I’d also suggest running a comparison of all the numbers (sell and buy smaller v sell and rent). It’s useful to distinguish between cash flow and expense. Of the mortgage payments, part will be interest (expense) and part will be principal (savings). In effect, part of the $12K in savings from renting is already being saved by way of reducing the principle amount of the mortgage). All the other costs need to be factored in as well – as home owners typically face more expenses than renters, this will increase the savings gained by renting but the transction costs of selling and buying (and moving) can be pretty steep.

Depending on the area you live in and your longer term plans, you may also want to take a view on the future direction of the real estate market. If prices improve while you are renting, it may end being more difficult/expensive to get back into the market.

Assuming that the real estate market in the area is at depressed levels and I had the ability to lock in long term financing at relatively low rates, I would want to own property both as an investment and as a hedge against future increases in the cost of accomodation.

http://7million7years.com/2009/05/28/dont-ask-if-ask-how/

http://7million7years.com/2009/05/27/how-do-i-invest-with-only-twenty-dollars-to-spare-each-month/

@ Rick – “The real question is how much can you get for your current house? Estimates are one thing, real offers are another!”

I wish I had said that!

Alexandria,

That 60% of income make the mortgage pretty risky – if you or your husband lost your job could you continue paying that large of a mortgage payment? Even if that didn’t happen with no savings, what happens if there is major expense- a new roof, AC, or furnace?

If you aren’t comfortable with that risk I see a couple of options:

#1 Refinance your loan- rates are still pretty low 5.27% for 30 year fixed, but this won’t solve the problem unless your current loan rate is much higher. You would also need good credit and there are closing costs. Finally, it won’t make your house any nicer…

#2 Sell and rent – It sounds like the rental market in your area has some great deals right now. Also, that $1000/month could be a real key to building wealth.

#3 Sell and buy another house. You could sell your house and buy a less expensive house.

#4 Rent a while then buy – sell your house, rent for a while then look into buying if you don’t like renting. Since you have a place to live and no pressure you could make a really low offer and wait and see… could be a great way to buy a real bargain.

The real question is how much can you get for your current house? Estimates are one thing, real offers are another!

-Rick Francis

anyway sir, i have a question. how do people like me age 24, working like any other employee in the creative field go about building our millions? i have always been interested in real estate business and becoming a landlord, though at my age and with my income (with the economy included) i don’t know how to start. i want to start working on it as soon as i can. some tell me save and save and save, though i doubt it will work. i will be an old man before i build my first building if i just save save and save. i hope you have a wonderful experience to share about this.

thank you and have a nice day!