Is buying in LA right now a great idea or a huge mistake?
September 14, 2011 6:15 PM   Subscribe

My husband and I are about to make an offer on a condo currently owned by an older acquaintance looking to move to Florida. This is in the Los Angeles area. It's not on the market yet, and the offer will almost certainly be accepted. It's a fair deal although not a bargain. It's within our budget as it stands (although the tiniest bit tight), and if/when my husband finds better employment (which could be a lengthy process, granted) the payments will be quite comfortable. We're both first time buyers. The market is ostensibly at the bottom, interest rates are low, and buying seems like a reasonable decision for us. But... is it?

The rub - we'd like to be here a while, but not forever. We're both from the East Coast and we'd like to move back there in 7-10 years, and I worry a lot about whether owning/selling a condo will be a burden, financially or otherwise, at that time. We've got a young child and we've talked about trying for another; the extra space is a motivator for doing this, but kids also make me even more nervous about wrecking our finances if the housing market or economy keeps going south.

In short, I worry a lot that this is the wrong decision. I have no immediate reason to think so, but I'm a worrier and this is by far the biggest, scariest, and most expensive thing we've ever done. I'd appreciate some perspective, reassurance, or whatever you've got.

Anon because I'd rather not have certain MeFites aware I'm freaking out about this!
posted by anonymous to Home & Garden (19 answers total) 2 users marked this as a favorite
If you're phrasing a question about a potential real estate acquisition as being "the tiniest bit tight" relative to your budget then you should walk. Either save more money or find something cheaper.

Low interest rate environments are no guarantee of anything; if you want to sell and rates are higher, real estate prices will be depressed.
posted by dfriedman at 6:38 PM on September 14, 2011 [3 favorites]

You'll always be nervous making a big purchase. I see it this way, you'll always have to pay to live somewhere. Right now you're paying rent to someone. The money you spent to occupy that space will never be recovered. If you purchase and own real estate, you are investing in the space you occupy. Even if you sell and it isn't worth what you hoped it will be, you'll still make a recovery on what you've spent on living space. If you made no profit, it's like you lived in a home for free. If you lose money (short sale) then you've spent whatever the amount is that you had to pay out divided by the time you've occupied the space. You'll be no worse off than renting. You can decide in 7-10 years if you'd like to sell or rent it out. In any case, buying real estate is always a good idea. You're paying a mortgage for someone else right now by renting. Wouldn't it be better if you were paying a mortgage for yourself?

You can sit and figure out how much money you've been paying out in rent the whole time you've been out of your parents house. I'm sure if you added it all up, you will have wished you thought about buying something a long time ago!

Don't worry, It'll be fine.

7-10 years will show an increase more than decrease. will show you homes in any area, their value, what the cost of that home was and when it was bought and sold in the past. I'm sure once you look at that, you'll feel much better.

Good luck!
posted by Yellow at 6:40 PM on September 14, 2011

"7-10 years will show an increase more than decrease." I would really want a cite for that statement.

Given the economy, I'm not convinced that any real estate will be worth more in 7 years.... Were I in your position, I would continue to rent, if the market shows signs of prolonged uptick in the next few years, buy then.
posted by tomswift at 6:46 PM on September 14, 2011

Call a property management company and see if it would make sense as a potential rental. That way, you'll always have a back up plan should you decide to move. Condos are very difficult to sell -- I would only buy one if it made sense as a rental investment as well as a primary residence.
posted by Ostara at 6:55 PM on September 14, 2011 [1 favorite]

Given that you're going to be using the condo as your primary residence for the next 7-10 years and can expect to meet payments (have you factored in maintenance?)... compare your costs with renting.

If they're similar (or better than renting), I'd go for it. Even if you take a loss when you sell it in 7-10 years, factor that into the difference between renting and buying.

Just make sure you like the place and the location.

If the West coast real estate market is depressed (relative to now) when you decide to sell, the market on the East coast will probably be also so it's not like you're going to have to pay vastly more than you can sell for (given a similar level of abode).
posted by porpoise at 7:08 PM on September 14, 2011

You don't know that the market is at its bottom -- no one does. It's entirely possible that prices will decline another 10-15%. Or they might go up the same amount. On average, housing prices stayed constant (after inflation) for roughly 50 years before the bubble, and they're still above pre-bubble prices. Anyone who says they're sure prices will rise is stupid or lying.

Furthermore, the condo market is different from the single-family home market. One big difference is that condos are (nearly) identical -- it'll be almost impossible to sell your condo if there are two or three others in the building for sale at a lower price. Another difference is that, if your building was built recently, it may have some units still owned by the developer which could be undercutting resale prices for a long time to come. Finally, a bad condo association can really ruin things for everyone.

I don't mean to be a downer. Buying property is a bit of a gamble, and you should know that going in. Run the numbers and make sure you could survive losing 15% of the purchase price. If so, go for it!
posted by miyabo at 7:09 PM on September 14, 2011 [1 favorite]

Don't worry, It'll be fine.
This message brought to you by the National Assoc. of Realtors®.

You're still paying rent with a mortgage, you're paying to rent money from the bank. You'll get 25% of it back if your tax situation is perfectly advantageous for that. On top of that, you have monthly association fees and special assessments for when the building needs more repairs than there are funds in the condo treasury. And when you sell it, you'll lose 6% of your sale price to Realtor fees. So, in fact, the house needs to appreciate significantly for you to live there for "free".

I don't see how real estate in LA could possibly take off anytime soon, so there should be no rush to buy. Prices are still pretty inflated compared to historical values compared to regional incomes. If you like the place and it works out for you, then go for it. But don't feel pressured that you have to buy something, or you'll never afford it again, because that's how we got into this mess in the first place.
posted by hwyengr at 7:11 PM on September 14, 2011

Please tell me you're still going to go through a Realtor! My parents tried selling their house to a friend without a professional helping out and they got royally skrewed.

Are you buying the condo as a favor to your friend or is this something you guys decided to do and the condo just happened to be available. If it's the latter and it's in your budget then go for it. If it's the former then I would seriously reconsider. I was the one who got royally skrewed doing a similar 'favor'.
posted by TooFewShoes at 7:21 PM on September 14, 2011

It's a fair deal although not a bargain.

Then why are you doing it? If this older acquaintance is doing you a favor, then why isn't it a bargain? If you're doing a favor for the older acquaintance, can you really afford to do it? If nobody's doing anybody any favors, why are you buying this particular unit that is not a great fit for your needs?
posted by jon1270 at 7:29 PM on September 14, 2011 [3 favorites]

I think this is a good time to buy for many people-rates are low, prices are low, if you are comfortable and were thinking of buying around now anyway, this is a nice time for it in many markets. But the thing that concerns me about your post is two-fold. First...tight is not comfortable. Especially if you are thinking second child. That is when tight becomes strangling. Second... this is a condo. In my experience, the value of condos drops faster than that of single family home's and comes back up slower. This is related to a lot of different factors but one of them is the financing limitations in a condo. If condos start being foreclosed on in your building as you are trying to sell, potential buyers can have trouble financing your unit. So condos can be especially vulnerable to the ups and downs. This is the part that would make me stop and think real hard about buying this property-especially since you are pretty sure you'll be on the market again in a few years.

Also, don't twist yourself in knots over this. If your gut tells you no.... then don't do it. If you pass and three months from now have major remorse, there will be other condos and you'll know better that it was just cold feet and can buy then. If you push yourself to do it when you're unsure and regret it, in three months you'll be kicking your own behind for not listening to yourself.
posted by supercapitalist at 8:40 PM on September 14, 2011 [1 favorite]

if/when my husband finds better employment (which could be a lengthy process, granted) the payments will be quite comfortable

Buy the pants that fit, not the pants you want to fit.
posted by furtive at 9:35 PM on September 14, 2011 [2 favorites]

You should be able to find a bargain in this market. Keep looking.
posted by mr_roboto at 9:45 PM on September 14, 2011

I just bought a house in Los Angeles county, and I also have a small child. Here are my thoughts.

I do not think we have seen the bottom of the housing market here. The peak of the market in LA was 2006. I worry about the five year option ARMs, which haven't all hit yet. I wouldn't be surprised to see a second dip. I think that condos will hold their value even less than regular houses. Interest rates are super low, so they will almost certainly be higher when you sell in 7-10 years. That will bring house prices down, as dfriedman pointed out.

One of the advantages of buying a house is that your mortgage payments are predictable, whereas rent is not. However, with a condo, isn't it true that your condo association fees can increase unpredictably over time?

Given these misgivings, you might ask why I decided to buy. Like you, I wanted the extra space, especially a yard for our child and dog. However, we bought very modestly. It is not tight. If one of us loses a job, we will be ok.

When you calculate your budget, are you taking into account maintenance, which will increase over time? We are already finding out (one month in) that we needed to buy/fix a bunch of things. Also, are you accounting for college savings for your kid? Some sites suggest saving on the order of $600/month starting from the time your child is born. What about retirement?

By the way, Yellow is completely and utterly wrong. I think that's been amply demonstrated by recent history. You can easily lose more money in the housing market than you would have spent on rent over the same time period. Easily.

Good luck on your decision.
posted by pizzazz at 9:47 PM on September 14, 2011 [2 favorites]

Obviously you can't predict what's going to happen with housing prices, but have you run the numbers on everything you can predict? You should be able to look at the difference between what you're paying to rent now (or the rent costs of a comparable larger place you could move to instead) and what you'd be paying on the mortgage and condo fees, factor in the closing costs, and look at the balance between how much you'd be paying in interest vs principal each year-- and basically figure out how far behind/ahead you'd be in any given year, if the market stays perfectly flat and you sell at the current price. Then try to think about the realistic worst-case scenario of market declines and whether you can handle it, and whether that risk is worth it to you for the gains you'd get in a realistic best-case scenario.

It's hard to give advice or be reassuring in the abstract-- but at least for me, when I'm worrying and I know there's at least a small grain of truth in my worries, really focusing on things like the realistic worst-case and realistic best-case scenario helps me figure out how to respond. Good luck!

"In any case, buying real estate is always a good idea."

Oh, and I hope the problem with this statement (really?!??) and the post that contains it is obvious to you, but just wanted to reiterate it. (I'm sure you know this, but just remember that while what you pay towards principal on your mortgage is an investment, there's also what you pay towards interest which can be really significant in the early years, plus condo fees, property taxes, mortgage insurance, closing costs, etc... and that often works out to be a worse deal than paying rent, especially in the short-term. It may be the right decision for you in this case, but it is absolutely not a no-brainer.)
posted by EmilyClimbs at 10:00 PM on September 14, 2011

Mortgage rates are really low, which is a plus. Are there realtors? If not, are you benefiting from the seller's savings on commission?

Get it appraised by an good appraiser; I asked my credit union for a referral. Ask the appraiser for a good market value, and don't tell them the offer price. I bought my current house with no realtor on either side, and the appraisal was a big help; the seller dropped the price. It's not a precise science, but it's the best thing available.

Get it inspected by a fierce inspector, and get deficiencies repaired by the seller.

Talk to the bank or credit union. Can you really afford it? What about the maintenance fees? Assessments for big repairs.

It doesn't sound like you've looked much. There's a lot, a LOT, of real estate for sale. Don't be in a hurry, make sure it's what you want, and get a good deal.
posted by theora55 at 10:50 PM on September 14, 2011

I'd buy if all the following things are true:

- You have a 20% deposit (a good hedge against falling house prices).
- You have all the closing costs to hand, and can afford an inspection paid for by you, not your mortgage company
- After that, you have enough emergency fund left to cover not only normal emergencies but also house emergencies (e.g. needing a new boiler).
- You can afford all the ongoing house costs (including maintenance, which will be a lot) on one income and have enough over to build up the emergency fund again after any emergency.
- Either the place is in great condition, or you have enough spare money to be able to save for renovations (less if one of you is handy at DIY).
- This is the best house for you to buy in your area, and you would still buy it at this price even if you didn't know its current owner.
- You won't be moving for at least 5 years, OR the house will make a great rental and you really love the idea of being absentee landlords while still paying the mortgage.
posted by emilyw at 2:00 AM on September 15, 2011

In any case, buying real estate is always a good idea.

This is terrible advice, as illustrated by the economic clusterfuck we've been going through for the past 4 years. I think that the real estate market in Southern California has not bottomed out yet and will continue to fall or at least be depressed by the glut of excess supply caused by tens of thousands of foreclosures in the past 5 years. The foreclosure rate may have slowed recently, but that is mostly attributable to the banks' pulling back due to the robosigning backlash

For the OP, I agree with some of the other posters that being a "little bit tight" on finances could lead to potentially big problems if your husband's job search doesn't pan out the way you hope, or if anything else happens to perturb your finances, so I might look for something cheaper if you really want to live in LA.
posted by Aizkolari at 8:23 AM on September 15, 2011

I bought a condo in LA two months ago. I got a really good deal (it was a short sale) at a great rate. Keep in mind that you will see posted rates from banks, etc, but often those rates are for houses, and condo rates are a tad bit higher (mine was .025 more, I think.)

I think it's a good time to buy. Feels like an even better time to buy than June was! My condo is a little tight financially for me, but I have a stable job with the promise of increasing compensation, so it was a little easier for me to pull the trigger. Every one of my higher-ups told me when they bought their first place that it was tight on their budget, too, but obviously each case is different - hearing that just made me feel a bit better. If you're going to stress for the next-however-long then buying now is totally not worth it.

I also had a lot of people tell me not to buy at all and a lot of people told me not to buy a condo, with the same caveat about re-sale, etc. But people need to live places. My thinking was that I was thinking of buying it and in 7 years someone else will, too. I felt at the time like the market couldn't go so much lower that I was going to get royally screwed in the process, but, like I said, I got a really good deal so I feel like I'm already ahead in the game.

All of this is to say that everyone has an opinion and they can't all be right. Your comfort is paramount in this situation, so look at all the angles. You'll know what's right. Good luck!
posted by buzzkillington at 12:28 PM on September 15, 2011

Jamaro said it for me...seconding all of those comments with a big exclamation point(!) We were exactly in your position 4 years ago.

I feel like such a downer as I'm sure other families have happily bought condos but....

Please check out your neighbors very carefully and ask yourself, who is home during the day? Do they like it quiet either because they work at home or they sleep all day? Are there a lot of old timers, people who like it "just so" (their way)? Are there other kids around? (If so, talk to those parents) We spent a lot of time at parks, wandering the city, staying out because of our "loud" toddler. All the noises which are normal in a 1 year old (crying, babbling, frustrated noises, even laughing) became an issue with a couple of neighbors and especially an unemployed, stay-at-home writer. If it had been a rental situation, I would have moved the first sign of trouble. Believe me, we stood up for ourselves and fought back when needed, but it was stressful.

One more thing: check the dynamics of the condo board meeting. Can you attend one? Are neighbors fighting over the roof, the HOA fees, the parking spots or....? Don't let anyone gloss over the conflict with you. If you pick up tension--it's a bad sign. That's the kind of thing that can make your life really miserable. We went through it (very small building filled with old timers who had been bickering since the 80's, threatening lawsuits) and have another friend who is going through that now.
posted by hellochula at 2:33 PM on September 15, 2011

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