Author Topic: Buy condo, get roommate, profit?  (Read 4871 times)

randymarsh

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Buy condo, get roommate, profit?
« on: January 18, 2016, 12:24:51 AM »
Would it be smart to buy a house/condo (probably condo), get a roommate, and pay what I pay now (or less) in rent?

I'm fine renting and didn't think I could afford even a condo but a co-worker with an investment property told me I should at least look at what's available and for how much.

I pay $725 right now for a tiny studio. If I could get a mortgage for around 185K (I saw a 2 bedroom at this price nearby my current place), my payment would be $1,143. Add in I'm guessing a $200 condo fee and it's $1,343. I could easily rent 1BR for $800. Maybe even $1000 based on some comparables.

I could see myself living in a condo for the next 5 years, possibly longer. I'm not really thinking of this as an investment - if it does appreciate than that's great but if not I will have gotten a better place to live for a lower price than I otherwise would have. I can use that savings to pay down my student loans quicker (all are under 5% however) or invest more.

The idea of my housing cost becoming $543 for a big upgrade in living space is appealing, but I feel like I'm missing something. Is my math wrong? Why doesn't every 20something do this? Bad credit? Don't want roommates?


markbrynn

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Re: Buy condo, get roommate, profit?
« Reply #1 on: January 18, 2016, 04:20:53 AM »
Depending on how all the extra costs of ownership add up, it could make sense.

Just have a quick comment. Make sure you're comparing equal situations between renting and owning. Why couldn't you share a rented 2-bed apartment right now? How much does it cost to rent the 2 bedroom? Divide in half and you have an idea how much that would cost.

This needs to be compared to the full cost of ownership (mortgage, condo fee, maintenance, risk of vacancy, insurance, etc.). Don't forget the other issues with owning housing (less flexibility in moving, down payment tied up outside of investments, etc.) You can probably assume that the value of the condo will go up a bit, but don't be too optimistic there.

In your example, if the cost of a 2Br to rent would be $1600, then you could have a big upgrade to living space by increasing your rent to $800 (share 2Br with someone as renters). Or, you could buy and pay $1343 + any other costs + intangible costs - whatever rent you can earn. As long as you're honest about the numbers on each side, this should guide your choice.

FrugalFan

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Re: Buy condo, get roommate, profit?
« Reply #2 on: January 18, 2016, 04:39:13 AM »
The numbers can make sense, but I'm not sure they do in your case. Don't forget property tax, insurance, vacancies, and all the maintenance costs. Do the comparison suggested above, but include all these costs.

BlueHouse

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Re: Buy condo, get roommate, profit?
« Reply #3 on: January 18, 2016, 05:13:42 AM »
Have you considered houses as well as condos?  Condos can get expensive because of the fees. Houses can be appealing to roomates with dogs.

Rubic

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Re: Buy condo, get roommate, profit?
« Reply #4 on: January 18, 2016, 08:27:41 AM »
This is what I'm currently doing now, but there are a lot of factors in my favor which may not apply to you:
  • Condo was purchased at a bargain price.
  • Condo represents a small portion of my net worth.
  • Local rent increases are double the national average.
  • I can easily afford to live in my condo even without a roommate.
The last point is probably the most important for your situation.  You could derive the same financial benefits by taking on a roommate in a rented apartment without the risk of a long-term mortgage commitment.

P.S.  Don't forget to factor in property taxes and HOA "special assessments" into your calculations.

randymarsh

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Re: Buy condo, get roommate, profit?
« Reply #5 on: January 18, 2016, 09:56:06 AM »
Thanks for all the replies everyone!

Just have a quick comment. Make sure you're comparing equal situations between renting and owning. Why couldn't you share a rented 2-bed apartment right now? How much does it cost to rent the 2 bedroom? Divide in half and you have an idea how much that would cost.

Renting a 2BR would easily cost $800 or more in the areas I've looked at. I could do this, but if I'm going to pay the same price (or more) in rent, I think I'd rather own.

Have you considered houses as well as condos?  Condos can get expensive because of the fees. Houses can be appealing to roomates with dogs.

I'm not completely opposed to a house, but I think finding one in my price range would be difficult. I also am not sure I'm ready for the extra responsibility of yardwork and allthe maintenance. Your point about dog owners is good though and it seems everyone in Denver has one.

The numbers can make sense, but I'm not sure they do in your case. Don't forget property tax, insurance, vacancies, and all the maintenance costs. Do the comparison suggested above, but include all these costs.

My OP with the $1343 includes those, except for a vacancy. Not sure how to calculate that? I also was reading about special assessments that can happen with condos, which sound similar to when you need to replace your home's roof. All the sudden $20000 gone!


This is what I'm currently doing now, but there are a lot of factors in my favor which may not apply to you:
  • Condo was purchased at a bargain price.
  • Condo represents a small portion of my net worth.
  • Local rent increases are double the national average.
  • I can easily afford to live in my condo even without a roommate.
The last point is probably the most important for your situation.  You could derive the same financial benefits by taking on a roommate in a rented apartment without the risk of a long-term mortgage commitment.

P.S.  Don't forget to factor in property taxes and HOA "special assessments" into your calculations.


I could afford to pay without a roommate, although I'm not sure about "easily". I'd still be able to save approx. 15% of take home pay. A special assessment is what could throw a wrench into everything. Denver rent has been rising like crazy though. I think it's finally starting to slow, but it's still rising. I've been extremely lucky my landlord hasn't risen my rent yet. I don't think a longterm vacancy is likely - there's too many young professionals living and moving here.

FrugalFan

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Re: Buy condo, get roommate, profit?
« Reply #6 on: January 18, 2016, 10:36:36 AM »

The numbers can make sense, but I'm not sure they do in your case. Don't forget property tax, insurance, vacancies, and all the maintenance costs. Do the comparison suggested above, but include all these costs.

My OP with the $1343 includes those, except for a vacancy. Not sure how to calculate that? I also was reading about special assessments that can happen with condos, which sound similar to when you need to replace your home's roof. All the sudden $20000 gone!

Landlords usually save 10% of each month's rent to help deal with vacancies. You could also use your municipality's actual vacancy rate as an estimate. Yeah, the special assessments can suck, especially if you are not expecting it. My SIL just got one of those for 9k! It was for something unusual, needing to install retaining walls along the property due to some erosion, so it was not like a roof or something you plan for. 
« Last Edit: January 18, 2016, 11:01:10 AM by Travelling Biologist »

Rubic

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Re: Buy condo, get roommate, profit?
« Reply #7 on: January 18, 2016, 10:44:30 AM »
If you decide to purchase a condo, determine from the HOA if there are any special assessments scheduled for the next 12 months.  If so, get the seller to pay those fees up front before you close.  A recent buyer at our condo did that and saved herself several hundred dollars.
 

Megma

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Re: Buy condo, get roommate, profit?
« Reply #8 on: January 18, 2016, 12:00:10 PM »
If you decide to purchase a condo, determine from the HOA if there are any special assessments scheduled for the next 12 months.  If so, get the seller to pay those fees up front before you close.  A recent buyer at our condo did that and saved herself several hundred dollars.

Also check that the HOA has a good reserve account they can tap in case of a big expense. If they don't, the association isn't being well run. And would be more likely to have an assessment if anything comes up.