Author Topic: Help talk me into/out of buying a condo  (Read 6551 times)

monstermonster

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Help talk me into/out of buying a condo
« on: July 05, 2016, 12:25:36 PM »
It's possible I need some mustachian face-punches regarding real estate.

I've been putting off the "buy or not buy" decision for a long time, but come next spring, my lease is up on my apartment, I'll likely get a 10-15% rent hike, and I'm just skirting the upper income for homeownership assistance programs. I need to make the decision soon to switch to cash savings from maxing 401K/Roth in preparation for buying a house.

I'm single, 29 years old, make $49K (no debt), and live in Portland, Oregon which is having a massive rental crisis right now. Tenants have few  protections and my rent has doubled in the past 3 years. I share a 465 sq foot studio apartment that rents for $1490/month altogether, plus pet rent. Rental prices are only going up, and rental vacancy is at at less than .5% so it's hard to find a place. You can get evicted no-cause with only 90 days notice. Most of my coworkers rent has gone up ~$150+ at lease renewal if they haven't gotten evicted entirely to flip the property to a new transplant for more rent.

Housing prices in Portland are also going crazy right now. It's unclear if it's a bubble or this is the beginning of us becoming the Bay Area nightmare. Right now, the bottom of the market is $160,000 for a studio condo. Obviously, even the bottom of the market defies the 2x annual income for me.

The condos I'm looking at would be around $210K-$250K for a 2-bedroom condo. My monthly mortgage would be less than the current apartment I rent. I'd rent out the second room bringing my costs including HOA down to close what I am paying currently. If I buy next summer, it's likely I can come up with the ~$42,000 in cash for a 20% down payment (without pulling anything out of my investments).

Here are some programs I qualify for being under 100% of Median Family Income:

1) Either I get a 3.25% locked rate, or a 3.75% locked rate with 3% cash towards closing costs or downpayment. On a $250K house, that would be $7500 "free".
2) In some circumstances, I could qualify for a deferred 2nd loan for up to 20% down payment which would be at ~4% interest, which will have to repaid upon sale of the property except in certain circumstances. It creates an additional lien on the property but no PMI and low out of pocket.
3) Up to 100% financing from a credit union where it would all be at a 4.25% interest rate, no additional lien, and no PMI.

For all of these there may be a recapture fee if I sell the home prior to 9 years of ownership.

I would get a Mortgage Credit Certification, which get me an additional 20% federal tax credit on any mortgage interest I pay. So in the first year if I paid $15,000 in interest, I'd get a $3,000 federal tax credit to use if I itemized. This lasts for the life of the loan, so it would be a little less each year due to amoritization.

The one I'm guaranteed to get is $6,000 of cash to spend on a down payment or closing costs, to match my $2,000 I saved. I have to use this by January 2018 or it expires.

Can you talk me out of this or into this?

Major reasons to buy:
  • Stabilizes housing costs in a crazy market
  • Can paint the walls and do crazy things to the house
  • Feeling "settled"
  • Second stream of income as a landlord
  • No pet rent (which is usually $30-50 month)
  • Currently qualify for a lot of assistance programs

Major reasons not to:
  • Not wanting to be "house poor"
  • Everything on Jcollinsnh's list of why a house is a bad investment
  • At some point a giant earthquake is going to destroy Portland
  • Having to reduce 401K giving from 35% ($18,000) to 6%($2,900) while I save for a downpayment for a year
  • Can only "afford" a condo which may have an annoying HOA
  • Still have to pay property tax and HOA

Lmoot

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Re: Help talk me into/out of buying a condo
« Reply #1 on: July 14, 2016, 07:47:54 PM »
I say go for it after you've saved 20%, plus $10k for closing, escrow, and move-in costs, and have a healthy efund. An efund is most important when you get a mortgage. There's no more the chance to get a cheaper place with a buddy, or move back home, or sleep in your car, or camping it out; well, I mean you could do those things, but you'll still owe money on a house. Do not buy if you have to dip into your 401K. If your ROTH is at least 5 years old, you can withdraw the contributions with no penalty. If you plan on staying in Portland at least 3-5 years, buy. Rents will only go up.

Definitely factor in HOA costs and any taxes/ insurance costs to see if it will truly be a better value than rent. My mortgage is only 1/2 of my house payment. And don't make yourself house poor. Have an idea in your head about the minimum you want to have leftover to save each month; do not buy a house that reduces or eliminates your ability to save at least this amount.

pdxmonkey

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Re: Help talk me into/out of buying a condo
« Reply #2 on: July 14, 2016, 09:56:13 PM »
Make sure anything you buy is in a building that has already been seismically upgraded or that has been built since standards became decent. Then you should be able to get earthquake insurance.

pdxmonkey

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Re: Help talk me into/out of buying a condo
« Reply #3 on: July 14, 2016, 10:01:19 PM »
I say go for it after you've saved 20%, plus $10k for closing, escrow, and move-in costs, and have a healthy efund. An efund is most important when you get a mortgage. There's no more the chance to get a cheaper place with a buddy, or move back home, or sleep in your car, or camping it out; well, I mean you could do those things, but you'll still owe money on a house. Do not buy if you have to dip into your 401K. If your ROTH is at least 5 years old, you can withdraw the contributions with no penalty. If you plan on staying in Portland at least 3-5 years, buy. Rents will only go up.

Definitely factor in HOA costs and any taxes/ insurance costs to see if it will truly be a better value than rent. My mortgage is only 1/2 of my house payment. And don't make yourself house poor. Have an idea in your head about the minimum you want to have leftover to save each month; do not buy a house that reduces or eliminates your ability to save at least this amount.

It might not make sense to save 20% without a massive income in Portland right now if the market stays the way it has been. Year over year prices are up ~13%. It might just be cheaper to pay a higher rate and pay PMI for having lower equity vs the amount prices will go up by the time you save the extra $. If you go this route make sure whatever you sign will let you get out of PMI early based on a reappraised value so that if/when things do keep going up you can get out of PMI as soon as you hit 20% current equity rather than having to wait until you pay down the mortgage to be 80% of the purchase value..

Lmoot

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Re: Help talk me into/out of buying a condo
« Reply #4 on: July 15, 2016, 04:23:09 AM »
I say go for it after you've saved 20%, plus $10k for closing, escrow, and move-in costs, and have a healthy efund. An efund is most important when you get a mortgage. There's no more the chance to get a cheaper place with a buddy, or move back home, or sleep in your car, or camping it out; well, I mean you could do those things, but you'll still owe money on a house. Do not buy if you have to dip into your 401K. If your ROTH is at least 5 years old, you can withdraw the contributions with no penalty. If you plan on staying in Portland at least 3-5 years, buy. Rents will only go up.

Definitely factor in HOA costs and any taxes/ insurance costs to see if it will truly be a better value than rent. My mortgage is only 1/2 of my house payment. And don't make yourself house poor. Have an idea in your head about the minimum you want to have leftover to save each month; do not buy a house that reduces or eliminates your ability to save at least this amount.

It might not make sense to save 20% without a massive income in Portland right now....It might just be cheaper to pay a higher rate and pay PMI for having lower equity vs the amount prices will go...

Typically I would agree, but I gathered from the OP's post that 20% is doable for him in the short term, and we don't know what he has saved already. Sometimes the only option people "without a massive income" have, is to start out with the maximum equity they can afford (or at least 20%), in order to minimize the monthly bill. Even where the market is now, anything less than 20% down, and with the added cost of PMI and higher interest, despite possibly being a marginally better deal than waiting 1-2 more years, does not change the fact of the math...that he only makes $49k in a HCOL area. I question how much better of a deal it would be.

Deals can be had at anytime. It's always better to shop at street level, not market level. Find the location you want to buy, and constantly be on top of any deals. People need to sell in a hurry, there are short sales, auctions, foreclosures, fixer uppers.

« Last Edit: July 15, 2016, 04:30:32 AM by Lmoot »

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #5 on: July 15, 2016, 09:19:28 AM »
I say go for it after you've saved 20%, plus $10k for closing, escrow, and move-in costs, and have a healthy efund. An efund is most important when you get a mortgage. There's no more the chance to get a cheaper place with a buddy, or move back home, or sleep in your car, or camping it out; well, I mean you could do those things, but you'll still owe money on a house. Do not buy if you have to dip into your 401K. If your ROTH is at least 5 years old, you can withdraw the contributions with no penalty. If you plan on staying in Portland at least 3-5 years, buy. Rents will only go up.

Definitely factor in HOA costs and any taxes/ insurance costs to see if it will truly be a better value than rent. My mortgage is only 1/2 of my house payment. And don't make yourself house poor. Have an idea in your head about the minimum you want to have leftover to save each month; do not buy a house that reduces or eliminates your ability to save at least this amount.

It might not make sense to save 20% without a massive income in Portland right now....It might just be cheaper to pay a higher rate and pay PMI for having lower equity vs the amount prices will go...

Typically I would agree, but I gathered from the OP's post that 20% is doable for him in the short term, and we don't know what he has saved already. Sometimes the only option people "without a massive income" have, is to start out with the maximum equity they can afford (or at least 20%), in order to minimize the monthly bill. Even where the market is now, anything less than 20% down, and with the added cost of PMI and higher interest, despite possibly being a marginally better deal than waiting 1-2 more years, does not change the fact of the math...that he only makes $49k in a HCOL area. I question how much better of a deal it would be.

Deals can be had at anytime. It's always better to shop at street level, not market level. Find the location you want to buy, and constantly be on top of any deals. People need to sell in a hurry, there are short sales, auctions, foreclosures, fixer uppers.
I can get to 20% by next year without touching my Roth or 401K, though I would need to dial back my 401K savings from 35% to 6% for about a year, as I save 65% of my income right now - the big push to buy sooner rather than later is that I HAVE to buy by Jan 2018 to take advantage of the free downpayment 300% match on my savings (up to $6K). When my lease expires in May 2017, it's likely my rent will jump by another 15-30%.

I'm also teetering near the upper income limitation on a few programs that make buying a home a lot cheaper for me (10 year property tax abatement for example.)

The big issue with myself (female OP, btw) is that my rent right now is greater ($1490) than mortgage, HOA and taxes would be on a similarly sized place (~$1250). I don't particularly want to "own" but I am up to my ears in frustration with the current rent increasing at 30% annually.

Lmoot, you might not understand what's happening in Portland right now, but assure you there little to no deals to be found for the common person. There's 10 competing offers, minimum, within 72 hours, on most properties, and 40% of house sales in the past year have gone to out-of-state cash buyers. It's BAD here.
« Last Edit: July 15, 2016, 09:22:46 AM by monstermonster »

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #6 on: July 15, 2016, 09:22:13 AM »
Make sure anything you buy is in a building that has already been seismically upgraded or that has been built since standards became decent. Then you should be able to get earthquake insurance.
That's another part of the issue. I can't afford anything in a new building - everything would be pre-war (not seismically upgraded.) Bottom of the market for newer construction is way out of my reach.

Lmoot

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Re: Help talk me into/out of buying a condo
« Reply #7 on: July 15, 2016, 10:45:19 AM »
Make sure anything you buy is in a building that has already been seismically upgraded or that has been built since standards became decent. Then you should be able to get earthquake insurance.
That's another part of the issue. I can't afford anything in a new building - everything would be pre-war (not seismically upgraded.) Bottom of the market for newer construction is way out of my reach.

True about me not knowing the Portland market (and sorry for the gender mixup!). I've only lived in LCOL areas where there are always good deals and not as much competition. I bought my single family house at the age of 25, in 2009 at the pit of the recession for almost half what it sold for in 2005....plus I got $8k from the FTHBTC. So with all that it only cost me $71k. 

Is there a reason why at age 29 you are putting so much into your 401K? Are you at least maxing out a ROTH before you're putting all that into your 401K? Don't get me wrong, it's great to save for retirement early, but 65% of income is pretty high if it means you are faced with buying into a risky investment which could turn into a depreciating asset, or end up costing you down the road.

Another option is to borrow from your 401k instead of claiming it. If you plan on being with the same employer, you'll have 5 years to pay it back, and any interest gets paid back into the account. This would allow you to buy a better quality property that will cost less to insure and will be better protected (need less work), and could ultimately cost you less money, and earn you more profit in term of sale or room-letting.

A lesson I've learned first hand...a cheap house can become an expensive house. 7 years and $25k+ in repairs later and I'm still dealing with issues including an upcoming $8k project to rewire the entire house so I can get my insurance back down to a less painful level. At least I had a say in when I did the repairs and how much it would cost (well, except when the insurance company told me I had to replace my roof 6 months after closing, or they would drop me)....with an HOA and an old building, if the insurance company requires fixes to pass inspection, the HOA could require an emergency retainer from you at any time. I've seen entire complexes go up, where the collective owners and HOA don't give a shit anymore, they're just trying to get out of a burning building, and they sell units at less than what they paid, reducing the value of your unit.

Personally I wouldn't buy a fixerupper condo within a fixerupper building where you don't have say on the frequency or quality of much of the upkeep.
« Last Edit: July 15, 2016, 11:05:25 AM by Lmoot »

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #8 on: July 15, 2016, 11:37:14 AM »
Make sure anything you buy is in a building that has already been seismically upgraded or that has been built since standards became decent. Then you should be able to get earthquake insurance.
That's another part of the issue. I can't afford anything in a new building - everything would be pre-war (not seismically upgraded.) Bottom of the market for newer construction is way out of my reach.

True about me not knowing the Portland market (and sorry for the gender mixup!). I've only lived in LCOL areas where there are always good deals and not as much competition. I bought my single family house at the age of 25, in 2009 at the pit of the recession for almost half what it sold for in 2005....plus I got $8k from the FTHBTC. So with all that it only cost me $71k. 

Is there a reason why at age 29 you are putting so much into your 401K? Are you at least maxing out a ROTH before you're putting all that into your 401K? Don't get me wrong, it's great to save for retirement early, but 65% of income is pretty high if it means you are faced with buying into a risky investment which could turn into a depreciating asset, or end up costing you down the road.

Thank you for responding! This is good insight. I am so sick of waffling back and forth on this issue. You brought up a lot of my concerns - mainly unexpected assessments that I have to pay off.

I'm jealous of other places' housing markets :( Portland is so effed right now. $70K would buy you a tree on a strip of grass next to a highway in portland right now. If you're lucky.

I save 65% of my income - which includes maxing out my Roth, usually by the 3rd month of the year -  because it's very easy for me to live on very little money and would like to retire in my mid-40's.  The rest is currently cash savings. My emergency fund is 8 month's expenses (separate from my down payment fund), I'd like it to be 12 months before I start buying taxable investments. $49K is a very high salary compared to what I'm used to.

I'm a little confused about your second question - are you implying that my 401K is a risky investment, or do you think that 65% of my income would be going to the condo? Only 1/3 of my post-tax income would be going to mortgage, HOA, taxes, and insurance. If I can get a 2-bedroom, I would also have a roommate paying half of that, meaning 1/6 of my income would be going to my housing.

I am only considering properties where I would still be able to save 50% of my income after all living expenses. That means the purchase price has to be $210-$250K, depending on HOA, of which maybe 1 or 2 come up per month in Portland. So there's slim pickings.


Another option is to borrow from your 401k instead of claiming it. If you plan on being with the same employer, you'll have 5 years to pay it back, and any interest gets paid back into the account. This would allow you to buy a better quality property that will cost less to insure and will be better protected (need less work), and could ultimately cost you less money, and earn you more profit in term of sale or room-letting.
Personally I wouldn't buy a fixerupper condo within a fixerupper building where you don't have say on the frequency or quality of much of the upkeep.
I couldn't buy anything bigger or better than the bottom of the market. I wouldn't get approved for anything more, nor would I. I would never borrow from my Roth or my 401K.

Definitely wouldn't consider a fixerupper building - they're just going to be older buildings that aren't protected for the earthquake. Since at some point a giant earthquake is going to hit Portland, only things built after 1990 are going to be seismically upgraded. That doesn't mean what I can afford is a fixerupper, it just means it isn't earthquake-proof.

Lmoot

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Re: Help talk me into/out of buying a condo
« Reply #9 on: July 15, 2016, 12:16:47 PM »
Seems like you've put a lot of thought into what you can and can't do, or are willing to do...which is great. You are approaching it very realistically which a lot of people don't do when it comes to a decision like buying property.

To clarify:
Quote
Don't get me wrong, it's great to save for retirement early, but 65% of income is pretty high if it means you are faced with buying into a risky investment which could turn into a depreciating asset, or end up costing you down the road.

What I meant was it's great to save early and hard for retirement if you can swing it, but if it means you have to skimp on other life expenses in a way that might end up costing you down the line (like buying a property that is more likely to eat at your networth, than add to it), you might need to re adjust how much you're saving. Borrowing from your 401k might actually work out in your favor since you are not taxed on the borrowed amount (like you would be if you took out the same amount from other investments).

Hmmm, some stuff to think about. By the way I am neither a 401k or tax expert. I just enjoy creative financing :)

I totally understand wanting to meet a minimum savings goal after purchasing. What I meant when I mentioned bumping up your buying budget by borrowing, was that you would also put down enough of a DP to keep your monthly payment at your preferred limit. If the properties you can afford aren't dilapidated, and not expected to be a bad investment down the line, then definitely go for as low as you can go....just as long as it doesn't cross that threshold where it's no longer a value, because of quality.

Good luck!
« Last Edit: July 15, 2016, 12:18:28 PM by Lmoot »

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #10 on: July 15, 2016, 12:34:41 PM »
Seems like you've put a lot of thought into what you can and can't do, or are willing to do...which is great. You are approaching it very realistically which a lot of people don't do when it comes to a decision like buying property.

To clarify:
Quote
Don't get me wrong, it's great to save for retirement early, but 65% of income is pretty high if it means you are faced with buying into a risky investment which could turn into a depreciating asset, or end up costing you down the road.

What I meant was it's great to save early and hard for retirement if you can swing it, but if it means you have to skimp on other life expenses in a way that might end up costing you down the line (like buying a property that is more likely to eat at your networth, than add to it), you might need to re adjust how much you're saving. Borrowing from your 401k might actually work out in your favor since you are not taxed on the borrowed amount (like you would be if you took out the same amount from other investments).

Hmmm, some stuff to think about. By the way I am neither a 401k or tax expert. I just enjoy creative financing :)

Good luck!

Oh that makes sense now. Yea, I'm not at risk currently of buying anything that will "eat at my net worth" because the housing market insanity in Portland. I'm also not going to have to pay PMI because I won't buy until I get to 20% down payment.

Because of the fuckery in Portland right now (excuse my french), there's not really a crop of fixer-uppers vs fancy houses to consider. It's not as though buying a house for $250K is the cheap houses - it's just "what I can afford" and the only price range there's houses in.  It's really "there are about 6 listings a year in portland that I would get approved to buy and they're all going to go up in value". If I was willing to buy outside the city limits (which I'm not) that might be more of a consideration.

While I might not get taxed on a 401k loan, I WOULD lose out on all that sweet compound interest. No thank you!

Thanks for all your thoughts on this! I really appreciate it. I'm planning on dialing back my 401K to 20% and saving the extra in cash, and waiting to make a decision until January when I'd need to start super-charging my cash savings.

pdxmonkey

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Re: Help talk me into/out of buying a condo
« Reply #11 on: July 15, 2016, 02:57:06 PM »
Suburbs near a max station? I bet those are in the low 200s right now and many are fairly new.

pbkmaine

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Re: Help talk me into/out of buying a condo
« Reply #12 on: July 15, 2016, 03:01:38 PM »
How sure are you that you will stay in Portland?

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #13 on: July 15, 2016, 03:07:05 PM »
Suburbs near a max station? I bet those are in the low 200s right now and many are fairly new.
I can't live outside the city limits because I want to run for office at some point :-) But sadly, even in East Portland, most things are in the high-$200's/low 300's at this point. Plus the condos out in 122nd - unwalkable neighborhood, and ugly condos.

How sure are you that you will stay in Portland?
Pretty damn sure. Still want to run for office here, and I moved my parents out from 2500 miles away (I'm an only child) a few years back so I'm pretty permanently domiciled at this point. My network and friends are all here. Any traveling I want to do elsewhere is only short term. This is home.

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« Last Edit: July 15, 2016, 03:14:10 PM by Yankuba »

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #15 on: July 15, 2016, 03:23:34 PM »
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

https://www.amazon.com/dp/B000FA5L5O/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1
Rent vs Buy says I should buy every time. But the hard part is predicting if the rental and housing markets in PDX will continue to do what they've been doing.

Also, lol, I put in the current housing market increases (13%) and rental cost increases (10%) and ended up with this:



But the numbers don't also properly account for a bunch of other factors that aren't numbers like Giant Earthquake and Shitty HOA; that's where the hesitation comes into play.

Edit, also thank you for the link to that book! I just reserved it at the library!

totoro

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Re: Help talk me into/out of buying a condo
« Reply #16 on: July 16, 2016, 11:18:22 AM »
Would your parents and you have any interest in buying a duplex(able) or suite(able) home together?  Could possibly be a good deal for both of you if you get along.  Thing about condos is that even though they are appreciating in Portland houses are probably appreciating faster due to the greater land component and you don't have to deal with inconsiderate neighbours or special assessments.  I'd do this for my kids in a HCOL area.

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #17 on: July 16, 2016, 11:52:00 AM »
Would your parents and you have any interest in buying a duplex(able) or suite(able) home together?  Could possibly be a good deal for both of you if you get along.  Thing about condos is that even though they are appreciating in Portland houses are probably appreciating faster due to the greater land component and you don't have to deal with inconsiderate neighbours or special assessments.  I'd do this for my kids in a HCOL area.
We've talked about buying a duplex, but there's almost none on the Portland market and they're all in the $750K+-$1million range. Almost all of what is on the market is being bought in cash by out-of-state buyers and then rented or airbnbed out. It's sort of crazy. No, it's legit crazy. Out of reach for even my folks + I in a combined effort.

I could possibly get a house that I could convert a floor into a legal ADU (the way to do a duplex conversion with lower overhead). The only houses affordable though aren't in my ideal locations (a good 50 minute bike commute/not walkable/higher crime.)

They already bought and own a home outright in Portland, which is one half of a townhouse - not really a duplex but they do share 1 wall with their neighbor.

I actually don't have a problem with inconsiderate neighbors - obviously I have to deal with that right now anyway. I want the smallest amount of space possible while still having a door on my bedroom, and I'd rather have a condo than have to deal with a yard.  I like apartment living. I just don't want those crazy special assessments. No dropping $60K unexpectedly because the whole sewer system needs to get replaced. ((eesh))

totoro

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Re: Help talk me into/out of buying a condo
« Reply #18 on: July 16, 2016, 02:34:47 PM »
What about co-ops?  We have them here, they are lower priced but harder to finance - so they don't appreciate much - but might meet your need for stable housing if there is any way for you to get financing.

I personally would buy in a rising HCOL market as it has worked out for us.  You just have to be able to stay invested long enough to manage any market risk.  A two-bed with room-mate is probably best.   Desirable ares like Portland and Victoria will always, imo, attract a premium.  Even with the threat of a big earthquake.  And, fwiw, where there have been big earthquakes in California the market rebounded in a few years.

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #19 on: July 16, 2016, 02:56:07 PM »
What about co-ops?  We have them here, they are lower priced but harder to finance - so they don't appreciate much - but might meet your need for stable housing if there is any way for you to get financing.
We don't have co-ops here, really (there's only one in Portland and a house hasn't turned over there in 7 years). I believe there's one for seniors, too.

But there is low-income housing complexes where you have a limit on how much you can make at sale so it stays affordable, but most of them are very restrictive HOAs similar to a rental - the one that I would qualify for doesn't allow pets, you have to stay for 9 years minimum, and you have to be a working artist (which I am) to qualify. Also no 2 bedrooms in those buildings, only studios.

There's also low-income houses where the housing nonprofit owns the land, bringing the cost of the mortgage down because it's only on the house itself. Also there's a limit on how much you can make at sale on that one too. But families with children get first in line, plus there's often morality clauses (no cohabitation among unmarried partners). Also, with my recent job change, I now make too much money for that one, as you have to be below 80% of median income, which I am not.

So there's options, but none are ideal.
« Last Edit: July 16, 2016, 02:57:55 PM by monstermonster »

Bicycle_B

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Re: Help talk me into/out of buying a condo
« Reply #20 on: July 16, 2016, 03:00:13 PM »
I'm no expert, but I do hear one thing:  OP, you've already done a lot of research and maximizing. 

You've committed to staying, so pull the trigger. 

totoro

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Re: Help talk me into/out of buying a condo
« Reply #21 on: July 16, 2016, 03:29:07 PM »
Well, last ditch perhaps but have you thought of finding other like-minded folks and buying something larger fractionally?  You'd need a written agreement with buy-out clauses ect. but it is a way of creating your own co-housing situation.  Given the market in Portland there will likely be a future market for a fraction ie. use of a floor of a home with potentially shared kitchen and living areas - or not.  Some 3-story homes here could be divided this way without making permanent alterations and the cost per 1/3 share would be about what you are considering paying for a condo.  Bonus if you like it is that there would be yard space and greater appreciation.  Where we are it is possible to get co-ownership mortgages based on the fraction (ie. 331/3).

pdxmonkey

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Re: Help talk me into/out of buying a condo
« Reply #22 on: July 16, 2016, 07:12:12 PM »
Correct. Insurance companies won't issue earthquake insurance for homes that haven't been seismically upgraded. I assume the same goes for mdus. This generally means anything built prior to the mid 70s is not insurable against earthquakes if it has not been upgraded. The current estimates seem to be at something like 25% chance of there being a magnitude 9 earthquake on the northern Oregon portion of the Cascades subduction zone within 50 years

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #23 on: July 17, 2016, 11:00:04 AM »
(xposted to my journal - sorry folks that follow!)

So. Interesting update. A duplex went up in my parent's neighborhood for $475K. That sounds like a crazy amount of money (and it is) but it's actually the lowest we've seen a duplex in Portland in the past several years (most are going for $500K-$1 million). It's 3 blocks from my parent's house, pretty cute - 2 2bedroom units, rents for $1500 (back) and $1700 (front), seismically upgraded (bolted to foundation). It's two blocks from a lightrail station, a short walk from a super-cute bustling business strip with a ton of development (and the best burrito place and karaoke place in town), and right on the bike path for a 3 mile ride to downtown. About 2.5 miles to work for me. Views of the mountain. Might need electrical upgrades (my dad is an electrical engineer by education so he is gonna do more investigation.)

Mortgage, property, taxes, and insurance would be around ~$2,100/month. With tenants, I'd be paying less than we are now for our 1-bedroom even if the front unit has 60% occupancy at market rate. Plus I could rent out the second room in my unit or AirBNB it. My mom (who has way too much time on her hands and experience managing residencies from the military) would help manage the property.

My parents went to look at it and got pretty excited about the prospect of going in together on a building. I'm pretty terrified that it actually might be a good idea. Here are the options based on our brainstorming last night:
  • My dad still hasn't used his VA loan entitlement (my mom has) and could get a VA loan. However, it appears you have to owner-occupy for that. More investigation to follow.
  • I can't use the super-awesome Oregon Bond mortgage (3% cash at closing, 3.75% rate or 3.25% rate) because it's a duplex. However, it appears I could qualify to buy the property myself if my parents "gift" me part of the money for a down payment. We'd call it a gift but work out some arrangement where they get a percentage of rent for X years or something.
  • My parents buy the house outright themselves and then in a year we split the property, form an HOA (the Monstermonster Family Housing Association), and I buy the smaller unit as a condo and use all the cool perks I get for being less than Median income. Downside is then I don't get any income from the front unit and we're not entirely sure this is possible.
  • We do a joint loan for the house and split it - however this means that we wouldn't qualify for the mortgage credit certificate and other median income perks.


I'm going to go see the house today and bring a very long list of things to look for in investment properties. Any recommendations or thoughts, y'all? Is this crazypants? Current credit score is ~790 so I should be able to get the best rate. Folks' is 810 or so but they would be buying an investment property (not owner occupied) so their rate would be higher.

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Re: Help talk me into/out of buying a condo
« Reply #24 on: July 18, 2016, 07:49:53 AM »
Exciting! Good luck. It's nice that your parents are supportive and on board and seemingly as gungho as you. I think with you and your parents' mindset and research, you all will be successful in finding something.

totoro

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Re: Help talk me into/out of buying a condo
« Reply #25 on: July 18, 2016, 09:49:59 AM »
I hope it works.  Long-term that is going to be way better for you re. appreciation, rental income and no HOA. 

The main thing for investment properties are similar to what you'd look for in a house - what are the condition of the perimeter drains, foundation, roof, heating and electrical systems (you've already id'd this)?  Is there mould or asbestos?  These are the bigger ticket items.  With a duplex you'll also want to look at soundproofing - side by side is better than up down. 

$475k seems inexpensive for a HCOL market like Portland.  Our market doesn't even have SFH at that price.  It is all relative and you'd be paying less than you are now if you can make this work. 

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #26 on: July 18, 2016, 10:36:55 AM »
Looked at the property. It's got a lot of recent core upgrades, but it definitely still very rental-y on the inside. It's a 1920's house so there's some quirks. I made approximately 12 different spreadsheets yesterday and researched a lot about financing, and essentially every single thing I qualify as a first-time homebuyer doesn't allow you to finance a duplex with it. Except FHA financing, which is what we'd have to do.

Essentially, the numbers work but for non-numbers reasons, I think it's the wrong time.

I decided against it for a few reasons:
  • I just started a job where I work 70+ hrs a week, and think that probably means it's a terrible time to buy a property that would need some sweat equity (all cosmetic) and would require property management.
  • We don't think my parents can scrape together enough liquid assets to buy it outright alone because they'd need 25% down by themselves - which is $118,000 + $7000 closing, not really a small amount of cash for them - plus all the investigations we did into splitting a duplex into a condo seem to indicate it might not be possible legally based on zoning.
  • I am in this golden period where I am a first time homebuyer under 100% of Median Income. I qualify for a TON of things - like a 20% extra tax credit on my mortgage interest, a locked 3.25% rate, a silent forgivable second down payment loan - and none of those cool programs are duplex eligible. While I'm still in that category of homebuyer, I should take advantage of those programs, even if it means buying something that later I can add an ADU to, or buy a second property later on (if I like owning/landlording.)
  • It just seems big and scary - it's technically a "jumbo" loan. That's fucking crazy. I am not a jumbo anything in my life. The idea of taking out more debt than I actually need in investments to live for the rest of my life seems a bit crazy. I know the numbers work, but my heart hurts at it.
  • I don't have enough emergency cash after putting 20% down to feel comfortable taking on a $2000 mortgage that I'd need to get a tenant in immediately for cash flow. Especially given my life right now.
  • It's somewhat silly - but it's not that cute. I'd have to do work to make it cute - and frankly, when the heck am I going to find the time to make it cute? I could buy something a lot less expensive that requires a lot less money* and time to be adorable and "home"**.

*LUST LUST LUST Look at those arched windows!
**Only rich people live in places like this- but that garden! That ceiling!

pbkmaine

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Re: Help talk me into/out of buying a condo
« Reply #27 on: July 18, 2016, 10:43:50 AM »
These are both very cute. I like the less expensive one - it's gemütlich.

pbkmaine

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Re: Help talk me into/out of buying a condo
« Reply #28 on: July 18, 2016, 07:52:49 PM »
Good point. However, the other one is better for the 1940s dresses and matching hats.

monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #29 on: July 18, 2016, 08:14:35 PM »
Oh, you two!

I totally went to look at the first (older, more vintage) one today. Good thing I re-ran the numbers and reminded myself that I should NOT buy a 1 bedroom (but instead something I can rent out a bedroom) because IT WAS VERY VERY CUTE. They won the staging game hands-down.

I would fill those walls with vintage hats so hard.

</impractical condo lust>


monstermonster

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Re: Help talk me into/out of buying a condo
« Reply #30 on: July 18, 2016, 09:51:38 PM »
Doesn't SSO do real estate investment?  Can't you convince him to buy one or both.  You could swap back and forth -- vintage theme parties this year, Bowie blowouts next.
SSO says "Solid plan".

In reality, I'm in a better position to buy than he is at this point. He's trying to sell a house he has back in College Town where the market hasn't bounced back quite as well as Portland, and he's definitely lost money overall in that. I think 2016 will be the first year in a decade he won't be buying or refinancing a house...


Seriously, though, I think since your lease runs until next spring and your work life is insane until after the election, you should probably table the house hunt for now.  Unless you find it relieves more stress than it causes.

It is awful seeing the place you want and not being in a position to buy.  My magnificent waterview place is still available and it is KILLING me not to be able to put in an offer....
Fair point. I'm not terribly tortured by passing on real estate. I'm mainly keeping an "eye" out because SSO has agreed to hold onto the lease if necessary by himself if I need to move. With such low stock on the Portland market, it's just in case the right deal comes up - but I'm still hoping to not buy until next summer at the earliest (or never). It's possible that there will be less competition in the winter (lol, theoretically but probably not true in portland) and if something comes up I won't be competing against 6 cash offers.