$250-$275K condo for 26 year old (update)

[waltworks]

Yes, I know it's leveraged. That's just another reason to avoid it, IMO. If you want leverage in other investments you can make it happen as well, for exactly the same cost/benefit - more risk.

-W

[waltworks]

Yes, let me be clear: I hate the condo investment idea. I do not hate the OP. I like the OP and want him to be happy and rich, which is why I think he should *not* buy the condo, especially when he's apparently well on his way to being happy and rich doing what he's already doing.

-W

Don't listen to the haters. Good on you for taking ownership of your life and destiny.

Work hard, save hard, pay it off as fast as you can, rinse and repeat.

A hater is someone who points out bad investments with math?  Color me surprised at that definition.

[SDREMNGR]

Yes, a non-liquid investment with huge upfront costs and huge costs to sell, that will maybe return 3%. Sign me up...

-W

Compared to your current rent and living situation, it's not a bad upgrade for the cost.  Think of the $55K as the entry fee and in long run appreciation of 3% you will make the money in due time.  If the market goes down in short term, don't worry, just hold on to it.  If it goes up, then you have options to sell or hold depending in your needs.  At today's rates, it's still not a bad buy.  You will most likely not regret the purchase in long run.

You obviously don't own much real estate since you don't understand why even a 3% annualized return means >3% returns in the long run.  My stock portfolio is doing fine but it has not been even close to what my real estate portfolio has returned over the same time. 

[Eric]

Yes, a non-liquid investment with huge upfront costs and huge costs to sell, that will maybe return 3%. Sign me up...

-W

Compared to your current rent and living situation, it's not a bad upgrade for the cost.  Think of the $55K as the entry fee and in long run appreciation of 3% you will make the money in due time.  If the market goes down in short term, don't worry, just hold on to it.  If it goes up, then you have options to sell or hold depending in your needs.  At today's rates, it's still not a bad buy.  You will most likely not regret the purchase in long run.

You obviously don't own much real estate since you don't understand why even a 3% annualized return means >3% returns in the long run.  My stick portfolio is doing fine but it has not been even close to what my real estate portfolio has returned over the same time.

Well there's your problem, right there!  ;)

[marty998]

Yes, let me be clear: I hate the condo investment idea. I do not hate the OP. I like the OP and want him to be happy and rich, which is why I think he should *not* buy the condo, especially when he's apparently well on his way to being happy and rich doing what he's already doing.

-W

Don't listen to the haters. Good on you for taking ownership of your life and destiny.

Work hard, save hard, pay it off as fast as you can, rinse and repeat.

A hater is someone who points out bad investments with math?  Color me surprised at that definition.

Everyone already told you to say no, it makes no financial sense for you. Why ask again?

If it was $100k I'd say go for it.

-W

I would say there's a fair bit of condescension in that post waltworks. So yes, a hater. I love math as much as anyone. But you cannot make life changing decisions such as purchasing a roof over your head based *solely* on math.

Investments yes agree, numbers only no emotion. A home is different imo, qualitative factors should be considered and if the additional non-monetary factors cover whatever financial deficit you think there is then I don't really see a problem.

[2527]

I think one thing to keep in mind is we are talking about Los Angeles.  From what I know, real estate is just plain expensive there.  I'm not sure how to get around that other than moving someplace else.  So the OP wants to own his own place, which is generally a good thing to do in the long run, and a very natural instinct.  If his life is going to be in LA, he will have to deal with the high real estate prices now or later.  Of course, some people do move from high housing cost areas to low housing cost areas.   

[SDREMNGR]

Yes, a non-liquid investment with huge upfront costs and huge costs to sell, that will maybe return 3%. Sign me up...

-W

Compared to your current rent and living situation, it's not a bad upgrade for the cost.  Think of the $55K as the entry fee and in long run appreciation of 3% you will make the money in due time.  If the market goes down in short term, don't worry, just hold on to it.  If it goes up, then you have options to sell or hold depending in your needs.  At today's rates, it's still not a bad buy.  You will most likely not regret the purchase in long run.

Obviously you do not understand how leveraging works in your favor and how a measly 3% appreciation in rent and home price assumption, could mean returns much greater than that.  Please tell me how many properties you own and how much money you have made from your investments.  Show me how Sam Zell, and Trump (guy's a douche but he's a rich douche) and many many other real estate millionaires and billionaires didn't get rich from real estate because it's a "non-liquid investment with huge upfront costs and huge costs to sell, that will maybe return 3%."

I'm willing to bet that you in fact do not own a single property, and have less than $1 mil in assets.  Anyone who has any decent sized savings will tell you that real estate definitely has a place in your portfolio for many reasons, not withstanding use value, tax shielded earnings (1031 exchanges), ability to be purchased and sold through self-directed IRAs, and sheer diversification.

[Another Reader]

As a long term investor with numerous properties, I suggested avoiding this one.  I don't like the property and I don't like the OP's fear of losing out as the primary motivator.  It would have made a good short term investment for someone other than the OP when the idea was first brought up at the $150k price point.  Prices are up a lot in a short period of time and the market is not as strong as it was last year.  The number of things that have to go right for the OP to succeed and the involvement of family money just make this a bad idea in my view.

[Joel]

Good luck. There's many reasons why I would avoid this, but you seem to be convinced.

[AccidentalMiser]

The objective is to have some more independence and build value through home equity. Yes I understand values on condos grow slowly but I see a potential opportunity.


So what do you all think?

Sorry, I missed this thread when it was first posted.  I think buying a 250k anything at 26 is a terrible idea. 

Run Away!!

[Flaneur]

So you offered $240,000 for a 30 year old condo that has the original cabinets, etc.? Probably has the original plumbing to boot. Yikes. Good luck, have fun.

The certainty equivalence on your bonus might be ~$8k so your true salary is somewhere around $45,000. Given the costs of owning this place and the going rate for rent it'll take one special assessment from the HOA or some damage caused by renter negligence or just plain old age to put you in the red for a given year.

Have a look at these studies:

http://business.fullerton.edu/finance/zlin/Real_Estate_Returns_and_Risk_with_Heterogeneous_Investors_fullertont.pdf

http://www.philadelphiafed.org/research-and-data/publications/business-review/2010/q3/brq310_benefits-and-costs-of-homeownership.pdf

And toy with this calculator:

http://michaelbluejay.com/house/rentvsbuy.html (put HOA fees in the maintenance cell)

Then tell us if it's still a spot you can't pass up.

[dragonwalker]

The seller's counter-offered at $255,000. It seems they are holding firm to their relisted price. After consultation with family and real estate agent, I have made a final offer of $245,000. Yes I am aware of the paint and possibility of underlying damage. I will be reviewing HOA paperwork and upcoming planned expenses and I will be looking at this with a heavy eye of skepticism. After discussions with family I have decided that they will not be involved. An accepted offer of 245 would leave my 401K untouched and reserve funds.

Btw, I ran the numbers through the nifty ultimate rent vs. buy calculator and it says that after 9 years buying is better. I see myself in this place for that period of time. This is also assuming the same living cost I am paying now which is hard enough living under these conditions. If I increased my rental to a more longer term realistic number of $650/month, buying becomes better after 5 years and yes HOA is in there as well.

[SDREMNGR]

Good luck.  And don't be married to any deal.  You have to be able to walk away if you can't get what you need.  Don't creep up you price to meet their asking.  Also keep looking around to see if something better is around. 

[greaper007]

I think one thing to keep in mind is we are talking about Los Angeles.  From what I know, real estate is just plain expensive there.  I'm not sure how to get around that other than moving someplace else.  So the OP wants to own his own place, which is generally a good thing to do in the long run, and a very natural instinct.  If his life is going to be in LA, he will have to deal with the high real estate prices now or later.  Of course, some people do move from high housing cost areas to low housing cost areas.

That's exactly what I did.   We're midwesterners but my wife got an internship at Yale and we couldn't pass it up.    We spent about 5 years in CT that included buying a house (which I now see as a bad choice, should have rented as cheaply as possible).    We eventually got fed up with the COL on the east coast and basically threw a dart to find a better city.   Ended up in Denver and haven't regretted it once.

Unless you have to live in a  high col city because that's the only place your industry exists, and you're paid accordingly for it, it really doesn't make sense.     I've lived all over the country and every city is basically the same.    You can get great food in Cleveland or Manhattan.   You can go to the beach in LA or central Florida.    The difference is that you can actually buy a house in a neighborhood you want to live in for less than $200k in St Louis or Melbourne Florida (a block from a deserted beach).   I know, I've lived in both places.

[Flaneur]

Btw, I ran the numbers through the nifty ultimate rent vs. buy calculator and it says that after 8 years buying is better. I see myself in this place for that period of time. This is also assuming the same living cost I am paying now which is hard enough living under these conditions. If I increased my rental to a more longer term realistic number of $650/month, buying becomes better after 5 years and yes HOA is in there as well.

Buying is better after 8 years assuming $1050/mo rent and a 4% return on other investments versus a $245k asking price, 20% down at ~5%, $7300 closing costs, $3600 HOA, $2800 tax, $400 HOI, and 3.5% appreciation.

[Melody]

I think one thing to keep in mind is we are talking about Los Angeles.  From what I know, real estate is just plain expensive there.  I'm not sure how to get around that other than moving someplace else.  So the OP wants to own his own place, which is generally a good thing to do in the long run, and a very natural instinct.  If his life is going to be in LA, he will have to deal with the high real estate prices now or later.  Of course, some people do move from high housing cost areas to low housing cost areas.

That's exactly what I did.   We're midwesterners but my wife got an internship at Yale and we couldn't pass it up.    We spent about 5 years in CT that included buying a house (which I now see as a bad choice, should have rented as cheaply as possible).    We eventually got fed up with the COL on the east coast and basically threw a dart to find a better city.   Ended up in Denver and haven't regretted it once.

Unless you have to live in a  high col city because that's the only place your industry exists, and you're paid accordingly for it, it really doesn't make sense.     I've lived all over the country and every city is basically the same.    You can get great food in Cleveland or Manhattan.   You can go to the beach in LA or central Florida.    The difference is that you can actually buy a house in a neighborhood you want to live in for less than $200k in St Louis or Melbourne Florida (a block from a deserted beach).   I know, I've lived in both places.

Good advice! When I lived in the US, Phoenix was an appealing option - not too far from Los Angeles (able to drive home for important birthdays etc), warm weather, low low COL, decent employment market and in certain parts of the city funky college town vibe. Also it's a "big city" so you have sports teams, concerts etc which I'm guessing someone from LA would appreciate.

I live in my HCOLA, but I am rewarded by the highest wages available due to my city being an industry hub. I ran the numbers on moving to a lower COLA (where a number of friends have already moved to) and I couldn't make it work, the drop in costs was not enough to offset the $30k pay cut.

[Gin1984]

I think one thing to keep in mind is we are talking about Los Angeles.  From what I know, real estate is just plain expensive there.  I'm not sure how to get around that other than moving someplace else.  So the OP wants to own his own place, which is generally a good thing to do in the long run, and a very natural instinct.  If his life is going to be in LA, he will have to deal with the high real estate prices now or later.  Of course, some people do move from high housing cost areas to low housing cost areas.

That's exactly what I did.   We're midwesterners but my wife got an internship at Yale and we couldn't pass it up.    We spent about 5 years in CT that included buying a house (which I now see as a bad choice, should have rented as cheaply as possible).    We eventually got fed up with the COL on the east coast and basically threw a dart to find a better city.   Ended up in Denver and haven't regretted it once.

Unless you have to live in a  high col city because that's the only place your industry exists, and you're paid accordingly for it, it really doesn't make sense.     I've lived all over the country and every city is basically the same.    You can get great food in Cleveland or Manhattan.   You can go to the beach in LA or central Florida.    The difference is that you can actually buy a house in a neighborhood you want to live in for less than $200k in St Louis or Melbourne Florida (a block from a deserted beach).   I know, I've lived in both places.

Not if you want a variety of good food.  I live on the east coast now (in buffalo, NY) which works because it is cheap but it is very different than the Bay Area and the food is one of the major drawbacks.

[dragonwalker]

Just an update, so the property that this post was originally on didn't work out. I asked for more concessions after I found out the unit needed some work done.

I'm now looking at another property. 2 bedroom 2 full bath condo, looks to be in good condition, built 1987, HOA is $308/month, 899 sq ft., I'm perhaps looking to pick this up at $200,000. Zillow says rental for the whole unit should be about $1500 per month. I am planning on moving to this location and renting 1 room for say $500 but if I needed to move the rent should easily be able to cover all expenses. Nearby apartment rentals are going for about $1000 for a 1 bedroom and $1295 for a 2 bedroom, 1 bath with no central air.

20% down would put the mortgage at about $834
25% down would put the mortgage at about $760
+$308 HOA+$100 utilities+$40 insurance+$114 tax   
A high of $1396 to $1322, about $800 with the assumption of $500 rent.

I know there were people who disagreed the first time going around but does this price make a difference?

Ofcourse the compromise at this location is that it is smaller and the area is not as good. I'd say the area is fair.