Author Topic: Need opinions on condo purchase  (Read 2205 times)

MasterStf

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Need opinions on condo purchase
« on: October 04, 2015, 09:51:50 PM »
Hello, I would like to have your opinion on when to buy a condo.

I am from Canada. I just finished school and started working as a software programmer 4 months ago. Good secure job in the governement, making 55k. I am pretty sure I could get a promotion in the upcoming months that would bump my salary to 65-70k, but it is not for sure.

I have no debts. I have a payed 2007 car that I would maybe like to change in 1-2 years for a newer one (not sure when yet). I have around 6000$ saved for a downpayment for now. I can save around 1500$ per month. I will live with my girlfriend. She is still in school, but can help for some expenses.

I am looking to buy a condo for around 150-180k. I saw a very nice one, new built, for 160k. Condo fees are around 120 and taxes around 150 per month.

When I buy my new condo, i want to have money saved up to buy new furniture at the beggining. A 5% downpayment is around 8000$.

So my question is, how much money I need to save for the downpayment, new furniture and all other expenses that I could have. Give me your opinions on all this. Thanks

Ricky

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Re: Need opinions on condo purchase
« Reply #1 on: October 04, 2015, 09:57:17 PM »
Live with your GF for as long as you can and pay her an amount per month that she asks. In the meantime, find a better property for investment and rent it out as soon as you purchase.

And why are you considering trading a car in that's less than 10 years old? Are you new here?

OneDollarAtATime

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Re: Need opinions on condo purchase
« Reply #2 on: October 04, 2015, 10:22:49 PM »
Hi,

This sounds like your first home-buying experience, so I'll treat it as such.  Also, there's somewhat limited info so forgive me if I made some wrong assumptions.

I was in a somewhat similar situation as you a few years back (in the USA).  Bought a condo through a shortsale for around the $150k range in 2013.  Currently valued around $290k.  In my case, it's worked out well -- but that's because I knew the area very well and knew the property was undervalued.  My HOA -- kills me.  I won't tell you how much it is for fear of being forever banned from the MMM forums, but it's ridiculous...hence why I'm looking to sell soon, lock in my gains and move on.  Here's the pros / cons of a condo (spoiler alert -- I won't recommend condos as a first choice).

Pros:  minimal exterior / yard maintenance, great 'random' conversations with neighbors (since you're all so close), rules promote a standard of living.  decent option if you travel a lot or are busy with other time commitments (ie: night classes / homework on top of my 'career job' was my situation).  decent 'first home' option since you can focus on livability (and building equity) without the hassle of needing to go buy a hundred gardening tools, exterior maintenance tools, etc..

Cons:  Rules are annoying as heck (and there's usually a lot of them).  parking spots may be limited on any given day.  HOA isn't necessarily in your best interest (you pay into the HOA fund, but you might not get that dry-rotted fascia repaired for another year when it's 'in the budget', which means you come home every night looking at some crappy exterior). 

Alas, we are a money-focused forum, so here's the money advice.

Your HOA dues...they're gone.  Down the drain.  You lose the control over this piece of your budget because you're paying into a HOA fund each month, whether or not you see the direct benefit.  In my case, they just re-did the siding and painted some other building in the complex.  Direct benefit to me?  Zero.  But they spent my money to do it.

Second, your resale value for homes at this price range could be capped by the neighborhood housing prices.  What I mean by this is -- if homes are selling for $200k, your condo price might not hit $200k for resale.  The reason being that someone taking out a mortgage on a $200k loan with 20% down (to avoid the PMI argument in the example) would have a monthly payment of $765 or so.  Add on your condo dues and that $765 turns into $885.  (EVERY. SINGLE. MONTH.  That's $120 you could have otherwise put towards the mortgage to pay down quicker.  That's like an extra 15% tax on your home!)  To match that $765 total payment, you'd have to price your condo around $172k...$28k less than the home.

Back to your questions -- how much exposure do you have for expenses?  Depends on if buyers or sellers cover closing costs.  Depends on how expensive the furniture is you want (and how much of it you need).  You'll also want to save about 15% more than minimum since you will find the jolt to your budget to be pretty significant...it's not usually a seamless transition, it's more of a 'dang, now my savings rate is much smaller!!'  There's always little things that catch you off guard at the start (PMI, taxes, etc.) for one reason or another.

Also, at some point you might want to move.  My HOA has a one-year rental rule where I can only rent for up to one year, then I have to sell it or stop renting.  If I don't abide, I get fined (an amount more than I would profit). This sucks -- if I move, I basically have to sell and can't just rent it out to keep generating income.  BIG bummer here since I expect the local home values to keep climbing over the next 5-10 years given the population growth / housing situation in the area.

My advice, should it be an option, is to be patient and focus more on homes, even if they are smaller / take some repair work.  DIY repairs (or spend that $120 a month you're 'saving' to hire someone to do it) and build up the house.  I know the feeling -- you want that home at a young age, but you don't want to get into a situation that doesn't leave you many good options when you want to get out.

Hope that helps.  Good luck.

Urchina

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Re: Need opinions on condo purchase
« Reply #3 on: October 04, 2015, 11:10:47 PM »
Hi, MasterStf. My reply is in contrast to OneDollar's, because we purchased a condo as our first home and it was an excellent choice for us. While there are some drawbacks, there are some strong benefits to condos that make them worth considering.

OneDollar listed many of them: Exterior maintenance, and often interior systems such as plumbing and ductwork, are handled through the association. In addition, many condo associations have amenities that are cost-prohibitive in single-family homes (swimming pools, tennis courts, facilities for hosting large gatherings, exercise facilities, expansive manicured grounds, playgrounds, savings on trash and recycling due to economies of scale). As OneDollar mentioned, the opportunities for social contact are high. Condos are often located in walkable neighborhoods with excellent public transit access (as our is).

Finally, because condos are frequently at the less-expensive end of the housing spectrum, there's a larger pool of potential buyers than more expensive homes have. This means that they may be easier to sell.

Downsides include dysfunctional HOA boards and the challenges of communal living. Because you own a share of the entire complex, you have to prioritize how money is spent and can't necessarily have what you want exactly when you want it.

We purchased our condo (2 bedrooms, 980 square feet, carport, 1000square foot fenced yard) in 2002. We aggressively paid down the mortgage and eleven years later refinanced it and pulled enough money out to put a down payment on a single-family home in our neighborhood . We moved to the larger home and have been able to keep the condo as a rental (unlike OneDollar's, our HOA allows long-term rentals) and it currently pays for itself. We are planning to keep it as a rental, with an eye towards possibly having it as housing for our parents some day if they need to move closer to us. If they don't need to use it, we'll continue renting and have that be part of our cash flow in retirement.

As to whether or not to purchase a condo: part of the reason we purchased ours was that we live in an expensive housing market that was skyrocketing when we were looking for a home, and we ran the numbers and realized that if we waited longer to save up a larger downpayment we'd get priced out of the market entirely. We could get into a condo and ride the appreciation tide up while we saved for a larger home. Homeownership is emotionally important to us, so this was worthwhile. We basically used the condo to wedge our foot in the door of homeownership.

I think a condo is a great choice for a home if:
1. You are OK with the idea of semi-communal living. These are not privately owned homes; they are common-interest homes and as such you'll need to be willing to interact with all of your neighbors on decisions that affect you all. If you want to do things your own way when you want them, a homeowner's association may be a challenging environment for you.
2. You want a low-maintenance home.
3. You aren't deeply attached to the idea of a single-family home. If you are, you'll always think of the condo as second-best and won't really be able to engage with your life there -- so you won't feel as rewarded by homeownership as you might otherwise.
4. You're OK living in fairly close proximity to your neighbors and are a neighborly person.
5. You're willing to contribute some volunteer time serving on the HOA board or committee. As a long-time HOA Board member, I can tell you that decisions on how to spend the budget don't get made by themselves.

As far as when to purchase, I'd say when you have the down payment saved and know that you can handle the monthly expenses. Buying all of your furniture at once and purchasing a new car within the same time period may sound nice, but run the numbers first, and prioritize what is really important to you. Buying a new car before you have a home means the car is more important to you than the home, because you may not qualify for as much of a mortgage if you've got a car loan.

Also, I have a final piece of totally unsolicited advice: I had a boyfriend who bought a home without asking my opinion about its location, design, community or amenities. This would have been fine, except he expected me to live with him (he did not ask me about this before he bought the home, either). If you're living with your girlfriend now, and you expect to continue to live together after you buy the home, it's probably worth it to include her as a reasonably equal partner in your home-hunting and to take her preferences and concerns -- including financial ones -- into consideration. My boyfriend's actions spoke very clearly -- he didn't consider me a partner or even someone whose opinion was worth soliciting -- and that's not what I was looking for in a long-term relationship. We amicably broke up shortly thereafter.

Good luck and let us know how it goes!

MasterStf

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Re: Need opinions on condo purchase
« Reply #4 on: October 05, 2015, 06:41:41 AM »
Live with your GF for as long as you can and pay her an amount per month that she asks. In the meantime, find a better property for investment and rent it out as soon as you purchase.

And why are you considering trading a car in that's less than 10 years old? Are you new here?

I am not living with my gf. We both live at home with our parents. That is why, I would like to get my own place in the upcoming year.

I am considering trading my car because it's starting to have big rust issues.

For the others, I know the pros and cons of a condo. Personally, I would like to buy a semi detached or a townhouse, but they are too expensive for me for now (270k+). I am looking to buy a new built condo and there are a lot of new and nice projects in my town. My perfect future plan would be to buy a house or a townhouse in a few years and then keep the condo I buy now as a rental.

ShoulderThingThatGoesUp

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Re: Need opinions on condo purchase
« Reply #5 on: October 05, 2015, 06:53:54 AM »
Lots of new and nice projects means you'll be underwater from day 1 with the 5% down you mentioned.

MasterStf

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Re: Need opinions on condo purchase
« Reply #6 on: October 05, 2015, 07:04:20 AM »
Lots of new and nice projects means you'll be underwater from day 1 with the 5% down you mentioned.

What do you mean underwater? And by a lot, I meant like 2-3 project.. It's not that much

Beaker

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Re: Need opinions on condo purchase
« Reply #7 on: October 05, 2015, 09:45:40 AM »
I think Urchina's post is quite good all the way around. But I'd like to underline a couple of parts.

I should probably preface this with the fact that I'm on the HOA board for a rental property, and it has been one of the most frustrating and stressful experiences of my life. It is literally the most stressful thing in my world right now, and I don't even live there. So that's where I'm coming from on this.

These are not privately owned homes; they are common-interest homes and as such you'll need to be willing to interact with all of your neighbors on decisions that affect you all. If you want to do things your own way when you want them, a homeowner's association may be a challenging environment for you.

This is very true. And while everyone tends to think about paint colors, it applies to everything. You may think it would be great to remodel the patio area and buy some grills, but that's going to compete with replacing the boiler, reviving the landscaping, repaving the parking lot, and whatever else anybody wants to do. It can become shockingly contentious. I would also note that while you may be OK with this kind of compromise, someone else may not be, and dealing with that person or people can make your life miserable.

You're willing to contribute some volunteer time serving on the HOA board or committee. As a long-time HOA Board member, I can tell you that decisions on how to spend the budget don't get made by themselves.

Condo buildings probably take more work than a detached house. In theory there are more people to share it, but in practice most people can't be bothered to even vote in the board elections much less do actual work. Also, while a detached house is basically a dictatorship, an HOA is a democracy. So you get to spend a lot more time talking, negotiating, and compromising to get things done. All of which means that the HOA board can be a stressful and thankless job. If someone else is handling it and doing a good job, then you win. But if you have a dysfunctional board, or the board members get tired of doing all that work for free, then it can be bad news. This can be mitigated somewhat if your building is large enough to have a professional management company - at least the snow will still get plowed even if the board is gridlocked.

I would also add that you should get familiar with the HOA's finances and politics before moving in. Seriously, go to a board meeting and see what it's like. Are they getting stuff done? Is it smooth and cooperative, or stressful and contentious? Are they paying attention to the budget, or just spending money and hoping it all works out?