Should I buy a studio?

February 23, 2007 4:44 PM

I'm considering purchasing a studio-sized condo. Is this a worthwhile investment?

I've just moved to be closer to family. I'm in my late 30s, single with some school debt but not much else. (No cc's, car payment, etc.) I don't have much in the way of savings but I would like to buy something in the next year or so. I'm currently renting a nice sized studio in a really trendy part of town. The condo has quite a few updates including a new kitchen and new bathroom. It also has a patio and a pool in the complex. My landlord has hinted that she might be interested in selling once my lease is up. I know the price would be right for me considering my financial situation. Could this be a worthwhile investment? The complex was formerly a 55+ development but was opened recently.

posted by notjustfoxybrown to Work & Money (17 answers total)

As a general rule, buying rather than renting real estate is always a worthwhile investment. Well, I guess there are exceptions, but based on what you've said about your place, I'd do it.
posted by BorgLove at 4:52 PM on February 23, 2007

Compare the price your landlord wants with other condos on the market in your area first. Check on how much the homeowner's association or other fees are before you buy too.
posted by yohko at 5:16 PM on February 23, 2007

It's hard to advise on this. Your profile does not indicate your location. The real estate market in general and for studios in particular may vary depending on where you are located.
posted by Robert Angelo at 5:29 PM on February 23, 2007

Response by poster: I'm in the Phoenix area. The studio is not far from the local university... Maybe a 20-25 minute drive. Just right for a grad student or non-trad student. I'm thinking mostly of resale at this point. I've checked around and there doesn't seem to be much in the way of studio condos here.
posted by notjustfoxybrown at 5:35 PM on February 23, 2007

http://www.zillow.com/ will likely be helpful to your search. House value trends, last sold dates, community prices, etc...
posted by VulcanMike at 6:30 PM on February 23, 2007

If she's giving you the choice of buying or continuing to rent, you're in the rare & lucky position of being able to compare renting vs. buying with no variables other than financial. You already know you it has no serious hidden problems and that it works fine as housing for you; you'd have no moving or other startup costs; and you can afford it. I don't know your whole situation, but given what I do know, even with a short period before selling, it sounds like a great opportunity to me.
posted by allterrainbrain at 8:17 PM on February 23, 2007

Buy rather than rent, thats my motto. However, be prepared to pay a monthly maintance fee. I live in Houston, and purchased a condo. three years ago. However, If I had to do over again, I would have gotten a house because I hate paying $325/month in fees. If the condo. association does a good job with the money thats fine but in my case I supect they are skimming money off the top.
posted by Noodles at 8:46 PM on February 23, 2007

review the cc&r's first, that's the constitution of a condo complex.
talk to some residents. do they like it? any problems?
find out what the owner/renter ratio is in the complex. the more owners, the better.
well-managed complexes have financial reserves for major maintenance, new roofs, painting, etc. are the reserves in this complex adequate, because if not, your monthly fee might take a jump.
posted by bruce at 1:37 AM on February 24, 2007

I once rented an apartment, then bought a condo in a building built to the same plans, at about the same time. I saved a lot of money, and made some more when I sold it five years later, but there were differences in the living experiences. Those wouldn't apply to you, since you're already there. Do check out the condo fees, taxes, master deed, etc. If the asking price is reasonable, and there are no huge increases in the fees or taxes on the horizon, it sounds like a good deal.
posted by Kirth Gerson at 3:49 AM on February 24, 2007

My mom's a realtor, and back when I was living alone, I remember she advised caution buying anything smaller than a 2-bedroom, because resale is harder. Her knowledge base is a high-end NY suburb, so that caution may not be generalizable, but if you could ask a realtor in your area for his or her opinion, you'd know whether to expect eventual resale of a studio to take some extra time.
posted by daisyace at 5:27 AM on February 24, 2007

I'd like to stick up for renting. I will agree with everyone that buying is a good idea for the long term. But in the short term (while you are just paying interest on the mortgage) you are effectively paying rent anyway.

Now that appreciation in value can not be depended upon to make up the difference like it could in the past few years, I would think a bit more carefully about buying.

That said, in the long term, owning something is a great advantage. You can rent it out and begin purchasing a second flat, for example.
posted by clord at 7:22 AM on February 24, 2007

while you are just paying interest on the mortgage) you are effectively paying rent anyway.

That wasn't my experience. I started saving money immediately. Unless the buyer's mortgage is more expensive than the seller's was, her experience should be like mine.

I believe a better expression of the situation would be: While you are paying rent, you are effectively paying interest on a mortgage, but it's not your mortgage, and you gain no equity.
posted by Kirth Gerson at 8:10 AM on February 24, 2007

I've been thinking about condo buying lately and reseraching pros and cons, asking around, and here's some things I've picked up. You have an advantage in that you already know, as someone said upthread, what the place is like and that you like living there. That's a big positive. However, also as someone said you should go talk to the other owners. Find out the rent/own ratio and go to the condo board and ask to review the books. Take the books to an accountant who is familiar with condo associations and make sure that they think the books look neat, accurate and that major expenditures seem to be regularly taken care of. Ask about what the current fees are, of course (and these are not tax deductible) and when the last increase was.

You want to look at the whole building as though you are buying it because you are. How old is the roof? How threadbare is the carpet in common areas? Has the landscaping been well-maintained? If an association doesn't budget correctly and responsibly you could end up with a sudden increase in your fees to cover a big maintenance job.

Really look at the market, as others have suggested and make sure that you can sell the condo later. Where there is a housing crunch, condos can become a hot property, especially at an attractive price. Where developers just keep building out and out, it may take a little longer to get an interested buyer.

If the market is cool and there are a number of vacancies, especially in your own building, you could end up taking a bath. A point made to me was that if another condo in your building is up for sale at the same time or even in another, similar building, you end up having to compete on price. If the person can buy the same unit one floor away then what's the incentive to buy yours? Also, the fees are really important to the resale value. If your association bumps the fees into some high rage due to mismanagement then you'll have a harder time selling your condo.

On the other hand, the benefits of buying are building up equity and credit, turning your unit later into a rental could bring in income. The money that you spend on fees would probably be eaten up by non-tax-deductible spending in a single house on a lot -- lawncare, painting, various little projects that probably eat up a couple hundred dollars a month. But, all that maintenance is also time and if you'd rather spend your time doing something else then the association can be a good thing.

Anyway, I've never bought or sold any housing property so this is just stuff I've gathered. I think the best advice I have heard though, is to get all your info together and then decide when it's right to buy a home. When it's right for you is when it's right. You can end up spinning in circles over this. Just know your options and be diligent in your research. You're going to need a mortgage lender so while you're in getting your numbers run ask about condo buying and get a recommendation for a lawyer and an accountant to look over the documents. Or get recommendations from friends and family.
posted by amanda at 9:01 AM on February 24, 2007 [1 favorite]

As a general rule, buying rather than renting real estate is always a worthwhile investment.

Wrong. It depends on the price you pay. It could easily cost you more to buy than to rent.

I started saving money immediately. Unless the buyer's mortgage is more expensive than the seller's was, her experience should be like mine.

Well, thats the whole point isn't it. You have no idea what the seller's mortgage is. The seller may have bought long ago and have no mortgage at all or when prices were much lower and have a very small mortgage.

Buying real estate is never a sure thing any more than buying stock is a sure thing. If you are buying for a short term investment you are taking some very big risks. You may overpay. The market could tank. You have fees of up to 10% both buying and selling that you will lose.

If you have always wanted to own your own home, you like the neighborhood, you like the amenities and you plan to stay there for a while -- those would be reasons to buy the condo. But as an investment, it only makes sense if the price is right. You have to consider the cost of the mortgage, insurance, taxes, and condo fees to determine if you would be better off renting or buying.
posted by JackFlash at 10:45 AM on February 24, 2007

The market in Phoenix is in a notorious stall at the moment. I harbor fantasies of moving there, so I keep track of such things. Also, the market in Phoenix has not really embraced Studio condos, because the fundamental thing Phoenix has a lot of is space, and people usually expect some if they buy there. If the studio is in a new development downtown that is on the light rail line, it may be a good investment in the middle-term. 20-25 minutes actually sounds pretty far from the university [is it ASU], since I think you can get to and from Eastern Mesa in about that amount of time. And in Eastern Mesa you can rent a house for what a studio rents for downtown.

Buying is generally is a good move, but with the Phoenix market how it is, I'd say move cautiously. Things will probably be slow there for the next 2 years. A lot of gee-whiz developments have had problems selling. And a lot of people who invested in real estate and want to rent it out have had issues getting good tenants. If you feel confident you'll live in the place for 5 years, then that's a good amount of time to build up equity and ride out the current market a bit. If it's near the light-rail, go for it. If it's not, go for it if you feel OK about the risk and want to jump on the property ladder.
posted by Mozzie at 4:38 PM on February 24, 2007

You have no idea what the seller's mortgage is.

But you can make a reasonable inference, because you know what you're paying for rent, and you can learn what the condo fees and taxes are. It's safe to assume that the seller has been taking some income out of the rent, so subtract the known expenses and some guess at that income from the rent, and you're in the ballpark on the mortgage.
posted by Kirth Gerson at 4:41 PM on February 24, 2007

Kirth Gerson: Unless the buyer's mortgage is more expensive than the seller's was, her experience should be like mine.
OP: The complex was formerly a 55+ development but was opened recently.

The OP's sentence makes me wonder if it was originally subsidized as affordable housing for seniors. That would make it less likely that what the OP would pay is the same as what her landlord paid. Even just removing the resale restrictions make that less likely.

I have the same impression Mozzie does re: the Phoenix market. But here are some places to do some research:
* Money Magazine's predictions for cities (incl. Phoenix) in the west.
* Affordability indices (looks like Phoenix's mortgage-to-rent ratio is only 1.2, so buying might really not increase your costs that much -- though this isn't condo-specific)
* Posts from Housing Doom (a housing bubble blog) on the Phoenix area. Even though they obviously have their slant, they support that by linking to basic statistics about the market, which could let you make up your own mind for your individual situation. In general, it sounds like inventory is pretty high, and this year's prices are roughly equal to last year's (ie, no appreciation), so I'd try to negotiate for a bargain. Sounds like a buyer's market.
posted by salvia at 3:02 PM on February 25, 2007 [1 favorite]