Author Topic: Apt, Condo or House?  (Read 4411 times)

dumbblond

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Apt, Condo or House?
« on: February 10, 2014, 01:43:08 PM »
I've been lurking around the forums quite a bit, soaking up all the knowledge I can and occasionally weighing in. After years of bemoaning how expensive the NoVa (just outside DC) area is, especially housing anywhere close to the metro trains, I finally had a light bulb go off...I have options!

A little bit of background: DH and I are in our mid 20s (getting closer to 30 than 20 now...when did that happen??). We've been renting in the NoVa area for almost 4 years. Each year, we think, "just one more year then we'll move somewhere else," but the money and potential for career progression is alluring and has kept us here thus far. Realistically, I could see us being here another ~5 years. We would both ideally like to move to either Richmond or Pittsburgh, but DH feels like he needs to be here a while longer to get a better footing in his field. In the next year, we will be discussing children, which means losing my income. Also, we do not currently own a car (public transit/walking for daily commutes & groceries, zipcar/trains/car rentals for trips to see family) and won't ride bikes (there are a lot of nuances behind this that I don't have time or inclination to get into...just take this as fact for now :) ).

So, in light of that, it doesn't look like we can afford a house in this area. We're pretty particular about location (not afraid of DIY, but limited experience means we should err on the side of something with smaller projects to tackle first), and that means most places start around 600k. Could definitely swing the mortgage with both of us working, but it's not an option on only one salary (and, to be honest, we've been talking about kids for two years, and I'm not willing to postpone that much longer...and the idea of being dependent on both salaries is not something that sits well with either of us). This has kind of led to three options:

1. Keep on keeping on. Stay in apartments, find a way to make a one bedroom work with a (or potentially multiple) kid since that's what is in our price range on one salary and continue to reduce living costs as much as possible.

2. Buy a condo in NoVa. Looking at between 200-300k for a condo in the area we want. I haven't looked enough to know what fees are, but I understand under $500 is pretty typical. I like this idea because it means we are "throwing away" less money on rent, and we would be done paying off the mortgage before any younglings arrived. I have a lot of reservations about this option, though. I don't like the idea of paying for the space and then still having the condo fees on top of that (it does make it easier to save, though, since the fees would be much less than what we are paying in rent now). Also, everything I have read seems to indicate that condos are much more difficult to be profitable with if you're not living there--when we move, it would be difficult to rent out and even more difficult to sell.

3. Buy a house somewhere cheaper and continue to rent. The idea with this is we would buy a house somewhere we want to move once DH feels sufficiently established in his career. Until we move, we could rent it out, providing a second source of income. Right now, it looks like we would probably purchase in the Richmond area. It has the advantage of being somewhere we would love to live and the prices are at a point where we could pay off any mortgage before younglings came along. The other (possible) advantage of this is that my in-laws still live in the area, and they may be amenable to managing the property for us (they currently have own rental property in the area) for some sort of fee (want to make sure it would be a good deal for everyone, but I'm not sure what the fee would be--they are stable enough that they don't need the money, but they did so much to help us get on our feet when we first got married that I have no issues tipping the scale in their favor). I'm not seeing many downsides to this option, although, I am by far most excited about this course of action and find it more difficult to be objective.

Are there other options I'm not considering? What would you do if you were in our shoes?

meadow lark

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Re: Apt, Condo or House?
« Reply #1 on: February 10, 2014, 02:03:32 PM »
Just for clarity, you could buy and pay off a $300k house or condo in the next year? But you don't have enough to rent a 2 bedroom apt?  Not meant in a snarky way, just confused.
  Do you want to be a landlord?  My experience in my particular market, which is not in DC, is that there is a sweet spot for rentals to make money, and when I bought houses because I liked them quirky, unique, slightly more expensive) they did not fit that sweet spot.  Maybe that isn't true where you live.
  As far as living in a 1 bedroom apt with a baby, kind of depends how you live...  The baby has no interest in privacy or ever being a way from you, so it is fine for them.  Will you and your DH want privacy and to be away from your kid?  Real question.  Some people want that, some people don't care.  Babies have a lot of stuff, unless you actively choose to be a minimalist.  Do you have closet space, or are you willing to make closet or dresser space for clothes, diapers, car seat, stroller, backpack, toys, etc?
  I think I could have a baby-4 yo in a 1 bedroom apartment if housing was expensive.  It is not expensive where I live, so I wouldn't bother here.

N

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Re: Apt, Condo or House?
« Reply #2 on: February 10, 2014, 02:09:33 PM »
Im stuck in a bad condo situation, so Im biased against it.

If you buy a condo, you are essentially purchasing a property with however other many people you do not know, and your investment will be in some ways, in their hands as well.

I personally cant see buying another condo in my future. It would have to be a VERY well run association with a sufficient reserves, very limited investor owners (and limited renters). Its hard to get that info beforehand, so you really have to do your due diligence. Ask to see budgets and proof of reserves in a special account. Find out if there are upcoming projects and special assessments. Assessments always go up, probably every 2 years or so. taxes go up. if units in your building go into foreclosure, it can seriously damage your property's value and ability to sell. if other owners dont maintain insurance, and there are leaks, fires, etc, it can be a serious nightmare.

Our building was rehabbed 12 years ago. It went from all owner occupied for the first 5 years, to now, there are 6 owner occupied out of 20. There are  a total of 5 foreclosures in the last 2 years. 2 remain bank owned. 2 sold to an investor for 1/3 of the price I paid for mine 12 years ago.

Im sure there are condo owners with good stories, but you really have to research the building.

jba302

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Re: Apt, Condo or House?
« Reply #3 on: February 10, 2014, 02:46:16 PM »
We own a townhome and are moving out of an apartment into a house, so we have recent experience on all of these (short story - kids hated living in same bedroom, found an apartment cheaper than our mortgage, now making official move to a house and renting out townhome).

I am hugly biased towards houses. There is more privacy and freedom in it, IF the maintenance doesn't scare you away. I also value land and like doing handiwork. I'd also prefer living in a tent in the woods over an apartment with having someone hover over you all the time. Townhomes / Condos are an OK middle step but I have heard some really crappy stories about HOA assessments taking serious dollars away for unforeseeable issues, most notably in the 2000's builds in Chicago.

Still trying to get over the fact that you said 600k as a starting price. Out here in the twin cities you could get an extremely upscale, multiple acreage horse-friendly property in that range.

DLVT

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Re: Apt, Condo or House?
« Reply #4 on: February 10, 2014, 03:23:59 PM »
I've been lurking around the forums quite a bit, soaking up all the knowledge I can and occasionally weighing in. After years of bemoaning how expensive the NoVa (just outside DC) area is, especially housing anywhere close to the metro trains, I finally had a light bulb go off...I have options!

A little bit of background: DH and I are in our mid 20s (getting closer to 30 than 20 now...when did that happen??). We've been renting in the NoVa area for almost 4 years. Each year, we think, "just one more year then we'll move somewhere else," but the money and potential for career progression is alluring and has kept us here thus far. Realistically, I could see us being here another ~5 years. We would both ideally like to move to either Richmond or Pittsburgh, but DH feels like he needs to be here a while longer to get a better footing in his field. In the next year, we will be discussing children, which means losing my income. Also, we do not currently own a car (public transit/walking for daily commutes & groceries, zipcar/trains/car rentals for trips to see family) and won't ride bikes (there are a lot of nuances behind this that I don't have time or inclination to get into...just take this as fact for now :) ).

So, in light of that, it doesn't look like we can afford a house in this area. We're pretty particular about location (not afraid of DIY, but limited experience means we should err on the side of something with smaller projects to tackle first), and that means most places start around 600k. Could definitely swing the mortgage with both of us working, but it's not an option on only one salary (and, to be honest, we've been talking about kids for two years, and I'm not willing to postpone that much longer...and the idea of being dependent on both salaries is not something that sits well with either of us). This has kind of led to three options:

1. Keep on keeping on. Stay in apartments, find a way to make a one bedroom work with a (or potentially multiple) kid since that's what is in our price range on one salary and continue to reduce living costs as much as possible.

2. Buy a condo in NoVa. Looking at between 200-300k for a condo in the area we want. I haven't looked enough to know what fees are, but I understand under $500 is pretty typical. I like this idea because it means we are "throwing away" less money on rent, and we would be done paying off the mortgage before any younglings arrived. I have a lot of reservations about this option, though. I don't like the idea of paying for the space and then still having the condo fees on top of that (it does make it easier to save, though, since the fees would be much less than what we are paying in rent now). Also, everything I have read seems to indicate that condos are much more difficult to be profitable with if you're not living there--when we move, it would be difficult to rent out and even more difficult to sell.

3. Buy a house somewhere cheaper and continue to rent. The idea with this is we would buy a house somewhere we want to move once DH feels sufficiently established in his career. Until we move, we could rent it out, providing a second source of income. Right now, it looks like we would probably purchase in the Richmond area. It has the advantage of being somewhere we would love to live and the prices are at a point where we could pay off any mortgage before younglings came along. The other (possible) advantage of this is that my in-laws still live in the area, and they may be amenable to managing the property for us (they currently have own rental property in the area) for some sort of fee (want to make sure it would be a good deal for everyone, but I'm not sure what the fee would be--they are stable enough that they don't need the money, but they did so much to help us get on our feet when we first got married that I have no issues tipping the scale in their favor). I'm not seeing many downsides to this option, although, I am by far most excited about this course of action and find it more difficult to be objective.

Are there other options I'm not considering? What would you do if you were in our shoes?

Wow, when I first starting reading this I thought my fiance had snuck behind me and created an account here.  We're in very similar situations.  Except we're rolling with two cars and I don't think we've ever discussed Pittsburgh as a future home (we would love Richmond - my parents live in VA Beach, so I would prefer that area.  Her family is up here, so she's in no hurry to leave)  We are in our late 20s - renting in the Alexandria area - dual income, getting married in a few months and considering starting a family in 3 years.

I absolutely hate the housing costs up here.  Very difficult to be mustachian and still have bedrooms for kids.  The area is completely driven by the high salaries of government related function which neither my fiance or I are part of.  Although we make good money, we would make the same money in an area like Pittsburgh or Richmond and pay 200K for a 3 bedroom house instead of 600k.  (Ugh)  2 years ago, there were deals out there.  Right now its definitely a sellers market.  I keep waiting for interest rates to go up hopes that it will bring the price of homes down 5-10%.  Most people up here seem to buy based on what they can afford to pay monthly.  With little inventory, low unemployment, low interest rates, and investors/flippers paying cash for distressed properties - there are very few houses that can be supported by single income earners.

Anyways, to better answer your question, it would we helpful if you mention where in NOVA you are looking.  For your situation, 1 or 2 are the best options.  With 1, you give yourself flexibility, while still saving cash for a house in another area - heck maybe you can save enough to buy your first home with cash and skip the mortgage all together (There are plenty of 100k homes in the Pittsburgh area) With #2, there is the opportunity to rent out your place after you leave the area and generate a 2nd source of income.  Condos in desirable areas of NOVA will always find renters. 
I would completely rule out #3.  You don't know what the future holds, and buying in hopes moving to an area 5 years down the roads presents a lot of risks. 

DL


jfer_rose

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Re: Apt, Condo or House?
« Reply #5 on: February 10, 2014, 03:53:06 PM »
My situation is very different from yours since it is just me and my cat, but I do live in DC proper and so I know what you mean about the high costs here. I bought my teeny tiny studio apartment in 2004 with every intent to move into a bigger place as soon as I was able. It turns out that I actually LOVE having a smaller home since there is less to maintain/clean/remodel/etc. It took some time for me to come to that conclusion since the bigger is better message is so common.

My monthly co-op fee (my building is a cooperative, not a condo) is sizable but my total costs are less than if I were renting a similar place. Plus, when I eventually do move I get to recoup my equity in addition to any market gains.

As far as whether it is possible to have positive cash flow when you are no longer living in your condo, it depends. You would need to do the research with the specifics from your unit. A friend of mine has the unit two floors above mine and she's been renting it out at a slim profit. She's never had trouble finding renters willing to pay what she's asking.

Also, have you seen some of the posts on this forum about how many Mustachians are raising family in very small spaces? Some of those posts really blew me away-- very badass!

Eric

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Re: Apt, Condo or House?
« Reply #6 on: February 10, 2014, 04:38:56 PM »
4.  Rent until you have a date to move out of the area.  Buy at that time in new area, assuming that the numbers make buying the best option.

What's up with option 3?  Why is it even an option to purchase a home now, in an area that you're not sure you'll ever actually live, with the prospect of being first time long distance landlords?  That sounds like a great way to flush some money down the toilet to me.

dumbblond

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Re: Apt, Condo or House?
« Reply #7 on: February 11, 2014, 05:40:05 AM »
First, a big thank you to all of you!

@Meadow Lark Not taken as snarky :) It would be tight, but we would be able to do a large down payment and pay off the rest of a 300k house/condo in a year. The difference with renting is we could swing a two bedroom apartment, but only if I'm still working. Once we have kids, we plan that I will be a permanent SAHM (not for everyone, I know), and any side income I can bring in will be minimal, especially when the kids are small. Right now, we're trying to pretend that is already the case and funnel my income only to investment accounts and savings for something like a down payment. We could move farther out and find 2 bedroom apartments cheaper, but then we'd be looking at having to get at least one vehicle and a killer commute for DH (we're pretty lucky--his commute is 20 minutes by bus and mine is 30 by foot/train in the opposite direction).

I guess I see the option of the house as more of a chance for secondary income stream unrelated to our initial investment in it (since we would plan on moving into it once we're done in DC). That allows for more freedom to look for something that we actually like (that might have an attractive location to renters but otherwise not necessarily in the sweet spot for rentals). I think both DH and I are interested in being landlords, but he seems more reluctant (realistic?) about it happening right now.

@startingfromthestart Thanks for weighing in, particularly on what to look for. Stories like the one you told are what make me want to take condos off the table.

@jba There are houses for less than 600k if you go farther out...but commute time goes up and walkability tends to go down (and those are two non-negotiables for us :) ). I'm definitely ready to jump into maintenance. The possible expense of it makes me a little gun shy, but I grew up rehabbing houses with my parents so I'm no stranger to a little hard work :)

@DLVT Thanks for weighing in! We're in the Arlington area...and I am right with you on what the housing market looks like here. DH and I grew up in more rural areas and would like to eventually get out of the concrete jungle :) Nice to know there are other couples in similar situations.

@jfer_rose It sounds like I need to go look for some of those stories! DH and I are both pretty introverted people so I think our biggest fear is not having a place to retreat when a kid comes along. But, as we all know, fear is not mustachian :)

I like hearing about how living in a smaller place eventually changed your mind about needing to upgrade--it sounds like we are looking too much at the future and need to evaluate when things change rather than making a large change that may not even be necessary (or the right one).

@Eric Option 4 has been our modus operandi for the past four years :) I think part of the rationalization for option 3 was looking for another revenue stream since we will be losing mine eventually. Since housing in this area is insane, and we have well-established family in the Richmond area, I thought it looked like a good middle ground (able to purchase a house with little to no mortgage, could lean on the local in-laws to manage the property). Perhaps I was being a bit optimistic about how much more difficult it would be without being local (and having to rely on the in-laws more).

Thanks for the link to the NYT calculator...Whenever I feel like we're stupid for spending so much on rent, I pop over there and run the numbers for DC. And feel immediately better about not buying a house here :)


You all have given me a lot to chew on. I will talk to DH and see what resonates with him. In all fairness, I was kind of driving option 3, and y'all have helped temper my enthusiasm a bit :)

soccerluvof4

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Re: Apt, Condo or House?
« Reply #8 on: February 11, 2014, 06:34:33 AM »
^+1 to Eric . I sense there is to much indecision yet with the Job, where you want to be 5 years etc.. Where i live it 3-1 people regret ever buying Condo's at least as well.  Seems to me that you will figure it all out in time so I would just build your wealth and give it sometime the answer your looking for will probably find you.

jfer_rose

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Re: Apt, Condo or House?
« Reply #9 on: February 11, 2014, 06:46:12 AM »
This is one of the threads I mentioned that surprised me with how many families were living in small spaces. There is a lot of variety in the responses but more than a few families say they are sharing quite small spaces:

http://www.mrmoneymustache.com/forum/welcome-to-the-forum/how's-your-house/


MissPeach

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Re: Apt, Condo or House?
« Reply #10 on: February 11, 2014, 05:35:53 PM »
I lived in a studio loft with my child until 5. Honestly I could have waited even longer - especially with a 1 bedroom. Babies and toddlers will want to be with you 24x7. There's no need technically for the 2 bedroom, nursery, etc. Babies really need very little but there are many who are happy to sell you on all sorts of things you need.

This link might be of interest. It's a couple with 2 kids who live in a 1 bedroom apartment.
http://lovingsimpleliving.com/2012/07/minimalist-kids/

In terms of small scale living, I found I love it. It took me an entire day to really clean my 2,000 sq ft house. I could clean an 800 sq ft loft in less than an hour. Don't necessarily discount small spaces. This is a personal decision though.

Since you are planning on staying in the area for the short term and it sounds like you are in a high COL area, I'm going to recommend looking at things by cash flow. I live in a high housing price area too and with the numbers I can't justify buying. I calculated I will make more leaving my money in the market - even including tax deductions and rent. I would only touch owning, especially for the short term, if it was a property that was rentable for the low end of the rents in your area. It doesn't sound like that's the case where you are.

If you are open to 2 areas equally, I would hold buying anything and see if you get an advantage in one city over the other. That way your husband will be able to job search in two cities and may be able to get a better offer in one, get relocation, etc.

The last thing I would weight how much privacy, a yard, etc. is to you. I found I like high rise living. I hate spending my weekends mowing the lawn, planting new plants, etc. I'm happy to give up a yard to live in a place with lots to walk to. What works for me won't necessarily work for you but don't just assume a house is for you. Think about what you want to do with your living space.

Financially, in most markets houses tend to maintain value better over condos when markets have down turns.
« Last Edit: February 11, 2014, 05:40:36 PM by MissPeach »