Author Topic: Purchasing Mistake?  (Read 2649 times)

JamesL

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Purchasing Mistake?
« on: April 05, 2014, 03:27:31 PM »
Hey everyone,
So I purchased my first condo (studio) last year, and I feel like it might be a mistake in retrospect. Admittedly I got caught up and pressured into a buy (real estate agent kept saying nothing was on the market within my price range, so I raised it to a level I was uncomfortable with).

Long story short, my payments are 50% more than what I could rent a comparable unit for and are 60% of my net income (kills my savings rate).
Here are the numbers: Mortgage= 1530 (includes taxes, insurance, HOA, interest, and $250 principal).
To rent a unit similar: 1k
To rent my unit: 1.1k
To rent a room: 500-600

It's near the beach in San Diego, so the possibility of long-term equity gains is probable, but it's painful to see such a big chunk go out every month.

I keep telling myself I should sell it and get into a shared house situation so my expenses are 1/3, at least until I'm making more money. I'm 24 and will be starting a career within the next couple years. Note, I don't get a tax right off because my standard deductions are more than itemized.

I'd appreciate any thoughts/insights. Thanks!

Another Reader

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Re: Purchasing Mistake?
« Reply #1 on: April 05, 2014, 03:52:20 PM »
When last year did you buy the property?  If there is enough appreciation to cover the costs of selling, in your shoes I would consider doing so.  It's costing you too much and who knows where you will be when you start your career. 

JamesL

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Re: Purchasing Mistake?
« Reply #2 on: April 05, 2014, 04:57:15 PM »
July.. I think I can sell it and be even or make 5k if I'm lucky. I've fixed it up and am still in the middle of doing so. I'm estimating spending 5k for a complete overhaul. If I paid myself it would be over 5k more for the work but it's experience. I'd also need to sell it for sale by owner. I'm watching 5 other studio condos in my project for sale, to give me an idea of what I can get.

I'm also trying to look at it as a sunk cost.  Thanks for the input!

La Bibliotecaria Feroz

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Re: Purchasing Mistake?
« Reply #3 on: April 05, 2014, 05:48:40 PM »
You are young. Don't let a condo hold you back forever. If you can get out just a little singed by the experience, DO IT. My husband and I realized that we had made a mistake buying a house, but we thought it would be better to tough out the mortgage payment for a few years since we figured we would move in a few years out of state then anyway. During those few years, the real estate market tanked and we lost, literally, every penny that we had ever had. If we had gotten out when we first realized it was a mistake, that wouldn't have happened.

JamesL

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Re: Purchasing Mistake?
« Reply #4 on: April 05, 2014, 06:24:51 PM »
Yikes, that's a good point about the market tanking. That can be the negative side of leveraging such a large amount of property when the rent is so much lower than the mortgage. Friends and family always say I'll only make more money in future jobs (so the payments won't hurt as much), but somehow that doesn't make me feel any better.

golfer44

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Re: Purchasing Mistake?
« Reply #5 on: April 05, 2014, 06:45:55 PM »
Friends and family always say I'll only make more money in future jobs (so the payments won't hurt as much), but somehow that doesn't make me feel any better.

Nor should it. What if you lose your job?

JamesL

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Re: Purchasing Mistake?
« Reply #6 on: April 05, 2014, 07:49:17 PM »
I've actually been thinking of a similar situation; Once I start my career in accounting I'd like the flexibility to move around to wherever a job takes me so I can still bike to work. It's interesting how just typing out ideas in my head can make them seem more clear cut lol.

CanuckExpat

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Re: Purchasing Mistake?
« Reply #7 on: April 05, 2014, 10:16:27 PM »
Do you are leaving out some information, for example, you say your payments are 50% more than you could rent a similar unit (that is a red flag), but the situation would be very different if for example those were payments on a 30 year high interest mortgage, or because you are some kind of crazy five year pay off with very low rate, just to pick extreme examples.
Plug in your numbers and best estimates here: http://www.nytimes.com/interactive/business/buy-rent-calculator.html , see where you stand.
It sounds like you are uncomfortable with the current situation, so that indicates you should probably get out, especially when you are devoting 60% of your pay to housing costs.. that is a dangerous situation.
You shouldn't feel held back from selling just because you bought the place a year ago. That is a sunk cost. If you wouldn't buy the place currently at the market rate, then you should sell it.. that is equivalent to not buying it if you didn't already own it (minus some inertia, transaction costs, and having to move).