Thoughts on renting condo + buying a house

[uwbadgers19]

I am a small landlord (rent two units out), and I saw that you're planning to hire a property manager to manage the condo if you decide to buy a house. I'd say that managing a condo rental is pretty low maintenance; you need to invest a good amount of time when tenants turn over, but aside from that it is pretty low maintenance. Not for everyone, but I would consider self-management more carefully.

Second, I'd recommend staying in the condo. You say 2 bedroom, 2 bath. That is plenty big enough for new parents and a baby. Condo's are easy to take care of and less of a burden when you're busy caring for a new child. Plus, the condo is very affordable for you two; that is important!

I know the allure of owning a house with a yard, but to tell you the truth, it's a lot of work and gets quite expensive. I'd stay in the condo and start looking seriously into moving if/when you are planning to have a second child. Especially before you're child get to school age, living in the condo and continuing to build savings will be a great way to go. Plus, in 5 years you may see the developer sell of most of the remaining units, allowing conventional mortgages to be approved, which will make the condo more valuable and easier to sell. Then you will be in a great position to move up into a great home of your dreams.

It's never fun to postpone dreams like owning a home, but it can really pay off. Especially if you see appreciation on the condo in a few years, if you sell, take your proceeds to use as a downpayment on a house, and be able to keep your liquid savings in savings for the future needs of raising a family.

Good luck!

Whoops! I see you've already committed to a house... I still recommend considering self-managing the condo. That property manager is eating way into your potential income from the rental. Condos are much easier to manage than buildings or single family homes; the association takes care of the grounds and structural stuff, you just need to take care of the odd internal repairs (which you pay for with or without a manager). You might have a contract but think about managing it yourself after the contract expires.

Thanks for the advice! Yes, we are in too deep to back out now, ha!

As far as the prop manager goes, I agree with you. We are contracted with him for a year. He does 5% of rent so at 1400 it is $70/month. I think our plan was to do it at least this first year while we are going through all the house stuff. Once we can spend a little time and learn the in/outs of it all, I think we could handle it on our own. We will see though, maybe we end up valuing not having to do basically anything with it.

The other factor is having the prop manager do it is he is also a realtor in my wife's networking group, she is a mortgage officer. So it may pay off to have him stick as our guy because basically one loan can pay for his service for the entire year, kind of a win win. He sends clients to my wife, she gets the loan done, he gets paid, so do we!

I'm sure we will have a much better feel of all this come next April!

Thanks again!

[theduc]

We were in a similar situation with our condo... renting it out using a property manager. Ours charges 75% of the first month's rent and then 6% each month after. We had an option to have him do the listing and interviewing/background checks for the 75% alone (he only gets 25%, the other 50% goes to the renter's agent) but we moved to a different state so the 6% is worth it to us to have him manage everything... even with the 6% taken out, we still make a profit of $775/month.

You should also be aware that your maintenance fees can (and will at some point) go up on your condo! If you are not prepared for this it will start eating into your profit (or the amount covering your payment difference).

April 1 2013
78k---Retirement
175k---Condo Value (assessed in Nov 2012)
309k---House Value (assessed in Mar 2013)
15k---Trust Fund (accessible by wife's parents)
4k---Cash

-0---Credit Cards
-9k---Car (1% interest and will be paid off on schedule, auto withdrawals)
-247k---House Mortgage
-139k---Condo Mortgage

+581k - 395k = +186k I think I did this right.

You also keep mentioning HELOC LOANS... I'm still not sure if you realize this is new DEBT. If you are borrowing from the equity in your condo ($29K?) to pay for your new house you need to list that HELOC as part of your debt.

What is the point of having a second mortgage on the house with a 0 balance??? Wouldn't this mean that you do NOT have a second mortgage? If you have been approved for a second mortgage then this may be a smarter option (not the smartest but still smarter) than using the equity in your condo for several reasons.

First, it looks like the value of condo has dropped $25,000 since she bought it 5 years ago (from $200K to $175K). If you are BORROWING against the equity it will be money you have to pay back and therefor lowering your equity even more. If you get in a bind and need to sell the condo in the future you will have more luck with a cash buyer (due to the owner occupancy rate... same for us). If the value keeps dropping then you may be stuck in a bad situation... and yes the value will keep dropping as long as the average person can not get a mortgage to purchase in the building.

Second, you are basically using a HELOC as a second mortgage. HELOC's tend have an adjustable interest rate that would most likely be higher than the interest rate of a traditional second mortgage... plus they have the option of going even higher.

Either way, you still need to add the the amount to your debt and it will take away from your net worth. I would also argue that your condo may not be worth $175K when calculating your net worth. I say that because it is only worth what someone is willing (but more importantly, ABLE) to pay... If people are not able to get a loan to purchase it then the value will continue to drop until they are. We were only able to purchase our condo because we had 70% in cash AND paid $20K less than the appraised value of the condo... and even with that it was still difficult to get a loan for the remaining 30%.

Good luck and enjoy your new home!

[uwbadgers19]

We were in a similar situation with our condo... renting it out using a property manager. Ours charges 75% of the first month's rent and then 6% each month after. We had an option to have him do the listing and interviewing/background checks for the 75% alone (he only gets 25%, the other 50% goes to the renter's agent) but we moved to a different state so the 6% is worth it to us to have him manage everything... even with the 6% taken out, we still make a profit of $775/month.

You should also be aware that your maintenance fees can (and will at some point) go up on your condo! If you are not prepared for this it will start eating into your profit (or the amount covering your payment difference).



You also keep mentioning HELOC LOANS... I'm still not sure if you realize this is new DEBT. If you are borrowing from the equity in your condo ($29K?) to pay for your new house you need to list that HELOC as part of your debt.

What is the point of having a second mortgage on the house with a 0 balance??? Wouldn't this mean that you do NOT have a second mortgage? If you have been approved for a second mortgage then this may be a smarter option (not the smartest but still smarter) than using the equity in your condo for several reasons.

First, it looks like the value of condo has dropped $25,000 since she bought it 5 years ago (from $200K to $175K). If you are BORROWING against the equity it will be money you have to pay back and therefor lowering your equity even more. If you get in a bind and need to sell the condo in the future you will have more luck with a cash buyer (due to the owner occupancy rate... same for us). If the value keeps dropping then you may be stuck in a bad situation... and yes the value will keep dropping as long as the average person can not get a mortgage to purchase in the building.

Second, you are basically using a HELOC as a second mortgage. HELOC's tend have an adjustable interest rate that would most likely be higher than the interest rate of a traditional second mortgage... plus they have the option of going even higher.

Either way, you still need to add the the amount to your debt and it will take away from your net worth. I would also argue that your condo may not be worth $175K when calculating your net worth. I say that because it is only worth what someone is willing (but more importantly, ABLE) to pay... If people are not able to get a loan to purchase it then the value will continue to drop until they are. We were only able to purchase our condo because we had 70% in cash AND paid $20K less than the appraised value of the condo... and even with that it was still difficult to get a loan for the remaining 30%.

Good luck and enjoy your new home!

Hi!

My wife is the treasurer on our condo board so we have a good idea of what dues will be. We are currently in good standing. Shouldn't be any big special assessments or anything coming anytime soon.

The HELOC is included in the condo debt of 139k, we currently are at 109k.

Yes, it is variable. A few units in the building have sold recently for ~170k so things are moving rather than going the other way. I mean, it's true, values could go way down, HELOC rate could go way up, and that would suck, for sure. I think things are pretty stable here now (Madison, WI).

Ideally we'd love to refi the condo, just not doable at the moment.

Thanks again!