Breaking a lease to buy?
J. had a second part to his question about buying off-season:
If we would be able to save a significant chunk (while still getting a quality property) by buying off-season, say 5% or more, it might be worth turning our lives upside down a bit to make it work. We are currently on the September rental cycle, and understandably, our landlord is not keen on letting us go month-to-month in late 2010. Our apartment is not cheap, and we would potentially have to eat a huge chunk of rent were we to sign a lease for 2010-2011 and then break it to move into a purchased home.
There are two parts to this answer:
The first is about the depth of the savings. Yesterday, I wrote about what I expect. It varies house to house. If a really good deal comes along, and it is a good place ---- not a yellow and pink XXL guy’s Speedo --- it could be worth the leap.
The second question is about the financial risk of breaking a lease on an expensive apartment.
I say this over and over: in the real world, percentages are a bad way to calculate savings. Real numbers work much better. J. and his girlfriend need to look at the hard numbers of what they need to save to make this purchase worth it. If the numbers don’t work, they should stay until the end of the spring market, 2010.
I look at all purchases on a case by case basis. The quality of their rental is a big factor in whether they should attempt an off-season purchase when they have a yearly lease. Suppose J. and his girlfriend are paying $2000 a month for rent. They find a place to buy this winter. They close February 1st. Their potential loss to pay off their lease for February-August = $16,000. This is the worst case, since they and the landlord would try to re-rent the apartment. If their place is fairly priced, and nice, they are likely to succeed in re-renting it.
If J. and his girlfriend see a $20,000 benefit from buying in the mid-winter, is it worth it? If they are unlikely to be able to re-rent, the fuss, bother, and lack of choice is not worth it, IMHO. It wouldn’t be worth it for me. If re-renting will be easy, try it. Again, it depends; it’s apartment to apartment.
What’s your advice for J. and his girlfriend? J., if you want to, tell them about your apartment. Maybe the readership can tell you if it is fairly priced and will re-rent easily.
