Alexandria, Virginia is an interesting real estate market. Median home prices have increased from $439,900 in January 2016 to $529,000 in April 2018 – an increase of more than 20% in less than two and a half years. Around 39% homes in Alexandria, VA are owned and 52% are rented. The balance are vacant. So, should you rent or buy a house in Alexandria, VA?
Buying a home is a decision that you need to take after careful deliberation. While a home purchase cannot be completely devoid of emotions, it would help if your decision is primarily driven by logic. In this blog post we compare the advantages and disadvantages of renting vs. buying. We discuss why real estate investing is not for those looking to make a quick buck. And finally, we provide various alternative investing options that can net you handsome gains.
Looking at rising housing prices, it is natural for families to consider buying a property. Your house rent will more or less keep pace with inflation. But, if you are a property owner, your mortgage will remain steady as your salary increases. And if you are astute enough to buy at the right price, you will get the benefit of property appreciation also.
Home buyers can avail some sizeable tax breaks on the basis of their mortgage interest deductions. If you are in the 25% tax bracket, a $2,000 monthly deduction means that you will get a tax break of $500. This translates to $6,000 per year. Not a small sum by any means.
Before taking the plunge, have a careful look at your finances. Do you have enough capital to finance your closing costs and you down payment? Yes, financing options where you do not need to put any capital towards your closing costs or your down-payment are available. But they are NOT free. For instance, if you put in less than 20% down, you might have to purchase Private Mortgage Insurance (PMI). Similarly, a no money down loan option to finance your closing costs turns out to be dreadfully expensive in the long run.
If you are enjoy living in your neighborhood, and are reasonably certain that you will stay in the same house for at least 4 years, you can consider buying a home. I came across this cool rent calculator that easily let’s you determine your break-even point. I fed in the following parameters-
The mortgage calculator showed me that the breakeven period was 4 years. After 4 years, buying became cheaper than renting. So, clearly do not contemplate buying a house in Alexandria, VA unless you are going to stay rooted here for an extended time period.
While traditional real estate investing can net you modest gains, if you are after bigger profits you can consider some alternative investing options. These are some of the options that you can consider:
Properties for which homeowners are not able to meet their mortgage obligations tend to go into foreclosure. Generally, foreclosed properties are sold in an auction to the highest bidder. Because the bank is eager to get rid of the property at the earliest, there is a good chance of getting some hefty discounts on a foreclosed property. Want to know more about investing in a foreclosure? Check out our article,” “.
REO homes are bank owned. Properties for which foreclosure proceedings are unsuccessful end up in the bank’s name again as REO or bank owned properties. There are many advantages to buying a REO property – the main ones being a clear title and hefty discounts (especially in a two mortgage situation). Check out our article,” “ to learn more about buying a REO home.
The bank might choose not to initiate foreclosure proceedings and instead take a hit and sell the home as a short sale. As the name suggests, the market value is less than what is owed to the bank. Short sale proceedings are complicated procedures that might test your patience. You need good guidance to ensure you do not end up making wrong moves.
Default rates on houses financed by FHA loans tend to on the higher side due to lenient lending criteria. These houses end up in the leander’s kitty again. You can get some great deals on these houses. But a word of caution here – Owner occupants are given preference over investors. Check out, “Expert Tips for Buying a HUD Home “ to learn all about buying a HUD home.
If you prefer the country life over the hustle bustle of the city, a USDA loan is a great option for you. You can even purchase a home with no money down. A score of 640 and above means that you are routed through the automatic underwriting process. Click here to learn more about availing a USDA loan.
To rent or to buy? This question can be answered after careful deliberation and proper financial evaluation. Of course, buying a home cannot be purely a logical decision. There are many emotions which come into play – Pride of ownership and Flexibility are definitely factors that influence a renter’s decision to purchase a home.
However, we strongly recommend that you keep your emotions in check and learn to make cold, data driven decision while purchasing your home. This could possibly be the biggest financial decision of your life. And getting it right could mean financial security and flexibility for you and your family.
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