View Full Version : Should I buy a home?
07-15-2011, 04:29 AM
Home prices have dropped, and mortgage rates are really low, so I can now afford a small condo. It eats at me to throw so much money away on rent every month. Moreover, because more people are renting versus owning, rents have gone up.
I've heard that it's bad to leave a home after less than three years, but I hope to not have to live in a small condo for many more years.
Is it wise to buy the home, or should I continue to pay rent?
07-15-2011, 04:31 AM
Where I live it is hard to resell a condo/ townhouse. But if they go fast where you are, it is worth having that added equity IMVHO.
07-15-2011, 04:35 AM
Where I live it is hard to resell a condo/ townhouse. But if they go fast where you are, it is worth having that added equity IMVHO.They used to go fast, but now the housing market has dropped, so they're not anymore. That's why prices have dropped to the point that I can afford one given the low mortgage rates. One of the ones I'm looking at has dropped 40% since it was listed in January.
The condos up for rent go really fast, and landlords are charging more because fewer people are owning versus renting.
07-15-2011, 04:50 AM
If you are looking to resell in 3 years, I would definitely think about the added equity. Look into the resell value in 3 years. If the value goes up, then it is worth the investment but if you could potentially lose money, then it isn't worth it.
My husband and I rented for 10 years. We hated it, but we were able to find a great house that we will be happy to stay in for several years because we slowly put ourselves in a better financial situation, thus it was also a sound investment for us.
We don't plan on moving for at least another 10-15 years. So our house will definitely grow in value.
I wouldn't buy just for the sake of buying. If you aren't going to get the payoff in the end to get yourself another home that better suits your needs. It might be worth waiting like my husband and I did.
07-15-2011, 05:02 AM
1) are the condos you are considering purchasing in the same complex with rentals?
2) are you able to gauge market well enough to determine if the condo you purchase easily today will sell as easily a few years down the line?
Interest rates are fantastic!
07-15-2011, 05:21 AM
I think if you know for sure you'd only want to live in a condo for three years, you should maybe save up a little longer and just buy a house.
Here's why I would be hesitant:
--Many condos are only one bedroom, one bath or two bedroom, one bath. If you know you're going to resell it, those are harder to resell. With only one or two bedrooms or worse only one bathroom, you're cutting out a lot of potential buyers.
--Not all condo fees are created equally and what they include can vary wildly. To me, condo fees are a plus if they include insurance, all outside maintenance, and landscaping, or are insanely low.
--Some condos have more stringent rules than apartment complexes regarding everything from remodeling to pets.
07-15-2011, 05:29 AM
I own a condo in the suburbs and I love it. However, while I may want to upgrade to a townhouse at some point, I have no desire to own a single family home. If you don't really want to own a condo, you have to figure out the numbers. For myself, had I rented this same unit, my monthly rent would be equivalent to my mortgage payment, strata fees and property tax instalment. I lose out on the "opportunity costs" wrt to the funds I used for my downpayment, but I think of it as minimal as I am not exactly a risktaker in the stock market.
It also depends on where you live. The dynamics of real estate are so local.
07-15-2011, 05:43 AM
Condos do not go up in prices as much as houses in hot markets. And they are harder to sell in slow markets.
However, if you think you will live there for at least 5 years, I think it's worth it. This is a perfect time to buy.
07-15-2011, 06:09 AM
Condos do not go up in prices as much as houses in hot markets. And they are harder to sell in slow markets. It really depends on the market. In some urban locations, condos have been leading the market.
Some additional points for consideration:
- When you're doing your financial analysis, don't forget to factor in your sales costs on the back end (realtor commissions, attorney fees, etc.)
- Is your market currently flooded with properties? If so, the chances of any significant appreciation in a short period of time are probably lower than they would be if there is not a lot of inventory in your market (compare Florida to NYC)
- If your time horizon is indeed short (just a few years), are you prepared to continue to carry the property if you find that you can't sell it?
- Make sure you carefully examine any condo's financial statements. Is there an adequate reserve? What is the age of major infrastructure components like the roof? Are other residents current on their fees? Are they planning any special assessments?
07-15-2011, 07:22 AM
My big issue with condos is the homeowners' fees.
You should figure when you first buy, almost all of your mortgage interest will be deductible. (In most cases, mortgage interest alone makes it worthwhile to itemize deductions.) Homeowner association fees are not tax deductible like mortgage interest.
Let's say you were to buy a condo worth $200,000 and pay $200 per month in homeowner's fees. I just checked a mortgage calculator and based on what seem to be average interest rates, you could probably pay around $800 per month in mortgage. But you will get back about $267 per month in tax benefits from the deduction. So you figure your monthly after-tax expense will be $733.
If you buy a house worth $300,000, you would pay about $1,200 per month for the mortgage. But you'll get $400 back in tax benefits. So your monthly after-tax expense will be $800 -- not that much more, but you have a much more valuable asset that is likely to appreciate if the market rebounds.
I'm just using those numbers as examples as I have no idea what the prices are like where you live. And I recognize that the down-payment will be significantly higher on a $300,000 house versus a $200,000 condo. But you really should be careful about homeowners fees.
I'll also add that my views on condos is heavily influenced by my father's experience with homeowners' associations at two different locations. In each case, the association tended to be dominated by a core group of people who pushed through "improvements" that tended to benefit them, but not necessarily everyone else in the community.
In the first case, my father lived in a townhouse unit, not an apartment unit, but most of the key people on the homeowners' association were apartment owners. Not surprisingly, association fees were used to constantly repaint and replace carpeting in the hallways, to upgrade the elevators, and to provide a community party room located amidst the apartments but rarely used by the townhouse unit owners.
Meanwhile, my father fought for the association to provide better security in the underground garage because his and his neighbors' cars were repeatedly broken into -- largely because the parking spots for the townhouse units were visible from the parking lot gate. The association refused for about two years until one of my father's neighbors was robbed at gunpoint. At that point, the association was told by its outside counsel that it faced liability the next time someone was assaulted, so they put in a closed-circuit camera.
In the second case, he lived in a beach community that was originally owned by retirees who lived on fixed incomes. Over time, a lot of the properties were taken over by wealthier owners who looked at the properties as investments. They planned on living in the homes for a few years or using them as vacation homes. Those owners wanted expensive improvements that would increase home values -- things like putting overhead power and telephone lines underground to eliminate the "blight" of visible cables, improving the tennis courts, and beefing up security so the community seemed more exclusive (despite their being no crime problem). Fees skyrocketed, and the added costs forced many of the people with fixed incomes to sell. So for any condo you consider buying, I would recommend trying to get information on the homeowners' association and its priorities, bearing in mind that association fees can jump very quickly to pay for "improvements."
07-15-2011, 03:35 PM
Having just brought a home a few months ago, I would say it is definately worth buying, particularly if you can afford it. You need to look on it as a long term investment rather than a short term solution to not paying rent.
07-15-2011, 03:44 PM
As others have said, and you yourself said, the market for sales of condos where you live is not good. I'd suggest that you consider buying, but that you go into this assuming that the market will get no better, and could in fact get worse. In other words, be pessimistic - thus planning for bad times re: condo sales. Of course, if you are wrong and the market gets hot again, then you're in fabulous shape. But if it does not get hot again, well, you've planned for that as part of this purchase, so you aren't stuck.
IMO, so long as you can afford to hold onto the property in case you can't sell it in three years, this could be worth it. But you'd want to know the rental market in your area, and be willing to be a landlord, in case you can't sell it - that or be willing to continue to own it and live in it past that three year period.
If this plan sounds like one you'd like to follow, then look at each condo through two sets of eyes: you as the owner/tenant, and you as the landlord, looking for future tenants.
07-15-2011, 03:47 PM
I wouldn't buy a condo, because of potential assessment charges and the monthly fee, which adds significantly to your expense. I'd save up more and buy a small house.
Housing may or may not have bottomed out, but I think it's very safe to say that it's going to be flat for a long while, so I think you have time.
It is a tough time to be a renter. Rents are on the increase, because so many have lost their homes. I'm right there with you, but I just keep on saving.
07-15-2011, 03:48 PM
I got lucky in my situation. I was leery of buying a condo in a complex, but I couldn't handle the maintenance of a single family home. The compromise was a duplex. Only have to deal with one neighbor on the other side (who fortunately takes care of all the lawn mowing/ snow blowing/ driveway paving, etc. at no cost except baked goods from me and splitting the cost of supplies like bark mulch). Same size as a condo, but no HOA fees of any kind.
I intend to stay in my place for many years, so I'm not all that concerned with re-sale value. Housing prices are likely to stay low for some years, so if you're are planning to sell again within 3 years, you won't likely make much of a profit on the re-sale.
07-15-2011, 03:59 PM
Unless it is a major difference in rent vs. mortgage, I wouldn't do it.
We own a house and the amount of money we have to put into upkeep is insane. Water heater breaks, fridge dies, concrete crumbles, roof leaks, screen blows off in a windstorm and needs to be replaced, etc etc etc. And it is in decent condition with a great inspection- time just wears it down. The value of our house has not dropped in the 5 years (by apprasail) but houses in our neighborhood take about a year to sell, and for just at, or slightly lower, than what we paid.
I don't think 3 years is enough to be there. We have been in the house 5 years, and we'll be lucky if we break even on resale. The closing fees on the buying and selling end, plus the downpayment, really eats into any "savings" you get by buying rather than renting over the short term (3 years is short term).
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