Help me make my decision!

August 20, 2007 11:05 AM

Real estate in Chicago - I found my place, now am I doing the right thing?

So I found my condo. 940 SF 2BR/2BA in River North (near everything, honestly). Seller asked $389,000, and paid $360,000 in 2001 for it. He accepted my offer of $356,500 for it. Assessments are $537/mo. Taxes are $4,380/year. This will be my primary residence, and I plan to stay for at least five years. After making housing and other debt payments (student loans), along with utilities like cell phone and DSL, will leave me with $1,000/mo spending money for food, clothing, transportation, etc. Assessments include all gas, electric, cable, etc., and are included in my housing payments.

Am I doing the right thing by buying it? Am I going to screw myself over with the market as it is? I know I asked a similar question last week, but much has changed since then, and now I have a tangible asset I'm considering.

Any help is appreciated. Yes, some of this is just to make me feel better about the biggest investment of my lifetime, but more because I am freaking out about people going bankrupt or being foreclosed.

I just feel like I need someone independent of the situation to either validate my decision or tell me I'm doing the wrong thing.

posted by BuddhaBelly to Home & Garden (10 answers total)

You're loooking at about $2200/month in P/I on an 80/10/10. With your assessments (high, but they include lots of utilities) and taxes, you are looking at about $3100/month. Add that to whatever you are paying in other debt every month. Divide that by your monthly income before taxes. Historically, that number should be less than 30%, although 40% is more common these days. Unless you are spending thousands on other debt every month, it sounds like you are over 50%. That is pretty high. You have said that you are going to have only $1,000/month left after all that, and it sounds like you are planning on spending it on food, clothing, etc. That's not too much to have left over. What about saving for other major expenses, retirement, emergency savings, etc.? Of course, you get tax benefits from home ownership and other intangible benefits. You may be fine, but just hope that nothing unexpected happens, and make sure not to fall into the trap of not paying enough principal or taking money out as your condo appreciates on paper.

You're just not going to make much money in appreciation after you pay assessments and property taxes. You should definitely be able to rent a cheaper similar place.

It sounds like you already have a contract in place, though, so you might already have made your decision. Good luck...
posted by iknowizbirfmark at 12:09 PM on August 20, 2007

There are several levels to this.

Renting vs. owning: Despite all the doom and gloom in the industry, real estate is still a decent long-term investment. If you want to stay in the same place for 5 years, especially in a metro area, you'll probably be alright. That being said, you can see in this very situation that the seller accepted an offer lower than he paid for it 6 years ago. But with rent, every one of those monthly payments are gone.

As stated by iknow, your income is a large deciding factor for how reasonable it is to make such a purchase. Have you already been approved for this loan? They are not nearly as easy to get as they have been the past few years.

$1000 per month can go quickly, but it's a hell of a lot more overhead than most people have after all of their expenses. I'm assuming it's just you, and not an entire family, but food costs add up quickly (especially eating out). If you can, look back at your spending habits over the past year to get an idea.

You also need to consider repair costs. If an appliance goes out, that will eat up half of your monthly $1000.

Just don't get yourself in over your head at all right now. Do some googling on foreclosure rates as the market has taken a turn.

Do you have a down payment for this? Do you have any sort of savings?
posted by shinynewnick at 12:44 PM on August 20, 2007

buddha, can you tell us three things:

What kind of mortgage are you getting?

How much down payment are you putting?

What is your salary?

...and then we can answer your question much better.
posted by unexpected at 1:17 PM on August 20, 2007

Added to unexpected's list of questions, is this new construction, rehab or vintage? How old? That will affect your expected maintenance costs.

Everyone figures out how they can afford the payments and still live, but forgets about the $3- to 5,000 per year they're going to need just to keep the place from falling down around their ears. The assessment sounds low if it includes utilities. Does the CA retain the option for additional assessments? This has happened to friends of mine, where they suddenly had to come up with several thousand dollars for a new roof, because structural repairs were not part of the regular assessment (that covered general and wear-and tear maintenance & costs like plumbing, electric, landscape, etc but not major repairs).

BTW, glad to hear you're buying something that sounds proportional to your life in terms of square footage and cost. I know too many people who think they need a lot of space. Plus River North is a great neighborhood. I guess it meets your downtown desire, without being quite so soulless. I just hope there's a grocery store nearby!

But I still think Rogers Park is better!
posted by nax at 2:09 PM on August 20, 2007

Response by poster: Ok, the answers:

1) It's a 30-year fixed mortgage at 6.3% (latest rate quote, I haven't locked yet since they keep going down).
2) 20% downpayment.
3) I make $93,000/year.
4) It's relatively new construction (built in 2001).
5) The condo association can call for special assessments, but according to the most recent board minutes, there's no reason to expect that in the foreseeable future. The condo association reserves are "good".
posted by BuddhaBelly at 2:21 PM on August 20, 2007

Are 'assessments' the same as HOAs? That is, building dues? If not, you should account for those as well.
posted by rhizome at 4:07 PM on August 20, 2007

You single? I have a really good-looking daughter.

Just kidding (kind of). Anyway, like I said I'm no expert but it looks good to me and I'm pretty financially conservative not to say stingy.
posted by nax at 4:33 PM on August 20, 2007

If you have 20% to put down, and a reserve after you do that, then I say go for it. Good luck with your new condo!
posted by shinynewnick at 8:13 PM on August 20, 2007

Response by poster: Nax, I'm a single, straight girl. But thanks anyways. :)

Well, folks, after much deliberation and loss of sleep, I decided not to go through with it. The market really was my motivator - especially after Capital One closed one of their mortgage branches. It's just too much money to spend only to lose it all in a few weeks as the market continues to fall.

I'll continue to look and find my dream place, but I'm going to take a few weeks off - and hope the real estate market stabilizes a bit!
posted by BuddhaBelly at 10:18 AM on August 21, 2007

Not to worry BuddhaBelly! I have a straight son too!
posted by nax at 2:32 PM on August 21, 2007