Author Topic: Renting or buying a condo  (Read 468 times)

dragonwalker

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Renting or buying a condo
« on: January 04, 2021, 08:28:38 PM »
In about 5 months Iím going to need to move out of the room that I have been renting for about 8 years. Iím currently paying $570 per month with all utilities included. I have sacrificed these past 8 years to save what I can in preparation for the potential to purchase my own place.
I am currently single, 32, no children, dependents, or debt. Gross income from work is about $60,000. I live near Los Angeles in a HCOL area but the potential area Iím looking at is north of LA in a place called Santa Clarita. I feel itís up and coming and prices are below the average LA prices. This is also where my company headquarters where I work will be moving to as well in the next few months coincidentally. 
A loan program from work essentially allows me to get a home loan at about a 1.5% ARM. This rate is quite reliably steady but which I will only have so long as I work here. A bit of my financial currently
$40K in cash
$429K in taxable brokerage accounts (about $180K of which is from long term capital gains)
$196K in mostly Roth 401K funds and much smaller traditional IRA.   

For consideration is a purchase of a 2 bedroom, 2 bath condo at around $350K. This will have a monthly HOA of $350, mortgage about $966, property tax estimated at $4700 per year, utilities $100 per month. Depending where exactly I get this property there may be a special assessment I have to pay to the developer that could be as much as 2-3K per year for 10+ years. Perhaps another $3-4K a year in ancillary expenses, insurance, assessments, etc. My plan is to live in 1 room and rent the other which I know I should have no issue getting $800 perhaps as much as $1000 per month. 

Based on the exceptionally low interest and return on my VSTAX and VTI I would anticipate only putting down 20% just enough to avoid any PMI about $70K. I could do this with only a minimal amount to pay in capital gains on my brokerage accounts.

The alternative is finding another room to rent which could range from $800-$1000 per month or $1400+ if I wanted my own place which is extremely doubtful I would do at that price point.

Guys tell me if this makes sense. When I last seriously looked 6 years ago the property I looked at grew in value more than 6% year over year and although I donít regret not buying as I believe Iíve made more through the market I just donít know how much longer I can live in the condition I do even it makes a little less financial sense. Looking at estimated home value and sales prices now in the Santa Clarita area the prices also seem to have grown about 6% as well year over year.   

brooklynmoney

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Re: Renting or buying a condo
« Reply #1 on: January 04, 2021, 08:33:54 PM »
I view real estate as a home first and foremost. What do you want to do? Establish roots there? Have ability to really make the place yours? Do you know you will like it there? I would ask those types of qs and then figure out if it makes sense to buy or rent and at what price.

jeromedawg

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Re: Renting or buying a condo
« Reply #2 on: January 04, 2021, 08:39:56 PM »
$350 is a bit high - is this a newer condo or is there something 'unique' about the association that warrants such a high expense?

Can you consider another unit (perhaps with one more room that you could rent out, so a 3/2) that might be more of a fixer-upper that you'd be willing to either put your own sweat equity into or willing to put some $$ into to get fixed up? Better yet, if you're able to foot getting a duplex without HOA dues (or at least as high as those), that would be more ideal. 


dragonwalker

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Re: Renting or buying a condo
« Reply #3 on: January 04, 2021, 08:48:07 PM »
Yes, good point and I have thought about this. My own family is near LA. I've grown up here my whole life and at this point I think it's highly likely I will stay in the area. Santa Clarita happens to be a somewhat more affordable place. Unfortunately my income is lower than I had hoped so my options are more limited. I am working on this and remain optimistic my income will rise more quickly than in the past. Part of me wants to find a place because I think right or wrong it would provide some more "stability" in so far as maybe finding someone to one day have a family with. I just think in my 30s it's hard for most women to look past someone living in a room in a house and believe there is much of a future no matter how much I am doing the right thing by saving money on paper.

I think mentally I would appreciate something that is "mine" that I could make make better and make my own. I often despise renting but I rationalize it to myself in that mathematically it makes more sense but I think sometimes it comes at great cost beyond just dollars.     

dragonwalker

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Re: Renting or buying a condo
« Reply #4 on: January 04, 2021, 08:55:03 PM »
$350 is a bit high - is this a newer condo or is there something 'unique' about the association that warrants such a high expense?

Can you consider another unit (perhaps with one more room that you could rent out, so a 3/2) that might be more of a fixer-upper that you'd be willing to either put your own sweat equity into or willing to put some $$ into to get fixed up? Better yet, if you're able to foot getting a duplex without HOA dues (or at least as high as those), that would be more ideal.

It's not a newer condo if you think late 80s/90s is new. At $350K I'm not even looking at the better parts of an area that is suppose to be more affordable. It's decent but nothing very spectacular about the area. I have not thought of a 3/2 obviously it would be more but not substantially more and the cash I do have to pay down the difference. Will investigate. Fixer up is possible although I have no skills personally to fix so I would need to spend money doing it but money is one thing I do seem to have. 

jeromedawg

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Re: Renting or buying a condo
« Reply #5 on: January 04, 2021, 10:36:59 PM »
$350 is a bit high - is this a newer condo or is there something 'unique' about the association that warrants such a high expense?

Can you consider another unit (perhaps with one more room that you could rent out, so a 3/2) that might be more of a fixer-upper that you'd be willing to either put your own sweat equity into or willing to put some $$ into to get fixed up? Better yet, if you're able to foot getting a duplex without HOA dues (or at least as high as those), that would be more ideal.

It's not a newer condo if you think late 80s/90s is new. At $350K I'm not even looking at the better parts of an area that is suppose to be more affordable. It's decent but nothing very spectacular about the area. I have not thought of a 3/2 obviously it would be more but not substantially more and the cash I do have to pay down the difference. Will investigate. Fixer up is possible although I have no skills personally to fix so I would need to spend money doing it but money is one thing I do seem to have.

Sorry I meant to clarify by saying $350 for the HOA is on the high side. The condo cost itself isn't so bad. The other thing to consider is if the condo is a bottom or top floor unit and taking into consideration noise from neighbors (if this is something you could be bothered by). We sold our condo in Irvine last year and I wish we had just looked for a SFH or at least a townhome from the get-go. Our HOA dues weren't bad but appreciation on condos just seems slower in general. But what became a bigger issue at least for me was the noise factor - we were on the bottom floor and the quality of neighbors/owners we had year over year slowly diminished as the upstairs unit changed ownership a couple times and was finally rented out. The combination of hardwood flooring up there, thin ceilings and inconsiderate neighbors (letting their 1.5yr old storm the hallways and sometimes running around themselves, in addition to a husband with a short-fuse and potty-mouth) quickly became unpleasant (I don't think it had even been more than half a year with the newest nightmare neighbors). It was the right time to sell so we got out ASAP. We now live above people at an apt complex currently and have to tell our kids not to jump and run around because we know how it is.

Anyway, if you can continue saving up and look towards house-hacking on either a duplex, townhome, or SFH I would personally go that route. And if noise is an issue for you just beware of living below or above someone (although you'll want to be mindful if you're above someone as well)

Other than that, it ends up being a question of math on how much rent you can manage to collect from 1-2 people (depending on if you go for a 3 bed vs 2 bed... btw: it seems there are some 3/2 units going for $350k in that area). Based on a quick look at Hotpads, seems like you could rent a room out from anywhere between $800-1000? So if you got one of those 3/2 units for $350k and put 20% down at say 3% (just for the sake of a more 'conservative' number), you'd probably be looking at $1900-2000 per month in payments (factoring in property tax, some insurance and similar HOA dues of around $350~). Rent to two roommates and you'll be collecting at least $1600 if not more, which will heavily subsidize your mortgage payments. If you got a 2/2 at that same price point you'd have $800 less.
« Last Edit: January 04, 2021, 10:56:27 PM by jeromedawg »

six-car-habit

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Re: Renting or buying a condo
« Reply #6 on: January 05, 2021, 02:04:17 AM »
Part of me wants to find a place because I think right or wrong it would provide some more "stability" in so far as maybe finding someone to one day have a family with. I just think in my 30s it's hard for most women to look past someone living in a room in a house and believe there is much of a future no matter how much I am doing the right thing by saving money on paper.

I think mentally I would appreciate something that is "mine" that I could make make better and make my own. I often despise renting but I rationalize it to myself in that mathematically it makes more sense but I think sometimes it comes at great cost beyond just dollars.     

  On the finding a partner being harder if you are in a roomate situation. It shouldn't be a deal breaker if you find the right mate, but it may rule out a bunch of potential people - who currently may imagine coming over to your apartment and having to deal with your current landlord/  roomate who is passed out on the living room couch in their underwear with a bag of spilled Cheetos, and piles of knocked over energy drink cans on the carpet. [ i realize this is probably not the case, but you get the idea i hope ]

 Maybe your second point about having something  your own and despising renting a room at times, is the bigger point you've identified.  It's a reaaly great amount of money you've saved so far, but you can't sleep on the money, or cook with it.   Chances are decent that if you get involved in a serious relationship, you may decide to terminate your future room renters accomodations, so she can move in w/ you. 

   It won't 100% feel like your own place when you have someone  [ non-romantic] renting a room from you and sharing your kitchen.  I would find a place you were comfortable affording on your own income only.   Then consider any additional income you bring in thru a roomate as a bonus, not income you need to make the mortgage payment.   This way, at any point in the future, with probably 30 days notice, you can return to having just yourself in the condo. Whether the roomate turns out annoying or gross, or a potential mate moves in- but things go sour and they leave.

 Also read the fine print and understand what the $350/mo actually covers for the Condo dues.  Is it streetlights, and a lame gym room ? - Or is it for common area janitorial service, and funds a replacment roof for the whole bldg, {without asking for addtional assesments}, and a great pool and concierge waiting to assist you at a front desk.