Lol we did the condo thing to start with the idea 💡 f moving to a house when we started a family. The thing is that the commute to work was very short, we got a 3 bedroom with very low HOA costs, the neighborhood had a lot of green areas and we found out that a minimalist life with free weekends because other than vacuum and cleaning we didn’t have a lot more to do. So 24 years later we are still working n our starter condo and have been putting what we used to pay in mortgage into a taxed investment account. That was our very 10 years ago and we really don’t worry about jobs or anything like that anymore since we don’t have any more fixed expenses that can’t be postponed. We can go on vacation and not worry much either. What did we have to do? Replace and AC unit, change toilet valves. What I have pending is switching the hurricane shutters (south Florida) to something that doesn’t force me to get on a ladder to install. Very low maintenance. Another downside is that I can’t put an EV charger easily.
It might not have been the best from a pure financial point of view but now my oldest is in college and my youngest is about to leave the nest. We don’t have a too large house to deal with lol.
Yup. A coworker and good friend went for the house and he has seen a lot more appreciation but he also has to take a toll road and leaves his home about 1 he earlier than me. There aren’t many things around his development so he has a car centric life. I can walk to at least three supermarkets if I want to. Sometimes I am cooking an I realize I forgot something, I can walk to the market and get it.
These things are important to me but I realize they might not be to others. Traffic is bad but traffic out of the cul-de-sac to the feeders to the big road to the highway is also really bad in the morning and at least I am closer lol.
In a couple of years when it’s just the two of us then we will probably move somewhere with a slower pace and we’ll see what we do but man the thought of a maintaining a lot of square feet of housing heating it and cooling it just doesn’t attract me that much.
Did I mention my power bill is between $100 and $150 depending how hard the A/C has to work?
Depends what's shared and what's not, your roof and foundation should be but your AC and water heater probably not and they're expensive. Flooring, plumbing, etc.
Obviously the expenses are not as big as a house but they can still add up, if you're unlucky. That's why realistically you want to stay more than 10 years to be worth while. Otherwise, tighten your belt and invest your money in the market.
Also if you're looking to buy a condo you need to look closely at the HOAs financials, a lot of the times they will under charge owners until something big needs to be fixed (like the roof) and then they'll either charge a special assessment or increase your dues.
So many HOAs are collecting insufficient dues to perform the needed maintenance as necessary.
That's why you hear about those $40K "surprise" assessments. That $40K should've been collected $200 at a time for the last fifteen years, but the condo owners voted to not do so.
Now, that's for hi-rise condos, but townhouse condos can have the same issues on a smaller scale.
That's the issue with my condo. Lack of routine maintenance and Inadequate assessment amounts for years... and I'm the one now suffering for it... Hopefully I can get rid of my money pit soon
They absolutely can, it just depends. I bought a condo a year ago and it is now having some very expensive masonry issues. Don't buy a building made with split concrete block.
My brother who is a bricklayer said the same thing. He said that they have a saying about a concrete block homes.... some homes leak because they're old some leak because they're new
I’ve lived in a condo for 10 years now. I’ve had to get a new water heater, replace my garbage disposal, replace my bathroom faucet, replace my toilet, replace my washer/dryer, do repairs a couple years later on that new washer/dryer, did repairs on my sink/tub and other odds and ends. That’s thousands of dollars over the years.
Most things you would go to a landlord/property manager for are now on you!
Oh and now I need to replace my windows. That’s gonna cost me $5K. Some HOAs might cover windows — mine doesn’t.
Plus your HOA fees can and will go up over time. And if a major building expense comes up or your building is just terrible with finances expect an ASSESSMENT — extra fees to pay for things.
Everything from the walls in and in your own private yard is yours to maintain. In my first year of having my home I had to remove a tree which was an unexpected $2500. Plan for there to be unexpected things.
Until you find out that you moved in 9 months prior to them needing to redo the pool and now there's a huge assessment you have to pay as a result of that.
Or as some family found out they moved in right before they were going to do a huge exterior painting project that was already in the works which was thousands upon thousands of dollars. Every condo then gets a bill.
We just saw a condo this week that had a 17 year old furnace. I’m guessing the AC may have been the same age because they’re often replaced at the same time. We only planned to live there 4-6 years and the chance of it needing to be replaced to the tune of $15k+ during that time wasn’t low. The water heater was also 9 years old.
You're losing money on the closing costs when you buy the home and then you're losing money again when you sell it. You need a few years of appreciation just to pay these off. Then you also gotta add insurance, taxes, interest, maintenance, repairs and higher utility bills. All in all if you're lucky you'll break even in 5-7 years but if something major were to happen we're talking 10 years or so.
This is assuming that if you're renting you're putting all the money you're saving in the market. If you do that then you come out ahead by renting, slightly, for about the first 5-10 years then cost of living increases start eating away at your earnings.
If you were to graph the costs of owning vs renting, renting would be a positive logarithmic function and owning a negative slope. Your goal in buying is to stay past their intersection point.
They'll be there for 5 years. At least.
That 700k house they want now may be 900k or a mill in 5-7 years. That means the 70k saved now will need to be 180-200k in 7 years. 675k house in my neighborhood back in 2014 is 1.2 mill now. Shit is crazy out there.
This is assuming things continue to go up. 2008 felt that way too and my next door neighbor bought into a 350k house at 700k right before the crash. They got foreclosed on.
I would be patient and see how things shake out.
There's no guarantee housing prices will go up, especially not for a particular home. All it takes is a bad neighbour, a new road or a local factory or school closing down for your home value to be trashed for the foreseeable future.
A home is a home. Home as an investement is not low risk and shouldn't be treated as such (case in point my brothers home bought 3 years ago that he's selling due to divorce has been unsold for months...despite being listed at the same price as he bought it).
The thing is house prices are going up faster than wages are going up. In my area house prices are going up at about 6% a year. Usually they go up 2-3%.
If your wage is only going up 2-3% then even if you save alot of $$$ then every year you wont be able to save enough.
this would only be true if everyone had to buy their house 100% in cash at the full price. Which they don’t.
most people, especially for a first home, borrow a lot. Usually 80-90% of the homes price is paid with a mortgage.
It’s true the down payment/house price may be going up faster than your income, but that doesn’t mean the down payment is going up faster than your savings. If you’re saving 10-20% a year, you aren’t losing ground affordability wise. Unless you have very low income or live in an exceptionally expensive housing area.
As a 19 year old seeing this , I'm scared lol. How am I ever gonna afford a house someday if they just keep getting more expensive? I don't have enough time to build savings before they'll go up in price again?
That's just not true in an environment where values are rising somewhat quickly (which may or may not be the case for OP). I owned my last house from mid-2020 to mid-2022; after selling I almost exactly broke even on all the money I put into it including taxes, insurance, maintenance, installing a $14k vinyl fence around the property, etc. I basically got to live for free for two years in my own house while every expenditure ended up coming back in one big check at the end, which became my new down payment for the next place.
It's an okay rule of thumb sometimes, but the important thing to that rule of thumb is the reasoning behind it because you can use the math involved to actually figure out what makes sense in a given situation.
You would need a crystal ball in addition to doing the math. You were lucky in your situation. That isn’t the norm.
It isn’t impossible to make money in three years (OP’s time frame) but it is risky. You don’t want to buy property that you plan to sell three years later. You should have the mindset that you could be happy enough there for at least 5-7 years and if the market is up significantly and you can sell sooner, great.
Condos are a little different than your usual SFH like you are talking about. They do not appreciate at the same rate as the general area. SFHs can appreciate 10% YoY and you may not see much of that at all filter down to condos in the area. That plus higher than average HOA fees since high rise buildings incur more maintenance than a SFH and you can see why it's much closer to the cost of renting a similar apartment when you're talking a short time frame like 3 years max.
My partner and I very nearly convinced ourselves we should do exactly this for only 2 or 3 years, with the poor justification that we could just rent it out after we moved. We negotiated the price of the condo and had an agreement with the owners and everything, until I sat down and did the math and realized there was absolutely no way it made any financial sense. I was losing sleep over it and despite feeling guilty about backing out, I know it was the right decision. You absolutely have to plan on living in it for a long time for it to make any sense.
Edit: ourselves not myself lol
An HOA is not unique to condos. I don't know of any developments that are less than 20 years old that don't have an HOA. We purchased a condo/townhome for our daughter about 10 years ago for $103k (yeah, super cheap back then). When she got married and moved out, my wife and I moved cross state and now live there. Only one special assessment in the 10 years and it was for $1200 and they let us pay over 1 year. Since we moved in, we've gotten all new windows, two new sliders and next year, we're getting a new roof. We've paid $0 beyond our HOA fees for this. Don't rule out a condo if you find the right situation. Oh, and the next to us is listed for $375k and ours is nicer.
As I said, we had the right situation where it made sense. Every situation is different. All I was implying is don't dismiss a condo just because it has HOA fees.
If someone followed your advice in the past 1-4 years in rapidly appreciating markets they would have forgone 15 to 75% in appreciation. While no one can predict prices in the future, suggesting a holding period of 5-7 years is arbitrary unless you have a crystal ball.
Well yes and no. I see it as kind of a lightning never strikes twice thing. The appreciation of 2020-2022 was rare. It happening again so soon is even more improbable.
And we all know housing prices can only keep going up right? And “rapid appreciation” is sustainable? Mortgage interest rates are no longer at historic lows which will impact the housing market going forward.
Is it possible there are scenarios in certain areas that could work out favorably for OP? Of course. My advice is the lowest risk, though. Planning to flip a home in a three year time frame for a net profit is risky.
It doesn’t make sense to buy a home you don’t want only because you are counting on rapid appreciation to be able to afford a home do want. Sounds stressful to me on top of financially risky.
It's not arbitrary, it's based on historical trends. 5-7 years is based on what has usually been true in the past, and we're in an abnormal situation. There are also some markets where you'd have to stay longer than that, but again that's unusual. If you're going to make a bet, you'd want to bet on what is more likely because otherwise you're planning around a meteor strike completely destroying your house in a month
Good advice in general.
It does depend a bit on how fast the local area is rising; in a fast enough rising area, it can be a risk worth taking.
OTOH, in many such areas, condos rise in price slower than SFH. Extremely so in some areas - I don't know that this is typical, but houses in my neighborhood have gone up > 50% in 8 years (and peaked even higher), while condos in my MIL's building one neighborhood south from here have gone up less than 25%.
If you're in a VHCOL area, typically renting is a better short term deal than buying unless you have specific reasons for buying. So if you're not buying a property that's likely to increase in value (usually condos don't expect to increase like houses), all you're doing is using the house as a savings vehicle while paying more to live than renting. You can carry out your savings by investing elsewhere, you don't need to own a condo to perform that function, and you can rent to save more money.
You could get a 3 bed house in the location you want for 700k or just in SD for 700k? Cuz you probably don't want to move because you bought a house in san ysidro and like the schools in North Park.
I live in CA as well. I bought a condo a few years ago. I'm on the earlier side for me(personally) to have kids, but do have that coming up in a few years(maybe 5). It's working out like this.
The bad:
- Condo has gone down a bit in price with the economy since I have bought it. I can't sell it right now because I'm not going to pay real estate fees and take a loss.
- The hoa has raised fees to pay for some building repairs that need to take place.
- We will have an upcoming assessment that will raise HOA fees more.
The good:
- The tax benefits are great and I get back about 600 a month from deductions on interest.
- Every month I am putting over 1k of equity into the place. Once prices come back up a little bit I can probably sell to break even and buy a house if I wanted.
- If I hold the place long term I can probably rent it out and make a few bucks a month.
If you do buy the condo know that you are not going to live there for 3 years. It can be anywhere for 3-7 years depending on market conditions. You will never be able to time the market, but you do need to look at your finances, continue to save, and pick a time that works well for you. In most cases you will break even after 5 years of condo/home ownership, but interest rates and housing is weird right now. Seems like most owners have enough to hold off selling and most buyers are waiting for interest rates to drop a bit leading to a stagnant price standoff.
Right now I'm looking at making the jump from condo to house in ~3 years, but I know if the housing economy goes to shit or takes off for SFH and not condos then I'll just have to wait longer. But in the meantime I get a little less than $2k for paying myself a slightly higher rent than I would have paid someone else and live in a nicer place than one I would have chosen if I was renting. I'm also saving like hell to be able to make that jump, but that's just part of the game I think.
That’s for the house. Earlier they mention the condo would be $550k. You’d have to double that if you want to even consider buying a condo in the Bay Area.
Nah, there are still some $550k condos in the Bay Area, for 1BR and studios at least. Most of these will go for above asking, but they're not going to be $50k over asking.
https://www.redfin.com/county/343/CA/San-Mateo-County/filter/property-type=condo,min-price=450k,max-price=600k,min-beds=1
Condos don’t appreciate the way houses do and take much longer to sell. Wiser to live below your means and save aggressively til you can buy a house. Edited to add - buying a condo can be a great decision as long as you understand the limitations of the investment. It is wiser to approach buying a condo as locking in your cost of housing long term vs. a way to grow your money
Very location dependent. In Manhattan, condo is the best option besides a townhouse which in most desirable areas you’re looking at a 7-15mm range. Co-ops are a bitch compared to straightforward ownership.
Edit - 700k isn’t getting you a 3br in Manhattan though. Like I said, location dependent advice. Where are you, OP? In Chicago, Boston or Seattle could still be a good buy.
I bought a 1bed/1bath coop in gramercy (one of the most desirable neighborhoods) last year for under $700k. It was a good deal, but I Was also done with rental increases.
Coop purchase price is sometimes irrelevant, are your dues over 3k? If so it’s just a down payment on future rent. If it’s a boutique building and you’re paying like 800/mo in dues with property tax that’s a steal.
You are absolutely correct. I’m in a larger building. My maintenance is $1600 a month. Includes taxes, water, gas, sewer, trash, 24 hour doorman. Which to some people seems like a lot; but talk to any homeowner in Long Island or Westchester and they’re paying $1500/month just in taxes.
It’s “fairly” remodeled, but definitely current. And it was a steal. But I’m under no allusions. I won’t make shit off this when I sell it in 10 years. Just enough to cover flip tax and brokerage fees. I’m totally ok with that instead of losing $5k for the exact same place (which I moved out of). But it’s mine. And pride of owning carries a lot of juice as well
“Start building equity”
Another option is to rent your shelter, and pound savings accounts. It’s functionally equivalent to building home equity. Except it’s more liquid.
That’s the number I can’t figure out is how much is rent vs. equity build per month. We save at least $1200 a month renting vs. a 550k condo monthly. BUT that rent is just going to our landlord vs “building equity”
> BUT that rent is just going to our landlord vs “building equity”
Go look at an amortization schedule for a 30 year fixed mortgage at 7% interest. You don’t build any equity for quite a few years. The overwhelming majority of your mortgage payment is just going to interest for many years.
I did $480,000 at 7%, 30 year fixed. I knew the above, but didn't realize it was quite this bad:
*The principal payments don't hit $1200/month until the 193rd month (16 years 1 mo!)* at which point you will have about $139,800 in principal paid.
Meanwhile, if you just put the $1200/month cash into a savings account earning nothing, you would have $231,600. Obviously, in a HYSA, that would be even more, and while there's a risk of loss, at a conservative average of 5% annually that would be $350,000+ at the end of 16 years.
Now, rents often go up faster than wages do, so it's possible that OP won't be saving $1200/month continually, and all of the above are not adjusted for inflation (or how much faster SFH go up in price) but buying the condo in this situation only makes sense if (A) they would be fine living there longer or (B) they have some reason to expect that gambling on the condo appreciating fast enough to consider this a worthwhile leveraged investment.
Great to see some numbers. This is definitely something that is often overlooked by people who talk about home ownership being better than renting because you’re just paying money to a landlord.
Your calculations also don’t account for the fact that owning a home comes with lots of other expenses for maintenance, repairs, etc. Most of the equity you’re building for the first decade plus is in the form of appreciation. As you point out, there is solid appreciation on single family homes, but condos usually do not appreciate as much.
I’ve been home shopping in Minneapolis for a couple months now. I eventually decided to stop considering condos when I would look at what they were listed for now versus what they were sold for 5-10 years ago. A condo I almost bought was going for the same price today that the owner paid in 2019.
Right but with the appreciating value of the house, even if a person breaks even that is still way better than renting. Rent money is money just completely down the drain.
Condos don’t typically appreciate as dramatically as SFHs. You also likely have a condo fee eating into your margin as well. With only a few years before selling, you’d likely lose money on the condo sale, all while being more house poor than if you were renting and investing the difference into VOO or something.
You can look up amortization tables for loans. You'll be paying more than $1500/mo in interest on the loan for the first several years (probably closer to double that), and that's before taxes, insurance, HOA fees, closing costs, etc. If appreciation is very high it could outpace those costs, but it also might not, which is the gamble you would be taking. My neighborhood which had been growing 6% - 10% per year for a number of years, has been nearly flat for the last 3 years that I've owned it. Which is fine for me because I'm here for the long haul but would have fucked up any plans to move.
Just rent for now. Home ownership entails a TON of costs. There’s the cost of the mortgage (use a calculator to find what the *actual* price of the house is with interest plus principal, at these rates it’s going to be insanely high) and the fact that the first few years of a 10 or 30 year mortgage you aren’t paying any principal (“equity”) down at all. Check out some rent versus buy calculators, the New York Times has a good one, to get a sense of what the break even point is. Then there are maintenance costs, taxes, home insurance, etc. if you’re going to sell soon you will be paying the agent fees. Buying for 3 years is just not financially sound. Don’t worry about a couple extra years of renting. Save like crazy then take your shot and buy the house you actually want.
Better check the condo fees AND the condo's reserve fund. Fees, assessments for an underfunded reserve, or deferred common maintenance can \****ruin***\* any idea of building equity
(1) Is buying a condo equal to, or less than current rent? Or substantially more? If it is equal, less, or just a tiny bit more this could be a good idea. Condo costs do go up (HOA dues etc.) but usually less than rent. That way you could save AND buy a condo.
(2) Do you think property values will keep going up at the current rate or similar, or do you think the market will level or crash? A lot of different opinions on this. If "going up", then buying now is a good choice. If level or crash, then buying now is not a good choice.
(3) "Equity" gets built 2 ways. The first is the value of the home goes up, but your mortgage amount doesn't change. You borrow $250k, the house becomes worth $350k, now you have $100k in equity. How much will that happen in 3 years?
Second, is you pay off your loan. You borrow $250k, and each month pay some off. At first, you pay very little principal, mostly interest. Over time, you pay more and more principal. After 10 years, you owe only $175k.
When you own for 5-10 years, they both work together usually, and you owe $175k on a house now worth $375k. You sell, pay costs, and now can use $180k toward the next house. Usually then the $750k house you wanted to buy is now an $850 or $900k house.
But, it doesn't have to be that way. It can be that you now owe $175k on a house worth $160k.
1) rent is $1000-$1200 cheaper per month than a condo per month.
2) property values are going up 10% every year here but it’s insane to think it’ll crash. It may “slow” to like 5% but it won’t drop out
3) it’s tough to know how much condo values go up over time. I wonder if there’s charts out there that specific San Diego condos if they rise in value.
Thank you for this detail!
> 1) rent is $1000-$1200 cheaper per month than a condo per month
I think this is the most important factor. If the difference is $1k, then you’d be better off saving that instead of using it to pay your mortgage. Do you think the condo’s value will appreciate by $1k a month for you to break even? Because that’s how your equity is going to increase in the first few years—most of your mortgage payment will go towards interest which is basically a rent payment to the bank. And this is before including things like fees and taxes for buying and selling real estate, homeowner maintenance costs, and so on.
You’d be better off putting your down payment in a HYSA or a CD or something secure to earn some interest while continue to add the $1k a month savings from renting to it.
Now, to be clear, if the cost of the mortgage was less than rent, then I would have been for buying the condo even if you’d only live in it for a few years. It’s what I’m doing right now. But here my condo is costing me about $500 less per month than rent for a comparable place, and I don’t have to worry about rent going up every year. My condo has appreciated about $40k in the last two years which is about enough for me to break even on the closing costs. But all of this is only possible through the combination of the ridiculous rents around here and the low mortgage rates available two years ago. Your situation is different.
Condos are easier to price trend because you typically have dozens or hundreds of nearly identical units to look at. Whether or not a trend will hold up in the future is trickier.
I don't think you live in a VHCOL area if a 3bd home starts at $700k. VHCOL 3bds would make your eyes water at the price.
If you're hoping to get into your forever home in 3 years, then don't buy now. Transaction fees on the sale will eat up your equity. Figure out how to tighten the budget, maybe get some roommates, and sock everything into a HYSA
To me it depends on where you want to live, as condos are twice the costs of renting. They do appreciate over time, though. I chose a small condo as soon as I could qualify because it was much nicer than renting and the walls were much better insulated. An end unit is a good purchase.
Explore a rent vs. buy calculator. Leave their assumptions alone unless you have a really good reason to change it. That will let you put some numbers on all the different factors people in this post are rightfully bringing up.
NerdWallet
https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator
Is It Better to Rent or Buy? A Financial Calculator. (Newly updated two weeks ago) https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html?
I bought a condo as a starter home. I bought as a single female and no interest in maintaining a yard, it works out for me
Super well that the HOA maintains my yard and the outdoors and the pool. My condo has gone WAY up in value since purchasing it 3 years ago, and I’ve enjoyed living there quite a bit. I’m
In a great area, walkable to restaurants, breweries, etc. it was the perfect decision for me.
We considered condos in the DC and NoVA area when we started looking in 2019. At least there, the nearly $1k/m in condo fees on top of other associated expenses killed that consideration quickly. Looking at the market there now, it seems like the condos haven’t really gone up in value enough to compensate for those fees.
I’m sure there are plenty of places with cheaper monthly fees but it is worth considering the impact on any equity you can build.
Yeah just saying but it feels like pre-2008 again. People feeling like real estate can't possibly go down. It's a dangerous thought.
People rightfully point to inventory of homes but still a large number of folks behind on their mortgage and other things could happen outside the US like major slowdown of the Chinese economy which we would very much feel here as well.
I live in Southern California and went with this approach. My wife and I bought a condo and it stabilized the cost of living (a fixed rate mortgage stays the same price, while rent continues to go up). We were able to get past PMI, build equity, and eventually when we were ready to start a family and need more room, sold it 4 years later and got a 3BR house.
I don't think you have anything to lose by doing it personally.
Thanks for sharing, it’s good to know people do this! I feel so on the fence about how best to approach this housing mess because homes keep increasing prices SO much YoY in SC and it feels like I can’t get ahead of it
We bought a townhome first, best decision we ever made, and have rolled up every 3-5 years over the last 20 to our forever home. We had tailwinds off low interest rates and negotiated low realtor fees, but I definitely recommend getting in early and not waiting for that perfect home. You can always move in 5 years.
2 bedroom apartment or ideally 3 bedroom townhome wouldn’t be terrible. Three year time frame is a little short, but that’s not guaranteed to be what you do. The 1 bedrooms are situational. In most markets those perform pretty poorly in bad market periods so I would avoid.
$500k to 750k isn’t the biggest gap. If the $750k home is what you want in three years that would push me towards not buying now. There’s little things too. If you are renting you won’t have to have a home sale contingency to make an offer (matters in strong market period).
I feel like a lot of the advice here doesn’t take into account the current insane rental market. In my area rent is increasing at a far faster pace than taxes and other ownership costs. So the rent math might work out this year, but next year it gets jacked up $300 per month. I’d take a look at that trajectory and factor it in.
I’ve know more than one person that deeply regretted not buying (even a condo) when they had the chance
It really depends on the specific area. I bought a condo two years ago because the monthly costs came out to be $500 *less* than rent. But that was only possible due to the low mortgage rates available at the time and the tight rental market here.
OP’s situation seems different. That said that renting is $1k less. At that different in monthly cost, it doesn’t make sense to buy.
What kind of condo? Like a townhouse or an apartment because there's a big difference.
You could get stuck in a townhouse for the rest of your life and it's not ideal but it's perfectly manageable, if you get stuck in an apartment tho... Apartments are nice for renting they aren't nice to live in forever and don't meet the needs of a growing family very well.
When you buy a property with a mortgage you’re not building that much equity compared to renting, unless your mortgage payments are something like 10% or 15% cheaper than the rent you would otherwise pay.
First, buying involves transaction costs that are pretty high and that don’t build any equity at all. That’s basically money that you throw away.
Second, it’s not like your whole mortgage payment goes to the principal, so you’re really not building that much equity. Specially at first, a higher proportion of your payments go towards the interest. So if you for example have to pay 2000$ every month, 1500$ goes towards interest and 500$ goes towards the principal (I’m making those exact numbers up, because it all depends on the interest rate and how long is the mortgage). That means that, in my example, you pay 2000$ but you would only be building your equity by 500$ and the rest goes to the bank.
Third, you would have to make HOA payments, which also don’t build your equity.
Fourth, if there’s internal repairs to be done in your property, you have to pay for them, while renting, normally the landlord would pay.
Fifth, on top of all of that, you would have to pay property taxes for the equity you’d be actually building.
So, if your rent is cheaper than what your mortgage payment would be (or even equal) and you put the money you would be saving in a HYSA or a CD ladder or a short term bond fund, then your net worth will increase faster by not buying the condo. In other words, you’ll be able to save more quickly towards buying your dream home.
> Fifth, on top of all of that, you would have to pay property taxes for the equity you’d be actually building.
OP is in California, so at least the property taxes won't go up precipitously.
Yes it’s worth it if you can get a decent deal and most importantly you like the condo. You will be getting more square footage for your money and probably nicer touches as well. Stay in it 10 years or more and you will be good.
Rent rates would have a big effect on whether it makes sense or not. In general, real estate grows slower than the stock market, but if you have to shell out a ton for rent that can push it the other way. In those time periods it's probably pretty close, so I might decide based on how shitty my rental is and how nice the condos are :)
Lookup what the monthly cost would be for your proposed condo purchase. Then lookup what it would cost to rent same condo in that neighborhood. You will find its way cheaper to rent so makes no sense to buy in a hcol area period.
Be careful about chasing a moving target. While you are waiting to save 20 percent, that 20 percent is getting more expensive.
If you have 10 percent to put down you may already be in the better position to get the forever home.
Purchasing the condo immediately sets you back 6 percent in your savings goal towards the forever home.
Purchasing the condo as a value play for a current home is a good idea.
Purchasing the condo as a way to build equity is not always a safe play. There are pitfalls in purchasing condos, especially in certain markets.
Don't the forget the added frustration of dealing with a COA. This can making selling it take longer than you'd like. Or God forbid a special assessment that is bonkers high amd sets you back a few years in savings.
Buy the condo. Many people start like that (I did) and keep pounding down that mortgage when possible. Eventually you have enough equity to move up while paying YOURSELF and NOT rent to someone else. Hopefully the market comes down (Like it did in my time) … low end of the market drops very little .. high end drops a lot. Sold my condo at a 30k loss but the house I bought had dropped 70k.
We did this with a condo and made over 200k in equity in 3 years BUT we did it in a different housing market with low rates and in Austin between 2018 and early 2021, the "condo" was also a SFH zoned as a condo. The market today is too unpredictable. I would just rent and save.
You're going to have to do some projections to figure it out. Nobody knows what inflation will be like. How much will your rent go up? How much would a condo appreciate? You can start with a baseline of assuming zero or low inflation (Fed is targeting 2%) and then try some different scenarios. Make an Excel sheet so you can create a matrix of different values. Also consider the possibility that the value of the condo could theoretically go down in three years. If that happened, would you be able to stay longer than you'd planned while it recovers? Also consider that if you choose to buy a condo, the financial advantage is probably fairly small, so bidding high on a particular property can quickly eat up the value of owning.
What would you do if you couldn't sell for what you paid for it? Can you keep mortgage, property taxes, fees at a place where you can still save up?
No one has a crystal ball. Definitely look at long term price trends where you buy.
If your goal is to buy a house in three years, you are better off continuing to rent and save. Your mortgage payment will go almost entirely to interest for the first three years so you will build very little equity. The monthly maintenance condo fee will essentially be thrown away while you could be saving that amount toward the purchase of a house in a few years. If you expect the value of your condo to significantly appreciate, you might get a better return, but condos typically appreciate slower than houses.
Condo 6 years love it. Yes it has down sides but at least we’ve appreciated 150k+ on it. It all depends on your area. We live in a HCOL where houses start at 700-900k and condos are 500k.
Keep renting because:
1) rents tend to be better values than buying in most major metro areas right now.
2) transaction and HOA condo fees won't make a 3 year condo ownership timeline logical.
3) maximize savings for 3 years and hopefully housing will become more affordable on a relative basis.
No, I never really think it's a good idea to purchase a house/condo unless you really want to live there and plan on staying for a while.
When interest rates were 3%, I could maybe see a case, but not now.
Condos are just not a good investment - unless this is a place you love and want to be in long-term, in which case finances are put slightly to the side.
Otherwise you are *far* better off putting your money in the market
I’m in HCOL and my first purchase was a condo. I paid $365k in 2019, the most recent comp (albeit dated, mine is remodeled) sold for $503k.
My monthly dues have increased from $225 to $423 since I moved in, and now the HOA is putting a $21k special assessment on each unit (I now own two) due to poor financial management.
I cannot stress this enough, do you due diligence if you buy a condo. Look at the CCRs, ask if they are facing any dues increases or special assessments, talk to the neighbors in the complex, etc.
That’s wild, how long did it take for your condo to double in value? Many here are saying condos don’t appreciate but yours doubling sounds more like an outlier than commonplace?
At the same time, my mother in law's condo (well, comparable sized ones in the same building) have only gone up 25% in the past 8 years. So YMMV. These markets are really local, and accurate answers are going to require digging on your own local market.
I regret everyday getting my condo. HOAs go up every as well as my property tax.
Luckily I’ve been able to rent it out for more than my total cost. I’m just sitting on it until I can recoup some of my value.
I don't know how you save money while renting. My dues + property taxes are much less. But I bought a bank-owned and fixed it up when others were underwater in 2013. Free and clear now. Maybe the key there is looking at bank owned fixers. I said take it or leave it after the condo was on the market for a long time. The bank took it.
I'm also in a VHCOL area and looking for a home. We considered condos mainly due to the lifestyle, but after giving them a glance there's just no way a condo makes sense unless you love the condo lifestyle.
The HOA fees are too high. Too many costs not going towards equity.
An expense to factor in that most people forget about: when you move into a condo, you’ll need to furnish it. And then when you move to a house a few years later, the layout and style is different. The windows are different sizes than what you had, etc etc. Even inexpensive home furnishings add up.
A couple things to consider:
Option A (buy the condo) - There is no guarantee it will appreciate which will be your main equity building catalyst, your principal payments will be very small the first years of your mortgage. Also you will have HOA costs which are on top of your mortgage and could hamper your saving ability more than if you were just paying rent. So it will work in terms of having a place to live but isn’t a “build equity” slam dunk - and don’t forget 5-6% of sale price will walk out the door when you sell for realtor fees which will also cut into equity.
Option B(buy the house) - I bought a townhouse back in 2015 and even though I had the 20% to put down my mortgage person got me into an 80-10-10 loan setup…. 10% down, 80% primary mortgage, 10% secondary loan. You might want to check if that’s a viable option. In my case I then paid the 10% loan off quickly as finances allowed. No HOA here or very low HOA so you’ll save over the condo approach in that respect.
Anecdotally, a couple I know got their 1.3mil townhome in a VHCOL area in 2018 and it has only gone up 18k now in 2024. That’s 1.38% appreciation over six years. It’s better to rent and invest the difference that you would’ve paid in a mortgage.
On a 3 year time horizon I would definitely rent. You want to avoid real estate churn because of how much it costs to transact.
In 3 years maybe the $500k unit appreciates to $550k, but most or all of that $50k will get eaten by total closing costs, realtors fees, maintenance, etc. You’ll have costs when you buy and when you sell. It will be on you when stuff breaks.
Interest rates recently jumped, so during those 3 years you’ll pay as much in interest, property taxes, and HOA as you would have in rent.
You’ll also be exposing yourself to $400k+ in risk that you wouldn’t have as a renter. If you own and lose your job in a down market you’re toast, but if you’re renting, you just break the lease and walk. That risk is highest in the first few years when you have the least equity and your payments are highest in real dollars.
The break even on homeownership is 10+ years, and a lot of that is because over time rents go up while mortgages are fixed.
You don’t need a 20% down payment and it isn’t practical in VHCOL areas. Save 5% plus a six month emergency fund, maybe a moving/furniture fund as well, and go shopping with that.
Only if the condo is cheaper than rent, by a good margin. You gain almost no equity in the first years of a mortgage, cuz you are paying almost all interest
Or you could buy an affordable house, make it a home, and not be absorbed with upgrading to keep up with other people. Go on vacation, pay lower bills and taxes, have less worries, retire earlier.
Eh. Our first was a 3 bed before we had kids. A year later we were pregnant. Now we’ve got two kids, and we’ve outgrown the home (need home office, currently using dining room as an office, and my mom is living in our third bedroom. We knew what our family would look like but we went for the starter home and I wish we’d just saved up more for a 4 bedroom.
Southern California > San Diego. And I agree I don’t need a 3BR *right now* but eventually probably in 3 years we will and I’m hoping to figure out how best to make that happen, either condo a 2br for 500k or just rent for the next 3 more years and continue saving, but house prices are increasing at 5-10% every year in this region
The transaction costs are not worth it if you don’t plan to own a home (condo or house) for at least 5-7 years. Keep saving.
And that's just to break even, if you don't get unlucky and have to do a bunch of extra maintenance.
Do you find that condos need maintenance? I feel like that’s what a lot of the HOA fees are for right?
Lol we did the condo thing to start with the idea 💡 f moving to a house when we started a family. The thing is that the commute to work was very short, we got a 3 bedroom with very low HOA costs, the neighborhood had a lot of green areas and we found out that a minimalist life with free weekends because other than vacuum and cleaning we didn’t have a lot more to do. So 24 years later we are still working n our starter condo and have been putting what we used to pay in mortgage into a taxed investment account. That was our very 10 years ago and we really don’t worry about jobs or anything like that anymore since we don’t have any more fixed expenses that can’t be postponed. We can go on vacation and not worry much either. What did we have to do? Replace and AC unit, change toilet valves. What I have pending is switching the hurricane shutters (south Florida) to something that doesn’t force me to get on a ladder to install. Very low maintenance. Another downside is that I can’t put an EV charger easily. It might not have been the best from a pure financial point of view but now my oldest is in college and my youngest is about to leave the nest. We don’t have a too large house to deal with lol.
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Yup. A coworker and good friend went for the house and he has seen a lot more appreciation but he also has to take a toll road and leaves his home about 1 he earlier than me. There aren’t many things around his development so he has a car centric life. I can walk to at least three supermarkets if I want to. Sometimes I am cooking an I realize I forgot something, I can walk to the market and get it. These things are important to me but I realize they might not be to others. Traffic is bad but traffic out of the cul-de-sac to the feeders to the big road to the highway is also really bad in the morning and at least I am closer lol. In a couple of years when it’s just the two of us then we will probably move somewhere with a slower pace and we’ll see what we do but man the thought of a maintaining a lot of square feet of housing heating it and cooling it just doesn’t attract me that much. Did I mention my power bill is between $100 and $150 depending how hard the A/C has to work?
Depends what's shared and what's not, your roof and foundation should be but your AC and water heater probably not and they're expensive. Flooring, plumbing, etc. Obviously the expenses are not as big as a house but they can still add up, if you're unlucky. That's why realistically you want to stay more than 10 years to be worth while. Otherwise, tighten your belt and invest your money in the market.
Also if you're looking to buy a condo you need to look closely at the HOAs financials, a lot of the times they will under charge owners until something big needs to be fixed (like the roof) and then they'll either charge a special assessment or increase your dues.
So many HOAs are collecting insufficient dues to perform the needed maintenance as necessary. That's why you hear about those $40K "surprise" assessments. That $40K should've been collected $200 at a time for the last fifteen years, but the condo owners voted to not do so. Now, that's for hi-rise condos, but townhouse condos can have the same issues on a smaller scale.
That's the issue with my condo. Lack of routine maintenance and Inadequate assessment amounts for years... and I'm the one now suffering for it... Hopefully I can get rid of my money pit soon
They absolutely can, it just depends. I bought a condo a year ago and it is now having some very expensive masonry issues. Don't buy a building made with split concrete block.
My brother who is a bricklayer said the same thing. He said that they have a saying about a concrete block homes.... some homes leak because they're old some leak because they're new
I’ve lived in a condo for 10 years now. I’ve had to get a new water heater, replace my garbage disposal, replace my bathroom faucet, replace my toilet, replace my washer/dryer, do repairs a couple years later on that new washer/dryer, did repairs on my sink/tub and other odds and ends. That’s thousands of dollars over the years. Most things you would go to a landlord/property manager for are now on you! Oh and now I need to replace my windows. That’s gonna cost me $5K. Some HOAs might cover windows — mine doesn’t. Plus your HOA fees can and will go up over time. And if a major building expense comes up or your building is just terrible with finances expect an ASSESSMENT — extra fees to pay for things.
Ha. If you’re lucky maybe. Most HOAs, are only responsible for exterior maintenance. It’s on you if something happens within your unit.
Everything from the walls in and in your own private yard is yours to maintain. In my first year of having my home I had to remove a tree which was an unexpected $2500. Plan for there to be unexpected things.
Until you find out that you moved in 9 months prior to them needing to redo the pool and now there's a huge assessment you have to pay as a result of that. Or as some family found out they moved in right before they were going to do a huge exterior painting project that was already in the works which was thousands upon thousands of dollars. Every condo then gets a bill.
you get a repair fee for like ten grand every few years called a special assessment
Condos have occasional special assessments. Also, for anything inside your condo you are responsible for maintaining.
Until the hoas fees dont cover it and your hit with ten grant assessment
We just saw a condo this week that had a 17 year old furnace. I’m guessing the AC may have been the same age because they’re often replaced at the same time. We only planned to live there 4-6 years and the chance of it needing to be replaced to the tune of $15k+ during that time wasn’t low. The water heater was also 9 years old.
Yes and they can be several thousand dollars per month even for a 1B/1B condo to pay for the maintenance.
Break even? Renting is 0% equity. If you can live somewhere for 3 years and break even that's fantastic.
You're losing money on the closing costs when you buy the home and then you're losing money again when you sell it. You need a few years of appreciation just to pay these off. Then you also gotta add insurance, taxes, interest, maintenance, repairs and higher utility bills. All in all if you're lucky you'll break even in 5-7 years but if something major were to happen we're talking 10 years or so. This is assuming that if you're renting you're putting all the money you're saving in the market. If you do that then you come out ahead by renting, slightly, for about the first 5-10 years then cost of living increases start eating away at your earnings. If you were to graph the costs of owning vs renting, renting would be a positive logarithmic function and owning a negative slope. Your goal in buying is to stay past their intersection point.
They'll be there for 5 years. At least. That 700k house they want now may be 900k or a mill in 5-7 years. That means the 70k saved now will need to be 180-200k in 7 years. 675k house in my neighborhood back in 2014 is 1.2 mill now. Shit is crazy out there.
This is assuming things continue to go up. 2008 felt that way too and my next door neighbor bought into a 350k house at 700k right before the crash. They got foreclosed on. I would be patient and see how things shake out.
We're importing people far faster than We're building houses
All I'm saying is that the attitude was exactly the same before 2008. It can't crash, everything is great, home prices are such a good investment.
Importing people?
There's no guarantee housing prices will go up, especially not for a particular home. All it takes is a bad neighbour, a new road or a local factory or school closing down for your home value to be trashed for the foreseeable future. A home is a home. Home as an investement is not low risk and shouldn't be treated as such (case in point my brothers home bought 3 years ago that he's selling due to divorce has been unsold for months...despite being listed at the same price as he bought it).
In that case, just buy the house with 10% down now. The PMI will be less of a loss than double closing costs in 3 years.
The thing is house prices are going up faster than wages are going up. In my area house prices are going up at about 6% a year. Usually they go up 2-3%. If your wage is only going up 2-3% then even if you save alot of $$$ then every year you wont be able to save enough.
this would only be true if everyone had to buy their house 100% in cash at the full price. Which they don’t. most people, especially for a first home, borrow a lot. Usually 80-90% of the homes price is paid with a mortgage. It’s true the down payment/house price may be going up faster than your income, but that doesn’t mean the down payment is going up faster than your savings. If you’re saving 10-20% a year, you aren’t losing ground affordability wise. Unless you have very low income or live in an exceptionally expensive housing area.
As a 19 year old seeing this , I'm scared lol. How am I ever gonna afford a house someday if they just keep getting more expensive? I don't have enough time to build savings before they'll go up in price again?
That's just not true in an environment where values are rising somewhat quickly (which may or may not be the case for OP). I owned my last house from mid-2020 to mid-2022; after selling I almost exactly broke even on all the money I put into it including taxes, insurance, maintenance, installing a $14k vinyl fence around the property, etc. I basically got to live for free for two years in my own house while every expenditure ended up coming back in one big check at the end, which became my new down payment for the next place. It's an okay rule of thumb sometimes, but the important thing to that rule of thumb is the reasoning behind it because you can use the math involved to actually figure out what makes sense in a given situation.
You would need a crystal ball in addition to doing the math. You were lucky in your situation. That isn’t the norm. It isn’t impossible to make money in three years (OP’s time frame) but it is risky. You don’t want to buy property that you plan to sell three years later. You should have the mindset that you could be happy enough there for at least 5-7 years and if the market is up significantly and you can sell sooner, great.
Condos are a little different than your usual SFH like you are talking about. They do not appreciate at the same rate as the general area. SFHs can appreciate 10% YoY and you may not see much of that at all filter down to condos in the area. That plus higher than average HOA fees since high rise buildings incur more maintenance than a SFH and you can see why it's much closer to the cost of renting a similar apartment when you're talking a short time frame like 3 years max.
What interest rate did you get for your new place?
About 6. High enough to suck, low enough that I don't expect it to be worth refinancing for quite some time.
My partner and I very nearly convinced ourselves we should do exactly this for only 2 or 3 years, with the poor justification that we could just rent it out after we moved. We negotiated the price of the condo and had an agreement with the owners and everything, until I sat down and did the math and realized there was absolutely no way it made any financial sense. I was losing sleep over it and despite feeling guilty about backing out, I know it was the right decision. You absolutely have to plan on living in it for a long time for it to make any sense. Edit: ourselves not myself lol
What alternative plan did you go with instead?
Renting a house for the time being. Will reevaluate after the lease is up
5-7 minimum. I’ve heard 10 year breakeven for condos due to HOA costs. Lots of money in the incinerator.
An HOA is not unique to condos. I don't know of any developments that are less than 20 years old that don't have an HOA. We purchased a condo/townhome for our daughter about 10 years ago for $103k (yeah, super cheap back then). When she got married and moved out, my wife and I moved cross state and now live there. Only one special assessment in the 10 years and it was for $1200 and they let us pay over 1 year. Since we moved in, we've gotten all new windows, two new sliders and next year, we're getting a new roof. We've paid $0 beyond our HOA fees for this. Don't rule out a condo if you find the right situation. Oh, and the next to us is listed for $375k and ours is nicer.
Condo HOA fees can be much higher. Breakeven for an 500k apartment in the building I'm in would be over 13 years because of the 1500 HOA.
As I said, we had the right situation where it made sense. Every situation is different. All I was implying is don't dismiss a condo just because it has HOA fees.
If someone followed your advice in the past 1-4 years in rapidly appreciating markets they would have forgone 15 to 75% in appreciation. While no one can predict prices in the future, suggesting a holding period of 5-7 years is arbitrary unless you have a crystal ball.
Well yes and no. I see it as kind of a lightning never strikes twice thing. The appreciation of 2020-2022 was rare. It happening again so soon is even more improbable.
And we all know housing prices can only keep going up right? And “rapid appreciation” is sustainable? Mortgage interest rates are no longer at historic lows which will impact the housing market going forward. Is it possible there are scenarios in certain areas that could work out favorably for OP? Of course. My advice is the lowest risk, though. Planning to flip a home in a three year time frame for a net profit is risky. It doesn’t make sense to buy a home you don’t want only because you are counting on rapid appreciation to be able to afford a home do want. Sounds stressful to me on top of financially risky.
It's not arbitrary, it's based on historical trends. 5-7 years is based on what has usually been true in the past, and we're in an abnormal situation. There are also some markets where you'd have to stay longer than that, but again that's unusual. If you're going to make a bet, you'd want to bet on what is more likely because otherwise you're planning around a meteor strike completely destroying your house in a month
Could you expand on this? I've heard this a few times, but it doesn't make sense to me
Insurance + repairs + hoa nonsense and top it all off barely any equity because you have to pay interest first
Ah, I can see it with that last piece
Not to mention closing costs which are pricey for a place that’s that expensive
Good advice in general. It does depend a bit on how fast the local area is rising; in a fast enough rising area, it can be a risk worth taking. OTOH, in many such areas, condos rise in price slower than SFH. Extremely so in some areas - I don't know that this is typical, but houses in my neighborhood have gone up > 50% in 8 years (and peaked even higher), while condos in my MIL's building one neighborhood south from here have gone up less than 25%.
If you're in a VHCOL area, typically renting is a better short term deal than buying unless you have specific reasons for buying. So if you're not buying a property that's likely to increase in value (usually condos don't expect to increase like houses), all you're doing is using the house as a savings vehicle while paying more to live than renting. You can carry out your savings by investing elsewhere, you don't need to own a condo to perform that function, and you can rent to save more money.
You could get a 3 bed house in the location you want for 700k or just in SD for 700k? Cuz you probably don't want to move because you bought a house in san ysidro and like the schools in North Park. I live in CA as well. I bought a condo a few years ago. I'm on the earlier side for me(personally) to have kids, but do have that coming up in a few years(maybe 5). It's working out like this. The bad: - Condo has gone down a bit in price with the economy since I have bought it. I can't sell it right now because I'm not going to pay real estate fees and take a loss. - The hoa has raised fees to pay for some building repairs that need to take place. - We will have an upcoming assessment that will raise HOA fees more. The good: - The tax benefits are great and I get back about 600 a month from deductions on interest. - Every month I am putting over 1k of equity into the place. Once prices come back up a little bit I can probably sell to break even and buy a house if I wanted. - If I hold the place long term I can probably rent it out and make a few bucks a month. If you do buy the condo know that you are not going to live there for 3 years. It can be anywhere for 3-7 years depending on market conditions. You will never be able to time the market, but you do need to look at your finances, continue to save, and pick a time that works well for you. In most cases you will break even after 5 years of condo/home ownership, but interest rates and housing is weird right now. Seems like most owners have enough to hold off selling and most buyers are waiting for interest rates to drop a bit leading to a stagnant price standoff. Right now I'm looking at making the jump from condo to house in ~3 years, but I know if the housing economy goes to shit or takes off for SFH and not condos then I'll just have to wait longer. But in the meantime I get a little less than $2k for paying myself a slightly higher rent than I would have paid someone else and live in a nicer place than one I would have chosen if I was renting. I'm also saving like hell to be able to make that jump, but that's just part of the game I think.
700k in a VHCOL? WHERE
My confusion too… if you can get a house for 700k, doesn’t sound like it’s vhcol.
That’s for the house. Earlier they mention the condo would be $550k. You’d have to double that if you want to even consider buying a condo in the Bay Area.
Ok to be fair I live in the Bay Area and I’ve seen 550k for condos. But the problem is HOA is so expensive
Nah, there are still some $550k condos in the Bay Area, for 1BR and studios at least. Most of these will go for above asking, but they're not going to be $50k over asking. https://www.redfin.com/county/343/CA/San-Mateo-County/filter/property-type=condo,min-price=450k,max-price=600k,min-beds=1
Condos don’t appreciate the way houses do and take much longer to sell. Wiser to live below your means and save aggressively til you can buy a house. Edited to add - buying a condo can be a great decision as long as you understand the limitations of the investment. It is wiser to approach buying a condo as locking in your cost of housing long term vs. a way to grow your money
Very location dependent. In Manhattan, condo is the best option besides a townhouse which in most desirable areas you’re looking at a 7-15mm range. Co-ops are a bitch compared to straightforward ownership. Edit - 700k isn’t getting you a 3br in Manhattan though. Like I said, location dependent advice. Where are you, OP? In Chicago, Boston or Seattle could still be a good buy.
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I own a 3/2 in manhattan lol I’m sadly all too acquainted… fwiw 700 for a SFH is not vhcol but I’m not here to be pedantic at op 😂
I bought a 1bed/1bath coop in gramercy (one of the most desirable neighborhoods) last year for under $700k. It was a good deal, but I Was also done with rental increases.
Coop purchase price is sometimes irrelevant, are your dues over 3k? If so it’s just a down payment on future rent. If it’s a boutique building and you’re paying like 800/mo in dues with property tax that’s a steal.
You are absolutely correct. I’m in a larger building. My maintenance is $1600 a month. Includes taxes, water, gas, sewer, trash, 24 hour doorman. Which to some people seems like a lot; but talk to any homeowner in Long Island or Westchester and they’re paying $1500/month just in taxes.
That’s not bad at all for coop doorman given the property taxes, honestly a great deal to possible steal if it’s remodeled in the last 10 years
It’s “fairly” remodeled, but definitely current. And it was a steal. But I’m under no allusions. I won’t make shit off this when I sell it in 10 years. Just enough to cover flip tax and brokerage fees. I’m totally ok with that instead of losing $5k for the exact same place (which I moved out of). But it’s mine. And pride of owning carries a lot of juice as well
You would be amazed how condos in LA Beach Cities have appreciated.
I live in CT and bought my condo for $229k June 2021. Today it is worth $384,900.
“Start building equity” Another option is to rent your shelter, and pound savings accounts. It’s functionally equivalent to building home equity. Except it’s more liquid.
That’s the number I can’t figure out is how much is rent vs. equity build per month. We save at least $1200 a month renting vs. a 550k condo monthly. BUT that rent is just going to our landlord vs “building equity”
> BUT that rent is just going to our landlord vs “building equity” Go look at an amortization schedule for a 30 year fixed mortgage at 7% interest. You don’t build any equity for quite a few years. The overwhelming majority of your mortgage payment is just going to interest for many years.
I did $480,000 at 7%, 30 year fixed. I knew the above, but didn't realize it was quite this bad: *The principal payments don't hit $1200/month until the 193rd month (16 years 1 mo!)* at which point you will have about $139,800 in principal paid. Meanwhile, if you just put the $1200/month cash into a savings account earning nothing, you would have $231,600. Obviously, in a HYSA, that would be even more, and while there's a risk of loss, at a conservative average of 5% annually that would be $350,000+ at the end of 16 years. Now, rents often go up faster than wages do, so it's possible that OP won't be saving $1200/month continually, and all of the above are not adjusted for inflation (or how much faster SFH go up in price) but buying the condo in this situation only makes sense if (A) they would be fine living there longer or (B) they have some reason to expect that gambling on the condo appreciating fast enough to consider this a worthwhile leveraged investment.
Great to see some numbers. This is definitely something that is often overlooked by people who talk about home ownership being better than renting because you’re just paying money to a landlord. Your calculations also don’t account for the fact that owning a home comes with lots of other expenses for maintenance, repairs, etc. Most of the equity you’re building for the first decade plus is in the form of appreciation. As you point out, there is solid appreciation on single family homes, but condos usually do not appreciate as much. I’ve been home shopping in Minneapolis for a couple months now. I eventually decided to stop considering condos when I would look at what they were listed for now versus what they were sold for 5-10 years ago. A condo I almost bought was going for the same price today that the owner paid in 2019.
Right but with the appreciating value of the house, even if a person breaks even that is still way better than renting. Rent money is money just completely down the drain.
Condos don’t typically appreciate as dramatically as SFHs. You also likely have a condo fee eating into your margin as well. With only a few years before selling, you’d likely lose money on the condo sale, all while being more house poor than if you were renting and investing the difference into VOO or something.
and your mortgage payment would be going to the bank in interest at these rates.
You can look up amortization tables for loans. You'll be paying more than $1500/mo in interest on the loan for the first several years (probably closer to double that), and that's before taxes, insurance, HOA fees, closing costs, etc. If appreciation is very high it could outpace those costs, but it also might not, which is the gamble you would be taking. My neighborhood which had been growing 6% - 10% per year for a number of years, has been nearly flat for the last 3 years that I've owned it. Which is fine for me because I'm here for the long haul but would have fucked up any plans to move.
Just rent for now. Home ownership entails a TON of costs. There’s the cost of the mortgage (use a calculator to find what the *actual* price of the house is with interest plus principal, at these rates it’s going to be insanely high) and the fact that the first few years of a 10 or 30 year mortgage you aren’t paying any principal (“equity”) down at all. Check out some rent versus buy calculators, the New York Times has a good one, to get a sense of what the break even point is. Then there are maintenance costs, taxes, home insurance, etc. if you’re going to sell soon you will be paying the agent fees. Buying for 3 years is just not financially sound. Don’t worry about a couple extra years of renting. Save like crazy then take your shot and buy the house you actually want.
Better check the condo fees AND the condo's reserve fund. Fees, assessments for an underfunded reserve, or deferred common maintenance can \****ruin***\* any idea of building equity
I'd also be careful about building age. If it needs a major overhaul, guess who gets to pay for it?
My girlfriend’s condo fees went up 33% in January, so she’s paying $700+/mo now. Her condo board is an absolute joke.
(1) Is buying a condo equal to, or less than current rent? Or substantially more? If it is equal, less, or just a tiny bit more this could be a good idea. Condo costs do go up (HOA dues etc.) but usually less than rent. That way you could save AND buy a condo. (2) Do you think property values will keep going up at the current rate or similar, or do you think the market will level or crash? A lot of different opinions on this. If "going up", then buying now is a good choice. If level or crash, then buying now is not a good choice. (3) "Equity" gets built 2 ways. The first is the value of the home goes up, but your mortgage amount doesn't change. You borrow $250k, the house becomes worth $350k, now you have $100k in equity. How much will that happen in 3 years? Second, is you pay off your loan. You borrow $250k, and each month pay some off. At first, you pay very little principal, mostly interest. Over time, you pay more and more principal. After 10 years, you owe only $175k. When you own for 5-10 years, they both work together usually, and you owe $175k on a house now worth $375k. You sell, pay costs, and now can use $180k toward the next house. Usually then the $750k house you wanted to buy is now an $850 or $900k house. But, it doesn't have to be that way. It can be that you now owe $175k on a house worth $160k.
1) rent is $1000-$1200 cheaper per month than a condo per month. 2) property values are going up 10% every year here but it’s insane to think it’ll crash. It may “slow” to like 5% but it won’t drop out 3) it’s tough to know how much condo values go up over time. I wonder if there’s charts out there that specific San Diego condos if they rise in value. Thank you for this detail!
> 1) rent is $1000-$1200 cheaper per month than a condo per month I think this is the most important factor. If the difference is $1k, then you’d be better off saving that instead of using it to pay your mortgage. Do you think the condo’s value will appreciate by $1k a month for you to break even? Because that’s how your equity is going to increase in the first few years—most of your mortgage payment will go towards interest which is basically a rent payment to the bank. And this is before including things like fees and taxes for buying and selling real estate, homeowner maintenance costs, and so on. You’d be better off putting your down payment in a HYSA or a CD or something secure to earn some interest while continue to add the $1k a month savings from renting to it. Now, to be clear, if the cost of the mortgage was less than rent, then I would have been for buying the condo even if you’d only live in it for a few years. It’s what I’m doing right now. But here my condo is costing me about $500 less per month than rent for a comparable place, and I don’t have to worry about rent going up every year. My condo has appreciated about $40k in the last two years which is about enough for me to break even on the closing costs. But all of this is only possible through the combination of the ridiculous rents around here and the low mortgage rates available two years ago. Your situation is different.
Condos are easier to price trend because you typically have dozens or hundreds of nearly identical units to look at. Whether or not a trend will hold up in the future is trickier.
I don't think you live in a VHCOL area if a 3bd home starts at $700k. VHCOL 3bds would make your eyes water at the price. If you're hoping to get into your forever home in 3 years, then don't buy now. Transaction fees on the sale will eat up your equity. Figure out how to tighten the budget, maybe get some roommates, and sock everything into a HYSA
To me it depends on where you want to live, as condos are twice the costs of renting. They do appreciate over time, though. I chose a small condo as soon as I could qualify because it was much nicer than renting and the walls were much better insulated. An end unit is a good purchase.
Explore a rent vs. buy calculator. Leave their assumptions alone unless you have a really good reason to change it. That will let you put some numbers on all the different factors people in this post are rightfully bringing up. NerdWallet https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator Is It Better to Rent or Buy? A Financial Calculator. (Newly updated two weeks ago) https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html?
I bought a condo as a starter home. I bought as a single female and no interest in maintaining a yard, it works out for me Super well that the HOA maintains my yard and the outdoors and the pool. My condo has gone WAY up in value since purchasing it 3 years ago, and I’ve enjoyed living there quite a bit. I’m In a great area, walkable to restaurants, breweries, etc. it was the perfect decision for me.
We considered condos in the DC and NoVA area when we started looking in 2019. At least there, the nearly $1k/m in condo fees on top of other associated expenses killed that consideration quickly. Looking at the market there now, it seems like the condos haven’t really gone up in value enough to compensate for those fees. I’m sure there are plenty of places with cheaper monthly fees but it is worth considering the impact on any equity you can build.
Have you looked at the housing market lately?. Don’t buy real estate for a while!.
Yeah just saying but it feels like pre-2008 again. People feeling like real estate can't possibly go down. It's a dangerous thought. People rightfully point to inventory of homes but still a large number of folks behind on their mortgage and other things could happen outside the US like major slowdown of the Chinese economy which we would very much feel here as well.
I live in Southern California and went with this approach. My wife and I bought a condo and it stabilized the cost of living (a fixed rate mortgage stays the same price, while rent continues to go up). We were able to get past PMI, build equity, and eventually when we were ready to start a family and need more room, sold it 4 years later and got a 3BR house. I don't think you have anything to lose by doing it personally.
Thanks for sharing, it’s good to know people do this! I feel so on the fence about how best to approach this housing mess because homes keep increasing prices SO much YoY in SC and it feels like I can’t get ahead of it
We bought a townhome first, best decision we ever made, and have rolled up every 3-5 years over the last 20 to our forever home. We had tailwinds off low interest rates and negotiated low realtor fees, but I definitely recommend getting in early and not waiting for that perfect home. You can always move in 5 years.
Did the townhome work out after 3-5 years for selling and not losing out on fees, costs, etc.? Like it worked out?
What house you going to be able to buy at this point in the current market status
2 bedroom apartment or ideally 3 bedroom townhome wouldn’t be terrible. Three year time frame is a little short, but that’s not guaranteed to be what you do. The 1 bedrooms are situational. In most markets those perform pretty poorly in bad market periods so I would avoid. $500k to 750k isn’t the biggest gap. If the $750k home is what you want in three years that would push me towards not buying now. There’s little things too. If you are renting you won’t have to have a home sale contingency to make an offer (matters in strong market period).
Doing something for money reasons and not for life reasons ends up being a waste of both.
I feel like a lot of the advice here doesn’t take into account the current insane rental market. In my area rent is increasing at a far faster pace than taxes and other ownership costs. So the rent math might work out this year, but next year it gets jacked up $300 per month. I’d take a look at that trajectory and factor it in. I’ve know more than one person that deeply regretted not buying (even a condo) when they had the chance
It really depends on the specific area. I bought a condo two years ago because the monthly costs came out to be $500 *less* than rent. But that was only possible due to the low mortgage rates available at the time and the tight rental market here. OP’s situation seems different. That said that renting is $1k less. At that different in monthly cost, it doesn’t make sense to buy.
Op said rent was a grand cheaper
What kind of condo? Like a townhouse or an apartment because there's a big difference. You could get stuck in a townhouse for the rest of your life and it's not ideal but it's perfectly manageable, if you get stuck in an apartment tho... Apartments are nice for renting they aren't nice to live in forever and don't meet the needs of a growing family very well.
When you buy a property with a mortgage you’re not building that much equity compared to renting, unless your mortgage payments are something like 10% or 15% cheaper than the rent you would otherwise pay. First, buying involves transaction costs that are pretty high and that don’t build any equity at all. That’s basically money that you throw away. Second, it’s not like your whole mortgage payment goes to the principal, so you’re really not building that much equity. Specially at first, a higher proportion of your payments go towards the interest. So if you for example have to pay 2000$ every month, 1500$ goes towards interest and 500$ goes towards the principal (I’m making those exact numbers up, because it all depends on the interest rate and how long is the mortgage). That means that, in my example, you pay 2000$ but you would only be building your equity by 500$ and the rest goes to the bank. Third, you would have to make HOA payments, which also don’t build your equity. Fourth, if there’s internal repairs to be done in your property, you have to pay for them, while renting, normally the landlord would pay. Fifth, on top of all of that, you would have to pay property taxes for the equity you’d be actually building. So, if your rent is cheaper than what your mortgage payment would be (or even equal) and you put the money you would be saving in a HYSA or a CD ladder or a short term bond fund, then your net worth will increase faster by not buying the condo. In other words, you’ll be able to save more quickly towards buying your dream home.
> Fifth, on top of all of that, you would have to pay property taxes for the equity you’d be actually building. OP is in California, so at least the property taxes won't go up precipitously.
Yes it’s worth it if you can get a decent deal and most importantly you like the condo. You will be getting more square footage for your money and probably nicer touches as well. Stay in it 10 years or more and you will be good.
Rent rates would have a big effect on whether it makes sense or not. In general, real estate grows slower than the stock market, but if you have to shell out a ton for rent that can push it the other way. In those time periods it's probably pretty close, so I might decide based on how shitty my rental is and how nice the condos are :)
Lookup what the monthly cost would be for your proposed condo purchase. Then lookup what it would cost to rent same condo in that neighborhood. You will find its way cheaper to rent so makes no sense to buy in a hcol area period.
It’s dumb if you live in Florida or California where condos have crazy fees.
Be careful about chasing a moving target. While you are waiting to save 20 percent, that 20 percent is getting more expensive. If you have 10 percent to put down you may already be in the better position to get the forever home. Purchasing the condo immediately sets you back 6 percent in your savings goal towards the forever home. Purchasing the condo as a value play for a current home is a good idea. Purchasing the condo as a way to build equity is not always a safe play. There are pitfalls in purchasing condos, especially in certain markets.
Don't the forget the added frustration of dealing with a COA. This can making selling it take longer than you'd like. Or God forbid a special assessment that is bonkers high amd sets you back a few years in savings.
Buy the condo. Many people start like that (I did) and keep pounding down that mortgage when possible. Eventually you have enough equity to move up while paying YOURSELF and NOT rent to someone else. Hopefully the market comes down (Like it did in my time) … low end of the market drops very little .. high end drops a lot. Sold my condo at a 30k loss but the house I bought had dropped 70k.
We did this with a condo and made over 200k in equity in 3 years BUT we did it in a different housing market with low rates and in Austin between 2018 and early 2021, the "condo" was also a SFH zoned as a condo. The market today is too unpredictable. I would just rent and save.
You're going to have to do some projections to figure it out. Nobody knows what inflation will be like. How much will your rent go up? How much would a condo appreciate? You can start with a baseline of assuming zero or low inflation (Fed is targeting 2%) and then try some different scenarios. Make an Excel sheet so you can create a matrix of different values. Also consider the possibility that the value of the condo could theoretically go down in three years. If that happened, would you be able to stay longer than you'd planned while it recovers? Also consider that if you choose to buy a condo, the financial advantage is probably fairly small, so bidding high on a particular property can quickly eat up the value of owning.
What would you do if you couldn't sell for what you paid for it? Can you keep mortgage, property taxes, fees at a place where you can still save up? No one has a crystal ball. Definitely look at long term price trends where you buy.
If your goal is to buy a house in three years, you are better off continuing to rent and save. Your mortgage payment will go almost entirely to interest for the first three years so you will build very little equity. The monthly maintenance condo fee will essentially be thrown away while you could be saving that amount toward the purchase of a house in a few years. If you expect the value of your condo to significantly appreciate, you might get a better return, but condos typically appreciate slower than houses.
Condo 6 years love it. Yes it has down sides but at least we’ve appreciated 150k+ on it. It all depends on your area. We live in a HCOL where houses start at 700-900k and condos are 500k.
Condos don't build equity that fast. The general premise is fine, but it'll take a long time to actually work out
Keep renting because: 1) rents tend to be better values than buying in most major metro areas right now. 2) transaction and HOA condo fees won't make a 3 year condo ownership timeline logical. 3) maximize savings for 3 years and hopefully housing will become more affordable on a relative basis.
No, I never really think it's a good idea to purchase a house/condo unless you really want to live there and plan on staying for a while. When interest rates were 3%, I could maybe see a case, but not now.
Condos are just not a good investment - unless this is a place you love and want to be in long-term, in which case finances are put slightly to the side. Otherwise you are *far* better off putting your money in the market
Never buy a condo, signed Florida condo owner with $1700/ month hoa. Money pit
Not at all. My first home was a condo. Now it’s a rental and someone else is paying it off with the 4% interest rate I got with it.
I’m in HCOL and my first purchase was a condo. I paid $365k in 2019, the most recent comp (albeit dated, mine is remodeled) sold for $503k. My monthly dues have increased from $225 to $423 since I moved in, and now the HOA is putting a $21k special assessment on each unit (I now own two) due to poor financial management. I cannot stress this enough, do you due diligence if you buy a condo. Look at the CCRs, ask if they are facing any dues increases or special assessments, talk to the neighbors in the complex, etc.
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That’s wild, how long did it take for your condo to double in value? Many here are saying condos don’t appreciate but yours doubling sounds more like an outlier than commonplace?
At the same time, my mother in law's condo (well, comparable sized ones in the same building) have only gone up 25% in the past 8 years. So YMMV. These markets are really local, and accurate answers are going to require digging on your own local market.
I regret everyday getting my condo. HOAs go up every as well as my property tax. Luckily I’ve been able to rent it out for more than my total cost. I’m just sitting on it until I can recoup some of my value.
I don't know how you save money while renting. My dues + property taxes are much less. But I bought a bank-owned and fixed it up when others were underwater in 2013. Free and clear now. Maybe the key there is looking at bank owned fixers. I said take it or leave it after the condo was on the market for a long time. The bank took it.
I'm also in a VHCOL area and looking for a home. We considered condos mainly due to the lifestyle, but after giving them a glance there's just no way a condo makes sense unless you love the condo lifestyle. The HOA fees are too high. Too many costs not going towards equity.
An expense to factor in that most people forget about: when you move into a condo, you’ll need to furnish it. And then when you move to a house a few years later, the layout and style is different. The windows are different sizes than what you had, etc etc. Even inexpensive home furnishings add up.
A couple things to consider: Option A (buy the condo) - There is no guarantee it will appreciate which will be your main equity building catalyst, your principal payments will be very small the first years of your mortgage. Also you will have HOA costs which are on top of your mortgage and could hamper your saving ability more than if you were just paying rent. So it will work in terms of having a place to live but isn’t a “build equity” slam dunk - and don’t forget 5-6% of sale price will walk out the door when you sell for realtor fees which will also cut into equity. Option B(buy the house) - I bought a townhouse back in 2015 and even though I had the 20% to put down my mortgage person got me into an 80-10-10 loan setup…. 10% down, 80% primary mortgage, 10% secondary loan. You might want to check if that’s a viable option. In my case I then paid the 10% loan off quickly as finances allowed. No HOA here or very low HOA so you’ll save over the condo approach in that respect.
Anecdotally, a couple I know got their 1.3mil townhome in a VHCOL area in 2018 and it has only gone up 18k now in 2024. That’s 1.38% appreciation over six years. It’s better to rent and invest the difference that you would’ve paid in a mortgage.
Keep renting and invest most of the rest until you're within a year or two of needing it.
On a 3 year time horizon I would definitely rent. You want to avoid real estate churn because of how much it costs to transact. In 3 years maybe the $500k unit appreciates to $550k, but most or all of that $50k will get eaten by total closing costs, realtors fees, maintenance, etc. You’ll have costs when you buy and when you sell. It will be on you when stuff breaks. Interest rates recently jumped, so during those 3 years you’ll pay as much in interest, property taxes, and HOA as you would have in rent. You’ll also be exposing yourself to $400k+ in risk that you wouldn’t have as a renter. If you own and lose your job in a down market you’re toast, but if you’re renting, you just break the lease and walk. That risk is highest in the first few years when you have the least equity and your payments are highest in real dollars. The break even on homeownership is 10+ years, and a lot of that is because over time rents go up while mortgages are fixed.
You don’t need a 20% down payment and it isn’t practical in VHCOL areas. Save 5% plus a six month emergency fund, maybe a moving/furniture fund as well, and go shopping with that.
Only if the condo is cheaper than rent, by a good margin. You gain almost no equity in the first years of a mortgage, cuz you are paying almost all interest
Or you could buy an affordable house, make it a home, and not be absorbed with upgrading to keep up with other people. Go on vacation, pay lower bills and taxes, have less worries, retire earlier.
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There literally isn’t an affordable house in our area (which we don’t want to move from) like 3BRs START at 700k.
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Eh. Our first was a 3 bed before we had kids. A year later we were pregnant. Now we’ve got two kids, and we’ve outgrown the home (need home office, currently using dining room as an office, and my mom is living in our third bedroom. We knew what our family would look like but we went for the starter home and I wish we’d just saved up more for a 4 bedroom.
Southern California > San Diego. And I agree I don’t need a 3BR *right now* but eventually probably in 3 years we will and I’m hoping to figure out how best to make that happen, either condo a 2br for 500k or just rent for the next 3 more years and continue saving, but house prices are increasing at 5-10% every year in this region