Author Topic: 100K-150K Condo for 24 year old  (Read 6242 times)

dragonwalker

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100K-150K Condo for 24 year old
« on: December 15, 2012, 10:36:42 PM »
Hello everyone,

New to the community and glad to have some thoughtful people here to help find a solution to my questions. I am 24, single, no children, and have been considering purchasing a condo within 6 months. I currently live at home and pay my own expenses plus $400 rent/month. Some other financial information:

   Income: Base of $33,800 +average bonuses ($5000/yr) and average commissions ($8,000-$10,000/yr) so about $48,000/yr+($3,000-$4,000 income from other sources), $50,000 is a good number. 
   Savings: $40,000
   401K: $20,000
   Stock investments/value: $10,000 (market value would permit me to sell at a loss of $5,000)   
   No debt
   Excellent credit
   $300-$400 per month on personal expenses including food

I am looking at 2 bedroom and 2 bath condos or town homes in the $100-150K. I live in the suburbs of Los Angeles. The areas in my price range are not excellent but not particularly poor, I would characterize them as working class neighborhoods. My plan is to purchase a location with 20% down and finance the remainder while renting 1 room for about $500/month.

Assuming a sale price of $125,000 and 20% down, I would be financing $100,000. To minimize interest rates I am assuming a 15 year fixed rate at 2.6% which would be about $670/month. Some other facts and figures I have calculated.

Mortgage: $670/month
HOA: $250 - $400
Property tax: $1300/yr
Insurance: $600/yr
Maintenance: $1000/yr
All utilities including cable, internet, phone: $2000/year       
Other large unrelated expenses: Gas: $800/year (bike to work mostly), insurance: $800/year

I've used a few online tools such as the New York Times rental/purchasing tool which have estimated a greater benefit for purchasing under my criteria from 2 to 4 years assuming $1000 rent elsewhere. 2 to 4 years is the current time frame for which I can reasonably say that I will remain in the area. I am assuming that it I will be able to rent it out for most of the time but even not factoring this in I can still comfortably make payments and still be able to save about $1000/month.   

The objective is to have some more independence and build value through home equity. Yes I understand values on condos grow slowly but one can imagine that a mere 4 years ago units in this area sold for north of $300,000! One can dream...

So what do you all think?

Another Reader

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Re: 100K-150K Condo for 24 year old
« Reply #1 on: December 16, 2012, 06:15:20 AM »
The key is the 2 to 4 year time frame.  Under no circumstances would I buy, unless I was going to live there longer than 5 years.

To get what you can afford (on paper), you have to compromise on product type (condo) and location (not a great area, therefore less chance for appreciation).  A large part of your income is bonuses and commissions, neither of which are guaranteed.  Nor is the room mate income.  A lot has to go right for this to work.

In your shoes, I would pay the $400 rent, max out the savings and investing, and stick it out until I knew I was going to stay somewhere 5 years or longer and between income and savings I could afford a better place. 

It sounds like your stock investing may be speculative, as you have turned $10,000 into $5,000.  In your shoes, I would take a hard look at that as well.

needmyfi

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Re: 100K-150K Condo for 24 year old
« Reply #2 on: December 16, 2012, 07:08:30 AM »
Does the $400 you pay for rent include utilities etc.? Unless living at home is really cramping your style, to pay only 400 a month for a place in biking distance from work is a no brainer.  I'm coming up with 17k a year to live in the condo before rental income.  Will the 500 you get from the tenant include utilities? Even if not, you will still only get about 7k a year back from the tenant. 

Assuming 1000 a month rent may show some benefit to buying, but you are paying only 400.  Another reader is also correct about time frame.  Closing costs and moving expenses will eat you alive in the short term, and you may also find yourself either becoming a long distance landlord or needing a quick sale.  Keep the 25k downpayment working for you and keep saving for now.  If you really feel the need to get out on your own, and renting a room in a townhouse is only 500 in the area you would buy in, then that is another option

dragonwalker

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Re: 100K-150K Condo for 24 year old
« Reply #3 on: December 16, 2012, 10:36:01 AM »
Thank for the responses. Some points of clarification: 

Yes, I am paying $400 now and it does include utilities at home however I will only be permitted to stay until the end of 2013.

My estimated $500 rent would not include utilities.

My investments in stocks is a little misleading. I did invest about $10,000 about 5 years ago in Countrywide and financials and I still hold the loss on paper of about $5,000 in those securities but in the meantime I have continued to trade so overall I have just about broken even if I needed to sell my investments immediately.

kiwichick

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Re: 100K-150K Condo for 24 year old
« Reply #4 on: December 16, 2012, 03:21:07 PM »
The real issue is the amount of time you intend to live in the condo. If you like the idea of being a landlord, you could rent it out after the 2-4 years are up. But if you intend to sell, then it's just not worth it IMO. You don't know what the market is going to do in that short time frame.

Personally I would continue living at home for the next year, even if you do still decided to buy after that. You can keep an eye on the market and bide your time until a good property comes up, saving an even greater deposit.