Should You Buy or Rent?
March 10, 2006 — -- Jordan and Linda Celkupa were first-time homeowners who got into the real estate market at the right time. The young couple sold their apartment of four years for a 65-percent profit, and since then, they've been renting and waiting for the housing market to cool down.
"If you look at the amount of money we spend every month, it's just substantially cheaper to rent than own this place," Jordan Celkupa said.
The Celkupas are among a small number of "bubble sitters," who sell their homes for a high profit and rent, hoping the market will come back down when they buy again.
To Bubble Sit or Buy
"Good Morning America" real estate contributor Barbara Corcoran said there were pros and cons to bubble sitting.
Pros:
If you bought low, you're guaranteed to make a huge profit, and if you're right, and the real estate bubble is about to burst, you'll make the maximum profit.
Cheaper to Rent
In almost every part of the country, it's cheaper to rent than to buy. The cost of your mortgage and real estate taxes is likely to exceed what you'll pay for a rental, so you'll not only make a lump sum in cash, your monthly costs will go down.
Cons
What If the Bubble Holds?
People have been predicting the bubble will burst for the last six years, and they've been wrong. So if you sell now, you may find it even more expensive to buy in a few years.
Closing Costs
Closing fees typically cost the seller between 5 percent and 7 percent. If you plan to bubble sit, you'll have to pay closing costs twice -- when you sell and when you buy a new home after you finish renting. As a buyer, you'll pay an additional 3 percent to 4 percent in closing costs.
Interest Rates
Most people have no idea how much an interest rate rise will cost them. A 1 percent increase in interest rates typically means about an 11 percent increase in the monthly mortgage payment.
Emotional
The most important downside of bubble sitting is not financial, but emotional. The vast majority of people don't buy a home as an investment, but because they plan to live in it. It's very disruptive to pull your kids out of school, out of your house, take your dog and move.
So, What's the Verdict?
Corcoran does not recommend bubble sitting, but if you do, she suggests putting the money from the sale of the home into the bank, as well as some of the money you're saving each month because of renting.
As for those thinking of buying for the first time, Corcoran recommends buying now rather than waiting. The American dream never gets cheaper, she said, and the best stimulus to saving money is having to pay a mortgage payment.