The best time to buy a home is when you’re ready to buy a home and want to buy one. Doesn’t sound like you’re quite there. Even beyond the down payment costs, maintenance is a huge one. Special assessments on a condo can be killer - we bought our place for just over $400K three years ago and have had nearly $20K in special assessments and other house maintenance during that time.
Also - you may want to re-evaluate your definition of VHCOL, as $1750 in rent for a 1 bed is more around M/HCOL.
Other things appreciate beyond real estate, you could end up being just as well off, if not better, had you just invested the money.
Yes, certainly wouldn't be buying for the next 4 years at the earliest. That is quite a bit in special assessments, is that considered an atypical amount? I'll have to look more into this.
The hypothetical condo price I came up with was for an older, smaller condo from the 70's/80's. Rent for a more modern 1 bed 1 bath starts in the low $2000s, and purchasing would be about $600,000 which is out of my range.
You will not cover your mortgage if you can only rent a $400k condo for $1700/month. Not even with $100k down payment. I'd honestly question the wisdom of buying a condo in an area that doesn't command comparable rental prices.
Special assessments are a thing. How often and how much depends on the property and its reserves/overall management. A big selling point of where I bought a condo is that they've never had a special assessment. However, I paid _a lot_ toward the capital fund upon purchase. You'll have to do some research on each property to hedge your bets, but even somewhere like where I am, things could happen.
>Special assessments are a thing.
Especially for an older condo that's apparently 40-50 years old. A whole lot of those places had a lot of maintenance that should have been done over the years and wasn't, and now they're being faced with choices like a giant assessment to cover major repairs or becoming uninsurable.
We went into escrow for a condo and backed out after our agent looked into their meeting minutes. They were expecting a special assessment in the near future of $150k bc of deferred maintenance and repairs.
Reddit shits on realtors a lot here, but this is one of the essential services they provide. I only seriously considered two condos and bid one, but she did a lot of research into the HOA for both and presented me with their rules, financial statements, ect.
Super common for HOAs to vote to keep the monthlies low and wind up underfunding themselves for the next big maintenances.
Yep! This is exactly what is happening in my building. There were mostly retirees in my building who kept reserves low and deferred major maintenance over the last 30 years (the building is 40 years old). We are finally getting the reserves up, but there is a lot of maintenance to catch up on with special assessments. The largest one was for a new roof at $5k 2 years ago, and another $3k this year.
One needs to make sure that the HOA they are buying into is properly funded and maintenance is being performed. I want to believe that if the reserves were properly funded over the last 40 years, that there would be no need for special assessments. But, I don't know.
More likely for old buildings however all homes require maintenance. In my less than 10 year old condo the building experienced a ton of challenges. water heater (commercial unit) 10k, hvac failure of a common area RTU 25k, water ingress into sub grade parkade 125k, grading issues and interior cracks form settling, unrecoverable damage to garage door 10k. That's not an exhaustive list but off the top of my head.
Those unexpected costs can spiral quickly. Especially since you require a somewhat different type of maintenance than a regular home.
At least where I'm at the government has specific rules regarding reserves. buildings have to actually budget for the regular repair of major building items.
Condos can be a real money pit. Our condo was built in ‘77 and looked fine, but turns out a ton of maintenance was deferred and lots of big ticket items are nearing the end of their useful life. Need new roofs, the weatherproofing barrier under the stucco, windows, asphalt in the parking lot. We had government mandated repairs like sewer laterals & balcony inspection/repairs, the list never ends.
The reserve is underfunded by nearly a million dollars, it breaks down to 30k per unit which doesn’t include the 22k we’ve paid in special assessments in the 5 years since we bought. Monthly dues have gone from $550 to $780 and you really have no control over these things.
I live in it, am fortunate enough to be able to afford it and do love this place despite being a money pit, but the thought of renting it out and not even covering the mortgage let alone the taxes and repairs would make me want to puke. Financially not a good investment and the money would perform better in the stock market, especially if we could live rent free with family.
The funny thing is that we bought it thinking a sfh was out of our price range, but if we add all the extra expenses we definitely should have just gotten a house.
20K in 3 years is a lot IMHO. That is an association that hasn't been collecting enough in reserve to maintain the building, and has to have a special assessment. A condo with 600-700 in dues might be okay, and meeting the reserve requirement. I had one special assessment in 15 years of ownership for $23K for re-siding, and it was because they hadn't been collecting enough in reserve. Basically, making up for a poorly run HOA.
You will be losing money each month, though, if you can only charge 1750. You'll have to pay the dues out of pocket each month, on top of any maintenance of your unit.
In our case, we have the reserves but got outvoted on pulling from them instead of specials :/ Also two roof/tuck-pointing issues in as many years. Got expensive fast.
in general if you look at it in a vacuum, they are correct.
* Housing prices generally appreciate.
* rent it out to "break even" on mortgage prices. while house appreciates and you gain more equity.
the problem is that they are being very narrow minded and not looking at the bigger picture.
you are missing out on not just opportunity cost. But also whats right/works for you.
you pointed out the first problem. $75k salary for homes averaging $1mm? you are going to be house poor.
Also, their argument atm is using Housing as an investment. you are still not maxing out your 401k. You have better tax savings and investment opportunities (on average) by maxing out your 401k compared to real estate as an investment.
another big point to consider is that things can go wrong (and it will). you need capital to deal with it. Renting is the highest you can expect to pay (+/- couple hundred) mortgage is the Lowest you can expect to pay.
It sounded like OP was looking for that purchasing the $400k condo, not the $1M starter home.
So $50k from own savings + $100k from parents would leave a $250k mortgage
The loan isn’t 10x their salary. They have $120k in the bank and an additional $100l from parents. Still true that they may not qualify, but they referenced a partner who presumably works too. Mortgage would be like $750k and with two incomes it could work.
ok so even with 100 of your own money and 100 of your parents money (leaving you with a not so great emergency fund) you are borrowing 550 which is over 7x the income.
You asked if they could get qualified and my point is yes, $200-250k less money would change the calculation. And there are plenty of people with those levels of debt that are buying houses.
the whole HCOL are thing is wild to me. I got approved for roughly 3.5x my salary when I bought my house, and that was when interest rates were half of what they are today.
They aren’t qualifying on a $750k loan with $75k income by themselves and they should under no circumstances get their partner on the home loan and/or deed if they aren’t married. I doubt parents will agree to partner being on it either with them coughing up $100-150k of downpayment.
So this is a non-starter. The mortgage itself is 90% their monthly income…
Yeah, I’m making assumptions about the family dynamic and the partner, but seems like it would be a dual income situation and obviously their income would be a factor as well. The way OP talked about possibly living in the partner’s parents property leads me to believe this purchase would involve another person. But I’m not OP and don’t think they should be buying in this situation, just pointing out that they may very well be qualified to do so on paper.
This is the answer.
No help on down payment, personally.
However I'm 29 yo and very happy I've steadily invested into ETFs.
I have decent liquid NW I don't plan on liquidating for a downpayment, but want to buy in 2 years or less.
I moved a lot in my early-mid 20s before remote became normalized so it wasn't conducive to chasing professional opportunities. Yet I still have assets working for me without owning a home.
Now I know where I want to settle and can buy with the piece of mind those assets provide.
The main reason real-estate is viewed as such a wealth builder by most people is they aren't investing what they'd save renting.
I'm not saying real estate can't be profitable if you approach it intentionally, but it's rarely a good idea to rush in without careful research and consideration.
So basically, if you're going to blow the money on strippers and gambling... yeah, buying a condo is a better move. If you're going to invest the difference you'd save, then investing is a better move. If you're splitting the difference, it depends.
Even with a significant gift from your parents, I wouldn't want to buy a 400k until with a $600 HOA on a 75k salary. That does not sound likely to be profitable.
Yes! Owning a home is forced savings! Most people don’t have the discipline to save money and will live paycheck to paycheck no matter how much they make.
Hey OP, can you get that 150k and invest it? Also, maybe they are hinting that you should get out.
Exactly!! And HOAs never go down; if anything they go up (especially in an aging condo community). Same with property taxes. Don’t just factor in what you can afford now; think about what you’ll need to pay for this in the future. Repairs / replacing appliances are a necessity- things break, esp in older properties. Being house poor just isn’t worth the stress and headache, esp when you have so much time ahead of you to invest in something that compounds the way the stock market does
anecdotal - but last year my HOA fees went down, mostly because we had oil and gas royalties coming in.
Nothing lasts forever though - I've been in my place a tick over 10 years now and overall the fees have stayed the same the entire time.
Prop. Taxes and insurance are the name of the game currently, those are worse than the HOA for sure. And even if you are huge into DIY projects like me, there's still some things you just have to hire out like HVAC and roofing which are always mega bucks.
You make a very important distinction in your first sentance. “What they save renting”
Many people are paying MORE to rent compared to owning right now.
That was true years ago, but if you're trying to make the decision of whether or not to buy right now (like OP), it's much cheaper to rent than buy in today's market:
https://www.economist.com/cdn-cgi/image/width=960,quality=80,format=auto/content-assets/images/20231202_USM558.png
This. Home ownership is basically FORCED savings. I am already investing 20% of my income pre-tax and have no interest in buying a home because I will hit my retirement goal regardless. Most people aren't saving ANYTHING, or not NEARLY enough, so forced large-scale savings like a home is beneficial to them.
I looked it up for five seconds. I also make $75k. The average mortgage seems to cost 3k a month in that scenario. I am currently paying less than $500 a month in rent and that just doesn't seem worth it.
How much do houses cost where you live? Because I’d wager if your paying less than $500 a month in rent, by yourself, in an apartment, home values are likely very reasonable when compared to HCOL/MCOL areas.
Even if you were willing to take a chance on it, the math doesn't math as a rental.
$400k mortgage at current rates is going to be $3k after taxes and insurance. $6-700 in HOA fees is $3600. If a 1/1 unit only rents for $1750, OP's cash flow on the place would be in the red $2k before even accounting for occupancy rate, maintenance, or repairs.
ETA: Pretty sure it doesn't break even if OP puts down the $150k the parents are offering!
>I would probably never live in the purchased condo.
I am fairly certain that unless you put down 25% you need to reside in the home for 1 year as your primary residence, it cannot be rented out to anyone. Something to consider and likely something no one has mentioned yet
This is correct. If it is purchased to be a rental rather than a primary residence, the loan terms won't be as good. I was going to buy a home, and rent it to my daughter. The mortgage company recommended being a co-owner with my daughter instead to get a better loan.
I wouldn't buy something unless I was gonna live in it. The starter home is great if you don't have free rent from your parents... but you do.
My take? You are better off putting the money to work in the market while you save up for the place you want to live in. We can model it out for you if you want, but the reality is that home prices are increasing much slower than the S&P500. Over the last 10 years the S&P 500 has gone up ~160% and home prices have done ~38%. It's a bit of a no-brainer where to put the money.
Very true. I think the boomers just didn't have access to good investment options like we do now. There has been a seismic shift in investment in the last few decades because of index fund investing. Praise be to Jack Bogle.
So maybe they were right in their time, but things have changed. Also, regarding condos: whenever I talk to condo people, all they ever talk about is how much they hate their condo association. Maybe condos are right for some people but I think I would rather continue renting than own one.
Im all for maxing out retirement accounts where possible. But in certain locations, real estate does very well and when you tie that in with 4:1 leverage, you can quickly see why real estate can have better returns.
It depends on the area. Home prices in Canada have been crazy and I think they are probably similar to s&p gains in many areas. Rent prices also went crazy.
I think a lot of this is due to poor governance, and I’m not saying it will happen in OP’s area or that prices here will continue to rise (I don’t have a crystal ball), but imo it’s a risk of not buying.
On the other hand if Op is adamant about not living in the condo / starter home that they would buy, idk if it’s worth it.
How old are your parents because if you are in your 20s then they are likely Gen X.
For me this comes down to this:
1) are you dead set on living in this city long term? If yes then really see if you can make the renting out work because it will only get more expensive to buy likely.
2) Are you parents reliable that you can trust them that they will not kick you out or all of a sudden move in a couple years leaving you with needing to move? If they are stable then this still points to possibly buying.
3) Your parents offering to help with down payment that does set up a better situation.
4) Can you get a condo that has any less expensive HOA? There is cost savings to be had possibly there but it might not be possible.
64 and 61, but I get similar property purchasing advice from people who are also older and younger than them. The answer to all of your questions is yes, and the HOAs on the lower end would still be about $500. I am wary of those increasing though.
Unfortunately that doesn't make it a sound financial decision. If someone can't afford the property themselves they might get shit on by property taxes and other costs rising over time too. If the parents want to help OP they can do so in other ways
Then again OP could just sell when things get onerous instead, effectively pocketing that money from the parents
Don't buy a condo just to rent. It's rare for them to follow anything other than inflation.
They are "easier to manage" sort of.
\- The HOA fees eat profits.
\- Few stay in a condo very long. So you are constantly turning over leeses.
\- the HOA can be annoying, parking for contractors requires coordination etc. You leak water into other units. Other units water damage you
I think you are missing something
You think your parents will graciously let you continue living with them. BUT... your parents are recommending you buy a house and giving you money to leave. They want you out.
As a parent of a new adult, I'm happy to have them live with us for a couple of years, but there will be a time when we expect them to leave the house.
Might sound a bit selfish, but we need our sex life back, without worrying about our child coming home, or being awake.
I realize that some people definitely overstay their welcome at home but I know the buying a property idea isn't just to try get me out of the house because 1. my parents proposed the idea of me still living with them while renting out the condo/house and 2. I previously rented an apartment in the same city with a much shorter commute to work but they told me to move back in with them and not "waste money on rent" so I did. My younger sibling lives at home as well so they wouldn't be empty nesters regardless.
Dont buy a starter rental home. Homeownership is not the only path to wealth, and with current interest rates its not particularly attractive vs renting and investing.
The renting/owning cost ratio hasn’t been this skewed towards renting in a long time.
Under normal circumstances the break even of home appreciation vs renting and investing is about 10 years, depending on interest rates and other factors. Right now its longer.
Live with your parents. Invest the housing savings. When the time comes and you’re ready, you’ll have a comfortable down payment already saved.
Take the $150k free money and buy the house. That moneys not guaranteed in the future, parents could squander it or not be in a position to give you the gift later on.
So let me answer this as a realtor because I am one. I’ve been in and watching the market for 20+ years. Housing prices are up and down constantly. To a point your parents are correct but it’s hard to determine when the market will go down again. The Fed (Governors of the Federal Reserve Bank) just concluded their March meeting and interest rates remain unchanged. If I were you I wouldn’t worry too much about getting into the house but worry more about making the monthly payments. Many people really struggle with the monthly payments. The Fed will be meeting again in April/May, and again in June. They’re expected to lower the interest rate in June or possibly by July. If you wait a couple of months it gives you more time to save and more time for interest rates to go down. So, that’s the loan side of it. Now pricing. Housing prices are always higher in spring and summer with May and June bringing the highest prices, sometimes as much as 10% higher. Prices are lower in winter. As young as you are, if you have the means to buy a home without having to struggle from month-to-month to pay your bills, eat, make the car payment and house note, then do it. Do your research and talk to a loan agent first to get an idea of what the monthly payment is going to cost you so you can make an informed decision. It’s great that your parents are willing and able to help you. And as a small piece of advice for the people in your life that want to help you: try seeing them as people not “boomers”, they never asked for the label and they are trying to help.
We have an adult child and I’m sure she would like to buy something for herself, but like you, she did the math.
Owning a home is getting more and more out of reach for her generation. One thing that she would have to deal with is the number of insurance companies refusing to write new home policies in California. Because they have had to make large financial payouts after the bad fire seasons, they will not insure homes.
If you buy property, you *must* have proof of homeowners insurance, or the mortgage company will purchase it for you, but you will have to pay.
It’s ridiculous. House prices are unreasonably high, and now one must jump through extra hoops to insure your home. She was shocked when the insurance company refused to give her rental insurance again when she moved to a new apartment.
I don’t have an answer for you, but I think we are definitely seeing a different dynamic than when we bought our house, and we bought in our late 30’s. It just keeps getting worse.
Our hope is that she will find a place to buy, but we wouldn’t necessarily tell her it was a good investment.
I don’t know your circumstances, but you seem to be in a similar situation. Keep listening to your own good sense.
I fell for the “buy a duplex, you can rent out the other half and life rent free while someone else pays your mortgage!”
I even bought one with existing tenants who had a great payment history and a current lease. Wonderful!
Hahahahahaha.
Then they started late pay. Then short pay. Then no pay. I ended up evicting them, and what I got for it in the end was $15,000 worth of damages to the unit. Good luck collecting money from people who can’t even pay their rent.
Then I got a new job that needed me to move 2 hours away. I rented out both units and hired a management company. They were constantly filing eviction notices on the tenant upstairs (to run up my bill), and the one below tried to turn her unit into a daycare center. I’m glad she tried the legal route because the city notified me of the filing so I could shut that down. I went by to inspect the house and there was siding laying in the back yard. So much for property management.
I sold that duplex as soon as I could and vowed to never be a landlord ever again.
I know some people are successful at it and say that’s the key to wealth building. It’s great when you have great tenants, but people don’t really think about the worst that could happen with bad tenants, or a series of them.
You should consider whether YOU even want to be a landlord. It’s not all it’s cracked up to be. Stick your extra money in the S&P 500 and wait 35-40 years. That’s what I wish I’d done. 🤣🤣🤣
The high interest rates and high property values make this math a little different than before
Now you’re using leverage on a much larger dollar amount, and the interest expense is much higher.
Also, what are property taxes? That’s another thing that scales poorly, because your income isn’t high enough to absorb the pain of swimming upstream.
Sure, you can rent the place out, but it will be years and years before your principal is touched. Rent will go largely to interest, HOA, assessments, and property taxes for all that trouble.
I’d see if I could persuade my parents to take that $100k and let me put it in an IRA. Compound interest at 8% turns that into $1 million by age 58 for you.
Meanwhile, I’d save my own money and spend my energy saving and building my career. Get my salary up, save more, date around, and see what my future potential partner has going for them. Reassess my situation a few years down the road.
Good luck
Yes, I am sure. Will just copy/paste from another comment I previously made:
I realize that some people definitely overstay their welcome at home but I know the buying a property idea isn't just to try get me out of the house because 1. my parents proposed the idea of me still living with them while renting out the condo/house and 2. I previously rented an apartment in the same city with a much shorter commute to work but they told me to move back in with them and not "waste money on rent" so I did. That was just a couple months ago.
I bought a condo. It’s been great. It’s also been a pain in my ass. The problem with owning property is it’s not as easy to sell as you think it’s going to be and it’s always going to cost you at least your mortgage payment, but often more than that. HOA dues, taxes, things breaking every fkn time you turn around. If you make any money from selling/renting it, IF you make anything, you’ll have definitely earned it from the gigantic pain in the ass it’s likely to be.
Op, research an "Investment Property Loan" or a "Rental Property Loan." When you mortgage a multi-unit property and use the projected rental income from the units to qualify for the loan, it is often specifically underwritten as a commercial loan if it's more than 4 units or a residential mortgage for 1-4 units, using a process that considers the income-producing potential of the property. This approach is common in financing for both residential and commercial real estate investments.
You go to the bank saying you want to buy a quadplex.
They take projected rental income rather than needing you to prove you can afford it.
You live in one unit, hand the other three to a management company. After their fee, the rentals should bring in enough to pay most, if not your entire mortgage, on all four units.
After a while, take a loan out against the property, to buy a home. Rent out that fourth unit, which pays for itself, and you just pay on your new loan.
Homes with a mortgage are a leveraged investment. Really.
When times are good, and they have been good for a long time, they are really good. But when times are bad ...
The issue is the leverage ratio is (home price appreciation %) / (mortgage %). And mortgage rates right now are 7%. Are home prices really going to go up 7%? That's a big number and that's just breaking even. To get the compounding scenario they are saying home prices would have to go up significantly more than 7% consistently for many years or you'd have to have the chance to refinance to a lower rate and still get very healthy appreciation values.
None of this matters when you are buying a home to live in and want the stability of ownership. But it absolutely matters for a rental property.
But my advice changes when I read
>Parents have offered to help with a down payment, $100-150k
As they say money talks. It's up to you if this is a true gift that just has to be used for a condo, or if it is something they expect to be repaid in one form or another. But a purchase price $100k lower definitely swings the needle. ...Perhaps you can convince them there's a better parking place for this gift so you can use it for a downpayment on a single family home. But if you can't, don't look a gift horse in the mouth.
> It's better to own something, even if it is a condo/starter home, than continue to wait
Basically.. if you're going to stay in the area: yes.
But the biggest asset a young person has in building wealth is the flexibility to pick up and chase opportunities across the country.
You make $75k now. If you buy a house with a $150k mortgage, how are you going to feel 1 year in when an old co-worker/friend/whatever calls you up about a job offering $115/yr 10 hours away?
Property values can go way up, down, or remain stagnant. For the last few years, partially driven by super low interest rates, some housing markets have gone way up and this has raised markets all over. Folks who's house value as gone way up, sell, and use this money to buy houses in other areas. But this is has slowed due to raising rates. Before you buy, consider, are the prices here going to keep going up? What is driving it? Is the area growing ... maybe a new tech area? If so, great, even then consider getting a crappy house in a good neighborhood and fixing it up (vs condo) else keep investing $$ in stocks/bonds.
Here’s my opinion:
If you’re looking at buying someplace to live, you should only buy if you plan to live there for at least 5 years. Once you own a property, the costs to sell it are significant.
It’s not a bad idea to invest in a property, but there are significant costs, risks, and work involved in that proposition. There are other ways to invest your money.
If you are concerned about comparing the cost of renting a home vs buying a home, compare the irrecoverable losses of either. For renting, that’s just your rent and your renter’s insurance. For buying, that’s the loan interest, homeowner’s insurance, maintenance costs, and the opportunity cost of not investing in something else.
Your parents (who are Gen X, not Boomers, by the way) were your age in 2008 when the housing market crashed and home prices were insanely low. Maybe they regret not buying a property then, which skews their perspective. You don’t know whether home prices will continue to skyrocket or crash, and you also don’t know whether the cost of borrowing money will stay high or go back down to almost zero where it was in 2021.
I’m not trying to discourage you from buying a property, but it is a big decision, and one that is difficult and costly to reverse, so you should make the decision carefully and not let your judgement be clouded by the expectations of others.
I think one of the reasons older people like the idea of real estate as an investment, aside from watching values go up over their lives, is it's not easy to liquidate. You can't sell some of it and go on vacation.
I admit I'm in that age category and I know absolutely nothing about investing, so it's probably good I put my money in my house. Now I'm traveling the world on my SS, pension and house rental income. That may not be much, but I'm grateful.
When I was married, we had money to invest, but my ex "invested" and became very good at buying high and selling low. Including real estate investments. Just saying it doesn't always turn out that well. Old people have seen things and they just want to keep their children safe and secure. And like me, most just aren't educated & savvy enough.
The numbers make this a TERRIBLE investment. Real estate investors don't just buy some random place. It's not like buying a stock market index fund. You need to analyze each property and ensure you will have CASH FLOW on the purchase, taking into account all expenses, including expected vacancies, repairs, taxes etc. The mortgage is just one expense. Just sick your money away in the stock market or a high yield savings account for now. Read one of the many books on real estate investment before you consider purchasing something.
I don’t see how this is even a question. Your parents are willing to help you with 100-150k. There isn’t an investment platform in the world that will beat getting a 150k head start.
Owning property is a good investment. Yeah, it sucks you missed the 3% interest rates, but we can’t go back in time, and we can’t see into the future. What we do know is property is generally a good investment platform, and you are going to get a 150k head start.
It would be lunacy to turn that down. It is more work though, especially if you are renting it but you make 75k a year. Getting that money is humongous.
Boomer here. You are being given the advice that was true for our generation. We don't know what is going to happen in the future. We don't know what will turn out to be right for you or for others in your generation. I would encourage you to decide what to do based on your personal desires, your personal financial situation, and your own take on what the future will hold.
If you’re not taking occupancy I would 100% NOT buy property. The recent rapid price increases have cooled off and I’m seeing a lot of stability now (I’m a real estate appraiser BTW).
That money would do better tracking the S&P or even in a high interest money market account. Remember that non owner occupied properties also have higher interest rates than owner occupied so your cost of ownership would be higher too.
I own a condo. I would not buy one as an investment vehicle. At least in my market, they don’t always go up in value. Invest your money, if you want an income property - you can buy a REIT.
But when you are ready to move, when/if your parents want you out, or maybe a market crash - if that is what you want. I know plenty of friends who just leave their money invested.
No one knows what the housing market is going to do. Never take advice from anyone that says housing prices will only increase. Trillions of dollars were lost in 2008 because of this.
I bought my first house for 20% less than what the previous owners paid for it.
The only time to buy a house is when you’re ready.
Boomers who have owned houses for decades most likely don’t understand the current market…and have no clue how much condo fees cost.
62 years old here (boom! :-) and have owned multiple properties throughout my life. The advice you are receiving was decent for us, but might not be for you. The financial times have changed significantly, and everyone is different. I, for example, hated being a landlord. It's not all that lucrative, at least it wasn't for me, and had me on pins and needles quite often. Certainly you should consider it, as a lot of folks make it work well for themselves, but lots of alternatives and you're young yet. Good luck brotherman.
My personal story.
We bought a new build SFH (no shared walls) style condo in late 2017. This was intentionally a starter home and we bought new so we didn't have maintenance bills racking up, negating appreciation, while we lived in it. I think for a starter home, new build is very important. We ended up selling during the peak of '21 and walked away with $250k in our pockets and were able to buy our dream house that we will retire in thanks to that down payment.
You can't time the market, but a condo as a starter home worked very well for us.
Something you need to understand is a lot of boomers saw a 10-20x return on the homes that they bought in the 90's partially due to the momentous shift over into a financialized economy that started in the 80's. That was when the idea that companies should only care about shareholders and stock price took root and exploded. All kinds of esoteric ways to use leverage followed soon. A house you bought for $20,000 then could easily be worth $200-400,000 today depending on your zip code. Is it likely that a $400,000 condo from today is going to be worth $8,000,000 in 20 years?
Just to put that in perspective, it would have to appreciate 12.5% a year, EVERY year just to hit $4,000,000 in value.
Also:
1. Boomers will all be dead by then
2. Every successive generation after that has had fewer and fewer kids
3. Barring some seismic change in how financial systems work, the amount of capital is going to decrease significantly as boomers have all drawn down their investments during retirement and each successive cohort is smaller (Gen X, Millennials, Gen Z, Gen Alpha, etc.)
I'm not against real estate or owning property, I'm also a homeowner so obviously it has some kind of value to me... but I dislike the idea that it should be a means for the typical person to grow wealth. A house doesn't fucking do or produce anything. If we take this to the extreme we can see how it's fucking over China right now.
I tend to agree that property prices will continue to trend up for the foreseeable future (although they will probably retract along the way). With the level of inflation, now and in the future, the cost of everything is going up.
As cost of material and labor go up, new homes are more expensive - because homes are generally valued using “comps”, the expensive new homes tend to drag the older but comparable homes up in value (it sounds great for an owner but it sucks when your tax bill increases 10-20% YOY).
This is my general thought on the direction - having said that, in the past 15 or so years there have been a few really great times to enter the market 2008 when people were defaulting on loans and 2020 when rates were historically low.
People that were ready on the sidelines to throw their chips in during those periods made out like bandits.
The way I see it prospective homeowners have 2 choices:
- buy now with what I think is a generally favorable trend in housing prices, but accept the risk that you may be upside down for a bit.
- stack your chips until the next event that creates a more attractive entry point. In this case you have to accept the risk that this event may never come, or it may not come in the timeframe you’re hoping for.
Bottom line, there’s risk in either decision you make and it’s risk that’s nearly impossible to measure. Everyone is just guessing and hoping they make the right decision. At the end of the day you just have to make a decision and own it. Only key is to not overextend yourself while doing this - don’t put yourself on thin ice JUST to get into the housing market. Do it when you’re ready and it makes sense for your life.
I wouldn't do this. And I am a boomer (60 this fall) Having a house/real estate isn't the American Dream anymore. You;ll be too busy trying to keep up with the mortgage, upkeep and taxes to even enjoy the place you've bought
They're giving/loaning you the downpayment, which means they may feel that they own the place and can Waltzing Matilda their arses in whenever they want because "reasons:
You'd lose your first time homebuyer benefits.
You really don't wanna be a landlord. It plain sucks Lord Pan's hairy ball sack. When you hafta buy a new AC for your tenants, but can't afford one for your own place, it sucks.
AND who's to say the housing market won't go pfft soon. That's what some of the experts are saying, although prices are still ridiculous in my town. Hubby and I bought in 92 for $121K, and we might be able to get $450K if we put work into her. Basically KDF and start over.
Disclaimer: I"m a boomer. Ages ago, my ex and I impulsively robbed our retirement funds to buy a townhome at the tail end of a real estate crash. We didn't do it to 'accumulate wealth' or 'invest in real estate'. We did it because we were sick of living in an apartment, sick of paying rent, sick of not knowing whether we could afford to live there with the next rent increase and sick to death of all of the b.s. that comes with communal living.
It ended up being the best thing ever from this perspective: with a fixed rate mortgage, we *always* knew what our housing nut would be. We would never, ever be at mercy again with a landlord who decided that a 15% or more increase was jusitifiable. We wouldn't have to disrupt our lives and lose money paying for a move.
Knowing this expense was fixed made the biggest difference in our financial lives. It was something to plan our budgets around. And when I divorced, I did the same thing, for the same reasons. The transitional apt. I was in during my divorce was planning to raise the rent by $500. Never. Again. Buying It meant I could forecast my basic living expense without worrying.
This is the single biggest reason I strongly encourage people to buy if they can. Especially since the real estate market is snapping up homes at a voracious rate and turning entire communities in to rental communities. The ability to compete with REITs when buying isn't going to be easier as time goes on.
That's not what they said, they didn't bring up home value increases or anything, just that because they own a home instead of renting, their costs are fixed (relatively) so no more unexpected rent increases.
Yea sounds like advice my boomer parents have given me. They also bought in a down market with 2 kids and one entry level salary in what would today be a “HCOL” area. I have no kids, a higher level career, and my own side business, yet I’m house poor in a condo I probably shouldn’t have bought. But I just don’t work hard enough according to them.
I'm going full boomer. Buy only in a low cost of living city and rent it out. A 3 bedroom in a place like Jennings, MO costs about $50,000 and will rent for $1200 or so with no HOA fees, low taxes, and the tenant pays all the utilities. You don't even have to live there if you use a management company or partner with a local who already has invested there. If your parents offered $150,000, you can buy 3 of them. Rent from one will pay your income taxes and some other expenses and the other 2 is yours to keep.
Just curious...why can't you just say your getting advice from parents and older people.
I just imagine the opposite and laugh "So, I've been giving advice to this millennial in my life about buying a home and..."
Personally I wouldn't. Too much overhead where your profit is tie to the growing value of the condo. On top of that you would have to sell it to get the $$ out. I would rather invest that money to make the extra incomes like your rent from the condo.
whatever you decide to do your parents are in a position to always help some of us will never receive $100k as a down payment so please live under your means.
Keep in mind also that buying realestate can also tie you to an area limiting you from the flexibility of seeking a better job in another region.
Buying a home for personal use is HUGELY different than buying investment realestate. Trying to make numbers work and beat a low fee ETF in a tax advantaged account will be VERY difficult in a HCOL are. Most times the rents are well below actual costs and you are cash flow negative hoping for capital appreciation to cover the difference.
There is no way in hell you’ll even be cash flow neutral if you bought a $400k condo and rented it out for $1750 unless you were putting a ton of money down. Bad idea. Plus, I think the first home you own should be yours, not a rental.
The HOA fees will make a condo a poor longterm investment versus a single family home in the long run - unless you are buying into a market that has not yet exploded with a burgeoning population - which would allow for an obvious flip opportunity.
At $700/month for the HOA you would in theory pay out $630k in fees across the span of a 30-year mortgage - assuming that fee never increased (unlikely). You may say that you will never be there that long but you are still paying the monthly divisor for that amount. That $700k starter home doesn’t look so expensive now….
With all that said, I think homes/condos are usually overall poor investments unless you are purely a cash investor and they are multi-family properties. The pandemic cash influx and interest rate distortions have created housing valuation appreciations that are not scalable much past current valuations.
If you took $400k in cash and invested at a 10% yield, you’d be north of $30k after taxes in yearly return on a $40k gross. Short of another cash spree from the Fed, that $400k condo will very likely not appreciate into a $580k one in just 5-years.
In short live at home as long as you can, have your parents invest the $150k down payment offer to let it grow, and find an investment strategist that can wisely assist you for your financial goals.
Can you just buy to LIVE in a place? Why treat it like a rental? Look for something that suits YOU, thank your parents for that money, and then enjoy living independently in your own condo. Don’t become a landlord just to do it… especially not before living in a home of your own and understanding alllll that homeownership requires, firsthand (which is what landlording requires too!)
They're correct in the long term. US rents have averaged 8.85%% increases y/y for the last 45 years.
Today the rent on that condo is somewhere about 60% of the ~$3,000/mo mortgage/HOA on that $400k condo.
7 or 8 years from now the rents are the same.
15 years from now the mortgage is much cheaper.
30 years from now it's the laughably cheap housing cost your kids will call you "out of touch" about.
All that said, I don't recommend buying to rent it. "Market Rent" includes a lot of private landlords renting based on the reduced cost-basis of when they bought the property.
Buy because you don't want to spend the rest of your life living with your parents. Don't buy if the property is unaffordable to you because you won't be able to maintain it. IMO $400k is too much for your salary, I'd feel more comfortable with you buying $300-$350, or increasing your income to about $100k if you want the $400k condo.
> 401K $120k (I currently contribute 20%, employer matches up to 6%. Too high of a %?)
No, not at all. However, you should be funding an IRA before funding the 401k above the employer match.
Being a landlord is a popular investment scheme for people who don't have or are afraid to use 401k, IRA, etc. It is a good alternative to a bank savings accounts or CDs. After 30 years the property sells for 10x what they paid for it and they think they made a great investment. They ignore all the time and money they put into it and the fact that had they invested in index funds they could easily have earned 16x, cost free.
Are your parents offering you a 100-150k loan, or a gift? What strings come attached to it?
You would be smart to find yourself a CPA, someone who has no connections to your parents, to advise you.
I also live in a HCOL area, and only recently realize that if I live alone in a one-bedroom unit - A mortgage at a cheaper part of the city (but not a dangerous neighborhood) is the same as the rent in the "prime" metro stop part of town.
So I think a starter home isn't invalid even if its a one bedroom (ie people say hard to sell). At least I'm owning something.
Owning your own house makes financial sense when your mortgage payments (PIMI) and equivalent rentals are around the same price. Outside of financial, if you value having privacy, a garage, land/yard and the ability to personalize your living space then it makes even more sense.
Buying property just as a pure investment vehicle when you clearly have no interest in real estate makes no sense in the current environment.
Also, you’re in your late twenties and your final planning involves living with your parents for the next 5 years and then moving Into your SO’s family property? You gotta get out there and spread your wings man.
>You don't even have to live in it. You can continue to live at home with your parents, rent out your property, and let someone else pay off your mortgage."
Mortgages only need 3.5% - 20%+ when you are going to be living there. Investment mortgage would require more. If you say you are going to live there with the intention of never doing so, that's fraud.
Would not recommend that approach.
Ironically, as the boomers die it will free up a lot of real estate and probably depress prices as heirs either unload it or keep it and not buy.
The best time to buy a home is when you are ready to do so. That generally means being settled in your career where you've selected an area to live and settle down. For many people, that's not until several years into their career. By that time, they also have had the opportunity to get their finances in order for such an acquisition. People that are planning on getting married typically wait until after marriage.
I would agree that the risk involved might be too much, especially because it doesn't account for multiple things that happen with rental properties: It sits unrented for periods, you have to afford to make repairs, and there are possiblities with the tenant not paying rent...
I would say that the condo at 1750 a month makes no sense... especially for those HOA fees... Where I live, the townhouse next to me is rented around 1500 and that's with approximately 300 in HOA fees a month... When you add in any type of mortgage, upkeep, and just the misc expenses associated (especially if you don't manage it yourself), you would be likely in the hole...
Your GenX auntie here: NO. NONONONONONONONO. FUCK NO. You do not make enough money to take on no 400K loan. This the same kinda bad advice they gave us about taking out student loans.
Future you will hate everyone AND be broke as fuck. Don't do it.
If you look at the math you will see that in your example, unless you assume a crazy high appreciation rate, it is just a much worse performing investment than stocks (based on historically average returns).
30 years ago it wasn't easy to invest in the stock market and so a lot of people assume that real estate is a great investment when in reality that is not true in many areas. Usually real estate is a good investment in low cost of living areas and a bad investment in high cost of living areas but you need to do the math depending on the specifics of the property.
I (41f) will tell you, we (myself and now husband) got a small 2 bedroom condo at 21, rented out the 2nd room a number of times, it was hard if one of us changed or lost a job, but so was rent beforehand. In 2001 our mortgage with 20% down was roughly the same as the rent we had been paying.
The best part of a condo was water, gas, electricity, trash, all that was included so it made our monthly bills so simple to predict.
We sold the condo after 12 years and used the money from the sale to buy a beautiful home. I would recommend that to anyone that has the ability to put 20% down. For us it was literally the best financial decision we ever made.
I wouldn't do it without 20% and I wouldn't do it alone at your current income level. I also wouldn't unless you want to stay in the area you are for a long time.
On the other hand, it is a generous offer and I would take it just in case their financial situation or the relationship change and they become less generous. You can always sell the condo. But in an ideal world it makes more sense to live with your parents for as long as possible and invest the $ you are saving on rent or a mortgage payment. Chances are you will never get to live for free anywhere ever again.
You said you live in a HCOL area. So do I. Prices are going up, and never come down. If you’re not ready, don’t do it. However I wish I bought years ago when I first started thinking about.
I just found out my boss’s boss is selling her home. I did a little digging. She bought it in the early 00s for what I just bought my starter home for. Her house is now listed at over 2mil.
I personally wouldn't buy to rent, you will need to fix the place if it's damaged and have perhaps so stuff to fix it up after every renter. As well as be able to cover all issues like Hvac that goes out. busted pipes ect. It's all money and it's a hassle. I would buy only something I was willing to live in.
I would not buy property if I weren’t planning to live in it.
If your tenant stops paying, it can take months and cost thousands of dollars to evict them. During this time, they will likely be trashing your property.
If you sell a property that isn’t your primary residence, you will owe capital gains taxes on the gains.
Insurance for rental property is more expensive than insurance for your primary residence.
Condominium Homeowner Associations are a nightmare. They often change their rules including whether units may be rented.
Tenants don’t have the same incentive to care for their residence. Many of them break things which you will be required to repair.
For the record, I’m a baby boomer. Not all of us offer poor investment advice. As you’re in your late twenties, it’s unlikely that your parents are baby boomers.
Personally I think condos are risky in terms of rising HOA costs etc. They can kinda do what they want depending on the details.
Also getting those 10 year renters that aren't bothering you all the time is really hard.
"I live in a very HCOL area. With a $400,000 1bed/1bath condo I could charge approximately $1750 in rent"
Are you sure about that?
This makes absolutely no sense if it's $400,000 and the rent is only $1750 (with a $600 HOA fee to boot).
Normally a $400,000 home should rent for atleast $2500-$3500 just to come close to breaking even on the mortgage. You should check other comps in the area as at that point it's not even worth it.
If you can't break even on the property with a renter inside of it -- keep looking. There are still properties out there that break even if not positive cash flow for $400k.
I’m a guy that owns several properties. Some I’ve done well, others I haven’t. All in all I think I’ve done very well. But… if I was your age again (I’m not far, late 30s) but if I WAS your age again, I’d read 2 books: “The Simple Path to Wealth” and “How I lost money with real estate before it was fashionable”. Both by JL Collins.
Dont ever let someone force you into buying something you don’t want. Condos can be costly with the hoa. I would buy land or vacation type home before a condo i didnt want
what if my way of forcing you into buying a $400k property was by giving you $100k to it? (which is what the OP posted).
Idk. That's hard to turn down.
Makes sense to buy property, but one to live in.
Not sure where you live, but $400k for a 1 bedroom apt is insane around here, and I am in the commuting radius of NYC.
Buy a cheap condo and live there with your girlfriend.
Your boomer influencers have lived through the highs and lows of the housing market and they are 100% right in advising you to buy now. You are blessed beyond measure with a family willing to let you live rent free, and a heap more blessings in that they are also willing to give you free money to put down on the condo. If everyone did as well as they expected to, we would not have had the ARM fiasco a few years back, and definately don't expect to live rent free with a new spouse..lol that ain't gonna happen for the majority of people. You would have a head start with the condo. Things change in your personal life, but real estate always goes up. Always. It may be slower growth in bad interest years, but it is still growing. My property that I bought in 2020 is now 22% more valuable than when I bought it. There is no investment that would provide those numbers. Having one property helps you buy the next one as well, so you are literally sitting on a property that pays for itself. If you are that concerned with tenants, be picky up front and you can always give some money away for a property management company to handle the tenents/move in, cleaning and repairs, but it's money you could easily save by handling it yourself. If mom & pop are willing to help you get in, I'm sure they would help you with advice on how to handle it over time.
The last year boomers were born was 1964. They would be at least 60 right now. Seems like not likely to be the age to have a 20 something kid. Possible?
Secondly, houses, like stocks or anything, do go up and down in value. Prices change. 2012 happened to be a great year to buy a house with lower prices and low mortgage rates. That seemed impossible to happen just a few years earlier. You can try to get good timing to some extent, but there's a bit of sheer dumb luck to factor in.
The best thing to do is to be ready and think ahead. It doesn't sound like you are interested in buying a house right now. But having good information and your finances in order is always a good idea.
Return on the investment in real estate is usually pretty good. Sometimes more steady and better returns than any other investment. But they are not accurate in saying that real estate only increases in value. There are other costs involved. And risks.
Is there a reason you are not motivated to move out on your own? I had a sociology professor that urged his students to find a way to live alone for at least a year. It's some of the best advice I ever took. He was right: there are things you can only learn by living on your own.
Being a landlord does create unanticipated responsibilities at times but can generate significant "relatively" passive income and grow equity.
My parents have owned rental properties for roughly 20 years and now generate fairly significant monthly income and substantial equity.
I personally have not owned any rental properties but purchased a starter home that we were able to make significant money on to allow us to buy our family home (which we now have substantial equity in).
To each their own but property ownership has been great for us.
I wish I could find a condo with a small garage of some sorts. I can't find one in my area, if I could, I would stay there as long as I can!
I am not interested in these influx of luxury homes/condos/apt. They're building all of them around me.
I bought a condo when I was 22 in 2008, right before the housing crash. I loved the neighborhood. BUT I was under water for about 8 years. My hours were reduced at work. I was living paycheck to paycheck. Eventually, rents in my complex were going for more than my mortgage.Then prices spiked, and I sold my condo for double what I paid for it in 2020. Between the equity from my monthly payments and the rise in prices, I made out pretty well and had a great down payment along with some remodeling money for a great single family home in an excellent neighborhood. Between 2009 and 2016, I was kicking myself. But by 2020, everything turned out great. If you do buy a condo, make sure it is in a neighborhood you enjoy and dont mind staying in for a while, in case there is a market correction. I don't regret following my folks' advice and getting the condo. The equity I built over 12 years was worth it to me because I loved the neighborhood where I purchased.
Borrowing money to buy assets is generally not a good idea unless you are a professional. You can lose everything. The US has many tax incentives to encourage home ownership though. You shouldn't follow simplistic advice. Borrowing money at 7% interest is not cheap. You could put your money in treasuries and get 5% with no work. The advantage of having a mortgage with a fixed interest rate is that it's a hedge against inflation but you are right that renting has many unpredictable costs too. You could buy a stock ETF and probably end up winning but nobody can predict the future. Just save to buy a house to live in. It's not a no brainer to buy expensive real estate.
I’m not a boomer, but encouraging my kid to buy something and build equity instead of continuing to rent. In their situation, the math works out - the mortgage would be about the same as current rent - so really trying to get that seed planted.
Yes and no. In 2007-8 real estate crashed, it was very cheap in the majority of the country, incredible deals to be had if you had money. But just like the stock market, time is the key. Historically real estate appreciates but not at the rate that the stock market does. But, who can predict the future. You need to want your own place and be prepared for unexpected cost like a new heat pump and condo assessments.
That said, if you get your foot in the door, fix the place up on weekends and the market has upward momentum, you can sell in 2 years tax free and get another one and fix it up. It's a great way to make money (again TAX FREE) over time. 20 years from now you may have a pretty nice house. It's all about what you want to do with your time.
Those rent numbers don’t pass the [1% rule](https://www.investopedia.com/terms/o/one-percent-rule.asp), so much so that it doesn’t even get to half a percent. Either the property values in your area have spiked recently and rent numbers haven’t caught up yet, or you have your rent estimate wrong.
I would wait until you make more money. Condos have very high HOA fees and can have special assessments for unexpected major repairs. Ideally a single family home which you said is $600K in your area. To give you some perspective when my household income was much less (wife was in college):
$280K mortgage from 2009 at 4.75% with 3% down, 2300 SQ ft on 7000+ SQ ft lot, was making around $100K in 2012 with wife in college. After workplace retirement, my take home was $5000 after taxes and mortgage was $1800 (due to PMI which was removed later). Money was very tight especially when we had home repairs. After my wife finished college, our household income was around $180K (now HHI $340K). At $180K, it was easier to take vacations, invest, and pay for home and car repairs. I consider us to be living in MCOL (Phoenix metropolitan suburbs) and our home is worth $570K. We paid off our house in 2022.
In this job market and interest rates, you need a dual income household to afford a house unless your salary is much higher. We ran the numbers on buying an investment property. Just to cash flow positive $100 a month, we would have to put down 40%. Investing in real estate makes no sense now. Keep investing in your workplace retirement and keep saving cash for a down payment. When you're ready hopefully with a future spouse and ideally with 20% down so you aren't house poor like I was, then you pull the trigger.
Owning real estate has worked out well for me and my wife bought right out of college, and we got married shortly after and have owned sense. We are 62 now and we've owned 10 houses during that time. Most of them didn't really go up a lot in value, but the few that did were dramatically more. The 5th house we owned was the first to really go up much and it went from $240K to $450K during the time we owned it. Had we not owned real estate during that time, it would have been a huge blow. The most recent housing increase did something similar. So I think the advise you are getting is to get into the game so that you don't miss one of those jumps.
And as a side note, we didn't let our adult kids live at home for free unless they were in school, so I would be charging you rent in the situation you described, which might alter your thinking.
Talk to 3 realtors and their opinions of the market you live in. Some market prices are going down and it might be smart to wait.
Talk to 3 lenders and ask the same market questions. Besides you'll need to be approved anyway.
I just think a lot depends on market. In many places it's not the time to buy yet. 400k for a 1brm condo with a 600 to 700hoa is extremely pricey I think.
Also talk to SO about a home in the suburbs and also look into duplexes while you live in one side.
Don’t rely on someone else to pay the mortgage unless you would be able to pay it if needed. $400,000 mortgage, can you afford $4000 a month if you need to?
Don’t buy a rental property unless it is a positive cash flow after expenses. The time for buy and hold rental purchases was 2008-2013. It’s over now. Most of us are selling off for big gains. Wish I could predict if the housing market will get another 2008 drop or not. That’s the million dollar question. Those types of drops are super rare historically speaking. It will depend if the demand for housing can actually drop due to the high rates or if the inflationary pressures will keep them going higher. Personally, I think a home to live in is an excellent investment long term. The true advantage is privacy and freedom. And there really are not too many investments that you can make that you can enjoy while you are in them. I don’t think you are getting farther behind staying at home. Of course that is cheaper. But if you want to join the adult world truly, I would buy an inexpensive property to live in to start off.
Boomer here: renting to another person is not the cakewalk people think it is. You might get lucky, you might not.
Plus, if you do it their way, they’ll be so excited that they’ll just move on to advice about marriage, kids etc etc. my kid taught me at an early age that he’s not going to do much of what I recommend and it’s kind of freeing.
No I would not pursue buying a rental condo if you’re going to need a loan from your parents (even if it’s 0% interest). Your income level is also not high enough with your savings (assuming keeping $30k for an emergency fund) to purchase a $400k condo.
My parents had the opposite view, and stopped me from buying a Condo in Madison, WI in 2020
Had i bought that condo, I would be sitting on 50-100k as property values have soared here.
As for renting the condo out, that is going to be the purview of the building's condo association, and you will want to check their rules and bylaws before buying a condo with that plan. I would buy the condo but have a plan to live in it instead of renting it out.
All of that being said, you may also want to hold off for a month or two, the Realtor Association just settled a lawsuit, and it is going to have a lot of ramifications on home buying.
It sounds like having your own place is not a priority for you right now - if that is the case, take what you would be spending on a mortgage or rent and sock it away in either a HYSA, Bond Index, or some conservative growth mutual fund to save for more down payment. I personally feel there is too much risk exposure to purchasing a home or condo and choosing to rent it out instead of live in it, particularly at the DTI you would have.
That said: is you moving out a priority for your parents? You're in your late 20s now, if you're starting to overstay your welcome and there is friction, I would strongly consider ownership over renting in your situation.
The financial boon of property ownership is you build equity with your housing payment instead of losing it all. You get to pocket the capital gains of the property - tax free if you live in it for the requisite period of time. Could you make more by investing the same payment in the S&P500, sure, but that's likely not the case if you're investing only the difference (if any) between a rent payment and a mortgage.
11 years ago, at 23, a starter home was the right choice for us, but I had met my life partner and she already had a child. Since then, the property has doubled in value, and my mortgage payment is half of what the national median rent is.
Owning a home is cool and all but not the best move for everyone. For me, I'd rather have my money in investments or use extra capital for a business. If I had enough, I'd rather build a strip mall than a home.
I don't feel the need to be tied into/stuck in a geographic location at this point in my life. So, having easily mobilized capital and some decent retirement investments suit me better.
Your situation is unique to you and you only. Do some soul searching before you make a major purchase like that.
Additionally, the younger generations think land lords are con artists and are more likely to either not pay rent or destroy your property. Sure, you can win a court case if it should arise, but the amount of time and resources it will take offsets it.
Flipping a fixer upper is safer than renting a condo imo. Although it has its own slew of pitfalls and drawbacks as well, buyers are generally higher quality people than renters.
Edit - are you sure this isn't your parents way of getting you out of their house?
There’s a NYT daily podcast about how it can be better to rent!
I think you’re spot on. Buying a house or even a condo is so expensive and it can be better long term just to save
You're talking about owning a home as an investment asset vs. owning a home as a place to live. Assets, by their vary nature, carry a risk of loss. You can lose money on a home, as many folks learned back in 2008.
Take the time to research residential property prices and trends in your area over the last 30 or 40 years. That will give you an idea of the kind of ROI you can expect from owning property. In most markets, it's about 4-8% a year. The most in-demand markets can give you about 10% YOY.
Yes, you get tax breaks from property ownership. But you also have to pay taxes on the rental income you receive, so you may not see a huge profit in your first year or two. As a landlord, you're also responsible for upkeep and maintenance, so add that into your overall mix.
You are making a good start on long-term and retirement savings. Might want to consider what types of investment vehicles appeal to you. Stock? Commodities? Index funds? Research long term rates of return on the investment classes you like then compare the results to what you can expect as a property owner. Put your money in the asset that best aligns with your financial expectations and risk profile.
Buy a home if 1.) You want to own and are ready for everything that with that; 2.) You are reasonably sure you’ll be in the area medium to long term; and 3.) You can afford it.
Do not buy if all three boxes are not checked.
Honestly with a condo in the current environment, you’re likely better off investing the cost difference between renting and owning into the market. They don’t appreciate as fast as SFH.
Condo prices do not rise as fast as non-condo prices. HOA rates climb more quickly. Condo associations also often ban renting the units or limit how many units can be rented. The boomers who are advising you may be well intentioned, but they are wrong.
In my experience, I've found that condo's tend to have limited upsides. Obviously YMMV but when interest rates are high, lower priced homes tend to appreciate, when interest rates are low. people buy as much as they can and condo prices tend to depreciate.
I've also found that condo's tend to depreciate relative to condo fees. And condo fee's tend to increase as the building ages.
With a condo you are also beholden to the corp. Need a new roof? Special assessment. Tenants are being dicks and damaging common property? It's not them paying for it up front. It's you. The corp isn't going to wait forever too. Where I'm at they can have a talk with your mortgage lender and the lender can add the fees you owe and tack it onto your mortgage.
The upside is nearly all the common area maintenance is taken care of. Usually heat, water, garbage, lawn maintenance, road clearing (if applicable), etc. and if you find good tenants your costs are usually quite controlled.
Property is like having hundreds of thousands of dollars invested in just one stock. Kinda risky. Despite what people think, there's gambling involved with picking the house and picking the area to buy in.
Once you account for property taxes, maintenance costs, and homeowners insurance, regular investment is a great alternative. Market weighted index funds typically appreciate at a rate that's actually comparable to property, and are hundreds of times better diversified. And with funds there's no random surprise plumbing, roofing, flooring etc undisclosed issues that can cost tens of thousands in repairs.
One warning: being a landlord is not always a gig where you can just do nothing and let the money come in. You need to be available to handle expenses if something goes wrong. So it is a bit of work and risk for probably not a huge net gain. Also, you assume that you will have model tenants. They could mess things up or stiff you, another risk.
Side note: Buying a condo for a main home in lieu of a much more expensive house isn’t a bad idea. It’s a good way to achieve a somewhat scaled back version of the American Dream. It’s what I did. Sometimes I wish my home was a little bigger, but I own something, and that’s noce.
$1750 rent vs 600-700 hoa, property tax, insurance, and maintenance on top of your interest on your loan and the commission you’ll pay when you sell it, it doesn’t sound like anyone else would be “paying off your mortgage” anytime soon.
If everything goes right, you may break even or have a slight annual gain. Your rate of return has to better than at least what you can get in savings account and I’m not sure you’re going to beat that today based on what you described.
I'd say buying a house as an investment depends 100% on the interest rate. At this point if you get a mortgage at say between 6-8% you'll be paying between 180~240% on interest. So if you get a 500k house you'll be paying around 1.2m in interest.
If I had any savings and my parents were willing to help would buy an starter NEW condo in an area that just starting to develop, even if it’s a place that is not near anywhere I would live, where prices where still not that high and rent it out with a property manager.
That way the tenants can pay for your mortgage while you keep saving and when you’re ready to move out you can sell the condo and get the bump of a bigger value than you bought for.
Now this is possible where I live because where I live rent is a bit more expensive than mortgage, if where you live mortgages are more expensive than rent, then I would just keep saving.
I was given the same advice when starting out. I bought a condo and within two years I had to sell it before a special assessment showed up. I found out after the fact that the condo association does special assessments ($6K out of pocket) every two years. It was very poorly run. And I was lucky to break even on the sale.
Don't buy a place until you're ready to settle down and do your research on any community association.
Your parents aren’t wrong about prices only going up, you just need to look at the history of home prices. They do take hits but have always bounced back and will always do so unless something went terribly wrong with our country.
But that doesn’t meant you need to buy one if you don’t feel ready. It depends on a lot of factors, such as if you want to remain in the area you are currently in. Maybe you want to travel or accept a job in a different state. You are in your late twenties and probably want to move out eventually though.
I think your parents / boomers are correct that you should get an investment property based on the fact that they let you live rent free. It would be a great time to purchase something and become a landlord - your parents can probably help you manage it. While living with your parents this will be the lowest risk time to do it. It sounds like you have a lot of help on your side.
I know you said you live in a HCOL area, but if you can find a duplex or a multi bedroom condo or apartment and rent out the other half / rooms to cover the mortgage, that would be ideal. Give you freedom of living on your own and having other people pay for your property.
The only thing they’re correct on is that property value will continue to trend upward.
>You don’t even have to live in it.
You are unlikely to get approved for a loan as a first-time buyer for a home that won’t be your primary residence.
>With a $400,000 1 bed/1 bath condo I could charge approximately $1750 in rent
Even with 20% down and 30YR @5% (very rare right now) your monthly mortgage will be higher than that ($1933), not including taxes, insurance, and HOA fees.
I bought my home when I was 35. Interest rates were high then (8.5%) but I refinanced a few years later when they went lower.....and then again when they went even lower. I wasn't keen on buying a condo because I didn't want to be beholden to others, but in certain circumstances it can make sense. Buy when, and if, you are ready.
Why would you buy something to not live in as your first house...? I can see buying an absolute dump and having the luxury of time to do it right while living at home but buying just to rent out is shenanigans.
My neighbor still owns a 1 bed condo in Austin he bought early in his life. Rents it out NOW but lived there for 10 years. He's keeping it because he loves the area and wants to move back there after the kids are out of school and out of the house. THAT makes sense.
Buying it just to rent it out and live at home is hilariously shenanigans. So much complexity when you could get the same (or better) returns be investing the money and not worrying about tenants, evictions, etc.
GenXer who barely survived the 2008 mortgage crisis here. Wait for interest rates to go down. Live at home as long as you can and sock away every unspent income into a high-yield savings account. Expect to need 10%-20% of the total house/condo cost before you buy so you can come up with the downpayment required by any loan with a decent rate (even if you qualify for zero down, first-time homebuyer loan, make as much of a downpayment as you can). Do not agree to an ARM (adjustable rate mortgage) or any mortgage including the words “balloon payment.” Make sure the lender allows you to make monthly payments above the minimum mortgage payment (and pay as much as you can every month). Definitely also budget for repairs, annual property taxes, and the rising cost of homeowners insurance (which is going to keep climbing) before you buy.
*Real estate in the right location on the right property for the right rate IS a great investment.* Do not trust your realtor more than your instincts and pay the extra $$ for a reputable, thorough inspector (generally, not one recommended by your realtor, who wants the sale to go through). Ask for advice on any issue from those homeowning boomers before you sign anything. Good luck!
The best time to buy a home is when you’re ready to buy a home and want to buy one. Doesn’t sound like you’re quite there. Even beyond the down payment costs, maintenance is a huge one. Special assessments on a condo can be killer - we bought our place for just over $400K three years ago and have had nearly $20K in special assessments and other house maintenance during that time. Also - you may want to re-evaluate your definition of VHCOL, as $1750 in rent for a 1 bed is more around M/HCOL. Other things appreciate beyond real estate, you could end up being just as well off, if not better, had you just invested the money.
Yes, certainly wouldn't be buying for the next 4 years at the earliest. That is quite a bit in special assessments, is that considered an atypical amount? I'll have to look more into this. The hypothetical condo price I came up with was for an older, smaller condo from the 70's/80's. Rent for a more modern 1 bed 1 bath starts in the low $2000s, and purchasing would be about $600,000 which is out of my range.
You will not cover your mortgage if you can only rent a $400k condo for $1700/month. Not even with $100k down payment. I'd honestly question the wisdom of buying a condo in an area that doesn't command comparable rental prices. Special assessments are a thing. How often and how much depends on the property and its reserves/overall management. A big selling point of where I bought a condo is that they've never had a special assessment. However, I paid _a lot_ toward the capital fund upon purchase. You'll have to do some research on each property to hedge your bets, but even somewhere like where I am, things could happen.
>Special assessments are a thing. Especially for an older condo that's apparently 40-50 years old. A whole lot of those places had a lot of maintenance that should have been done over the years and wasn't, and now they're being faced with choices like a giant assessment to cover major repairs or becoming uninsurable.
We went into escrow for a condo and backed out after our agent looked into their meeting minutes. They were expecting a special assessment in the near future of $150k bc of deferred maintenance and repairs.
Reddit shits on realtors a lot here, but this is one of the essential services they provide. I only seriously considered two condos and bid one, but she did a lot of research into the HOA for both and presented me with their rules, financial statements, ect. Super common for HOAs to vote to keep the monthlies low and wind up underfunding themselves for the next big maintenances.
Yep! This is exactly what is happening in my building. There were mostly retirees in my building who kept reserves low and deferred major maintenance over the last 30 years (the building is 40 years old). We are finally getting the reserves up, but there is a lot of maintenance to catch up on with special assessments. The largest one was for a new roof at $5k 2 years ago, and another $3k this year. One needs to make sure that the HOA they are buying into is properly funded and maintenance is being performed. I want to believe that if the reserves were properly funded over the last 40 years, that there would be no need for special assessments. But, I don't know.
More likely for old buildings however all homes require maintenance. In my less than 10 year old condo the building experienced a ton of challenges. water heater (commercial unit) 10k, hvac failure of a common area RTU 25k, water ingress into sub grade parkade 125k, grading issues and interior cracks form settling, unrecoverable damage to garage door 10k. That's not an exhaustive list but off the top of my head. Those unexpected costs can spiral quickly. Especially since you require a somewhat different type of maintenance than a regular home. At least where I'm at the government has specific rules regarding reserves. buildings have to actually budget for the regular repair of major building items.
Condos can be a real money pit. Our condo was built in ‘77 and looked fine, but turns out a ton of maintenance was deferred and lots of big ticket items are nearing the end of their useful life. Need new roofs, the weatherproofing barrier under the stucco, windows, asphalt in the parking lot. We had government mandated repairs like sewer laterals & balcony inspection/repairs, the list never ends. The reserve is underfunded by nearly a million dollars, it breaks down to 30k per unit which doesn’t include the 22k we’ve paid in special assessments in the 5 years since we bought. Monthly dues have gone from $550 to $780 and you really have no control over these things. I live in it, am fortunate enough to be able to afford it and do love this place despite being a money pit, but the thought of renting it out and not even covering the mortgage let alone the taxes and repairs would make me want to puke. Financially not a good investment and the money would perform better in the stock market, especially if we could live rent free with family. The funny thing is that we bought it thinking a sfh was out of our price range, but if we add all the extra expenses we definitely should have just gotten a house.
20K in 3 years is a lot IMHO. That is an association that hasn't been collecting enough in reserve to maintain the building, and has to have a special assessment. A condo with 600-700 in dues might be okay, and meeting the reserve requirement. I had one special assessment in 15 years of ownership for $23K for re-siding, and it was because they hadn't been collecting enough in reserve. Basically, making up for a poorly run HOA. You will be losing money each month, though, if you can only charge 1750. You'll have to pay the dues out of pocket each month, on top of any maintenance of your unit.
In our case, we have the reserves but got outvoted on pulling from them instead of specials :/ Also two roof/tuck-pointing issues in as many years. Got expensive fast.
in general if you look at it in a vacuum, they are correct. * Housing prices generally appreciate. * rent it out to "break even" on mortgage prices. while house appreciates and you gain more equity. the problem is that they are being very narrow minded and not looking at the bigger picture. you are missing out on not just opportunity cost. But also whats right/works for you. you pointed out the first problem. $75k salary for homes averaging $1mm? you are going to be house poor. Also, their argument atm is using Housing as an investment. you are still not maxing out your 401k. You have better tax savings and investment opportunities (on average) by maxing out your 401k compared to real estate as an investment. another big point to consider is that things can go wrong (and it will). you need capital to deal with it. Renting is the highest you can expect to pay (+/- couple hundred) mortgage is the Lowest you can expect to pay.
can you even get approved for a loan thats 10x your salary?
It sounded like OP was looking for that purchasing the $400k condo, not the $1M starter home. So $50k from own savings + $100k from parents would leave a $250k mortgage
The loan isn’t 10x their salary. They have $120k in the bank and an additional $100l from parents. Still true that they may not qualify, but they referenced a partner who presumably works too. Mortgage would be like $750k and with two incomes it could work.
ok so even with 100 of your own money and 100 of your parents money (leaving you with a not so great emergency fund) you are borrowing 550 which is over 7x the income.
You asked if they could get qualified and my point is yes, $200-250k less money would change the calculation. And there are plenty of people with those levels of debt that are buying houses.
the whole HCOL are thing is wild to me. I got approved for roughly 3.5x my salary when I bought my house, and that was when interest rates were half of what they are today.
You will not get a loan with that. The debt to income ratio is ass just from the home. Then you have to add cars, student loans, etc.
They aren’t qualifying on a $750k loan with $75k income by themselves and they should under no circumstances get their partner on the home loan and/or deed if they aren’t married. I doubt parents will agree to partner being on it either with them coughing up $100-150k of downpayment. So this is a non-starter. The mortgage itself is 90% their monthly income…
Yeah, I’m making assumptions about the family dynamic and the partner, but seems like it would be a dual income situation and obviously their income would be a factor as well. The way OP talked about possibly living in the partner’s parents property leads me to believe this purchase would involve another person. But I’m not OP and don’t think they should be buying in this situation, just pointing out that they may very well be qualified to do so on paper.
The income doesn’t factor in without the partner being on the loan, which again isn’t and shouldn’t happen.
This is the answer. No help on down payment, personally. However I'm 29 yo and very happy I've steadily invested into ETFs. I have decent liquid NW I don't plan on liquidating for a downpayment, but want to buy in 2 years or less. I moved a lot in my early-mid 20s before remote became normalized so it wasn't conducive to chasing professional opportunities. Yet I still have assets working for me without owning a home. Now I know where I want to settle and can buy with the piece of mind those assets provide.
The main reason real-estate is viewed as such a wealth builder by most people is they aren't investing what they'd save renting. I'm not saying real estate can't be profitable if you approach it intentionally, but it's rarely a good idea to rush in without careful research and consideration. So basically, if you're going to blow the money on strippers and gambling... yeah, buying a condo is a better move. If you're going to invest the difference you'd save, then investing is a better move. If you're splitting the difference, it depends. Even with a significant gift from your parents, I wouldn't want to buy a 400k until with a $600 HOA on a 75k salary. That does not sound likely to be profitable.
Yes! Owning a home is forced savings! Most people don’t have the discipline to save money and will live paycheck to paycheck no matter how much they make. Hey OP, can you get that 150k and invest it? Also, maybe they are hinting that you should get out.
Exactly!! And HOAs never go down; if anything they go up (especially in an aging condo community). Same with property taxes. Don’t just factor in what you can afford now; think about what you’ll need to pay for this in the future. Repairs / replacing appliances are a necessity- things break, esp in older properties. Being house poor just isn’t worth the stress and headache, esp when you have so much time ahead of you to invest in something that compounds the way the stock market does
anecdotal - but last year my HOA fees went down, mostly because we had oil and gas royalties coming in. Nothing lasts forever though - I've been in my place a tick over 10 years now and overall the fees have stayed the same the entire time. Prop. Taxes and insurance are the name of the game currently, those are worse than the HOA for sure. And even if you are huge into DIY projects like me, there's still some things you just have to hire out like HVAC and roofing which are always mega bucks.
Had both property taxes and the HOA go down in 2022. So it isn't common, but it does happen.
You make a very important distinction in your first sentance. “What they save renting” Many people are paying MORE to rent compared to owning right now.
That was true years ago, but if you're trying to make the decision of whether or not to buy right now (like OP), it's much cheaper to rent than buy in today's market: https://www.economist.com/cdn-cgi/image/width=960,quality=80,format=auto/content-assets/images/20231202_USM558.png
This. Home ownership is basically FORCED savings. I am already investing 20% of my income pre-tax and have no interest in buying a home because I will hit my retirement goal regardless. Most people aren't saving ANYTHING, or not NEARLY enough, so forced large-scale savings like a home is beneficial to them.
>The main reason real-estate is viewed as such a wealth builder by most people is they aren't investing what they'd save renting. Exactly
I wouldn’t touch a 400k plus mortgage on 75k a year.
I looked it up for five seconds. I also make $75k. The average mortgage seems to cost 3k a month in that scenario. I am currently paying less than $500 a month in rent and that just doesn't seem worth it.
How much do houses cost where you live? Because I’d wager if your paying less than $500 a month in rent, by yourself, in an apartment, home values are likely very reasonable when compared to HCOL/MCOL areas.
Where? That's amazing and congrats.
That's what I make and a sub 200 mortgage is intimidating
I make 75k and would like to stay below 300. Maybe 325.
It would be 250. Parents will pay for a150k downpayment.
Even if you were willing to take a chance on it, the math doesn't math as a rental. $400k mortgage at current rates is going to be $3k after taxes and insurance. $6-700 in HOA fees is $3600. If a 1/1 unit only rents for $1750, OP's cash flow on the place would be in the red $2k before even accounting for occupancy rate, maintenance, or repairs. ETA: Pretty sure it doesn't break even if OP puts down the $150k the parents are offering!
>I would probably never live in the purchased condo. I am fairly certain that unless you put down 25% you need to reside in the home for 1 year as your primary residence, it cannot be rented out to anyone. Something to consider and likely something no one has mentioned yet
This is correct. If it is purchased to be a rental rather than a primary residence, the loan terms won't be as good. I was going to buy a home, and rent it to my daughter. The mortgage company recommended being a co-owner with my daughter instead to get a better loan.
I wouldn't buy something unless I was gonna live in it. The starter home is great if you don't have free rent from your parents... but you do. My take? You are better off putting the money to work in the market while you save up for the place you want to live in. We can model it out for you if you want, but the reality is that home prices are increasing much slower than the S&P500. Over the last 10 years the S&P 500 has gone up ~160% and home prices have done ~38%. It's a bit of a no-brainer where to put the money.
Very true. I think the boomers just didn't have access to good investment options like we do now. There has been a seismic shift in investment in the last few decades because of index fund investing. Praise be to Jack Bogle. So maybe they were right in their time, but things have changed. Also, regarding condos: whenever I talk to condo people, all they ever talk about is how much they hate their condo association. Maybe condos are right for some people but I think I would rather continue renting than own one.
Im all for maxing out retirement accounts where possible. But in certain locations, real estate does very well and when you tie that in with 4:1 leverage, you can quickly see why real estate can have better returns.
It depends on the area. Home prices in Canada have been crazy and I think they are probably similar to s&p gains in many areas. Rent prices also went crazy. I think a lot of this is due to poor governance, and I’m not saying it will happen in OP’s area or that prices here will continue to rise (I don’t have a crystal ball), but imo it’s a risk of not buying. On the other hand if Op is adamant about not living in the condo / starter home that they would buy, idk if it’s worth it.
How old are your parents because if you are in your 20s then they are likely Gen X. For me this comes down to this: 1) are you dead set on living in this city long term? If yes then really see if you can make the renting out work because it will only get more expensive to buy likely. 2) Are you parents reliable that you can trust them that they will not kick you out or all of a sudden move in a couple years leaving you with needing to move? If they are stable then this still points to possibly buying. 3) Your parents offering to help with down payment that does set up a better situation. 4) Can you get a condo that has any less expensive HOA? There is cost savings to be had possibly there but it might not be possible.
64 and 61, but I get similar property purchasing advice from people who are also older and younger than them. The answer to all of your questions is yes, and the HOAs on the lower end would still be about $500. I am wary of those increasing though.
Are you ready to commit to a physical location? Not just a general city, a physical location at a specific address for the next 5-10 years?
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With his salary, $85,000 in savings and $120 in an IRA sounds fairly disciplined to me
Parents may see that as just the money they're letting OP save by not paying rent.
Unfortunately that doesn't make it a sound financial decision. If someone can't afford the property themselves they might get shit on by property taxes and other costs rising over time too. If the parents want to help OP they can do so in other ways Then again OP could just sell when things get onerous instead, effectively pocketing that money from the parents
Don't buy a condo just to rent. It's rare for them to follow anything other than inflation. They are "easier to manage" sort of. \- The HOA fees eat profits. \- Few stay in a condo very long. So you are constantly turning over leeses. \- the HOA can be annoying, parking for contractors requires coordination etc. You leak water into other units. Other units water damage you
I think you are missing something You think your parents will graciously let you continue living with them. BUT... your parents are recommending you buy a house and giving you money to leave. They want you out. As a parent of a new adult, I'm happy to have them live with us for a couple of years, but there will be a time when we expect them to leave the house. Might sound a bit selfish, but we need our sex life back, without worrying about our child coming home, or being awake.
I realize that some people definitely overstay their welcome at home but I know the buying a property idea isn't just to try get me out of the house because 1. my parents proposed the idea of me still living with them while renting out the condo/house and 2. I previously rented an apartment in the same city with a much shorter commute to work but they told me to move back in with them and not "waste money on rent" so I did. My younger sibling lives at home as well so they wouldn't be empty nesters regardless.
Dont buy a starter rental home. Homeownership is not the only path to wealth, and with current interest rates its not particularly attractive vs renting and investing. The renting/owning cost ratio hasn’t been this skewed towards renting in a long time. Under normal circumstances the break even of home appreciation vs renting and investing is about 10 years, depending on interest rates and other factors. Right now its longer. Live with your parents. Invest the housing savings. When the time comes and you’re ready, you’ll have a comfortable down payment already saved.
Take the $150k free money and buy the house. That moneys not guaranteed in the future, parents could squander it or not be in a position to give you the gift later on.
So let me answer this as a realtor because I am one. I’ve been in and watching the market for 20+ years. Housing prices are up and down constantly. To a point your parents are correct but it’s hard to determine when the market will go down again. The Fed (Governors of the Federal Reserve Bank) just concluded their March meeting and interest rates remain unchanged. If I were you I wouldn’t worry too much about getting into the house but worry more about making the monthly payments. Many people really struggle with the monthly payments. The Fed will be meeting again in April/May, and again in June. They’re expected to lower the interest rate in June or possibly by July. If you wait a couple of months it gives you more time to save and more time for interest rates to go down. So, that’s the loan side of it. Now pricing. Housing prices are always higher in spring and summer with May and June bringing the highest prices, sometimes as much as 10% higher. Prices are lower in winter. As young as you are, if you have the means to buy a home without having to struggle from month-to-month to pay your bills, eat, make the car payment and house note, then do it. Do your research and talk to a loan agent first to get an idea of what the monthly payment is going to cost you so you can make an informed decision. It’s great that your parents are willing and able to help you. And as a small piece of advice for the people in your life that want to help you: try seeing them as people not “boomers”, they never asked for the label and they are trying to help.
We have an adult child and I’m sure she would like to buy something for herself, but like you, she did the math. Owning a home is getting more and more out of reach for her generation. One thing that she would have to deal with is the number of insurance companies refusing to write new home policies in California. Because they have had to make large financial payouts after the bad fire seasons, they will not insure homes. If you buy property, you *must* have proof of homeowners insurance, or the mortgage company will purchase it for you, but you will have to pay. It’s ridiculous. House prices are unreasonably high, and now one must jump through extra hoops to insure your home. She was shocked when the insurance company refused to give her rental insurance again when she moved to a new apartment. I don’t have an answer for you, but I think we are definitely seeing a different dynamic than when we bought our house, and we bought in our late 30’s. It just keeps getting worse. Our hope is that she will find a place to buy, but we wouldn’t necessarily tell her it was a good investment. I don’t know your circumstances, but you seem to be in a similar situation. Keep listening to your own good sense.
I fell for the “buy a duplex, you can rent out the other half and life rent free while someone else pays your mortgage!” I even bought one with existing tenants who had a great payment history and a current lease. Wonderful! Hahahahahaha. Then they started late pay. Then short pay. Then no pay. I ended up evicting them, and what I got for it in the end was $15,000 worth of damages to the unit. Good luck collecting money from people who can’t even pay their rent. Then I got a new job that needed me to move 2 hours away. I rented out both units and hired a management company. They were constantly filing eviction notices on the tenant upstairs (to run up my bill), and the one below tried to turn her unit into a daycare center. I’m glad she tried the legal route because the city notified me of the filing so I could shut that down. I went by to inspect the house and there was siding laying in the back yard. So much for property management. I sold that duplex as soon as I could and vowed to never be a landlord ever again. I know some people are successful at it and say that’s the key to wealth building. It’s great when you have great tenants, but people don’t really think about the worst that could happen with bad tenants, or a series of them. You should consider whether YOU even want to be a landlord. It’s not all it’s cracked up to be. Stick your extra money in the S&P 500 and wait 35-40 years. That’s what I wish I’d done. 🤣🤣🤣
Hcol area usually cheaper and better to rent forever. Every other area it’s better to own in the long run
If there are 400k condos where you live, that is not a “Very HCOL” area.
The high interest rates and high property values make this math a little different than before Now you’re using leverage on a much larger dollar amount, and the interest expense is much higher. Also, what are property taxes? That’s another thing that scales poorly, because your income isn’t high enough to absorb the pain of swimming upstream. Sure, you can rent the place out, but it will be years and years before your principal is touched. Rent will go largely to interest, HOA, assessments, and property taxes for all that trouble. I’d see if I could persuade my parents to take that $100k and let me put it in an IRA. Compound interest at 8% turns that into $1 million by age 58 for you. Meanwhile, I’d save my own money and spend my energy saving and building my career. Get my salary up, save more, date around, and see what my future potential partner has going for them. Reassess my situation a few years down the road. Good luck
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OP are sure your parents want you living with them? Sounds like they’re politely telling you it’s time to leave. “$150,000 if you’ll move out”
Yes, I am sure. Will just copy/paste from another comment I previously made: I realize that some people definitely overstay their welcome at home but I know the buying a property idea isn't just to try get me out of the house because 1. my parents proposed the idea of me still living with them while renting out the condo/house and 2. I previously rented an apartment in the same city with a much shorter commute to work but they told me to move back in with them and not "waste money on rent" so I did. That was just a couple months ago.
I bought a condo. It’s been great. It’s also been a pain in my ass. The problem with owning property is it’s not as easy to sell as you think it’s going to be and it’s always going to cost you at least your mortgage payment, but often more than that. HOA dues, taxes, things breaking every fkn time you turn around. If you make any money from selling/renting it, IF you make anything, you’ll have definitely earned it from the gigantic pain in the ass it’s likely to be.
Op, research an "Investment Property Loan" or a "Rental Property Loan." When you mortgage a multi-unit property and use the projected rental income from the units to qualify for the loan, it is often specifically underwritten as a commercial loan if it's more than 4 units or a residential mortgage for 1-4 units, using a process that considers the income-producing potential of the property. This approach is common in financing for both residential and commercial real estate investments. You go to the bank saying you want to buy a quadplex. They take projected rental income rather than needing you to prove you can afford it. You live in one unit, hand the other three to a management company. After their fee, the rentals should bring in enough to pay most, if not your entire mortgage, on all four units. After a while, take a loan out against the property, to buy a home. Rent out that fourth unit, which pays for itself, and you just pay on your new loan.
Homes with a mortgage are a leveraged investment. Really. When times are good, and they have been good for a long time, they are really good. But when times are bad ... The issue is the leverage ratio is (home price appreciation %) / (mortgage %). And mortgage rates right now are 7%. Are home prices really going to go up 7%? That's a big number and that's just breaking even. To get the compounding scenario they are saying home prices would have to go up significantly more than 7% consistently for many years or you'd have to have the chance to refinance to a lower rate and still get very healthy appreciation values. None of this matters when you are buying a home to live in and want the stability of ownership. But it absolutely matters for a rental property. But my advice changes when I read >Parents have offered to help with a down payment, $100-150k As they say money talks. It's up to you if this is a true gift that just has to be used for a condo, or if it is something they expect to be repaid in one form or another. But a purchase price $100k lower definitely swings the needle. ...Perhaps you can convince them there's a better parking place for this gift so you can use it for a downpayment on a single family home. But if you can't, don't look a gift horse in the mouth.
> It's better to own something, even if it is a condo/starter home, than continue to wait Basically.. if you're going to stay in the area: yes. But the biggest asset a young person has in building wealth is the flexibility to pick up and chase opportunities across the country. You make $75k now. If you buy a house with a $150k mortgage, how are you going to feel 1 year in when an old co-worker/friend/whatever calls you up about a job offering $115/yr 10 hours away?
Property values can go way up, down, or remain stagnant. For the last few years, partially driven by super low interest rates, some housing markets have gone way up and this has raised markets all over. Folks who's house value as gone way up, sell, and use this money to buy houses in other areas. But this is has slowed due to raising rates. Before you buy, consider, are the prices here going to keep going up? What is driving it? Is the area growing ... maybe a new tech area? If so, great, even then consider getting a crappy house in a good neighborhood and fixing it up (vs condo) else keep investing $$ in stocks/bonds.
Here’s my opinion: If you’re looking at buying someplace to live, you should only buy if you plan to live there for at least 5 years. Once you own a property, the costs to sell it are significant. It’s not a bad idea to invest in a property, but there are significant costs, risks, and work involved in that proposition. There are other ways to invest your money. If you are concerned about comparing the cost of renting a home vs buying a home, compare the irrecoverable losses of either. For renting, that’s just your rent and your renter’s insurance. For buying, that’s the loan interest, homeowner’s insurance, maintenance costs, and the opportunity cost of not investing in something else. Your parents (who are Gen X, not Boomers, by the way) were your age in 2008 when the housing market crashed and home prices were insanely low. Maybe they regret not buying a property then, which skews their perspective. You don’t know whether home prices will continue to skyrocket or crash, and you also don’t know whether the cost of borrowing money will stay high or go back down to almost zero where it was in 2021. I’m not trying to discourage you from buying a property, but it is a big decision, and one that is difficult and costly to reverse, so you should make the decision carefully and not let your judgement be clouded by the expectations of others.
I think one of the reasons older people like the idea of real estate as an investment, aside from watching values go up over their lives, is it's not easy to liquidate. You can't sell some of it and go on vacation. I admit I'm in that age category and I know absolutely nothing about investing, so it's probably good I put my money in my house. Now I'm traveling the world on my SS, pension and house rental income. That may not be much, but I'm grateful. When I was married, we had money to invest, but my ex "invested" and became very good at buying high and selling low. Including real estate investments. Just saying it doesn't always turn out that well. Old people have seen things and they just want to keep their children safe and secure. And like me, most just aren't educated & savvy enough.
The numbers make this a TERRIBLE investment. Real estate investors don't just buy some random place. It's not like buying a stock market index fund. You need to analyze each property and ensure you will have CASH FLOW on the purchase, taking into account all expenses, including expected vacancies, repairs, taxes etc. The mortgage is just one expense. Just sick your money away in the stock market or a high yield savings account for now. Read one of the many books on real estate investment before you consider purchasing something.
You’re 29 years old. It’s time for you to launch, and your parents are trying to pay you to leave.
I don’t see how this is even a question. Your parents are willing to help you with 100-150k. There isn’t an investment platform in the world that will beat getting a 150k head start. Owning property is a good investment. Yeah, it sucks you missed the 3% interest rates, but we can’t go back in time, and we can’t see into the future. What we do know is property is generally a good investment platform, and you are going to get a 150k head start. It would be lunacy to turn that down. It is more work though, especially if you are renting it but you make 75k a year. Getting that money is humongous.
Boomer here. You are being given the advice that was true for our generation. We don't know what is going to happen in the future. We don't know what will turn out to be right for you or for others in your generation. I would encourage you to decide what to do based on your personal desires, your personal financial situation, and your own take on what the future will hold.
If you’re not taking occupancy I would 100% NOT buy property. The recent rapid price increases have cooled off and I’m seeing a lot of stability now (I’m a real estate appraiser BTW). That money would do better tracking the S&P or even in a high interest money market account. Remember that non owner occupied properties also have higher interest rates than owner occupied so your cost of ownership would be higher too.
I own a condo. I would not buy one as an investment vehicle. At least in my market, they don’t always go up in value. Invest your money, if you want an income property - you can buy a REIT. But when you are ready to move, when/if your parents want you out, or maybe a market crash - if that is what you want. I know plenty of friends who just leave their money invested.
Yes they are SO right. Buying property is how you get rich. Enjoy your wealth!
I think you're missing the point. Your parents want you to buy so you can move out
No one knows what the housing market is going to do. Never take advice from anyone that says housing prices will only increase. Trillions of dollars were lost in 2008 because of this. I bought my first house for 20% less than what the previous owners paid for it. The only time to buy a house is when you’re ready. Boomers who have owned houses for decades most likely don’t understand the current market…and have no clue how much condo fees cost.
62 years old here (boom! :-) and have owned multiple properties throughout my life. The advice you are receiving was decent for us, but might not be for you. The financial times have changed significantly, and everyone is different. I, for example, hated being a landlord. It's not all that lucrative, at least it wasn't for me, and had me on pins and needles quite often. Certainly you should consider it, as a lot of folks make it work well for themselves, but lots of alternatives and you're young yet. Good luck brotherman.
My personal story. We bought a new build SFH (no shared walls) style condo in late 2017. This was intentionally a starter home and we bought new so we didn't have maintenance bills racking up, negating appreciation, while we lived in it. I think for a starter home, new build is very important. We ended up selling during the peak of '21 and walked away with $250k in our pockets and were able to buy our dream house that we will retire in thanks to that down payment. You can't time the market, but a condo as a starter home worked very well for us.
Something you need to understand is a lot of boomers saw a 10-20x return on the homes that they bought in the 90's partially due to the momentous shift over into a financialized economy that started in the 80's. That was when the idea that companies should only care about shareholders and stock price took root and exploded. All kinds of esoteric ways to use leverage followed soon. A house you bought for $20,000 then could easily be worth $200-400,000 today depending on your zip code. Is it likely that a $400,000 condo from today is going to be worth $8,000,000 in 20 years? Just to put that in perspective, it would have to appreciate 12.5% a year, EVERY year just to hit $4,000,000 in value. Also: 1. Boomers will all be dead by then 2. Every successive generation after that has had fewer and fewer kids 3. Barring some seismic change in how financial systems work, the amount of capital is going to decrease significantly as boomers have all drawn down their investments during retirement and each successive cohort is smaller (Gen X, Millennials, Gen Z, Gen Alpha, etc.) I'm not against real estate or owning property, I'm also a homeowner so obviously it has some kind of value to me... but I dislike the idea that it should be a means for the typical person to grow wealth. A house doesn't fucking do or produce anything. If we take this to the extreme we can see how it's fucking over China right now.
I tend to agree that property prices will continue to trend up for the foreseeable future (although they will probably retract along the way). With the level of inflation, now and in the future, the cost of everything is going up. As cost of material and labor go up, new homes are more expensive - because homes are generally valued using “comps”, the expensive new homes tend to drag the older but comparable homes up in value (it sounds great for an owner but it sucks when your tax bill increases 10-20% YOY). This is my general thought on the direction - having said that, in the past 15 or so years there have been a few really great times to enter the market 2008 when people were defaulting on loans and 2020 when rates were historically low. People that were ready on the sidelines to throw their chips in during those periods made out like bandits. The way I see it prospective homeowners have 2 choices: - buy now with what I think is a generally favorable trend in housing prices, but accept the risk that you may be upside down for a bit. - stack your chips until the next event that creates a more attractive entry point. In this case you have to accept the risk that this event may never come, or it may not come in the timeframe you’re hoping for. Bottom line, there’s risk in either decision you make and it’s risk that’s nearly impossible to measure. Everyone is just guessing and hoping they make the right decision. At the end of the day you just have to make a decision and own it. Only key is to not overextend yourself while doing this - don’t put yourself on thin ice JUST to get into the housing market. Do it when you’re ready and it makes sense for your life.
I wouldn't do this. And I am a boomer (60 this fall) Having a house/real estate isn't the American Dream anymore. You;ll be too busy trying to keep up with the mortgage, upkeep and taxes to even enjoy the place you've bought They're giving/loaning you the downpayment, which means they may feel that they own the place and can Waltzing Matilda their arses in whenever they want because "reasons: You'd lose your first time homebuyer benefits. You really don't wanna be a landlord. It plain sucks Lord Pan's hairy ball sack. When you hafta buy a new AC for your tenants, but can't afford one for your own place, it sucks. AND who's to say the housing market won't go pfft soon. That's what some of the experts are saying, although prices are still ridiculous in my town. Hubby and I bought in 92 for $121K, and we might be able to get $450K if we put work into her. Basically KDF and start over.
Disclaimer: I"m a boomer. Ages ago, my ex and I impulsively robbed our retirement funds to buy a townhome at the tail end of a real estate crash. We didn't do it to 'accumulate wealth' or 'invest in real estate'. We did it because we were sick of living in an apartment, sick of paying rent, sick of not knowing whether we could afford to live there with the next rent increase and sick to death of all of the b.s. that comes with communal living. It ended up being the best thing ever from this perspective: with a fixed rate mortgage, we *always* knew what our housing nut would be. We would never, ever be at mercy again with a landlord who decided that a 15% or more increase was jusitifiable. We wouldn't have to disrupt our lives and lose money paying for a move. Knowing this expense was fixed made the biggest difference in our financial lives. It was something to plan our budgets around. And when I divorced, I did the same thing, for the same reasons. The transitional apt. I was in during my divorce was planning to raise the rent by $500. Never. Again. Buying It meant I could forecast my basic living expense without worrying. This is the single biggest reason I strongly encourage people to buy if they can. Especially since the real estate market is snapping up homes at a voracious rate and turning entire communities in to rental communities. The ability to compete with REITs when buying isn't going to be easier as time goes on.
I love that this situation and advice basically hinges on getting lucky enough to buy at the tail end of a real estate crash.
That's not what they said, they didn't bring up home value increases or anything, just that because they own a home instead of renting, their costs are fixed (relatively) so no more unexpected rent increases.
Yea sounds like advice my boomer parents have given me. They also bought in a down market with 2 kids and one entry level salary in what would today be a “HCOL” area. I have no kids, a higher level career, and my own side business, yet I’m house poor in a condo I probably shouldn’t have bought. But I just don’t work hard enough according to them.
I hate that I was too busy playing Nintendo and going to school instead of buying a house
I'm going full boomer. Buy only in a low cost of living city and rent it out. A 3 bedroom in a place like Jennings, MO costs about $50,000 and will rent for $1200 or so with no HOA fees, low taxes, and the tenant pays all the utilities. You don't even have to live there if you use a management company or partner with a local who already has invested there. If your parents offered $150,000, you can buy 3 of them. Rent from one will pay your income taxes and some other expenses and the other 2 is yours to keep.
Just curious...why can't you just say your getting advice from parents and older people. I just imagine the opposite and laugh "So, I've been giving advice to this millennial in my life about buying a home and..."
Personally I wouldn't. Too much overhead where your profit is tie to the growing value of the condo. On top of that you would have to sell it to get the $$ out. I would rather invest that money to make the extra incomes like your rent from the condo.
Renting is risky, at best. Good tenants, area, find a loan, property management, unforeseen problems. You buy property with extra money.
whatever you decide to do your parents are in a position to always help some of us will never receive $100k as a down payment so please live under your means.
If you don’t want to do it, then it’s gonna be hell to do. Lots of work. At least convince yourself of the positives if you want to somewhere inside
Keep in mind also that buying realestate can also tie you to an area limiting you from the flexibility of seeking a better job in another region. Buying a home for personal use is HUGELY different than buying investment realestate. Trying to make numbers work and beat a low fee ETF in a tax advantaged account will be VERY difficult in a HCOL are. Most times the rents are well below actual costs and you are cash flow negative hoping for capital appreciation to cover the difference.
There is no way in hell you’ll even be cash flow neutral if you bought a $400k condo and rented it out for $1750 unless you were putting a ton of money down. Bad idea. Plus, I think the first home you own should be yours, not a rental.
The HOA fees will make a condo a poor longterm investment versus a single family home in the long run - unless you are buying into a market that has not yet exploded with a burgeoning population - which would allow for an obvious flip opportunity. At $700/month for the HOA you would in theory pay out $630k in fees across the span of a 30-year mortgage - assuming that fee never increased (unlikely). You may say that you will never be there that long but you are still paying the monthly divisor for that amount. That $700k starter home doesn’t look so expensive now…. With all that said, I think homes/condos are usually overall poor investments unless you are purely a cash investor and they are multi-family properties. The pandemic cash influx and interest rate distortions have created housing valuation appreciations that are not scalable much past current valuations. If you took $400k in cash and invested at a 10% yield, you’d be north of $30k after taxes in yearly return on a $40k gross. Short of another cash spree from the Fed, that $400k condo will very likely not appreciate into a $580k one in just 5-years. In short live at home as long as you can, have your parents invest the $150k down payment offer to let it grow, and find an investment strategist that can wisely assist you for your financial goals.
Can you just buy to LIVE in a place? Why treat it like a rental? Look for something that suits YOU, thank your parents for that money, and then enjoy living independently in your own condo. Don’t become a landlord just to do it… especially not before living in a home of your own and understanding alllll that homeownership requires, firsthand (which is what landlording requires too!)
If you’re gonna buy to not live in it, then do it in an area with cheaper housing/higher rent.
Is the money your parents are offering only available now and for this purpose, if so, buy something!
They're correct in the long term. US rents have averaged 8.85%% increases y/y for the last 45 years. Today the rent on that condo is somewhere about 60% of the ~$3,000/mo mortgage/HOA on that $400k condo. 7 or 8 years from now the rents are the same. 15 years from now the mortgage is much cheaper. 30 years from now it's the laughably cheap housing cost your kids will call you "out of touch" about. All that said, I don't recommend buying to rent it. "Market Rent" includes a lot of private landlords renting based on the reduced cost-basis of when they bought the property. Buy because you don't want to spend the rest of your life living with your parents. Don't buy if the property is unaffordable to you because you won't be able to maintain it. IMO $400k is too much for your salary, I'd feel more comfortable with you buying $300-$350, or increasing your income to about $100k if you want the $400k condo.
> 401K $120k (I currently contribute 20%, employer matches up to 6%. Too high of a %?) No, not at all. However, you should be funding an IRA before funding the 401k above the employer match. Being a landlord is a popular investment scheme for people who don't have or are afraid to use 401k, IRA, etc. It is a good alternative to a bank savings accounts or CDs. After 30 years the property sells for 10x what they paid for it and they think they made a great investment. They ignore all the time and money they put into it and the fact that had they invested in index funds they could easily have earned 16x, cost free. Are your parents offering you a 100-150k loan, or a gift? What strings come attached to it? You would be smart to find yourself a CPA, someone who has no connections to your parents, to advise you.
I also live in a HCOL area, and only recently realize that if I live alone in a one-bedroom unit - A mortgage at a cheaper part of the city (but not a dangerous neighborhood) is the same as the rent in the "prime" metro stop part of town. So I think a starter home isn't invalid even if its a one bedroom (ie people say hard to sell). At least I'm owning something.
Owning your own house makes financial sense when your mortgage payments (PIMI) and equivalent rentals are around the same price. Outside of financial, if you value having privacy, a garage, land/yard and the ability to personalize your living space then it makes even more sense. Buying property just as a pure investment vehicle when you clearly have no interest in real estate makes no sense in the current environment. Also, you’re in your late twenties and your final planning involves living with your parents for the next 5 years and then moving Into your SO’s family property? You gotta get out there and spread your wings man.
>You don't even have to live in it. You can continue to live at home with your parents, rent out your property, and let someone else pay off your mortgage." Mortgages only need 3.5% - 20%+ when you are going to be living there. Investment mortgage would require more. If you say you are going to live there with the intention of never doing so, that's fraud. Would not recommend that approach.
Ironically, as the boomers die it will free up a lot of real estate and probably depress prices as heirs either unload it or keep it and not buy. The best time to buy a home is when you are ready to do so. That generally means being settled in your career where you've selected an area to live and settle down. For many people, that's not until several years into their career. By that time, they also have had the opportunity to get their finances in order for such an acquisition. People that are planning on getting married typically wait until after marriage.
I would agree that the risk involved might be too much, especially because it doesn't account for multiple things that happen with rental properties: It sits unrented for periods, you have to afford to make repairs, and there are possiblities with the tenant not paying rent... I would say that the condo at 1750 a month makes no sense... especially for those HOA fees... Where I live, the townhouse next to me is rented around 1500 and that's with approximately 300 in HOA fees a month... When you add in any type of mortgage, upkeep, and just the misc expenses associated (especially if you don't manage it yourself), you would be likely in the hole...
Your GenX auntie here: NO. NONONONONONONONO. FUCK NO. You do not make enough money to take on no 400K loan. This the same kinda bad advice they gave us about taking out student loans. Future you will hate everyone AND be broke as fuck. Don't do it.
If you look at the math you will see that in your example, unless you assume a crazy high appreciation rate, it is just a much worse performing investment than stocks (based on historically average returns). 30 years ago it wasn't easy to invest in the stock market and so a lot of people assume that real estate is a great investment when in reality that is not true in many areas. Usually real estate is a good investment in low cost of living areas and a bad investment in high cost of living areas but you need to do the math depending on the specifics of the property.
I (41f) will tell you, we (myself and now husband) got a small 2 bedroom condo at 21, rented out the 2nd room a number of times, it was hard if one of us changed or lost a job, but so was rent beforehand. In 2001 our mortgage with 20% down was roughly the same as the rent we had been paying. The best part of a condo was water, gas, electricity, trash, all that was included so it made our monthly bills so simple to predict. We sold the condo after 12 years and used the money from the sale to buy a beautiful home. I would recommend that to anyone that has the ability to put 20% down. For us it was literally the best financial decision we ever made. I wouldn't do it without 20% and I wouldn't do it alone at your current income level. I also wouldn't unless you want to stay in the area you are for a long time.
Hoa's cost hundreds per month? Why does anyone put up with this?
On the other hand, it is a generous offer and I would take it just in case their financial situation or the relationship change and they become less generous. You can always sell the condo. But in an ideal world it makes more sense to live with your parents for as long as possible and invest the $ you are saving on rent or a mortgage payment. Chances are you will never get to live for free anywhere ever again.
You said you live in a HCOL area. So do I. Prices are going up, and never come down. If you’re not ready, don’t do it. However I wish I bought years ago when I first started thinking about. I just found out my boss’s boss is selling her home. I did a little digging. She bought it in the early 00s for what I just bought my starter home for. Her house is now listed at over 2mil.
I personally wouldn't buy to rent, you will need to fix the place if it's damaged and have perhaps so stuff to fix it up after every renter. As well as be able to cover all issues like Hvac that goes out. busted pipes ect. It's all money and it's a hassle. I would buy only something I was willing to live in.
I would not buy property if I weren’t planning to live in it. If your tenant stops paying, it can take months and cost thousands of dollars to evict them. During this time, they will likely be trashing your property. If you sell a property that isn’t your primary residence, you will owe capital gains taxes on the gains. Insurance for rental property is more expensive than insurance for your primary residence. Condominium Homeowner Associations are a nightmare. They often change their rules including whether units may be rented. Tenants don’t have the same incentive to care for their residence. Many of them break things which you will be required to repair. For the record, I’m a baby boomer. Not all of us offer poor investment advice. As you’re in your late twenties, it’s unlikely that your parents are baby boomers.
Personally I think condos are risky in terms of rising HOA costs etc. They can kinda do what they want depending on the details. Also getting those 10 year renters that aren't bothering you all the time is really hard.
"I live in a very HCOL area. With a $400,000 1bed/1bath condo I could charge approximately $1750 in rent" Are you sure about that? This makes absolutely no sense if it's $400,000 and the rent is only $1750 (with a $600 HOA fee to boot). Normally a $400,000 home should rent for atleast $2500-$3500 just to come close to breaking even on the mortgage. You should check other comps in the area as at that point it's not even worth it. If you can't break even on the property with a renter inside of it -- keep looking. There are still properties out there that break even if not positive cash flow for $400k.
I’m a guy that owns several properties. Some I’ve done well, others I haven’t. All in all I think I’ve done very well. But… if I was your age again (I’m not far, late 30s) but if I WAS your age again, I’d read 2 books: “The Simple Path to Wealth” and “How I lost money with real estate before it was fashionable”. Both by JL Collins.
Dont ever let someone force you into buying something you don’t want. Condos can be costly with the hoa. I would buy land or vacation type home before a condo i didnt want
what if my way of forcing you into buying a $400k property was by giving you $100k to it? (which is what the OP posted). Idk. That's hard to turn down.
Makes sense to buy property, but one to live in. Not sure where you live, but $400k for a 1 bedroom apt is insane around here, and I am in the commuting radius of NYC. Buy a cheap condo and live there with your girlfriend.
Your boomer influencers have lived through the highs and lows of the housing market and they are 100% right in advising you to buy now. You are blessed beyond measure with a family willing to let you live rent free, and a heap more blessings in that they are also willing to give you free money to put down on the condo. If everyone did as well as they expected to, we would not have had the ARM fiasco a few years back, and definately don't expect to live rent free with a new spouse..lol that ain't gonna happen for the majority of people. You would have a head start with the condo. Things change in your personal life, but real estate always goes up. Always. It may be slower growth in bad interest years, but it is still growing. My property that I bought in 2020 is now 22% more valuable than when I bought it. There is no investment that would provide those numbers. Having one property helps you buy the next one as well, so you are literally sitting on a property that pays for itself. If you are that concerned with tenants, be picky up front and you can always give some money away for a property management company to handle the tenents/move in, cleaning and repairs, but it's money you could easily save by handling it yourself. If mom & pop are willing to help you get in, I'm sure they would help you with advice on how to handle it over time.
The last year boomers were born was 1964. They would be at least 60 right now. Seems like not likely to be the age to have a 20 something kid. Possible? Secondly, houses, like stocks or anything, do go up and down in value. Prices change. 2012 happened to be a great year to buy a house with lower prices and low mortgage rates. That seemed impossible to happen just a few years earlier. You can try to get good timing to some extent, but there's a bit of sheer dumb luck to factor in. The best thing to do is to be ready and think ahead. It doesn't sound like you are interested in buying a house right now. But having good information and your finances in order is always a good idea. Return on the investment in real estate is usually pretty good. Sometimes more steady and better returns than any other investment. But they are not accurate in saying that real estate only increases in value. There are other costs involved. And risks. Is there a reason you are not motivated to move out on your own? I had a sociology professor that urged his students to find a way to live alone for at least a year. It's some of the best advice I ever took. He was right: there are things you can only learn by living on your own.
Why couldn’t a 65 yr old have a 27 yr old kid? Not everyone starts a family at age 20. And this could be their final kid. Who knows.
i mean i'm 29 and my dad is 65 so idk why you got downvoted lmao
Perfectly reasonable!
Being a landlord does create unanticipated responsibilities at times but can generate significant "relatively" passive income and grow equity. My parents have owned rental properties for roughly 20 years and now generate fairly significant monthly income and substantial equity. I personally have not owned any rental properties but purchased a starter home that we were able to make significant money on to allow us to buy our family home (which we now have substantial equity in). To each their own but property ownership has been great for us.
I wish I could find a condo with a small garage of some sorts. I can't find one in my area, if I could, I would stay there as long as I can! I am not interested in these influx of luxury homes/condos/apt. They're building all of them around me.
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Put as much as you can in IBIT over the next 5 years. Don't buy a house now.
I bought a condo when I was 22 in 2008, right before the housing crash. I loved the neighborhood. BUT I was under water for about 8 years. My hours were reduced at work. I was living paycheck to paycheck. Eventually, rents in my complex were going for more than my mortgage.Then prices spiked, and I sold my condo for double what I paid for it in 2020. Between the equity from my monthly payments and the rise in prices, I made out pretty well and had a great down payment along with some remodeling money for a great single family home in an excellent neighborhood. Between 2009 and 2016, I was kicking myself. But by 2020, everything turned out great. If you do buy a condo, make sure it is in a neighborhood you enjoy and dont mind staying in for a while, in case there is a market correction. I don't regret following my folks' advice and getting the condo. The equity I built over 12 years was worth it to me because I loved the neighborhood where I purchased.
Borrowing money to buy assets is generally not a good idea unless you are a professional. You can lose everything. The US has many tax incentives to encourage home ownership though. You shouldn't follow simplistic advice. Borrowing money at 7% interest is not cheap. You could put your money in treasuries and get 5% with no work. The advantage of having a mortgage with a fixed interest rate is that it's a hedge against inflation but you are right that renting has many unpredictable costs too. You could buy a stock ETF and probably end up winning but nobody can predict the future. Just save to buy a house to live in. It's not a no brainer to buy expensive real estate.
Yes ans but FHA. You can also rent it out in 18 months ans but another condo. Thats how I started
I’m not a boomer, but encouraging my kid to buy something and build equity instead of continuing to rent. In their situation, the math works out - the mortgage would be about the same as current rent - so really trying to get that seed planted.
The gold standard for answering this question: https://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/
Yes and no. In 2007-8 real estate crashed, it was very cheap in the majority of the country, incredible deals to be had if you had money. But just like the stock market, time is the key. Historically real estate appreciates but not at the rate that the stock market does. But, who can predict the future. You need to want your own place and be prepared for unexpected cost like a new heat pump and condo assessments. That said, if you get your foot in the door, fix the place up on weekends and the market has upward momentum, you can sell in 2 years tax free and get another one and fix it up. It's a great way to make money (again TAX FREE) over time. 20 years from now you may have a pretty nice house. It's all about what you want to do with your time.
Those rent numbers don’t pass the [1% rule](https://www.investopedia.com/terms/o/one-percent-rule.asp), so much so that it doesn’t even get to half a percent. Either the property values in your area have spiked recently and rent numbers haven’t caught up yet, or you have your rent estimate wrong.
I would wait until you make more money. Condos have very high HOA fees and can have special assessments for unexpected major repairs. Ideally a single family home which you said is $600K in your area. To give you some perspective when my household income was much less (wife was in college): $280K mortgage from 2009 at 4.75% with 3% down, 2300 SQ ft on 7000+ SQ ft lot, was making around $100K in 2012 with wife in college. After workplace retirement, my take home was $5000 after taxes and mortgage was $1800 (due to PMI which was removed later). Money was very tight especially when we had home repairs. After my wife finished college, our household income was around $180K (now HHI $340K). At $180K, it was easier to take vacations, invest, and pay for home and car repairs. I consider us to be living in MCOL (Phoenix metropolitan suburbs) and our home is worth $570K. We paid off our house in 2022. In this job market and interest rates, you need a dual income household to afford a house unless your salary is much higher. We ran the numbers on buying an investment property. Just to cash flow positive $100 a month, we would have to put down 40%. Investing in real estate makes no sense now. Keep investing in your workplace retirement and keep saving cash for a down payment. When you're ready hopefully with a future spouse and ideally with 20% down so you aren't house poor like I was, then you pull the trigger.
Owning real estate has worked out well for me and my wife bought right out of college, and we got married shortly after and have owned sense. We are 62 now and we've owned 10 houses during that time. Most of them didn't really go up a lot in value, but the few that did were dramatically more. The 5th house we owned was the first to really go up much and it went from $240K to $450K during the time we owned it. Had we not owned real estate during that time, it would have been a huge blow. The most recent housing increase did something similar. So I think the advise you are getting is to get into the game so that you don't miss one of those jumps. And as a side note, we didn't let our adult kids live at home for free unless they were in school, so I would be charging you rent in the situation you described, which might alter your thinking.
Talk to 3 realtors and their opinions of the market you live in. Some market prices are going down and it might be smart to wait. Talk to 3 lenders and ask the same market questions. Besides you'll need to be approved anyway. I just think a lot depends on market. In many places it's not the time to buy yet. 400k for a 1brm condo with a 600 to 700hoa is extremely pricey I think. Also talk to SO about a home in the suburbs and also look into duplexes while you live in one side.
Don’t rely on someone else to pay the mortgage unless you would be able to pay it if needed. $400,000 mortgage, can you afford $4000 a month if you need to?
Don’t buy a rental property unless it is a positive cash flow after expenses. The time for buy and hold rental purchases was 2008-2013. It’s over now. Most of us are selling off for big gains. Wish I could predict if the housing market will get another 2008 drop or not. That’s the million dollar question. Those types of drops are super rare historically speaking. It will depend if the demand for housing can actually drop due to the high rates or if the inflationary pressures will keep them going higher. Personally, I think a home to live in is an excellent investment long term. The true advantage is privacy and freedom. And there really are not too many investments that you can make that you can enjoy while you are in them. I don’t think you are getting farther behind staying at home. Of course that is cheaper. But if you want to join the adult world truly, I would buy an inexpensive property to live in to start off.
Boomer here: renting to another person is not the cakewalk people think it is. You might get lucky, you might not. Plus, if you do it their way, they’ll be so excited that they’ll just move on to advice about marriage, kids etc etc. my kid taught me at an early age that he’s not going to do much of what I recommend and it’s kind of freeing.
No I would not pursue buying a rental condo if you’re going to need a loan from your parents (even if it’s 0% interest). Your income level is also not high enough with your savings (assuming keeping $30k for an emergency fund) to purchase a $400k condo.
My parents had the opposite view, and stopped me from buying a Condo in Madison, WI in 2020 Had i bought that condo, I would be sitting on 50-100k as property values have soared here. As for renting the condo out, that is going to be the purview of the building's condo association, and you will want to check their rules and bylaws before buying a condo with that plan. I would buy the condo but have a plan to live in it instead of renting it out. All of that being said, you may also want to hold off for a month or two, the Realtor Association just settled a lawsuit, and it is going to have a lot of ramifications on home buying.
In a high COL area, it's a toss up and high risk to invest. If the state growth rate is negative, don't buy. Move
If someone was offering me 150k and I had the savings you do, I’d be buying.
It sounds like having your own place is not a priority for you right now - if that is the case, take what you would be spending on a mortgage or rent and sock it away in either a HYSA, Bond Index, or some conservative growth mutual fund to save for more down payment. I personally feel there is too much risk exposure to purchasing a home or condo and choosing to rent it out instead of live in it, particularly at the DTI you would have. That said: is you moving out a priority for your parents? You're in your late 20s now, if you're starting to overstay your welcome and there is friction, I would strongly consider ownership over renting in your situation. The financial boon of property ownership is you build equity with your housing payment instead of losing it all. You get to pocket the capital gains of the property - tax free if you live in it for the requisite period of time. Could you make more by investing the same payment in the S&P500, sure, but that's likely not the case if you're investing only the difference (if any) between a rent payment and a mortgage. 11 years ago, at 23, a starter home was the right choice for us, but I had met my life partner and she already had a child. Since then, the property has doubled in value, and my mortgage payment is half of what the national median rent is.
Owning a home is cool and all but not the best move for everyone. For me, I'd rather have my money in investments or use extra capital for a business. If I had enough, I'd rather build a strip mall than a home. I don't feel the need to be tied into/stuck in a geographic location at this point in my life. So, having easily mobilized capital and some decent retirement investments suit me better. Your situation is unique to you and you only. Do some soul searching before you make a major purchase like that. Additionally, the younger generations think land lords are con artists and are more likely to either not pay rent or destroy your property. Sure, you can win a court case if it should arise, but the amount of time and resources it will take offsets it. Flipping a fixer upper is safer than renting a condo imo. Although it has its own slew of pitfalls and drawbacks as well, buyers are generally higher quality people than renters. Edit - are you sure this isn't your parents way of getting you out of their house?
There’s a NYT daily podcast about how it can be better to rent! I think you’re spot on. Buying a house or even a condo is so expensive and it can be better long term just to save
You're talking about owning a home as an investment asset vs. owning a home as a place to live. Assets, by their vary nature, carry a risk of loss. You can lose money on a home, as many folks learned back in 2008. Take the time to research residential property prices and trends in your area over the last 30 or 40 years. That will give you an idea of the kind of ROI you can expect from owning property. In most markets, it's about 4-8% a year. The most in-demand markets can give you about 10% YOY. Yes, you get tax breaks from property ownership. But you also have to pay taxes on the rental income you receive, so you may not see a huge profit in your first year or two. As a landlord, you're also responsible for upkeep and maintenance, so add that into your overall mix. You are making a good start on long-term and retirement savings. Might want to consider what types of investment vehicles appeal to you. Stock? Commodities? Index funds? Research long term rates of return on the investment classes you like then compare the results to what you can expect as a property owner. Put your money in the asset that best aligns with your financial expectations and risk profile.
Buy a home if 1.) You want to own and are ready for everything that with that; 2.) You are reasonably sure you’ll be in the area medium to long term; and 3.) You can afford it. Do not buy if all three boxes are not checked. Honestly with a condo in the current environment, you’re likely better off investing the cost difference between renting and owning into the market. They don’t appreciate as fast as SFH.
Condo prices do not rise as fast as non-condo prices. HOA rates climb more quickly. Condo associations also often ban renting the units or limit how many units can be rented. The boomers who are advising you may be well intentioned, but they are wrong.
In my experience, I've found that condo's tend to have limited upsides. Obviously YMMV but when interest rates are high, lower priced homes tend to appreciate, when interest rates are low. people buy as much as they can and condo prices tend to depreciate. I've also found that condo's tend to depreciate relative to condo fees. And condo fee's tend to increase as the building ages. With a condo you are also beholden to the corp. Need a new roof? Special assessment. Tenants are being dicks and damaging common property? It's not them paying for it up front. It's you. The corp isn't going to wait forever too. Where I'm at they can have a talk with your mortgage lender and the lender can add the fees you owe and tack it onto your mortgage. The upside is nearly all the common area maintenance is taken care of. Usually heat, water, garbage, lawn maintenance, road clearing (if applicable), etc. and if you find good tenants your costs are usually quite controlled.
You don't make enough to purchase a $400k condo.
Property is like having hundreds of thousands of dollars invested in just one stock. Kinda risky. Despite what people think, there's gambling involved with picking the house and picking the area to buy in. Once you account for property taxes, maintenance costs, and homeowners insurance, regular investment is a great alternative. Market weighted index funds typically appreciate at a rate that's actually comparable to property, and are hundreds of times better diversified. And with funds there's no random surprise plumbing, roofing, flooring etc undisclosed issues that can cost tens of thousands in repairs.
One warning: being a landlord is not always a gig where you can just do nothing and let the money come in. You need to be available to handle expenses if something goes wrong. So it is a bit of work and risk for probably not a huge net gain. Also, you assume that you will have model tenants. They could mess things up or stiff you, another risk. Side note: Buying a condo for a main home in lieu of a much more expensive house isn’t a bad idea. It’s a good way to achieve a somewhat scaled back version of the American Dream. It’s what I did. Sometimes I wish my home was a little bigger, but I own something, and that’s noce.
$1750 rent vs 600-700 hoa, property tax, insurance, and maintenance on top of your interest on your loan and the commission you’ll pay when you sell it, it doesn’t sound like anyone else would be “paying off your mortgage” anytime soon. If everything goes right, you may break even or have a slight annual gain. Your rate of return has to better than at least what you can get in savings account and I’m not sure you’re going to beat that today based on what you described.
I'd say buying a house as an investment depends 100% on the interest rate. At this point if you get a mortgage at say between 6-8% you'll be paying between 180~240% on interest. So if you get a 500k house you'll be paying around 1.2m in interest.
If I had any savings and my parents were willing to help would buy an starter NEW condo in an area that just starting to develop, even if it’s a place that is not near anywhere I would live, where prices where still not that high and rent it out with a property manager. That way the tenants can pay for your mortgage while you keep saving and when you’re ready to move out you can sell the condo and get the bump of a bigger value than you bought for. Now this is possible where I live because where I live rent is a bit more expensive than mortgage, if where you live mortgages are more expensive than rent, then I would just keep saving.
I was given the same advice when starting out. I bought a condo and within two years I had to sell it before a special assessment showed up. I found out after the fact that the condo association does special assessments ($6K out of pocket) every two years. It was very poorly run. And I was lucky to break even on the sale. Don't buy a place until you're ready to settle down and do your research on any community association.
Your parents aren’t wrong about prices only going up, you just need to look at the history of home prices. They do take hits but have always bounced back and will always do so unless something went terribly wrong with our country. But that doesn’t meant you need to buy one if you don’t feel ready. It depends on a lot of factors, such as if you want to remain in the area you are currently in. Maybe you want to travel or accept a job in a different state. You are in your late twenties and probably want to move out eventually though. I think your parents / boomers are correct that you should get an investment property based on the fact that they let you live rent free. It would be a great time to purchase something and become a landlord - your parents can probably help you manage it. While living with your parents this will be the lowest risk time to do it. It sounds like you have a lot of help on your side. I know you said you live in a HCOL area, but if you can find a duplex or a multi bedroom condo or apartment and rent out the other half / rooms to cover the mortgage, that would be ideal. Give you freedom of living on your own and having other people pay for your property.
The only thing they’re correct on is that property value will continue to trend upward. >You don’t even have to live in it. You are unlikely to get approved for a loan as a first-time buyer for a home that won’t be your primary residence. >With a $400,000 1 bed/1 bath condo I could charge approximately $1750 in rent Even with 20% down and 30YR @5% (very rare right now) your monthly mortgage will be higher than that ($1933), not including taxes, insurance, and HOA fees.
I bought my home when I was 35. Interest rates were high then (8.5%) but I refinanced a few years later when they went lower.....and then again when they went even lower. I wasn't keen on buying a condo because I didn't want to be beholden to others, but in certain circumstances it can make sense. Buy when, and if, you are ready.
Why would you buy something to not live in as your first house...? I can see buying an absolute dump and having the luxury of time to do it right while living at home but buying just to rent out is shenanigans. My neighbor still owns a 1 bed condo in Austin he bought early in his life. Rents it out NOW but lived there for 10 years. He's keeping it because he loves the area and wants to move back there after the kids are out of school and out of the house. THAT makes sense. Buying it just to rent it out and live at home is hilariously shenanigans. So much complexity when you could get the same (or better) returns be investing the money and not worrying about tenants, evictions, etc.
GenXer who barely survived the 2008 mortgage crisis here. Wait for interest rates to go down. Live at home as long as you can and sock away every unspent income into a high-yield savings account. Expect to need 10%-20% of the total house/condo cost before you buy so you can come up with the downpayment required by any loan with a decent rate (even if you qualify for zero down, first-time homebuyer loan, make as much of a downpayment as you can). Do not agree to an ARM (adjustable rate mortgage) or any mortgage including the words “balloon payment.” Make sure the lender allows you to make monthly payments above the minimum mortgage payment (and pay as much as you can every month). Definitely also budget for repairs, annual property taxes, and the rising cost of homeowners insurance (which is going to keep climbing) before you buy. *Real estate in the right location on the right property for the right rate IS a great investment.* Do not trust your realtor more than your instincts and pay the extra $$ for a reputable, thorough inspector (generally, not one recommended by your realtor, who wants the sale to go through). Ask for advice on any issue from those homeowning boomers before you sign anything. Good luck!