I had a client referred to me a few weeks ago. Her lender is out of Seattle, which is where she is from, and she’s been here for about a year. Her lender suggested she buy a house because of the tax advantages and to get her homeowning feet wet.
She was gung ho until she thought she might be moving in about a year, and then she didn’t know if she wanted to take the home-buying step.
Her lender friend was dumbfounded. In a conversation with me he told me, “She should buy and start building equity. Even if she doesn’t make anything in a year, she’ll at least recoup her costs, right? You guys have a good market, right?
I told him we DID have a good market, with steady appreciation. However, she might not recover her costs in just a year. The maximum appreciation we’ve seen in a desirable area with a good style (rambler or two-story, not a mid-entry) home and excellent maintenance is about 5%. So, buy a home for $200,000, sell it for $210,000, the next year, it’s will cost you approximately $18,900 (taxes, title, escrow and commission costs) and you have $191,100 left to pay the remainder of your mortgage. What if you bought the house with anything less than 5% down? You’ll have to pay to get out of the house. That’s not fun for anyone.
Wait 365 days later, and you’re fine. Assume another 5% appreciation, and you’re covered.
I can’t tell you about the ins and outs of how you might actually save after only a year because the interest on your mortgage is tax-deductible, I’ll have you talk to your favorite accountant about that.
But the fact is if you plan on staying here longer than 2 years, yes, buy a house. If you’re here for under two years, then rent, unless buying and selling at a small loss makes sense tax-wise for you.
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