The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: zimtastic on April 09, 2013, 07:48:20 PM
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I'm currently renting and have an opportunity to buy a small condo. I'm in the SF bay area where real estate is quite expensive.
The condo is going for $200k, and it's a Homepath mortgage so the closing costs are rather high, around $9,900 including discount points. However, there is no PMI with this mortgage, so the points seem to cancel themselves out after a couple years.
Also, I'll have to borrow the 5% down payment and closing costs from my parents, resulting in a $19,900 loan ($10k down payment plus closing costs).
We bring home $6,057 each month.
$1595 for rent and utilities.
Car payment $340/ month (0.87% interest rate)
2 credit cards totaling $6600 in debt and $300/month payments ( will be paid off may 31st if we continue to rent)
Student loans- $12k and are deferred with no payments
Our current cashflow that can be used to pay off debt, or go towards building a 'stache is $2400/mo
After buying the condo, this will shrink down to about $1070/mo for the first 24 months as we repay my parents for the down/closing costs, then the cashflow will jump back up to $1,900/mo - this assumes no raises/changes in income.
The condo is a step up compared to where we currently live, but not a huge step up. We're in a studio apartment now, and will be buying studio condo. However, real estate prices seem to be on the rise again, there's a lack of inventory and many places are going for 125% of asking price - this might be a nice investment. We'd plan on selling or renting it out in 2-3 years.
The condo is in the Shelter Creek community in San Bruno, CA
So should we go ahead and buy, should we hold off? Why or why not? Thank you mustachians!
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I believe you asked about this in another thread. There is no way I would live in that complex. Petty crime, poor maintenance, flooding, noise, cigarette smoke coming through the walls, etc. That place was built as apartments, and as I mentioned, was a haven for divorced dads in the 70's and 80's. There is still a rental office there according to Yelp, and I cannot see how this place would qualify for FHA financing, given the high percentage of rentals. The fact that this dog is still available speaks volumes about the desirability.
Furthermore, you are in debt and you have to borrow the down payment. You are at the lower end of the Silicon Valley pay scale in what appear to be non-core, dispensible jobs. What happens if one of you is laid off? Ir's much easier to get out of a lease than to sell a condo for which you have no reserves for mortgage and HOA payments.
In your shoes, I would be patient, pay off the debt, and accumulate enough of a down payment to buy something decent. In addition, I would look for ways to increase both incomes if I intended to stay in the Bay Area.
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I say pass. Mostly because I'm in the Bay too.
I love that area along the coast, but given the numbers, I'd wait. No clue what you do for a living, but there may be other options geographically, even in CA. I have friends that are a few years older and more established and I see them buying up real estate. Not sure if its going to be another situation of over leveraging themselves, but I'm in a similar boat as yourself, minus the debt, OK, so maybe not. Not having the downpayment is a no go for me. I'll wait it out as best I can.
The "We" referenced... I assumed SO at first but then thought it could be the rents.
Where do you work?
Good luck either way.