Is it a good idea for me to buy a condo?
August 23, 2017 4:38 PM Subscribe
I am thinking about buying a condo. Struggling between 'life is in transition right now' and 'if I don't do it now, I might never be able to afford it.' Special snowflake details below.
So basically, I will soon receive an inheritance which might be enough to cover a 40-50% down payment. I'm happy to save and invest that for now. But the housing market here is very overheated and condo prices are going up because people who cannot afford the houses are moving into that market.
Meanwhile, I am shortly going to be returning to work on a contract basis as a teacher. The path to a permenant assignment takes a few years. I'm grateful to at last have my foot in the door. However, there is an advantage to staying where I am until that happens because I have a child, and if I move once I have a permanent assignment, then I can move to that district, have him be zoned for my school, and this will simplify my commute with him tremendously. Also, my investment money would still be there if an unforeseen emergency came up.
On the other hand, perhaps it is more advantageous to invest in a condo now because I can get it while the market is still affordable, have a monthly payment that is somewhat less than my current rent, have the chance to fix up a home to my taste for the first time, to really make it suit my needs. There might be amenities in the building I could enjoy. I could join local mom groups and build a community with my son. If the job does eventually take me elsewhere, I can then sell and move, or I could rent the condo out as an investment property.
I have a relative who owns a lot of property and that was her advice. Buy now and then if I want to move later, I can rent it out. She sees no disadvantage to owning and in the meanwhile while I get my sh-- together, I can at least live somewhere nice.
Not sure what to do. What do the mefi real estate gurus think?
So basically, I will soon receive an inheritance which might be enough to cover a 40-50% down payment. I'm happy to save and invest that for now. But the housing market here is very overheated and condo prices are going up because people who cannot afford the houses are moving into that market.
Meanwhile, I am shortly going to be returning to work on a contract basis as a teacher. The path to a permenant assignment takes a few years. I'm grateful to at last have my foot in the door. However, there is an advantage to staying where I am until that happens because I have a child, and if I move once I have a permanent assignment, then I can move to that district, have him be zoned for my school, and this will simplify my commute with him tremendously. Also, my investment money would still be there if an unforeseen emergency came up.
On the other hand, perhaps it is more advantageous to invest in a condo now because I can get it while the market is still affordable, have a monthly payment that is somewhat less than my current rent, have the chance to fix up a home to my taste for the first time, to really make it suit my needs. There might be amenities in the building I could enjoy. I could join local mom groups and build a community with my son. If the job does eventually take me elsewhere, I can then sell and move, or I could rent the condo out as an investment property.
I have a relative who owns a lot of property and that was her advice. Buy now and then if I want to move later, I can rent it out. She sees no disadvantage to owning and in the meanwhile while I get my sh-- together, I can at least live somewhere nice.
Not sure what to do. What do the mefi real estate gurus think?
I would say if you're thinking you'll be in the area you are in now for 3 years or more, I'd buy now and then be prepared to transfer that investment to a new property in a few years (3 years is a very rough guideline for the break-even point on money sunk into closing costs if you think you're going to be moving in the semi-near future). Though, if you think there's a good chance you'll be moving soon, obviously be very cautious about the kind of money you sink into making improvements because for a lot of things you won't get your entire investment back on resale.
posted by drlith at 6:19 PM on August 23, 2017 [1 favorite]
posted by drlith at 6:19 PM on August 23, 2017 [1 favorite]
I bought a condo about twelve years ago, lived in it for nine years, rented it out for two, and am (hopefully) selling it as of next week. The market was pretty hot when I bought, and I was fortunate enough that it only got hotter (after a brief flattening around the '08 crash.)
Make sure, when you're doing the math, that you're adding in the HOA fees. They're not likely to be optional in a condo building, and those amenities do cost money. Likewise, you'll want to try to investigate the specific HOAs - are they super intrusive, how well do they handle money, what does your fee cover and what does it explicitly not, etc. Also, you need to budget for special assessments as well as your own homeowner unexpected-large-expense cushion.
Also, renting it out is not the sure thing I had hoped it would be. I was theoretically responsible, hired an apparently reputable property management company to clean it up and rent it, and spent six months trying to get someone to answer my emails while, as it turned out, they were showing it with holes in the plaster and none of the promised work done. That was six months of mortgage I had to pay while living elsewhere, and it freaking sucked. We ended up renting it out (through a friend who agreed to manage it for me, which worked out beautifully) for somewhat less than the going rate because at that point I was verging on desperate. And this was a best-case version of this scenario - I had the money, I had a place to stay, and my now-wife didn't mind me living rent-free until I got it sorted, which was extremely generous of her.
All that said, I loved having my own place and I regret nothing except the stupid management company. I bought the cheapest unit in a decent building in the best part of town I could afford, and I'm going to make out juuuust fine from the transaction, even counting all that hassle. I did live there nearly ten years, and that makes the numbers work out nicer, but I think I would have done ok even after five.
But... is where you live the market equivalent of Austin in '06? I dunno. I don't know if anyone does. It's a gamble.
posted by restless_nomad at 6:23 PM on August 23, 2017
Make sure, when you're doing the math, that you're adding in the HOA fees. They're not likely to be optional in a condo building, and those amenities do cost money. Likewise, you'll want to try to investigate the specific HOAs - are they super intrusive, how well do they handle money, what does your fee cover and what does it explicitly not, etc. Also, you need to budget for special assessments as well as your own homeowner unexpected-large-expense cushion.
Also, renting it out is not the sure thing I had hoped it would be. I was theoretically responsible, hired an apparently reputable property management company to clean it up and rent it, and spent six months trying to get someone to answer my emails while, as it turned out, they were showing it with holes in the plaster and none of the promised work done. That was six months of mortgage I had to pay while living elsewhere, and it freaking sucked. We ended up renting it out (through a friend who agreed to manage it for me, which worked out beautifully) for somewhat less than the going rate because at that point I was verging on desperate. And this was a best-case version of this scenario - I had the money, I had a place to stay, and my now-wife didn't mind me living rent-free until I got it sorted, which was extremely generous of her.
All that said, I loved having my own place and I regret nothing except the stupid management company. I bought the cheapest unit in a decent building in the best part of town I could afford, and I'm going to make out juuuust fine from the transaction, even counting all that hassle. I did live there nearly ten years, and that makes the numbers work out nicer, but I think I would have done ok even after five.
But... is where you live the market equivalent of Austin in '06? I dunno. I don't know if anyone does. It's a gamble.
posted by restless_nomad at 6:23 PM on August 23, 2017
For contrast to the 'buy yesterday' idea: I have moved around the country every few years for a long time and I know lots of people who wish they had never bought a house, for the same few reasons: unexpected maintenance and repair, unexpected damages, unexpected market shocks, unexpected life events, etc.
I know my landlord is making fairly easy off my rent, but I'm also glad I didn't have to worry about replacing broken fridges and dish washers and holes in the house etc. I'm also glad I can fairly easily get out of this town that it turns out I don't like after a few years.
This is ultimately a very personal choice I think, and you probably know your own value system and risk aversion better than Internet strangers do.
Go with your gut.
posted by SaltySalticid at 6:26 PM on August 23, 2017 [7 favorites]
I know my landlord is making fairly easy off my rent, but I'm also glad I didn't have to worry about replacing broken fridges and dish washers and holes in the house etc. I'm also glad I can fairly easily get out of this town that it turns out I don't like after a few years.
This is ultimately a very personal choice I think, and you probably know your own value system and risk aversion better than Internet strangers do.
Go with your gut.
posted by SaltySalticid at 6:26 PM on August 23, 2017 [7 favorites]
Depending on the building, don't count on being able to rent it out. My condo association rules basically prohibit it.
Try thinking of it as a home, not an investment, and see how that might affect your reasoning. For instance, even though my condo has appreciated since I bought it, there have been $20K in new special assessments over the last two years for my unit alone. I also spent upwards of $40K on a remodel to get it to be a place I actually sort of want to live in. I bought it because I couldn't rent with a pit bull mutt, and I couldn't afford a house (but all my neighbors live here because they couldn't afford a house, so that's not unusual).
I'd rent instead if I could. My $240K condo (2018 tax assessment is $300K) costs me about $900 a month in taxes, insurance, and HOA fees BEFORE any mortgage and interest, utilities, or repayment on the remodel loan. Money that I invested in stocks is yielding way, way better returns than any potential profits from the condo. But it's a home.
posted by halogen at 6:38 PM on August 23, 2017 [1 favorite]
Try thinking of it as a home, not an investment, and see how that might affect your reasoning. For instance, even though my condo has appreciated since I bought it, there have been $20K in new special assessments over the last two years for my unit alone. I also spent upwards of $40K on a remodel to get it to be a place I actually sort of want to live in. I bought it because I couldn't rent with a pit bull mutt, and I couldn't afford a house (but all my neighbors live here because they couldn't afford a house, so that's not unusual).
I'd rent instead if I could. My $240K condo (2018 tax assessment is $300K) costs me about $900 a month in taxes, insurance, and HOA fees BEFORE any mortgage and interest, utilities, or repayment on the remodel loan. Money that I invested in stocks is yielding way, way better returns than any potential profits from the condo. But it's a home.
posted by halogen at 6:38 PM on August 23, 2017 [1 favorite]
You may need to have a full time salary for X months before it can be counted to get you a good mortgage rate- so maybe try to get pre-approved for the mortgage now, so you have an idea of what you can afford and if that will change when you're employed differently. Pre-approval will also have the benefit of locking your mortgage interest rate for a period of time in case you do decide to buy right away.
posted by pseudostrabismus at 6:57 PM on August 23, 2017
posted by pseudostrabismus at 6:57 PM on August 23, 2017
I want to zero in on two things you said.
might be enough to cover a 40-50% down payment
It doesn't necessarily make sense to go this high on your down payment when interest rates are so low. You're generally better off holding some back to invest since you can likely earn a better rate of return than the interest rate of your mortgage. Furthermore, you may be able to make lump-sum payments on the mortgage down the road, depending on your mortgage rules. The only time you might want to go this high with your down payment is to keep your monthly payment manageable. More on that now.
have a monthly payment that is somewhat less than my current rent
You really need to look at your total cost of ownership. If you want to end up in roughly the same place as you are now (cash flow wise), IMO your mortgage payment needs to be 30-40% lower than your rent to leave room for home repairs, condo fees, insurance, etc. Don't count on property appreciation to bail you out. In the long run, property values keep pace with inflation.
posted by bkpiano at 7:12 PM on August 23, 2017 [10 favorites]
might be enough to cover a 40-50% down payment
It doesn't necessarily make sense to go this high on your down payment when interest rates are so low. You're generally better off holding some back to invest since you can likely earn a better rate of return than the interest rate of your mortgage. Furthermore, you may be able to make lump-sum payments on the mortgage down the road, depending on your mortgage rules. The only time you might want to go this high with your down payment is to keep your monthly payment manageable. More on that now.
have a monthly payment that is somewhat less than my current rent
You really need to look at your total cost of ownership. If you want to end up in roughly the same place as you are now (cash flow wise), IMO your mortgage payment needs to be 30-40% lower than your rent to leave room for home repairs, condo fees, insurance, etc. Don't count on property appreciation to bail you out. In the long run, property values keep pace with inflation.
posted by bkpiano at 7:12 PM on August 23, 2017 [10 favorites]
I used to own a home in a hot real estate market. I needed to sell because I was moving out of the country. When I moved back to the US, I became a renter which suits me more. But this is still a hot real estate market and I will be forced out sooner or later because my income cannot support the annual rent increases I'm forced to pay, even though I have below market rent because I've been here for seven years. I am mentioning this because, depending on where you are, a condo or a home can be one way to have a place to live in an area that you love for the rest of your life. But things can go south for both homeowners and condo owners so there is no guarantee that's the case. Life is uncertain. Make the best decision you can based on what you know and also what your gut is telling you. And then let go of the outcome because really, none of us have any control over that part. Good luck!
posted by Bella Donna at 8:28 PM on August 23, 2017 [1 favorite]
posted by Bella Donna at 8:28 PM on August 23, 2017 [1 favorite]
Don't buy anything until you're ready to spend 10 years in the place. And don't buy anything unless you can see yourself being happy in it for 10 years.
The housing market crash should have taught everyone 3 things: first, that buying isn't a metric for success, that housing values can fall, and that you absolutely can be stuck with a house that nobody will buy and yet you can't afford to keep.
You should definitely not buy a property until you get a permanent assignment. If you lost your contract for whatever reason, you would be stuck with a mortgage you can't afford, and might lose all your investment and the roof over your head, too.
Invest the money and keep your eye out for a place that would really make sense for you. Don't just buy because you think you won't be able to afford it later. We really have no idea what the economy is going to do in the next few years, and I would say this is a really good time to stay liquid.
For my own anecdote, I bought a townhouse in 2009 while they were offering the $8K first-time homebuyer tax rebate. That wound up paying off my car loan, so that worked out very nicely for me. I am the first owner of this unit and the HOA fees are reasonable for what they include (trash, lawn, snow, amenities, exterior insurance). Property taxes have been extremely stable and the market has recovered to the point where current units like mine are being sold for about $40K more than I paid.
I had 3 rules when I bought: 1) I had to want to live there for 10 years (see above), 2) I had to be able to afford it by myself, and 3) I had to be allowed to rent it out, should that become necessary. When I was in the market to buy, I knew multiple people who foreclosed specifically because they bought thinking they'd only live there a few years and then sell, or they could only afford the place if they had roommates, or they got relocated and had to move but then couldn't find a buyer. Their experiences made it clear that I should avoid putting myself in any of those positions.
It's been almost exactly 8 years and I still love the place. Those rules did well for me.
posted by Autumnheart at 8:39 PM on August 23, 2017 [3 favorites]
The housing market crash should have taught everyone 3 things: first, that buying isn't a metric for success, that housing values can fall, and that you absolutely can be stuck with a house that nobody will buy and yet you can't afford to keep.
You should definitely not buy a property until you get a permanent assignment. If you lost your contract for whatever reason, you would be stuck with a mortgage you can't afford, and might lose all your investment and the roof over your head, too.
Invest the money and keep your eye out for a place that would really make sense for you. Don't just buy because you think you won't be able to afford it later. We really have no idea what the economy is going to do in the next few years, and I would say this is a really good time to stay liquid.
For my own anecdote, I bought a townhouse in 2009 while they were offering the $8K first-time homebuyer tax rebate. That wound up paying off my car loan, so that worked out very nicely for me. I am the first owner of this unit and the HOA fees are reasonable for what they include (trash, lawn, snow, amenities, exterior insurance). Property taxes have been extremely stable and the market has recovered to the point where current units like mine are being sold for about $40K more than I paid.
I had 3 rules when I bought: 1) I had to want to live there for 10 years (see above), 2) I had to be able to afford it by myself, and 3) I had to be allowed to rent it out, should that become necessary. When I was in the market to buy, I knew multiple people who foreclosed specifically because they bought thinking they'd only live there a few years and then sell, or they could only afford the place if they had roommates, or they got relocated and had to move but then couldn't find a buyer. Their experiences made it clear that I should avoid putting myself in any of those positions.
It's been almost exactly 8 years and I still love the place. Those rules did well for me.
posted by Autumnheart at 8:39 PM on August 23, 2017 [3 favorites]
The "contract" is what worries me here. How stable is that, in practice? Because an unpredictable income is a great way to get yourself in trouble buying property.
posted by praemunire at 9:47 PM on August 23, 2017
posted by praemunire at 9:47 PM on August 23, 2017
Not a direct answer to your question, but I don't understand your "now or never" attitude. Does that mean you expect to be worse off in the future than you are now? That should stop all talk about buying a home: you need to prioritize spending the money on changing your gloomy forecast.
The vast majority of people tend to make more money as their careers advance, why do you feel that's not the case for you? Since you have a young child, why not rent for a while and consider investing this money into education for yourself? Who cares if home prices go up if you can earn more money? Invest in yourself.
posted by halogen at 10:08 PM on August 23, 2017 [1 favorite]
The vast majority of people tend to make more money as their careers advance, why do you feel that's not the case for you? Since you have a young child, why not rent for a while and consider investing this money into education for yourself? Who cares if home prices go up if you can earn more money? Invest in yourself.
posted by halogen at 10:08 PM on August 23, 2017 [1 favorite]
Most of the people I know who regret their purchase were people who had to sell a few years after they bought because of a change in life circumstances. One person moved for a job, one person moved to take advantage of a much better grad program, and one person got married and moved one town over. People with a reasonable expectation of a stable 5-10 years who buy do just fine, absent catastrophe. People who bought in the last bubble may be underwater, but if their house suits their life and they just keep paying the mortgage, they'll come out ahead in the end, and "underwater" is a position on the balance sheet and a slightly higher mortgage payment than seems fair. If they bought before they were in a stable life phase, and find themselves needing to sell, then they are not so fine and they will have to bring significant cash to execute the transaction. I say bank the inheritance for a bit and wait until you are in a stable career position.
posted by everythings_interrelated at 6:18 AM on August 24, 2017
posted by everythings_interrelated at 6:18 AM on August 24, 2017
Have you put your numbers through the Rent vs Buy calculator? It doesn't take into account things like convenience or quality of life, but you should at least see if you come out ahead financially.
posted by donajo at 9:07 AM on August 24, 2017 [2 favorites]
posted by donajo at 9:07 AM on August 24, 2017 [2 favorites]
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It's not all sunshine and roses. There is risk involved! There is a zone where you are vulnerable to losing your investment. It's about 5 years from when you purchase. The big risks here are:
- You buy a house at the top of the market and it crashes. You will most likely rebound and get your value back (if not we have bigger problems), but you could be underwater for a time, while it rebuilds.
- You need to sell for some reason and while you break even you have put in a bunch of $ in closing costs, home maintenance, insurance etc. That's still not terrible because you would have been paying rent the whole time anyway.
- You have higher than average HOA fees, or a major repair comes up and you have to take out another loan to cover it.
- You buy more than you can afford and you can't keep up and lose the house. This one is squarely in your control with smart decision making. :)
I don't say these things to scare you, in fact I list them because mitigation strategies for those potential risks need to be part of your buying strategy, you should talk about them with your realtor and your lender so that they can talk them through with you when you are looking at making a purchase.
I was where you are now last year. I wanted to buy my own home, but I also wanted to move in with my boyfriend. I live in a very hot market, and I didn't want to rent a place with him to 'try out' living together while prices went up up up for another year. I realized this was a big risk, but we talked about it like adults- we realized that if living together didn't work out, we had options outside of selling the place. Our mortgage is less than fair market rental value, so if we needed to rent it out, we could, and still break even, even hiring a property manager.
The peace of mind I have knowing that I am building equity instead of giving money to a big ol' corporate landlord is worth all of the stress I took on to buy the house.
So. I say you should look into it very seriously, with eyes wide open about the risks.
posted by pazazygeek at 4:59 PM on August 23, 2017 [1 favorite]