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Ask Money

Buy a home

Chris Farrell Oct 23, 2009

Question: My wife and I are considering buying a home in San Francisco, but also know that we will be moving to LA sometime in the 3+ years. Homes in SF are extremely expensive, and we would be able to put down a 15%~20% down payment, but I don’t want to lose this money if the market gets worse. We are both currently employed luckily and are expecting which is what is prompting this decision. What tools are out there to help us make a smart decision on whether this is a financially smart idea? Also if we do buy a home, when we move what are the consequences of renting out the home?

Thanks in advance and love the show. David, San Francisco, CA

Answer: I would be very wary of buying with your time frame of 3-plus years. Whenever I run the numbers it’s clear the longer you intend to stay in a home the better the financial advantages of ownership. It’s safe to say that if you plan on staying in a place for three years or less renting is always preferable. I don’t think ownership makes sense unless you’re confident that your time horizon is at least 5 years, and preferably longer.

It does appear that the housing market is stabilizing. That doesn’t mean it won’t stagnate for a long period of time in many markets. It’s what I expect. In coming years, the ebb and flow of home values will largely be dependent on local job and income growth. In the words of a Business Week story on the housing market, it will be “back to blissful boredom.” It will be a welcome respite.

Still, it’s always a good idea to run the numbers. Online calculators will do the math for you. There are a number of good ones, but I tend to gravitate toward the websites dinkytown.net and hsh.com. By playing with different assumptions these calculators will help you figure how long it might take before you break even on the investment or, to put it somewhat differently, how much risk you’re taking with the down payment money.

When you rent out a home you are no longer a homeowner but a small business person. It’s a business. Nolo.com is a good source on what it takes to be a landlord.

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