity than pay someone’s mortgage”. Right? But how much equity am I really building? Using my own budget, let’s examine this….

Let’s look at the lovely spreadsheet I got from Vertex42.com. (If you haven’t checked out their site, you should….a spreadsheet lover’s dream!) Based on that, inputting a $140,000 loan, 6.5% interest over 30 years, payments are $884.90. So how much equity am I building? If you look at the column showing your principal payments its only $126 each month! And remember, I’m not just paying $800. I’m also paying another $700 for taxes and HOA. (If we must get technical, the principal payments increase at a rate of about $100 a year, so its not a straight $126 for the life of the loan.)

Let’s go back to the renting scenario and my budget. Take out the HOA payments, the taxes, and change the payments from $800 to $1200. My savings are now $500+ instead of the $200+ they were before. I could very easily take those $300 (the difference in my savings rate when I’m renting versus buying) and put them into savings and I would be saving TWICE as much as the equity I’d be building. (If I increase my savings amount by $100 each year, more or less, I’ll keep up with my hypothetical equity building rate.)

It may just be my frustration speaking, but looking at that doesn’t encourage me to buy too much. Here are a few more benefits if I decide to rent:

-My $36,000 downpayment automatically turns into my emergency fund. I would have more than a year’s worth of expenses saved up. That means peace of mind for me. Very important when I’m not sure how stable my industry is, and for how long.

-Living in a nicer area would be, for lack of a better word, nice. There’s no way I could afford to buy in that area, nor would I really want to (HOA’s are crazy expensive), but it’d be nice to experience living in the center of the action. (Plus if I was renting I’d be a little more open minded about getting a one bedroom. That means cheaper rent!) I hate to admit it, but I’m being seduced by sexy amenties…[sigh]

-I could walk to work. How awesome is that?! That also translates to savings on gas and tolls, not to mention the wear on my car.

Downsides of renting:

-Landlord could always raise my rent later on. That’d eat up at my savings. (Plus, I’m at the mercy of my landlord in general.)

-When I finally move out of there I have nothing to show for it….unless I remain disciplined and save the “difference” between buying and renting.

-It’ll never really be “my” place.

-I’d be forfeiting the $8,000 first-time homebuyer incentive.

I’ve obviously got a lot of thinking and searching to do. I’d still like to get a pre-qualification done this week, and I’m going to be checking out some rentals during lunch time with my agent (I told you they were close to work!). Either way, my mind isn’t completely made up either way. Who knows, maybe my dream apartment is still out there for me to buy?

Any advice for me? Any strong feelings in either direction?