Author Topic: Can't decide on purchasing this Townhouse...help!  (Read 1360 times)

MountainTown

  • Stubble
  • **
  • Posts: 158
Can't decide on purchasing this Townhouse...help!
« on: March 19, 2017, 02:28:53 PM »
Life Situation: IRS filing status Joint, no dependents, live in College town in the northwest. Very "up and coming." Was a low cola but this is changing fast.

Gross Salary/Wages: Together we make  a little over $115,000 year gross wages.

Pre-tax deductions: I didn't include this information as right now we are doing some extreme saving but this may change if we buy a house. We have your typical health insurance premiums, some flex accounts savings, and at least always do about 8% of our respective salaries. Currently we are both doing much more....like probably 20 to 30% of our income into retirement savings.

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: None

Current expenses: I would estimate we spend about $2000-3000 a month on regular monthly fixed expenses and pleasure expenses.

Assets: No assets other than a $5000 car

Liabilities: No loans. No debts.

Specific Question(s): Here is my situation:

My wife and I, recently married, have been wanting to buy a house. But we have seen prices here skyrocket in the last year. Me being a nervous nelly, I have hemmed and hawed and passed on a lot of houses. Some we did make bids on but were outbid by cash buyers. I had always thought I could buy something conservatively but in this town it just seems like if you buy something under 250k it's going to be a heap of crap and require a lot of work. As this is my first house, and I have an extremely intense job, I really have no interest in doing a lot of upkeep at first. I just don't feel ready for it. I also have a chronic pain issue which limits how much physical work I can do. Recently an opportunity to buy a brand new townhouse within biking distance has come up. It's expensive and more than I ever thought I would have to spend yet I am considering it as most of the stuff at 250k needs so much work anyways it was also just as scary. See details below for more specifics on the townhouse.

Currently we have about $90,000 saved up in cash.  $10,000 we have earmarked for emergencies so that gives us about $80,000 to put down on the house/townhouse.

Our retirement accounts approximate about 80,000.(Mostly traditional accounts, some deferred compensation for wife). In the past we have mostly been piling into our down payment savings so we could really get a good down payment. So our retirement savings aren't as strong as they could be. Recently I have ratcheted that up. With a 10% retirement savings rate we still have been putting about $3000 a month of cash aside for our down payment. I think we are pretty good savers but maybe not as extreme as some on this board.

Other details:

Current rent: 825 a month
Average rent for similar house as we are considering buying: $1500 to $1600

Price of new build townhouse: $290,000
Mortgage payment if I buy townhouse: $1100. Estimated PITI: 1400 to 1500
No HOA
Townhouse details: 4 units. Good space in between. No shared walls. Detached two car garages. 3 bed, 3 bath. Excellent construction and excellent materials. Good views and great use of space. The neighborhood is good, not immaculate but a gentrifying area in general. Lots of nice amenities...heated tile bathrooms, central vacuum, central air, big windows, etc.

Incomes: Both are generally stable. I don't see huge jumps in income but steady steps. My job is stable but sensitive at times due to  nature of my work.
Future: We don't have specific plans for kids but my wife definitely wants one or two. I'm kind of meh(lol) but it's mostly just because I am always scared about more responsibility or expenses(I know I'm lame).

I should also mention I work from home a lot and it's always been a desire to get a better office situation then we currently have. We want to have one bedroom for guests/potential baby(we are not trying yet) and also a dedicated office for me(should be able to lock it)
=-=-=-


Question is...is this a good idea? I see this town as really booming. Everyone is talking about it being the next Portland and maybe that's exaggerated but we are getting a lot of out of town buyers who just seem to want to live here because it's a good place. We have a good rental situation right now so I hesitate. It's super cheap and my landlord doesn't believe in raising rent. We live below a mountain and I love it.

However, I really don't like the space. It's old and inefficient and half of our yard is asphalt(wtf). It feels like time to move on and sort of a necessary step for us to have a family. As much as I would love to stay in this neighborhood the only thing we could buy in our price range would require another $100k to make into a habitable place. A 1200 square foot house here would sell for $315,000 easily.

So....to me this $290k townhouse we are looking at feels like a big step. However the mortgage payment would be $1200 a month at the most, it's super efficient, excellent materials, and there actually is a little yard and no shared walls. It's within 1.5 miles of downtown and work for both of us. I should also mention that we have managed to survive with only one car and we could continue to do this if we stay within two miles.

I should also mention there is an emotional aspect. I have gone back and forth on this as I am really intrigued by the whole "Rent for life" arguments I have read from GCC, Jcollins and others. It's really opened my eyes that buying a house is not a must. However, sometimes I just feel like we want to try it. Maybe it is just a luxury that we want and we need to look at it like this. Something about just owning our own place feels like a good next step for us. We also want to be in a place that is new, good efficient use of space, and just feels better.

So once again I hope this didn't drag on for people and thanks for reading. I am open to any advice like...financially is this wise and also just people who have bought homes and what their perspective is on the emotional aspects of home ownership. I know a lot of people say it's not worth it but then I think those are also people who have gone through the experience and I wonder if we just need to try it.


I should also add we recently tried to offer a lower amount(270) and that got shut down. The builder has already sold one of the other units so I guess he feels pretty confident they will all sell at his asking price.

lizzzi

  • Handlebar Stache
  • *****
  • Posts: 1789
Re: Can't decide on purchasing this Townhouse...help!
« Reply #1 on: March 19, 2017, 03:11:34 PM »
Just off the top of my head without analyzing it too closely, I'm noticing that you lump your and your wife's income together. Assuming that you go the traditional route, and her job and income will be the one impacted if you have one or two kids...will you still be able to carry the condo on your income alone...or on hers if it is much reduced? (If you end up not having kids, you sure don't need three bedrooms and three baths, no matter how nice.)  I can see needing the extra bedroom for a child or two, but I wouldn't buy a condo or a house just to have room for guests-- paying for their motel room is far cheaper than buying a  condo. Others will probably be along with better and more pointed advice, but it does seem to me that your case study is a little vague on details. I would make a more detailed budget, and then add an extra budget line for "Stuff happening that we didn't think of." There is always something. I'm not saying not to buy the condo, but you need to think it out further.

lizzzi

  • Handlebar Stache
  • *****
  • Posts: 1789
Re: Can't decide on purchasing this Townhouse...help!
« Reply #2 on: March 19, 2017, 03:14:02 PM »
I meant, can you carry the townhouse on your income alone and on whatever income she brings in if she goes to a part-time job or something like that. Or would you be the stay-at-home parent...bearing in mind that working at home while caring for a little one is probably not very do-able.

frugal_c

  • Stubble
  • **
  • Posts: 149
Re: Can't decide on purchasing this Townhouse...help!
« Reply #3 on: March 19, 2017, 05:09:49 PM »
It's a tough one.  You are saving a lot of money right now where you are .  How long do you see yourself living in the townhouse if you has a couple kids?  Also does the PITI include condo fees, if you want to compare it to rent you have to make sure you include whatever expenses your rent would cover.  I would get those figures and plug it into a rent/buy calculator with the assumption the purchase price matches inflation.

MountainTown

  • Stubble
  • **
  • Posts: 158
Re: Can't decide on purchasing this Townhouse...help!
« Reply #4 on: March 19, 2017, 06:25:57 PM »
Frugal_c...couple kids...I think we could live there for 5 to 7 years? We may outgrow it before that but who knows? I don't even know if we will end up having one at this point but the wife does want 1-2. I should mention I don't have to work from home at this point..I just prefer it. I have an office I goto every other day. If we got up to two kids, then yes, most likely I wouldn't be working from home anymore unless we were able to buy a new house or something.

There are no condo fees. There is no HOA.

Hi lizzi,

Yes..I make about $80k a year so I could easily carry the 30 year mortgage on my income, and maybe even a 15-year.

MountainTown

  • Stubble
  • **
  • Posts: 158
Re: Can't decide on purchasing this Townhouse...help!
« Reply #5 on: March 19, 2017, 07:32:23 PM »
I did run the NY times calculator...It says that if we could get a similar home for 1050 or less than renting is better. While we do rent for 825, we live in a tiny house with no yard..(but great location). We definitely could not get a brand new 3 bed 3 bath for 1100...it would be at least 1600 to 2000

Miss Piggy

  • Pencil Stache
  • ****
  • Posts: 934
Re: Can't decide on purchasing this Townhouse...help!
« Reply #6 on: March 19, 2017, 07:39:17 PM »
Question: How is it a townhouse/condo with no condo fees and no HOA? Every condo I've ever known has had condo fees. What's different about this situation? (With no shared walls, no condo fees, no HOA...sounds like a house to me??? What am I missing?)
« Last Edit: March 19, 2017, 07:53:25 PM by Miss Piggy »

frugal_c

  • Stubble
  • **
  • Posts: 149
Re: Can't decide on purchasing this Townhouse...help!
« Reply #7 on: March 19, 2017, 07:45:41 PM »
I would be tempted to buy it then, the financial angle does seem very advantagous.  However, you are right on the edge with 5 to 7 years.  I would want to find something where you could, theoretically, spend the next 15 to 20 years.  You don't have to do that but at least that shouldn't scare you that you might be there that long.  In 7 or 8 years you might have that mortgage well under control and the prospect of FIRE might be more tangible.  It would be nice if you are content with your housing and you can go all in on FIRE.  There tends to be quite a few expenses with buying and selling a house so ideally you just buy one place and make the best of it.

Dicey

  • Walrus Stache
  • *******
  • Posts: 6233
  • Age: 59
  • Location: NorCal
Re: Can't decide on purchasing this Townhouse...help!
« Reply #8 on: March 19, 2017, 07:47:24 PM »
Whatever you do, I would only put 20% down. There are always unanticipated expenses when buying a home.
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

MountainTown

  • Stubble
  • **
  • Posts: 158
Re: Can't decide on purchasing this Townhouse...help!
« Reply #9 on: March 19, 2017, 08:05:31 PM »
To clarify: our city has strict regulations for infill development so the townhouse designation is just a way that developers can avoid going through the process of applying for a subdivision or having a lot redrawn. Instead they call it a 'townhouse" which is really no different than a single family home. We own the stand alone home as well as the land under/around it except to the next townhouse.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4100
Re: Can't decide on purchasing this Townhouse...help!
« Reply #10 on: March 19, 2017, 08:19:55 PM »
To clarify: our city has strict regulations for infill development so the townhouse designation is just a way that developers can avoid going through the process of applying for a subdivision or having a lot redrawn. Instead they call it a 'townhouse" which is really no different than a single family home. We own the stand alone home as well as the land under/around it except to the next townhouse.

That does not sound correct.  You may own an interest in an unsubdivided property or have some other arrangement, but if the developer did not subdivide the property into individual lots, you own a portion of a common interest. What is the parking situation?  Are there common areas?  Who pays to maintain the common areas?

In your shoes, I would not buy this property.  Too many questions about what it really is.  The fact that it is so much less expensive than single family homes on their own lots, means the market views these "townhouses" as less desirable.  You have a good deal on your rental.  Stay there and save up to buy a real house once the kids show up and you know you will stay in the house for many years.

MountainTown

  • Stubble
  • **
  • Posts: 158
Re: Can't decide on purchasing this Townhouse...help!
« Reply #11 on: March 19, 2017, 08:34:17 PM »
Double detached garage is the parking situation(For each townhouse). Not much common area. Just a sidewalk down the middle. Just doublechecked and the MLS says "HOA: None"

I can doublecheck on this of course. I knew of a similar situation in town and there was no HOA there either.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4100
Re: Can't decide on purchasing this Townhouse...help!
« Reply #12 on: March 19, 2017, 09:58:02 PM »
Either you have a separate lot, with owned access to the public street, or you have common land and improvements.  If you have common land and improvements and no HOA, there is no way for the common property to be maintained.  Maybe you could post the plat map or a picture with an explanation.  I would not consider buying one of these units unless I had a much clearer understanding of who owned what, and who was responsible for maintaining the various elements.

MountainTown

  • Stubble
  • **
  • Posts: 158
Re: Can't decide on purchasing this Townhouse...help!
« Reply #13 on: March 19, 2017, 10:44:26 PM »
Yes, there is "owned access to the public street" and my understanding is each townhouse has a separate lot. I did reach out to the builder to address this question. Like I said the only common space is pretty much a sidewalk and maybe a little green in between the houses so it's possible an HOA isn't necessary. I will look into it

MountainTown

  • Stubble
  • **
  • Posts: 158
Re: Can't decide on purchasing this Townhouse...help!
« Reply #14 on: March 19, 2017, 10:52:25 PM »
I do think the situation is a little unique as to what most people understand in different parts of the country. Here, townhouses are very commonly small houses that don't share any walls, may have garages tucked under, and the only thing "common" is a sidewalk. I think perhaps in denser areas you would never see a designation such as this. Like I said here it's a way to circumvent putting four houses on one lot without trying to get approval for a major subdivision. Townhouse zoning does allow for separate lots. I just looked on the Cadastral for some other townhouses that are similar...sure enough there are four separate parcels for each of them though it used to be one big double lot.

Here is the response from the builder. Let me know what you think and thanks for the feedback:

"The lot is divided into 4 sections. Everyone will be responsible for the section that they own. You essentially own 3375 sq ft of land. It will be up to the 4 individual owners to decide if all owners would want to hire a company to maintain all the grounds. For example, you could all get together and hire a landscaping company to handle grounds maintenance, snow shoveling and snow removal. If it's $1200 for the year then it would cost an extra $25 per household. Or everyone can handle their own maintenance, snow removal etc. If it were me, I would want to hire a company to do it. I know the couple that is buying #3 would want to hire if everyone else does. The reason it says no HOA fees is because I'm not going to hire a company to maintain property. I'm going to leave that up to the owners of the Townhomes to hire or not hire. 3 of 4 houses could all hire a company to maintain grounds but the one household that doesn't would just maintain their own. Hope this makes sense.

lizzzi

  • Handlebar Stache
  • *****
  • Posts: 1789
Re: Can't decide on purchasing this Townhouse...help!
« Reply #15 on: March 20, 2017, 05:06:48 AM »
I do think the situation is a little unique as to what most people understand in different parts of the country. Here, townhouses are very commonly small houses that don't share any walls, may have garages tucked under, and the only thing "common" is a sidewalk. I think perhaps in denser areas you would never see a designation such as this. Like I said here it's a way to circumvent putting four houses on one lot without trying to get approval for a major subdivision. Townhouse zoning does allow for separate lots. I just looked on the Cadastral for some other townhouses that are similar...sure enough there are four separate parcels for each of them though it used to be one big double lot.

Here is the response from the builder. Let me know what you think and thanks for the feedback:

"The lot is divided into 4 sections. Everyone will be responsible for the section that they own. You essentially own 3375 sq ft of land. It will be up to the 4 individual owners to decide if all owners would want to hire a company to maintain all the grounds. For example, you could all get together and hire a landscaping company to handle grounds maintenance, snow shoveling and snow removal. If it's $1200 for the year then it would cost an extra $25 per household. Or everyone can handle their own maintenance, snow removal etc. If it were me, I would want to hire a company to do it. I know the couple that is buying #3 would want to hire if everyone else does. The reason it says no HOA fees is because I'm not going to hire a company to maintain property. I'm going to leave that up to the owners of the Townhomes to hire or not hire. 3 of 4 houses could all hire a company to maintain grounds but the one household that doesn't would just maintain their own. Hope this makes sense.

Well, this could end up being a big can of worms. I would avoid this situation. I agree with the posters upthread who said to stay in your apartment and save up a bunch of money, and then just buy a regular single family home on your own lot, when it is a little more clear whether you're having kids or not...and looking at possibly staying in one place for a longer term than 5 to 7 years.

I might be reading too much into it (sorry if I'm overstepping here), but it doesn't sound like you and your wife are on the same page at all about having kids. That could have a huge impact on your marriage as you two work it out, and in turn, it will have a huge effect on your housing choices. So I think it's best to wait until your planets are in closer alignment before you go forward into a home purchase.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4100
Re: Can't decide on purchasing this Townhouse...help!
« Reply #16 on: March 20, 2017, 06:41:21 AM »
"You essentially own 3375 sq ft of land."

No you don't.  You own an interest in an unsubdivided lot.  Shame on your municipality for allowing this!  Your developer has found a loophole to avoid creating an HOA.  The developer is leaving it to the buyers to decide if they want to form an HOA.  It's possible that three owners could get together and force the fourth homeowner to join and pay assessments, depending on how the CC&R's are written.  There is no way to resolve conflicts among the four owners if they should arise.  Unresolved conflicts could render the units unsaleable.  What do you do if one owner loses his job and his interest goes into foreclosure?  This is a disaster waiting to happen and I would never buy into this development.  Read the CC&R's very, very carefully.  If you do not understand them, hire a real estate attorney to read them and explain them to you.

There is a reason this project is priced so much lower than surrounding single family residences.  There is a reason only one unit has found a buyer in a hot market.  In your shoes, I would listen to what the market and posters here are telling you, and not buy into this mess.

MountainTown

  • Stubble
  • **
  • Posts: 158
Re: Can't decide on purchasing this Townhouse...help!
« Reply #17 on: March 20, 2017, 07:29:48 AM »
Another Reader,

What would you suggest I do in the meantime? Meaning I am sitting on a lot of cash...and part of my consternation is that money is not making much money and I'm also not using it for anything. Because I keep thinking a house is around the corner I am timid to put in the market. At this point I could just sock 40 to 50k away into traditional retirement savings(tsp, 403b, 457).....and keep the 80k cash. But like I said I would like to invest it in a house we can settle down in or....well just invest it I guess.

I'm still confused why you assume it's not a divided lot. I just looked at the plat map and each owner has their own parcel...how is that not a divided lot?

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4100
Re: Can't decide on purchasing this Townhouse...help!
« Reply #18 on: March 20, 2017, 07:38:03 AM »
Quoting your earlier post:  "To clarify: our city has strict regulations for infill development so the townhouse designation is just a way that developers can avoid going through the process of applying for a subdivision or having a lot redrawn."

Which is it?  What is the legal description of what you are purchasing?

lizzzi

  • Handlebar Stache
  • *****
  • Posts: 1789
Re: Can't decide on purchasing this Townhouse...help!
« Reply #19 on: March 20, 2017, 08:17:46 AM »
If you are seriously thinking of buying into this property, I would definitely look for an impartial real estate attorney to look into this with you. And I would never even think of buying into a situation like this, where four households have to get together to decide how to maintain the property. That is just a recipe for disaster and major headaches...and as someone else said, you will have trouble selling.

The occasional situation where two separate houses and lots share a common driveway can cause problems enough...to think of four households trying to come to agreements on this stuff is just crazy. I think you'll find life is much more simple if you just buy something where you know exactly what you own, what you are responsible for maintaining, and where there are no gray areas. I think if you buy into this situation  you'll end up finding out exactly what jerks neighbors can be...but again, your best bet is to get some legal advice. Should be well-worth any money you have to pay.

I'd be interested to know what the deed to this property would look like.


researcher1

  • Stubble
  • **
  • Posts: 148
Re: Can't decide on purchasing this Townhouse...help!
« Reply #20 on: March 20, 2017, 08:42:48 AM »
I'm still confused why you assume it's not a divided lot. I just looked at the plat map and each owner has their own parcel...how is that not a divided lot?

"The lot is divided into 4 sections. Everyone will be responsible for the section that they own. You essentially own 3375 sq ft of land. It will be up to the 4 individual owners to decide if all owners would want to hire a company to maintain all the grounds."

The developer said "the lot" is divided in 4 sections. 
Why didn't he say..."There is not just one lot.  There are 4 separate deeded parcels." 

The developer said everyone will be responsible for "the section that they own."
What does this mean?  This doesn't sound like you own a completely separate parcel of land.

The developer said you "essentially own" a plot of land.
WARNING. DANGER.  ABORT.  It is clear by this statement that you don't legally own a separate plot of land.

The developer said that it would be up to the 4 owners to decide how to maintain the grounds.
This makes no sense.  If I buy a single family home (which is what you have described), then there shouldn't be any coordination with your neighbors about how to maintain YOUR land.


rebel_quietude

  • 5 O'Clock Shadow
  • *
  • Posts: 15
  • Age: 32
  • Location: Colorado
Re: Can't decide on purchasing this Townhouse...help!
« Reply #21 on: March 20, 2017, 09:16:47 AM »
MountainTown, adding my 2cents. I'm in a similar situation and purchased a townhome at the upper end of my budget in 2015. In the interim, no kids, a house that's way to big for me and a reduction in savings to the tune of $1500 a month. Not to mention, what I at first thought was excellent quality build actually has crappy insulation and a black fly problem. Lesson learned.

Until you actually have a baby on the way? I'd stick with the $825 rent and shovel money into the market. When you buy a house, buy exactly what you need and plan to stay there until you've paid off the mortgage and can pay cash for your "retired" home. Save yourself the headache.

Laura33

  • Handlebar Stache
  • *****
  • Posts: 1466
  • Location: Mid-Atlantic
Re: Can't decide on purchasing this Townhouse...help!
« Reply #22 on: March 20, 2017, 10:23:35 AM »
Honestly, MountainTown, the more I read, the more I see red flags here.  There are usually two ways to build in this scenario:

1.  Work with the town/county to get the lot officially subdivided.  Build and sell four independent homes on four separate lots.

2.  Develop as a condominium.  Establish an HOA with a Board to make initial decisions (developer is usually first President until a certain # of units are sold).  Draft declarations and bylaws to lay out what is the responsibility of each owner, what is a common element, what is a limited common element, who pays for what, and how dues are calculated.  Establish basic services for the association, such as trash, cable, etc.  Set up initial dues to cover common expenses, along with bank accounts, etc.

The problem is that both of these approaches take time and money, both of which cut into the developer's profit.  So it sounds like you have found a guy who has just decided not to bother with either option -- he's built the units as condominiums, but has left it to you guys to figure out (and pay for) whether to subdivide or establish an HOA.  And both of those require lots of money to do it "right."

So my impression is that you are dealing with someone who is out to make a quick buck -- who is putting his desire for immediate profit above the long-term interests of the individuals buying his homes (individuals who are going to have to pay one way or another to get the legal rights/obligations settled).  Is that really the kind of guy you want to buy a house from?  If he couldn't even be bothered with the "paperwork," what other corners might he have cut in that "quality" construction, which are now hidden inside the walls?

Fundamentally, you guys don't *need* a house now; you want one, and you're scared that the local market means that if you don't BUY THIS RIGHT NOW you might be locked out of the market in a couple of years.  But you have pretty sweet rent.  And what you really want isn't this townhouse anyway; this is just a temporary stepping-stone.  So just be patient, stay in the apartment, and keep socking it away until you can afford the "forever" home you actually want.

Or, you know, jump in, buy the townhouse, and rely on the continued hot RE market to give you awesome gains over the next 3-5 years.  But just realize that if you're doing that, you're making an aggressive play on the local RE market vs. "buying a home," and don't bet more than you can afford to lose.  And get a kick-ass inspection report before you hand over any money.
Laugh while you can, monkey-boy