Author Topic: How important is getting a great deal on your primary residence?  (Read 3246 times)

englishteacheralex

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Test case: We live and work in metro Honolulu, one of the priciest real-estate markets in the country. Last year we bought a 850 square foot, 3 bedroom 2 bath condo in a safe, clean, but unsexy neighborhood with a reasonable commute (6 miles) for me and an awesome commute (1 mile) for my husband. Price: 364K with $608 HOA fees. We put a 10% down payment on it and our goal is to have it paid off in 13 years.

Buying our own place always seemed bat-shit insane to us, because we are very frugal and the median price for a condo in Honolulu is $380k. (The median price for a house is somewhere in the 700ks, totally out of the question.) But renting has become more and more expensive. To rent the equivalent of our condo would cost approximately the same/month as our mortgage/HOA fee, and rent inflation has been going at a pace of around 8%/year. Last year, we finally decided it was a better idea to buy. Our combined income is $140k, we have a pretty good savings cushion, and we continue to try to save around 20% of our income (we also give away about 20% of our income, and have two kids in daycare to account for).

Here's the thing: the condo we bought was a REASONABLE price for what it is, but it wasn't a GREAT price. Getting a bargain in metro Honolulu just didn't seem like something that was ever going to happen in such a crazy tight market, where most condos go for the asking price or even up to 10% over asking. We don't have a lot of renovating skills/tools, so buying something dysfunctional on the cheap and then fixing it up didn't seem like a great idea.

My question is...it's a very bubbly market, in my opinion. We could already probably sell the place we bought for $15k more than we bought it for (covering closing costs). Would it be smarter to continue doing what we did for ten years out here--rent crappy, crappy cheap apartments and save the difference? Or should we just stick with what we've got?

GizmoTX

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Re: How important is getting a great deal on your primary residence?
« Reply #1 on: June 05, 2016, 11:07:45 AM »
I'd stay in the condo; quality of life NOW is also important.

rpr

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Re: How important is getting a great deal on your primary residence?
« Reply #2 on: June 05, 2016, 11:31:33 AM »
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Re: How important is getting a great deal on your primary residence?
I'd guess that in general, it is not very important unless you bought at peak of bubble.

ender

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Re: How important is getting a great deal on your primary residence?
« Reply #3 on: June 05, 2016, 12:54:49 PM »
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How important is getting a great deal on your primary residence


... that depends. Housing nearly always should be considered an expense, and not an investment, which helps make this sort of analysis easier.

If you never plan on moving, overpaying doesn't matter at all so long as you think it's a good value for the money you do pay. Don't be stupid here - either in going way too high but more importantly in deciding you are "never moving." Plenty of people who are "never going to move" end up moving.

If you plan on moving in the short term (especially ~5 or less years), it matters more, since you will basically eat the cost of overpaying when you sell.

Something to consider too is how much it would cost you per month to not buy. If you are spending $2k/month renting, waiting another year to save $5k on purchase price is a bit silly. But if you spend $500 month renting and can save $10k by waiting a year, it can make more sense.

matchewed

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Re: How important is getting a great deal on your primary residence?
« Reply #4 on: June 05, 2016, 01:01:11 PM »
Putting a roof over your head is no different from any other financial decision. Find the cheapest way that suits your requirements.

Utilize the NY Times calculator.

englishteacheralex

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Re: How important is getting a great deal on your primary residence?
« Reply #5 on: June 05, 2016, 03:38:01 PM »
I've run the NYT calculator dozens of times, and it always suggests that in our scenario, buying is a WAY better plan than renting.

I guess I've heard so many stories about the old maxim "you make your money in real estate when you buy" and we don't have one of those stories. We definitely didn't overpay, but it's just not one of those super cool stories of getting the best deal ever. I always wonder if it matters that much when you're living in it and you plan to stay for a long time. We made buying a property we knew we could live in indefinitely the major priority over getting a crazy good bargain.
 

rpr

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Re: How important is getting a great deal on your primary residence?
« Reply #6 on: June 05, 2016, 04:11:29 PM »
I would suggest not to worry about this. No such thing as the best deal. Enjoy your condo. You are living in a fantastic place.


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matchewed

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Re: How important is getting a great deal on your primary residence?
« Reply #7 on: June 05, 2016, 05:33:00 PM »
So were you buying a condo for some money making plan? Or were you buying a condo because you needed a reasonable place over your head? Sometimes you can have both, but it's okay to settle for the latter.

englishteacheralex

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Re: How important is getting a great deal on your primary residence?
« Reply #8 on: June 05, 2016, 08:01:14 PM »
It wasn't a money making plan, exactly. More of--how to live in the most money-efficient way without sacrificing too much by way of space and neighborhood after many, many years of sub-optimal renting situations for the sake of saving mucho bucks. This condo was the intersection of affordability and compromise.

We're ok with the decision, but it's still more than we'd like to be paying for housing, and the fact that it isn't a real-estate mastermind kind of deal makes it a little harder to swallow. Shelling out $2300/month for housing makes me gag a little.


calimom

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Re: How important is getting a great deal on your primary residence?
« Reply #9 on: June 05, 2016, 11:45:20 PM »
It's unclear what your concern is. You have to live somewhere. A family of 4 living in a pleasant condo in Hawaii for $2300 per month does not sound insane or unreasonable. Maybe just try going with the flow on this one, and saving elsewhere as you can.

matchewed

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Re: How important is getting a great deal on your primary residence?
« Reply #10 on: June 06, 2016, 04:31:17 AM »
If it's the most optimum decision outside of a larger change then what's there to grumble about?

sokoloff

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Re: How important is getting a great deal on your primary residence?
« Reply #11 on: June 06, 2016, 08:57:20 AM »
If you're happy in place, I think you should stay. (That seems tautological when I write it...)

My primary question is "What in the Sam Hill is included in your HOA fee that it's so high on a $380K condo?!"

englishteacheralex

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Re: How important is getting a great deal on your primary residence?
« Reply #12 on: June 06, 2016, 09:28:59 AM »
Oof. The HOA fee. Yeah, it's not ideal. The place has two pools, two gyms, a (way too big) security staff, a lot of landscaping, and two giant buildings. It was built in 1972 so a lot of things need replacing, and...Hawaii is expensive. Also, the building wasn't managed very well for the last decade or so--just got new management that seems much better, but a lot of things got out of hand before that happened. We knew this going in.

This thread has been reassuring, which is what I wanted. I read about real estate a lot, and it has bothered me that our primary residence isn't a great score (I was hoping to buy a foreclosure, but no such luck in this market). What I'd love to have done is buy a foreclosure, live in it for a while building equity, and then rent it out and make bank. I guess I'm just looking for reassurance that one can still amass a good stash without the benefit of this kind of good fortune. Instead we'll just do what we've been doing--saving our butts off.

matchewed

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Re: How important is getting a great deal on your primary residence?
« Reply #13 on: June 06, 2016, 09:50:32 AM »
I mean frankly is it possible to have further optimized? I guess the answer will almost always be yes. But then you're stuck analyzing to death without making a decision. If you find an opportunity that is better than the one you're in feel free to take the jump, but second guessing that which is already done does little to resolve that.

englishteacheralex

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Re: How important is getting a great deal on your primary residence?
« Reply #14 on: June 06, 2016, 12:13:05 PM »
Totally. Great point. Further optimization is always possible, but at a certain point, you just have to make a decision and go with it. The "satisficer" philosophy: this decision is good enough, let's move on.

I am just making sure it falls into that category, and not in the category of: huge mistake, why did you do that?

Telecaster

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Re: How important is getting a great deal on your primary residence?
« Reply #15 on: June 06, 2016, 12:35:27 PM »
I've run the NYT calculator dozens of times, and it always suggests that in our scenario, buying is a WAY better plan than renting.

I guess I've heard so many stories about the old maxim "you make your money in real estate when you buy" and we don't have one of those stories. We definitely didn't overpay, but it's just not one of those super cool stories of getting the best deal ever. I always wonder if it matters that much when you're living in it and you plan to stay for a long time. We made buying a property we knew we could live in indefinitely the major priority over getting a crazy good bargain.

That maxim is for commercial real estate where rents and the ability to raise rents will play a major role in your investment success.   Overall, real estate, commercial or residential, doesn't appreciate very much so that's not where people make money.   It certain locations it might, but you won't know if you are in one of those locations until ten or 20 years from now. 

If buying is way better than renting, then you made a smart move.   And in most cases the longer you stay in one location, the better the decision to buy becomes because the mortgage cost is fixed (taxes and fees of course are not)  but rents tend to increase over time.   If buying is better than renting right now, then that will likely be the condition for years into the future.     




Common sense

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Re: How important is getting a great deal on your primary residence?
« Reply #16 on: June 06, 2016, 03:24:44 PM »
Depends.  If you plan on staying there and never moving, then it only matters that you can pay it off.  If you plan on doing live in flips like I do, then getting a great deal on the house is the MOST important thing, because you make your money when you buy (ie getting a below market deal).