(photo: GoTRISI)

Should I buy or rent a home? If your goal is to provoke heated discussion, that question will likely do the trick, and then some.

But that’s not the only dilemma that we face when it comes to real estate. How do you figure out if you can afford a property?  Once you’ve decided whether buying or renting makes more sense for you, what percentage of your income should you spend each month towards your mortgage or rent? And let’s say you just moved into a new home: do you spend your cash on new furniture or appliances, or focus on building up an emergency fund?

This week, we feature these four questions on Mint Answers, along with some of the responses from community members like you.

Click on the links below to read more answers or to chime in with your response.

Should I buy or rent a condo?

I am moving out for the first time on my own and not sure if I should save for a down payment on a condo or just start renting. What factors should I consider assuming I want to stay in the place for about 4 years?

Answers:

1. In my own home buying research, the common wisdom seems to be that you should stay in a purchased home at least 5 years.  So at 4 years? Rent probably.

Also, it may be best to rent for a year in the area you’re looking to buy to get a feel for the area and if you actually want to live there.  Use the time to figure out what you really want.

2. I guess there could be cons to both sides.  I do agree that you should rent for a while in the area to be sure that is where you want to buy.  On one hand, if you have the money & credit to buy, then now is the best time to do it.  On the other, it’s harder selling condos and townhomes in certain areas. So weigh the pros & cons, seek advice from your parents or someone whose opinion you value, and then go with what you feel is right.

More answers to this question>

How much of your gross income should you spend on rent? And does that include utilities / internet expenses?

I’ve read guidelines anywhere from between 25% to 33% of gross income. Does that percentage also include housing-related expenses such as utilities, high-speed internet, parking?

Answers:

1. That percentage is for just the rent payment (it can also be used as a guide for a mortgage payment).  Really is should be between 25%-28% once you get up to 30% and higher and you’re likely stretching yourself too much.

Ultimately the formula you need is Income – Expenses > 0 or in simply put don’t spend more than you make.

2. I live in a very high cost-of-living area, and it’s not uncommon for my peers (in their 20s, in the arts/students/freelancers) to spend up to half of their take-home income on rent for the privilege of living in such an awesome neighborhood. I’ve always considered myself to be doing just fine if I’m spending less than half of my income on housing, though 35-40% is where I’ve been for the last couple years. That said, I lived like a church mouse to be able to stay in my place, and my savings accounts were empty – I made ridiculously little money in the first place and was extremely frugal to make it all work out month to month.

Now, living with my parents while I pay off debt, my philosophy’s changed a little bit: with my current income ($2,700 a month, ish), and with no consumer debt as of Sept ’10, I’ll be looking at places that cost about $800/month so that I can continue to add to my savings. $800/month here will get me a great studio or maybe a 1br if I’m lucky.

3. Personally, I would try and spend as little as possible and still be comfortable.

Normally, when people quote those percentages, they don’t include any bills, just your mortgage payment/rent payment.

More answers to this question>>

We are looking at a Condo on the beach for investment property. How do I figure out if we can afford it? We are also close to retirement

Answers:

1. I would recommend you find a real estate mentor or a group you can join to learn about real estate investing in your area.

We could give you advice here but it’s likely that not everything we tell you will be applicable to your area. For example, I live in Texas and from what I have learned, condos are a terrible investment. However, where you live, the numbers will likely be different.

Before you even consider buying a piece of investment property, you need to get educated. That’s the best advice I can give.

2. Figure out the income needed to live in retirement and determine if that can handle the payments on the Condo without income.  Essentially is Income – Expenses >= 0?  If the answer is no than I’d stay away because there is no guarantee of income in rental real estate and even less when you’re talking about vacation rentals.

Other things to consider are maintenance, management fees, and potential vacancy rates.  If this is an existing rental then you should ask for the past two years of financial docs (cash flow/balance sheet/income vs. expenses).  Analyzing these should really help you understand and make a well informed decision.  If you’re not versed in reading financial statements then I’d contact a CPA to review them for you.  Spending some money upfront can save you a bundle on the back-end and that is especially important given how close to retirement you are.

More answers to this question>>

My husband and I bought a house. We need furniture, kitchen electrics, etc. Should we begin to rebuild our savings or purchase the items?

Answers:

1. Instead of going on a huge spending spree, especially for furniture, see what you can find at thrift stores / 2nd-hand stores and Craigslist.

Or, perhaps you can convince someone you know that they need to upgrade their furniture and give you their old stuff. 🙂

Many people are so glad to find a way to get rid of their old furniture that they’ll give it away for free if you pick it up.

2. Do you have an emergency fund? If not, most financial advisors would say that’s priority one. Especially with a new house, where something is guaranteed to break.

After that, could you split your savings dollars between home improvement and longer-term savings?

Congratulations on the new place.

3. Is this a need, or a want?

If you ‘need’ new appliances, in that it would cost you significantly over the short-run if you did not have, and that would impair your ability to create a long-term emergency savings account; consider that possibility.
But, the above is not a license to purchase ‘wants’ over ‘needs’. If you have functioning appliances, you more likely need a reserve fund should you find yourself dealing with multiple emergencies. It does you no good to replace the fridge, if it had a useful life, and you find yourself with a broken down car.

More answers to this question>>

Do you have a money question that you feel has no black-or-white answer? Go to Mint Answers and ask away! While you’re there, feel free to answer questions from other community members. Come back often, as we introduce new enhancements to this feature.