Other Talk "Otterville" plus Religion/Politics

MA 1 BR Condo, ok investment?

Old 08-19-05, 05:44 PM
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MA 1 BR Condo, ok investment?

Ok I've posted before about my situation, but here is a recap:

Single guy, 25, have some money saved and a steady decent paying job in IT field. I'm wanting to move out (of parents home -rent free) and buy a place. Obviously the housing market is a joke for first time buyers.

There is a very nice new complex in a desirable location near the highway and not far from my office that has completely restored Condos in Cape [Cod] style townhouses.

Pros:
Brand new inside (appliances, bathroom, etc), fresh and clean
Deck or Patio on all units
Excellent landscaping
Brand new Vinyl Siding and roofs on all units.
Brand new tennis court, basketball court and inground swimming pool
Brand new small fitness facility
Very good wealthy town
2 Parking spaces
3 Miles to major highway

Cons:
High taxes ($2000+)
High Condo Fees ($244/mon)


The condo fees allow use of all recreation/fitness stuff, cover all outside maintenance and landscaping.

The 1 BR unit is really nice, I could see myself living in there in a second. It is going for $179,900. It is fairly small, about 650 SQ Ft.

The 2 BR units are two floors and start at $240,000 and are 1,050 SQ Ft.

I am priced out a bit on the 2BR units, as $200 is my absolute ceiling on my sole income.......I am really tempted to consider the 1BR unit, but I am wondering if it would be a wise investment.

Any thoughts would be appreciated.

Last edited by MACD23; 08-19-05 at 06:15 PM.
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Old 08-19-05, 05:49 PM
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Investment or a place to live?
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Old 08-19-05, 05:51 PM
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650 sq. ft still sounds pretty small. I would go for the 2 br condo. If you can make the down payment for the 2 br condo then go for that.

How close is it to the highway? Could highway noise be a problem?
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Old 08-19-05, 05:52 PM
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Really depends on your local market. 1 BR around here don't resell for squat. You need to see what other 1 br places on the market do.
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Old 08-19-05, 05:55 PM
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That pretty much sounds like my place -- my taxes are a little closer to $2500, assessments in the $260/mo ballpark, though I paid a little less than you are looking at, and I only brought 10% to the closing (I did 80/10/10, then wiped out the second 10 in about six months)

I'd go for it. It's new construction. I have a 50 year old building and now I'm stuck with plumbing problems

If you put down 20%, you're looking at monthly payments around $1k a month. If you put down 10%, maybe around $1300.

Two beautiful things when you own 1) tax break 2) your rent does not increase every year.
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Old 08-19-05, 05:56 PM
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If that 1050 sq ft number is right on the 2 bedroom and it really is 2 floors, I'd almost rather live in a 650 on 1 floor. That's a darned small 2 bedroom/2 floor place.

To me, the problem is that you're thinking of this as an investment rather than just buying a place to live. Ask yourself how long you'd live in the place, figure out what your payments would be, figure out what financial position you'd be in if the place appreciated by a range of X through Y, where X and Y are reasonable end-of-scale numbers based on the history of the market. See if you can live with the low end.

The rule of thumb seems to be that if you're going to be there more than 5 years, you'll save money over renting anyhow. Below that and you're counting on better than typical appreciation.
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Old 08-19-05, 06:01 PM
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NO I understand its not an investment, as I will be paying out the nose in fees, taxes and monthly interest. Perhaps I phrased it wrong, but I basically want to know if it would be better to continue to save and make more money at work and buy a 2BR in 1-2 years (if I can even afford them then, as the market continues to soar and I chase it), or move in now and get in this 1 BR place. Is buying a 650 SQ ft condo a bad idea? Will it be impossible to sell it if I want to trade up to something bigger in 3 years or If I meet someone and want to get married in 5 years?

Last edited by MACD23; 08-19-05 at 06:06 PM.
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Old 08-19-05, 06:04 PM
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I thought the same way, but then realized that I was getting priced out year after year.

Think of rent like a huge gash on your arm. It's bleeding really hard -- if you threw a t-shirt over it, at least the bleeding will slowly come to an end.

I always tell myself when I write my mortgage check 'At least the bleeding has stopped' -- and tell you what -- it doesn't hurt for me to write the mortgage check like it hurt to write the rent check.
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Old 08-19-05, 06:06 PM
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the taxes, fees, and interest will be offset by your income tax breaks and appreciation. buying is always better. If your in it for the long haul, dont worry about market fluctuations too much.

As for the 1 vs. 2 bedrooms. The 2 is generally a better investment, and will be easier to sell come time to move on up. but buying a one bedroom is better than renting.

damn, i sound like I know what I am talking about. well I dont, but this was the general advise I was given not too long ago.
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Old 08-19-05, 06:07 PM
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To clarify, I'm living at home with mommy and daddy rent free.
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Old 08-19-05, 06:09 PM
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then it depends on whether or not you really want to move. El Scorcho might be able to provide advice now.
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Old 08-19-05, 06:18 PM
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I don't need to move out, obviously it will be great to have my own place. The only thing pushing me is the ridiculously escalating market. I do realize it cannot and will not continue at the pace its going, but I am chasing it each year and I am losing badly.

If I were 3-5 years older I'd be pimpin the 2BR condo for nearly the same price as what the 1BR is now going for. MA is the worst place to buy in the country.

Last edited by MACD23; 08-19-05 at 06:34 PM.
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Old 08-19-05, 06:20 PM
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Some people can live with their parents for a while and save some big money.

For example, in Boston, my sister and her two roommates live on the first floor while their landlord lives on the second floor and his son lives on the third floor. The son is about 30 and works in Boston. He does stay at his parents' house to be close to work but he recently bought a summer home in the hamptons.
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Old 08-19-05, 06:22 PM
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Also, can any of you clarify how the income tax breaks work? Do you basically get to deduct the years interest from your income on your taxes? How does all that work?
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Old 08-19-05, 06:22 PM
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If you are going to live there long term than go ahead. If you want to play the market a little i don't think it can hurt waiting 12 months. Greenspan is at war with the housing market because he thinks it'a causing inflation and there are some loose credit standards. The only question is what effect it will have on local markets and no one can predict it.
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Old 08-19-05, 06:23 PM
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I beg to differ. I know people in NYC living in $660k one and a half bedroom condos with $1k a month assessments.

I've talked to many people in Boston that have told me that you can't find a one bedroom for less than $300k.

All depends on your taste and when you're ready to jump.

It's like my friend Bryan -- the dude must have spent well over a year looking at one bedroom condos, placed a few offers, and then had them pulled. All he talks about in the office is how his offer is too high -- well, it depends on your taste.
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Old 08-19-05, 06:25 PM
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Originally Posted by al_bundy
Greenspan is at war with the housing market because he thinks it'a causing inflation and there are some loose credit standards.
Off topic, but you are wrong. Greenspan doesn't go to war on any single asset class anymore. Look at 'Irrational Exhuberance' comment back in 1996.
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Old 08-19-05, 06:38 PM
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Originally Posted by MACD23
Also, can any of you clarify how the income tax breaks work? Do you basically get to deduct the years interest from your income on your taxes? How does all that work?
pretty much.
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Old 08-19-05, 08:18 PM
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Originally Posted by ChiTownAbs, Inc
Off topic, but you are wrong. Greenspan doesn't go to war on any single asset class anymore. Look at 'Irrational Exhuberance' comment back in 1996.
After reading Maestro, I think he meant it before he fully understood the productivity gains of the last decade. At the start of the book it said he raised rates in 1987 because he thought the stock market was too high and it was creating too much wealth and would lead to inflation. I think he is thinking the same thing of some housing markets as people cash out by selling homes or doing a refi with cash out. I think he is probably looking at it as the same inflation creating wealth effect as the NASDAQ at 5000.
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Old 08-19-05, 08:41 PM
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buy the 2 bd condo. If the payments get too tight. Get a roommate to cover more of the expenses.
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Old 08-19-05, 11:37 PM
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Originally Posted by al_bundy
he raised rates in 1987 because he thought the stock market was too high
So what happened in 1987? He targeted a single asset class.

I'm done. OP wanted to know if a condo was a good investment, not Greenspans thoughts on the real estate market.
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Old 08-20-05, 01:08 AM
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How much are the payments going to be? Include taxes and association fees, and then toss in a few bucks for maintenance/repairs that will be your responsibility. Then add in water, other utilities. Anything you would be paying for, that you are not paying for now, such as cable TV, phone, security.

I am going to take a wild guess and figure you would be paying $3000 per month out of pocket. Yes, the interest is tax deductable, but there is no free lunch, you still spent that money. Depending on your bracket, you are only getting 30% or less of the interest back... assuming you are itemizing anyway.

Your alternative is staying put and putting $3K in investments each month.

Sounds like you get are okay with staying at home. If living with the parents was driving you nuts, then that would be a different story. If you really were motivated to live on your own, that would be a different story. And I am not a fan of depending on roommates for income to pay the mortgage.

It seems like it is more the investment angle that is your perspective now. I think feeling rushed into a smaller condo, makes more sense if you believe the market is still appreciating substantially. Maybe it is not? And even if it is, can you equal the return on your invesment if you put the $3K in some investments? I think you can. At some point, having your own real estate is a worthy goal. But not for a short term investment (under 5 years).

Just my 2 cents.

FWIW, I bought my first home in a similar situation. I was 23 and the housing market in San Diego was going nuts. I felt like if I did not jump, I would get left behind, and never be able to afford anything. We mainly could only afford crap houses, but found one for a good price, even if it was really small. We figured we could sell in 5 years. Each month we struggled a little to make the payments plus insurance, taxes, upkeep.

Well, our timing was such that the housing market levelled off right after we bought. It still went up, but a lot slower. And a small house such as our's went up even slower than the average.

After 5 years, we knew we wanted a larger home for the kids, and something on a less busy road. We put the house on the market and it sold for about $15K more than I originally paid for it. $15K appreciation over 5 years. In that same period, I had made payments of over $1000/month, or roughly $60K in payments alone. Even if you consider the tax savings, it was not a financially good idea...but we had no idea the housing market would cool off. It seemed at the time like it would not.

In retrospect, we should have had the discipline to stay in a rental (we were paying less than 50% of the mortgage in rental prior to buying) and invested the difference over 5 years. We would have had more down payment for the bigger house we eventually bought.

One last bit of unasked for advice. I find it a better deal to get real estate that is not already fixed up with that nice siding, excellent landscaping, fresh and clean. A little paint and ajax and your property can be worth $10-20K more in one month. Even more possibly. We bought my present home at $50K under market value, because it needed a little TLC.
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Old 08-20-05, 09:11 AM
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$3k per month out of pocket is a little too much. This is a place that is selling for $179k not $300k.
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Old 08-20-05, 09:13 AM
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You know, living in the south does have its advantages... 1765 sq ft. three bedroom, 2 bath house with security system, fenced in yard, sprinkler system, and right on the 16th green of the country club golf course all for $153k...

Every time I think I want to move up north all I have to do is read one of these posts to see the housing market and get snapped back to reality.

Sorry, I didn't mean to thread crap.

Back to the question, if the living situation is fine with your parents (I would make sure they are okay with their 25 year old son living rent free) and it is not hurting your social life, if the 1 br is all you can afford I probably wouldn't buy it. If you are itching for a place of your own or you were paying rent, then I would agree that now is the time to buy because you do run the risk of getting priced out of a good home. Even a 0.5% or 1% interest rate hike can make a significant difference.

As far as the tax break goes, it really depends on what income tax bracket you are in. I was paying $600 for a 2br/1ba apartment until I bought my first house last month and with my tax bracket, my $1200 mortgage effectively becomes around $850 a month with my tax savings. Being single with no tax write offs beyond student loans (plus if you make more than $50k you can't claim all that interest), is absolutely brutal on the paycheck come tax time.

Do not buy just for the tax break because I promise you will spend more money on the house then you expected just to get things the way you want them. I was able to get a 100% 30 year fixed 6% loan with no PMI, so if you don't have a down payment, there are other options including the 80/20 or 80/10/10 that someone mentioned earlier. I would really advise against an interest only loan though.
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Old 08-21-05, 01:24 AM
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Originally Posted by ChiTownAbs, Inc
$3k per month out of pocket is a little too much. This is a place that is selling for $179k not $300k.
Could be. I assumed about $150K in mortgage, or maybe $1500. Then added insurance, or $50/month. Taxes over 200/month. Association fees of $200 a month. Then assumed maybe $50 a month in cable. Another $25 in phone. $200 a month average for repairs, maintenance, etc. that he does not pay now. $100 in water, sewer. $200 for gas/electric.

Now amortize over 5 years points and fees for the real estate transaction. Figure $100/month.


It is not the mortgage as much as all the other crap that ends up costing you, when compared to staying home.
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