About to buy a Townhouse. Has HOA, but is .5 miles from office. Asking for Input

[Ryan_1982]

Hello All!

I'm new here, I've been lurking on the forum for a while and been reading the blog for a long time. I'm looking at buying a home and I'm looking for a Mustachian input to my logic, or lack thereof.

My wife and I owned a condo for 7 years and loved it. We lived in a high medium income area in Northern California and thought we were moving for my job so we sold our condo. The day before my transfer I got told it was not necessary for me to move. What!!!??? So we ended up renting for the last 2.5 years.

Recently we have been looking at older homes, our budget is 300K which is about 100K less than a home on our neighborhood and only about 50K over the average in the nearest metropolitan area. My wife is a photographer and uses a studio for 20 miles through town away from our apartment. I've been at my job for over 9 years and commute 12 miles a day.

We recently found a new neighborhood being constructed 0.5 miles from my office and within walking distance to everything we need but a grocery store, which I can ride a bike to in 1.5 miles.

Our mortgage will be 300K, for a 2,035 sq ft townhouse. It will be brand new and we can pick the inside design features prior to building it.

Benefits of the new place:
*I can ride bike to work in 4 minutes. Ride home each day for lunch and quick nap!!!! No more commute!
*350 sq foot bonus room on bottom floor will be my wife's official business, photo studio. No more commute! Home office tax write-off!
*Walking distance to any food, home improvement stores and most entertainment.
*Famers market 10 minute bike ride away every saturday morning.

Cons:
*The place is large, over 2k sq feet for 2 people. We aren't having kids, but the bonus room/photo studio is main reason for buying large floor plan.
*Situated on main road, may need additional noise reducing windows, about $2K, if we find it necessary.
*Property taxes are 1.6% annually, which is a little higher than older neighborhoods.
*HOA is about $170/month. It covers all landscaping on our lawn and building insurance, building paint and roof. There aren't pools, gates or any clubhouses to drive costs too high in the future. However, since it is a townhouse, the HOA doesn't scare me too much. I have reviewed all the rules and can handle them.

We are planning on getting FHA loan as I spent majority of my downpayment last year buying into an associate position at my engineering firm.

My thoughts are that the interest rates may be rising soon and a 1%  rise in the rates will overcome the mortgage insurance and housing prices have been rising at almost 7% per year in the area. I don't think it would make sense to save a 20% downpayment and with my $1,000 per month downpayment savings, I will require about 40 months, at which time the house price will be higher and the interest rates may be higher.

I'm thinking about just biting the bullet now and living here for 6-10 years. When I move, I will hopefully keep it and rent it.

My budget is only considering my own income. My wife, being self employed has a roller coaster of income. Some months it can be amazing, others, not as much.

We have a car loan that we intend to pay off this year and I have a student loan at really low interest rate that I intend on paying off in the next year. No credit card debt.

So, I ask for the Devils' advocates out there. Any input?

Thanks for the help and I appreciate the input.

-Ryan

[ShoulderThingThatGoesUp]

What do this developer's completed neighborhoods look like now?

[Potterquilter]

How is the HOA set up?  What are the plans to have the available funds for roof replacement etc? 

[Lucky Girl]

With the reduction of both your commute and your spouse's, it sounds like a win-win to me.  Of course I have a terrible commute, so that is a big factor to me.  Seems as though you would also be saving because your spouse no longer needs to rent a studio space across town? 

You don't mention FIRE timeline or goals.  How will this impact your retirement/savings?

I do think having a home you expect to be able to rent is a positive.  My DH and I owned a condo at the beginning of our marriage, and we sold it for the downpayment on our next house.  We couldn't have moved without selling, but now I wish we had stayed longer and figured out how to rent the place.  Condos and Townhomes should be decent rentals in high-demand neighborhoods, and the upkeep is not as daunting as a single-family. 

Sounds like a good decision to me, good luck!

[desk_jockey]

You should search for information and reviews about the management company that the HOA contracted for services.  If you’re buying into a large development with phases being  built over several years time, it may warrant being careful.

I know of several people that bought into new construction with strict HOAs.  It seems from their experience that builders choose pain-in-the-ass management companies.  These companies write a lot of warnings and fines for seemingly minor infractions.   The builder’s goal would apparently be that everything in the neighborhood remains looking Disney-like pristine while new construction remains to be sold.  Later after all the properties are sold and the builder moves on to other locations, the management company’s contract is allowed to elapse.  Then the HOA members are able to contract with a new management company more aligned with their needs.

[KungfuRabbit]

1 really like the plan.  can't really go wrong with a shorter commute and home office space. 

1 vowed never to buy a townhouse again, however, as my HOA screwed me hard.  When 1 bought the townhouse the fees were $190 / mo.  Then there was a "special assessment" to pad the budget, of $6000 / 5 years (~$50 / month).  Rumor around the neighborhood was they just couldn't balance the budget, there was nothing special about the assessment but they didn't want to raise the rates to look bad.  Then they rose the rates, to $215, and then a few years later to $245.  Plus the specal assessment made them $295.  The services didn't change, nor dd any other outside factors, you just had a bunch of old non mustachans wasting money painting every year and replacing bushes every year for no reason.  My favorite was a cold winter caused a lot of plants to come up late, they offered to replace all of the bushes, and most of the association dd....my bushes came up about 2 weeks later.  $15,000 flushed.

And then came the fees.  1 left a package outside my garage door for a few weeks.....$300 fee (1t was ugly, and apparently they warned me somehow though they d1dn't).  my dog left some dead grass 1n the yard - $500 fee.  My neighbor painted the door a non approved color....$1000 fee.   

Just be warned of a HOA run by the absolute opposite of MMM values....

[Sibley]

Personally, I will never buy a place that has a HOA. However, it sounds like you're ok with it. Do your research on the mgmt company, etc and if it looks ok then go for it. You already know the location is good for you.

[Ryan_1982]

Hello,

Thanks for the replies.

This is the final phase 3 developments. The other two were built prior to the recession and they are nice places and have seemed to really meld into a community. The location is near a business park with a bunch of professional jobs, near a VA hospital with a lot of nurses and staff needing homes and just outside of the major downtown which is expensive.

One thing I have liked is seeing home buyers from the first two phases coming into the sales office just to say hello to the sales people. It seems like a lot of the previous buyers had good experiences.

A couple of the sales people are actually on the HOA board for the builder and I have asked a lot of questions which haven't been answered with a coating of sugar and I appreciate that.
My FIRE path is recent and my goal is 15 years. Im 33 and have about 150k in investments.

My wife started her own business last year so we budgeted to live in my salary alone. Her income helps move her business forward and last year she paid off a vehicle loan, provided money to buy into my business and paid off one of my small student loans.

The goal is to use her income to pay down the car and my other student loan, then pay down the mortgage asap.

KungFuRabbit, sorry about your  HOA woes. I had one for seven years and never had problems. I know this situation may be different but I have read the rules and I should be able to follow most of them. ;)

The HOA setup is boiler plate fire California. I'm not sure about the roof timeline but the previous ones are being painted after 8 or 9 years. They wee brightly colored and had started to fade.

Thanks all!

-Ryan



 

[frugaliknowit]

My concern is car loan, student loans, and financing with FHA, which is one of the worst ways (most expensive) to finance in the long run.

How much cash will you have AFTER closing?  How long will it take to pay off your car and student loans?  This home could be a curse or a blessing depending on what percentage of income it costs per month and how much debt you have.

Hope that helps and good luck!

[Pigeon]

If I'm not stating the obvious, make sure that the HOA is OK with your wife having a business run out of the home and consider that future HOA management might not be OK with it.  My sister lives in a development of detached houses, and she was prohibited from having a consulting business where she would never have more than client at a time because there would be "parking and traffic issues" according to the HOA.

Personally, I wouldn't live in a place with an HOA, but if you want a townhouse, I don't think there's any way to avoid it.

[Ryan_1982]

Frugaliknowit, the car and student loans are first up on the list. I think we can get them paid off either this year or next. The mortgage PITI and HOA will be about 25% of my takehome pay after accounting for the tax benefit that I will get. I think that this percentage is reasonable and the car payment/student loan payment accounts for almost 6% of my monthly takehome and that is all the debt we have and those loans are on rapid payoff mode.

Pigeon, your point is VERY valid and something that I have researched. The HOA states that businesses are not to be run out of the home unless they are Professional or Administrative. No signage is allowed and the business must be licensed under the City's home business permit. I have checked and photography businesses will be allowed under the City's home business permit and I discussed this with the management company for the HOA and they said as long as it meets those criteria, it's all good. With that being said, another plus is the City is really into making this new development a community with services to offer and the townhomes that line the main road, which we are looking at are designed to provide a work/live space which is why the floorplan is so appealing to us. The bottom floor of the townhouse has about 400 square feet of office space with a half-bathroom. Clients will be able to enter and will not be on our living space. Downstairs is just the office and 2-car garage. There are already people with other professional businesses being run out of their homes in the previous developments.

The HOA would be a total deal killer for me if I were in a single family home in the neighborhood, there are just too many rules if you have your "own" land. We are gone all the time and like the ability to head out on the weekends instead of doing yardwork, etc. I'm sure our next place will be different but for now, we have been living in condo's or apartments for the last 15 years so we are used to the lifestyle.

Thanks! -Ryan

[HairyUpperLip]

You can do a 5% conventional instead of the 3.5% FHA and drop PMI after you hit 80%.

[tvan]

How much would it cost to rent this same place?  Or a similar place nearby?

[Ryan_1982]

How much would it cost to rent this same place?  Or a similar place nearby?

It is difficult to assess this. The new place will be bigger than we need, unless we count the home office/studio space. In the area I work the apartments are pretty run down and kind of sketchy. I live 10 miles away now in a more expensive area and pay $1,400 per month for an apt with half the square footage of the place we are buying. Right now my same apartment is going for about $2,000 per month since rents have shot up in the last couple of years. I imagine my rent will only go up about $50 if I sign another lease. My wife would probably spend about $900 per month minimum on studio space and then she would probably have to commute a bit of a distance to get a place that cheap for a studio which would put her further from her clientele. I think that our mortgage PITI with HOA will be less than keeping our apartment and renting a studio. It will be a couple hundred more a month than if we got a cheaper somewhat sketchy apartment near my office and rented a studio. There is just so much new construction here that the apartments are old, they aren't building newer ones, only newer homes. The homes here rent for about $1 per sq ft.  I think that with basically eliminating both of our commutes, it would be a wash.

You can do a 5% conventional instead of the 3.5% FHA and drop PMI after you hit 80%.

Thanks, I will look into this. We would have enough for 5%.

-Ryan

[Emg03063]

Sounds like a winner to me.  Good luck!

[dragoncar]

I say do it, as long as it isn't stretching you.  Sounds like your employment situation could change again.

[Villanelle]

I would get something in writing stating that your wife's business (including specifics) will be allowed.  "Professional or administrative" seems pretty damn general, and give that the studio space is a major deciding factor in considering buying there, I would leave nothing up to change.  Send them details of the type of business and ask for something in writing saying that is in compliance with the HOA rules, before you sign any contracts to buy.  It's too important to leave up to chance, and then have some HOA board decide that photography doesn't meet their interpretation of "professional", or some such nonsense.  Also, make sure you not only qualify for a city permit, but that they are available and affordable and there are no other barriers that might prevent you from getting one. 

If you can get that assurance, it sounds like a good plan.  I've owned in two HOA communities, as they are hard to avoid in non-rural CA, and never had any issues, but both were townhouse/apartment style homes and smaller communities where I think common sense is more likely to prevail.

[HairyUpperLip]

You can do a 5% conventional instead of the 3.5% FHA and drop PMI after you hit 80%.

Thanks, I will look into this. We would have enough for 5%.

-Ryan

No problem. It shouldn't be anything difficult to do with most lenders. We just recently closed on our house and we did the 5% down option. No extra hoops or anything to go through.