please talk me off the ledge

[97guns]

one wrong move could set you back decades, a bet that becomes a winner can leap frog your wealth, do your due diligence, only you can make the final decision

[Robert742]

Another possible downside is the monthly maintenance fees... you would need to calculate what they are and add them to your monthly payments and allow for them to grow in the future. My first condo had $702/month maintenance when I bought it and $890/month when I sold it... and as MonkeyMama mentioned you should also be prepared for the possibility of a special assessment (some insurances cover this depending on what the assessment is for). In the last year I lived in the above mentioned condo we had two assessments that totaled over $700,000! that was divided by the sq ft of the units and my share was $7,700... no questions asked... just give over the money! I loved the building but was so happy to see it sell and no longer be throwing money away. We also have a rental condo we purchased about a year and 1/2 ago... the maintenance fees were $526/month when we bought it and they are now $552/month. And thankfully no assessments to speak of!

May I ask the reason for the assessments?

[~bs]

May I ask the reason for the assessments?

special assessments are normally for big ticket items that come up that the maintenance fees don't cover. Say your building has central air conditioning, and one of the chillers is destroyed. To cover the cost of replacing, theyll assess all the units.

For condos, it's good to know how well it's being managed and run, the amount of reserves, and what the maintenance fees are. People always talk down about the fees, but the difference between a condos fees and maintaining a single family home is that with a home you bear the full cost of repair and maintenance work yourself, while with a condo, it's constantly being funded and split among many owners. With a single family home, you have the option of deferring or doing the work yourself for cheaper. With a condo, the work is always being done by contractors or employees, which cost more, but is pretty much done for you, which frees up your time.

[snafu]

OP: So pleased you are examining options with your head rather than your emotions. Your numbers don't support this purchase at this time although I'm not clear that the asking price is market price in your specific location. I wonder if you'd be willing to take a part time job to accumulate a downpayment for a future purchase.

There are often unexpected costs with ownership. We had a special assessment $ 3,000. for roof replacement in our 3rd year. Our roof was fine, passed professional inspection but it didn't occur to me that units at the far side of the complex had problems. o evidence of discussion in Condo Board minutes 3 years earlier! All roofs were replaced in the name of consistency. Our HOA fee have increased every year from $ 208 - $ 310 mostly because the government has increased the requirements for Reserve Funds for all condominiums.

Congratulations for making the smart decision.

[~bs]

^

If he said that he could make a $100k downpayment without drawing down on his retirement savings, and if the maintenance fees was reasonable, I think he could more than afford it. But since he doesn't, it's a bad idea
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He's grossing 95k, not to mention be able to realize tax savings by itemizing. He's probably solidly in the 25% tax bracket, so if he itemizes and has 15k worth of deductions, subtract the standard deduction, and that means that he's paying $2500/year less in taxes.

Even if you say the housing costs are 30% of his gross, that means he's spending $2300-2400/monhth on housing, which should be well within an affordable range. I mean, he has another $5500/month to play with (again gross figures). At today's rates, a 300k 30 year mortgage probably is only $1400/month.

In life, caution is always advisable. However, if one is too caution, that is also dangerous as you can miss opportunities. If one you truly afford to buy a place, and plans on living there for a while, then you should. Renting for the long term may feel nice and safe because it's easier to "walk away", but a renter will pay market rents, which is usually comparable to mortgage payments until the day he dies. Want to retire? Much easier without a mortgage/rent payment. Unlike many, I don't look at a primary residence as an investment because it is a pit that sucks money away from you, but IMO it beats the alternative.

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All that being said, I think he should take a year or two to build up a down payment and pay off his student loan.

[disneysteve]

Renting vs. Owning

One comment that I frequently hear is that owning is better because you lock in your costs in the form of a fixed rate mortgage whereas with renting, your rent can go up each year. In fact, just this past week, either Dave Ramsey or Suze Orman (don't remember who said it) was saying that very thing.

The problem is it isn't true.

We've owned our home for 19 years this month and I can assure you that costs can and do go up every year. Why do you think landlords raise the rent? It isn't because they are greedy. It is because their costs rise over time and they need to pass those increases on to the tenant.

It is true that a fixed rate mortgage locks in the monthly payment on the property but there are a lot of other expenses involved in ownership. Real estate taxes, insurance premiums, utilities, maintenance and repair costs, etc. When we bought our house in 1994, the annual taxes were about $3,000. This year, they are $8,000. That alone represents an increase of over $400/month. Had we been renting the house instead of owning it, I'm quite sure our rent would have gone up to reflect that. So when folks tout the benefits of ownership and how it locks in your costs, don't believe it for a second.

[disneysteve]

Renting for the long term may feel nice and safe because it's easier to "walk away", but a renter will pay market rents, which is usually comparable to mortgage payments until the day he dies. Want to retire? Much easier without a mortgage/rent payment.

My 82-year-old mother would disagree with you. She sold her paid for home 6 years ago and moved into a senior apartment building where she has been renting ever since. When she was making that decision, it wasn't hard to calculate that doing so would save her a few hundred dollars each month. Even though her house was paid for, the other expenses: taxes, insurance, utilities, repairs, lawn care, snow removal, etc. - made it more expensive to keep the house than to rent the apartment. It has made her retirement much easier financially speaking. Her money goes a lot farther as a renter than it did as an owner.

[~bs]

My 82-year-old mother would disagree with you. She sold her paid for home 6 years ago and moved into a senior apartment building where she has been renting ever since. When she was making that decision, it wasn't hard to calculate that doing so would save her a few hundred dollars each month. Even though her house was paid for, the other expenses: taxes, insurance, utilities, repairs, lawn care, snow removal, etc. - made it more expensive to keep the house than to rent the apartment. It has made her retirement much easier financially speaking. Her money goes a lot farther as a renter than it did as an owner.

Selling a home after retired with a life expectancy of maybe 10 years is pretty much owning and not really renting. Besides your example isnt really what I was describing unless you consider long term to be the last years of your life. That vote of ownership above is shortsighted. Since you like stories, my parents boufht a single family home in the 80s. Yes taxes and other costs rose, but their mortgage payments stayed the same at around 400 to 500. Today, rent or mortgage payments on that property would be something like 2200 to 2500. Focusing on property tax and other costs is ignoring the elephant in the room. House paid off, so they can live in retirement more comfortably. Option to sell as your grandma did as well. Rent? Renting their house would cost them at least 25k/ year, hard to stomach unless you're living off large pensions or something.
..

[JBL]

I generally think renting is not a bad choice for a lot of people, but I will admit that buying worked well for my parents. They bought a large victorian fixer-upper in the mid 1970s and then spent many years and lots of money fixing it up. Now it's paid for and in excellent condition. They rent out a few rooms to a college student which offsets the high maintenance and fuel costs. It is very inexpensive for them to continue living there, but it is a lot of house to manage, so they may end up selling to get something smaller and easier to maintain.

I have owned for most of my adult life, and I've not seen a single penny of appreciation. Some of that was timing, some was buying the wrong property or paying too much. Owning a home costs a lot of money, I'm always surprised at how the little things add up. Plus, when it's yours you start to want to improve it and make it the way you want it to be, all of this costs money and does not necessarily increase the value of the property.

I think my take-away is that if you're buying for long term (decades) you will probably do ok. A lot of people are playing a game, though. This house is just a "starter" home, and they plan to sell and move up once or twice. The problem with this is that you end up in more expensive homes later and later in life, making it more difficult to enter retirement with a paid off mortgage.

[~bs]

^^^

to me, i think people run into problems because they think of homes as an investment. While it has the potential to appreciate (or depreciate) in value, this should not be a primary consideration in evaluating your home in the long run. Anything you continously put money into and don't generate a profit on is not an investment. Paying for electricity, buying food, clothes, etc etc are all not investments. They cost money, and don't generate a return, same thing. Also continually selling your home to trade up, then picking up another 30 year mortgage isn't a great idea because you're continuously extending out the payoff date of the home. An increase in value of your current home doesn't really help you afford a new home because if your house appreciated 10%, chances are that the house you're looking at also appreciated by the same amount. Of course, if it's an investment property, most of what I said above probably doesn't apply.

People also have the expectation that renovations add a lot of value to the home. It can in a hot property market, where buyers are in a frenzy. But realistically, expect appreciation in value of only 20-50% of the cost. You're doing the renovations for YOU not for someone else.