Temporary relocation to Bozeman (real estate, rentals, buying a home)

[Worked4It]

Looks like I may end up relocating to Bozeman for a few years. I know the area is short on available rentals, so I am considering buying and then selling once i get relocated for work again.

Knowing i would be there for less than 5 years, should i buy and sell once my time there is done, or rent "throw" money away on someone elses mortgage?

[flyingcat2k]

Here's the issue you are facing.

Your transaction costs are the largest variable you can impact but they also take the largest bite out of your profits. Worst case scenario is that you'll pay 9% in transaction costs (3% on the buy, 6% on the sell). You also have roughly 1k in state transaction costs on the purchase and sale.

Given you have to upkeep the home over the 5 years (estimate 2% of home purchase price per year) your sunk costs will be roughly 19% of the purchase price. You need to have the home prices increase 20% over the 5 years you own the home. Granted, Bozeman is an expensive resort market BUT it is an expensive resort market compared to the rest of the state. You are making a big bet the home prices will increase more than 20% over 5 years just to break even.

To me, the easy money in Bozeman real estate was made in the mid 2000's when people were buying at the 150-225k price point and selling into the 300-400k price point. Currently, the market is at the 300-400k price point and it is a large leap to get from 400-500k price point. Especially, when the average worker is going to be making below $15/hr (and a large chunk below $10/hr). It would be too risky for me. If you can figure out a way to reduce your transaction costs, you can make money.

If you are bent on buying a home just resign yourself to losing money on the deal once you factor in the maintenance and transaction costs. You'll at least get your down payment back.