Author Topic: Condo or House?  (Read 4049 times)

coffeetogo

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Condo or House?
« on: January 16, 2014, 04:43:21 PM »
I have come to a financial cross-road and I am having trouble working the numbers to ensure I make the best financial decision possible.  I am requesting outside help because I need to make a financial decision without emotion.  Here is my issue:

I have owned my home for 13 years (no mortgage).  I have put approximately $234,540 into my home (including the sale of the home , home improvements, insurance over 13 years).  I will need to make additional improvements/maintenance with a cost of $63,140 over the next 13 years.  This will bring my total cost to $297,000 in another 13 years.  However, in 13 years my house will only be worth worth around $250-260,000. 

I have the opportunity to buy a condo at a 55+ community for $46,000 (this includes the cost it would take for me to gut the place and install everything new).  Over the next 13 years, I estimate paying $55,600 to live there (which includes condo fees, insurance, and perhaps a new a/c unit).  This will bring my total cost to $101,600.  In 13 years, this condo will still be worth only $46-50,000.  There is very little apprehension at the community regardless of the remodeling. 

This is where it gets complicated:
If I sell my home right now, I will probably walk away with $190,000 after real estate commission.  After I purchase my condo ($46k), I will have $144k that I will put in my Vanguard account which will collect compounding interest over the next 26 years.  At a rate of around 5% this will grow to around $517,000.  On the other hand, if I stay in my house for another 13 years and then sell....I will clear around $250,000 after real estate commission.  If I invest that for 13 years I will earn $377,000 (13 years will be spent in the house and 13 years will be collecting compound interest=total time: 26 years).  So at that same period of time (year: 2034) I will have $517,000 if I sell right now.....or $377,000 if I sell later.

Lastly, it is $166 a month cheaper to live in the condo than to stay at the house.  So if I sell the house now, I would also save almost $26,000 over a 10-year period in utility billing.

The hesitation: My husband is 57 and I am 41.  He isn't sure he wants to live in "God's Waiting Room."  But this community is for really active people: Free golf (18 holes), two Olympic size pools, there is a chess club, travel club, foreign language club, full fitness center, free bus to all major stores like Target, the mall, Walmart, Grocery stores, etc, and when we get too old to drive, there is a "medical shuttle" that will take us to the local hospital (where our doctor's office is located).  This is all included in the $300 condo fee. 

Is this a no-brainer? Or is there something I am not thinking about? Is my math right?  My father-in-law said it is an excellent decision. but I want advice from people who don't know me. 

olivia

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Re: Condo or House?
« Reply #1 on: January 17, 2014, 03:35:51 AM »
Aside from the numbers, my first thought is whether at age 41 you would be happy in a 55+ community.  Additionally, your numbers are on a 13 year timeline-what's the reason for that?  Presumably you'll have housing costs for much longer than 13 years.

Also, couldn't the condo fee increase? What about special assessments? Are there any safeguards in place at the 55+ community to prevent large increases/special assessments?


Thegoblinchief

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Re: Condo or House?
« Reply #2 on: January 17, 2014, 08:17:13 AM »
What about other retirement assets? Will it be crucial to have that extra $190K to retire at your desired age? If so, it seems like a smart play as long as the lifestyle seems amenable to both of you.

That said, I will always want a house as long as I am physically able to maintain it. Hate living too close to other people.

SunshineGirl

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Re: Condo or House?
« Reply #3 on: January 17, 2014, 08:21:19 AM »
The numbers make sense, but I'm with your husband on this one.

You surely have more options than just the two you are exploring.

coffeetogo

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Re: Condo or House?
« Reply #4 on: January 17, 2014, 12:17:37 PM »
Thanks for your help!  Someone mentioned $190k, and it is important to note that the $190k isn't just "$190k."  That money would be invested over 26 years to earn $577,000. The $577,000 has not been included into my retirement numbers because I thought I would stay in the house.  I consider this "found" money."  It has no bearing on my retirement date.  I am 40 and still plan to retire at 45 whether I stay in this house or not. 

I chose "13 years" as a timeframe because this is how long I've lived in my house.  There is no other purpose for choosing the number 13. I just needed a specific timeframe to measure. I also chose "26 years" in my original post just to have a measurable timeframe (I've been in this house for 13 years, I may stay another 13 years this equals 26 years).  I certainly wouldn't stay in this house for more than 26 years. 

Special assessments are not allowed in this condo community.  All of this is built into the condo fee. The fee cannot increase by more than 3% per year.  But over the past 10 years, the fee has only increased from $283/month to $300/month. 

I just don't feel like I should give up the $577,000 in favor of staying in my home.  It is expensive to maintain and I do not really enjoy it, but the location is very nice.  I guess I am coming to my own conclusion: I don't think my house is worth losing $577,000 of compounded interest. 

But if anyone has anything else to add, I am ready to hear the wisdom!

curlyfry

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Re: Condo or House?
« Reply #5 on: March 29, 2015, 11:53:57 PM »
What did you end up doing?

I live in a condo & also have always been puzzled by house vs condo math.  (ie. in my area, a house would be $1000/month more x 25 years than a condo (all costs included) & I figure if that's invested, it adds up!)   Assuming that we are fine with living in the condo forever (and I guess that's the sticking point as it'd appreciate less, but at the end a non-appreciating cheap condo + appreciating investments could be worth more than an appreciating house)   
« Last Edit: March 29, 2015, 11:55:51 PM by curlyfry »

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Re: Condo or House?
« Reply #6 on: March 30, 2015, 09:20:52 AM »
...Is this a no-brainer? Or is there something I am not thinking about? Is my math right?  My father-in-law said it is an excellent decision. but I want advice from people who don't know me.

You've said nothing about the difference in living conditions and what your preferences are, as well as your spouse's.  Big differences -- good and bad -- between living in a single family home on one's own patch of ground and living in a communal setting where your neighbor is on the other side of your (thin?) wall as well as right above your (thin?) ceiling, and where you have neither control over nor responsibility for the ground.

So, what about that factor?

ShoulderThingThatGoesUp

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Re: Condo or House?
« Reply #7 on: March 30, 2015, 02:37:58 PM »
How long has the community been around? Some near me are starting to need to replace their roads, which isn't going to be cheap.

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Re: Condo or House?
« Reply #8 on: March 31, 2015, 06:46:40 AM »
Aside from the numbers, my first thought is whether at age 41 you would be happy in a 55+ community.  Additionally, your numbers are on a 13 year timeline-what's the reason for that?  Presumably you'll have housing costs for much longer than 13 years.

Also, couldn't the condo fee increase? What about special assessments? Are there any safeguards in place at the 55+ community to prevent large increases/special assessments?

Right.  That 13-year projection looked a little bogus to me too, particularly the projections on what the assets would be worth and sell for then.  It's just not going to be that exact.