Buying an apt instead of a SFH: When is it worth it?

[SketchMaster]

I was debating buying a home, but I've decided that I'm not ready put down roots and that renting for the next few years will be a better investment.

While I was trying to decide, I noticed a lot of Condo/Apts for sale (not rent) around Austin. I'm used to more rural towns where anything less than a SFH was a "bad investment". Seeing all these Apts for sale got me wondering... If you live in a major city, would buying a condo/apt make more sense than a SFH?

Let's play around with the hypothetical. Here're my thoughts on buying a Condo/Apt instead of a SFH:

Pro:
-Downtown location means wicked awesome commute to work
-Exterior is maintained for you
-Complex may have nice bonuses (gym, pool, etc...)
-Potentially have an awesome view/location
-Cheaper initial investment than a SFH in the same area
-If the City grows and the housing market rises steadily, you may have quite the ROI in a few years

Con:
-No yard
-Small spaces (most places for <180K had a max of 700Sqft in the heart of ATX, going a few miles out gave you more room)
-High $/Sqft
-Most places leave you with the responsibility of repairing/maintaining the unit
-All the headaches of apt life (loud neighbors, getting large items in/out)
-Value drops much faster/lower than a SFH if the market wobbles

So, dear experts of ATOT, what are your thoughts on the matter?

 

[Newell Steamer]

This is my thinking: if your mortgage in buying the apartment is = to the rent in the area, buy an apartment.

 

[z1ggy]

If you're not ready to "put down roots", then don't buy anything, regardless of it's a house or condo.

I'm learning the hard way right now with that. Bought a house 4 years ago, thought it'd be easy to sell whenever I wanted. So far, house has been on the market for almost 8 months.

 

[K1052]

Depends a lot on how many years you're looking to stay put.

That said they are entirely different styles of living. I prefer condos since I don't have a 1-2 hour one way commute like some of my coworkers and enjoy the minimal maintenance.

 

[SketchMaster]

If you're not ready to "put down roots", then don't buy anything, regardless of it's a house or condo.

I'm learning the hard way right now with that. Bought a house 4 years ago, thought it'd be easy to sell whenever I wanted. So far, house has been on the market for almost 8 months.

Indeed. I'm not going to buy anything, just thought it would be fun to see what people thought of it.

Sorry to hear about the house, I've heard your story from a lot of friends that bought after the bubble burst and realized it wasn't the investment they thought it was. Buying makes a lot of sense when you're in your early to late 30s, married, and have/expecting kids. It's not a good deal if you're in your mid to late 20s, single, and want to take that new Job out of state.

 

[z1ggy]

Indeed. I'm not going to buy anything, just thought it would be fun to see what people thought of it.

Sorry to hear about the house, I've heard your story from a lot of friends that bought after the bubble burst and realized it wasn't the investment they thought it was. Buying makes a lot of sense when you're in your early to late 30s, married, and have/expecting kids. It's not a good deal if you're in your mid to late 20s, single, and want to take that new Job out of state.

Yep. At the time I was young and a lot more ambitious. I was also living with my ex Gf at the time and thought buying was safe. My life changed a lot obviously in the past few years and I didn't really account for that, although I should have.

My advice would be, unless you are buying a very "hot" property in a populated area, to stay away from buying. Even then, something shitty could happen and you lose a bunch of the value you thought you had.

 

[Red Squirrel]

It's crossed my mind to buy an apartment when I was looking for a house but from what I've been told it's not worth the hassle. Problem is the laws are always on the tenant side. You can get lucky and get good tenants, or you can get deadbeats that keep trashing the place and not paying their rent, and you can't even do anything about it. I know someone who is in that situation, she has this drunk guy that always ends up letting the water overflow from the sink or do other stupid crap, and he never pays his bill either, and she can't evict him. She tried. As long as he pays a few dollars here and there it basically "resets" the counter. The whole process takes years and by the time you pay for lawyers and stuff and not even fixed the place yet, you lost a ton of money.

Though if you price it slightly higher than the norm for the area you may be able to filter out the deadbeats.

I would buy a house/apartment as fast as you can though, as long as you are renting you are not paying down anything. But once you get a place that you own then at least your payments are contributing to something that will eventually be paid off.

 

[ultimatebob]

If you're not ready to "put down roots", then don't buy anything, regardless of it's a house or condo.

I'm learning the hard way right now with that. Bought a house 4 years ago, thought it'd be easy to sell whenever I wanted. So far, house has been on the market for almost 8 months.

I hear that! I bought a condo, lived there 7 years, and ended up having to short sell it for less than half of what I paid for it when I needed to move to a new area.

I learned two lessons there... never buy at the top of a real estate bubble, and don't buy something unless you're pretty sure that you want to live there for a decade or more.

 

[SketchMaster]

It's crossed my mind to buy an apartment when I was looking for a house but from what I've been told it's not worth the hassle. Problem is the laws are always on the tenant side. You can get lucky and get good tenants, or you can get deadbeats that keep trashing the place and not paying their rent, and you can't even do anything about it. I know someone who is in that situation, she has this drunk guy that always ends up letting the water overflow from the sink or do other stupid crap, and he never pays his bill either, and she can't evict him. She tried. As long as he pays a few dollars here and there it basically "resets" the counter. The whole process takes years and by the time you pay for lawyers and stuff and not even fixed the place yet, you lost a ton of money.

Though if you price it slightly higher than the norm for the area you may be able to filter out the deadbeats.

I would buy a house/apartment as fast as you can though, as long as you are renting you are not paying down anything. But once you get a place that you own then at least your payments are contributing to something that will eventually be paid off.

If I would buy, I would not do it to rent it out. This would be a place to live.

If you're talking about the potential hellish neighbor, that is a very real risk when buying a condo/apt.

 

[ultimatebob]

If I would buy, I would not do it to rent it out. This would be a place to live.

If you're talking about the potential hellish neighbor, that is a very real risk when buying a condo/apt.

I was lucky that my condo neighbors on either side of me were cool. They both had little "yip yip" dogs that I could hear outside, but they were friendly.

What wasn't cool was the ever increasing common charges. They were almost $300 a month by the time I left, and that really only covered exterior maintenance. We didn't have anything nice like a pool or tennis court or anything like that.

 

[Imp]

Buying makes a lot of sense when you're in your early to late 30s, married, and have/expecting kids. It's not a good deal if you're in your mid to late 20s, single, and want to take that new Job out of state.

When I hit my 20s and got out of college, the only thing I seemed to want to do was buy a house. Why? Because my parents, and society, told me that it was a sure sign that I was grown up and independent. And I wanted to show all my friends and family that I was grown up... because that would make me happy, right?

5 year ago me = intellectually disabled

 

[NaughtyGeek]

I would buy a house/apartment as fast as you can though, as long as you are renting you are not paying down anything. But once you get a place that you own then at least your payments are contributing to something that will eventually be paid off.

It gets under my skin when I see statements to this effect. That statement is only true if you stay through the duration of a mortgage. I got fed the line of "if you're paying rent you're wasting money" for long enough that I finally caved and bought a house. Of course life reared its ugly head and I was put in a position of having to sell after being there for over 6 years. Guess what I had to show for my mortgage payments? A bill for $70,000 if I wanted to sell and a rental market so soft I couldn't rent it out for half of what the mortgage was. I wish I had a box of rent receipts instead myself.

 

[DrPizza]

It gets under my skin when I see statements to this effect. That statement is only true if you stay through the duration of a mortgage. I got fed the line of "if you're paying rent you're wasting money" for long enough that I finally caved and bought a house. Of course life reared its ugly head and I was put in a position of having to sell after being there for over 6 years. Guess what I had to show for my mortgage payments? A bill for $70,000 if I wanted to sell and a rental market so soft I couldn't rent it out for half of what the mortgage was. I wish I had a box of rent receipts instead myself.

No, it's not necessary to stay for the duration of the mortgage. But, buying at a time when property values are artificially high does bring on a risk of losing your shirt. Lessons learned in the housing collapse don't necessarily apply to all markets all the time. Newell Steamer seems closest with the advice, though you have to factor in the up front costs, thus would need to be assured of staying for at least a few years. I live in an area where rent for a whole house is occasionally 20-30% more than what the mortgage would be on that property. Unless there's a reasonable chance of moving during the next 4 or 5 years, it's foolish not to buy something.

 

[Ham n' Eggs]

if the market has been on the rise for a long time then odds are your in a bubble. Interest rates are at rock bottom and the economy is running on zero-interest rate borrowing (for corporations and banks). The FED is terrified to raise the interest rate even a tiny fraction lest it send the economy into a tailspin. The FED has recently floated the possibility of negative interest rates. Low interest rates are great for home buyers, but they also help to prop up housing bubbles and the banks are so insanely over-extended that the FED has lost all ability to influence the economy through interest rate manipluation. Do you really want to buy an apartment right now? Another thing about apartments is that everyone in the building has one just like yours. Economy starts tanking and prices dropping and you're going to have a building full of people with the same property trying to undercut your sales price in order to escape from the crashing market. best of luck if that happens

 

[lxskllr]

When I hit my 20s and got out of college, the only thing I seemed to want to do was buy a house. Why? Because my parents, and society, told me that it was a sure sign that I was grown up and independent. And I wanted to show all my friends and family that I was grown up... because that would make me happy, right?

5 year ago me = intellectually disabled

I was told drinking scotch was a sign of being grown up. I can live with that. That has little baggage :^D

 

[gururu2]

I would only advise renting if you are single, under 35 and love your high paying job but aren't necessarily committed. That means that despite the rent, you are stacking cash fast, perhaps enough to pay cash for the home of your dreams wherever it may be in 4-5 years. This is all about your money and dreams.

I would only advise buying an apt/condo if you plan to be a bachelor for the 5 next years with the same job and need some stability in your hectic 60 hour a week career driven life. This is all about your mental health.

I would only advise buying a sfh if you are married or single over 35, can handle a 45 minute commute, love your high paying or wife's high paying job, having kids and pets, are handy, like housework and want to drink beer and watch sunday football in quiet suburbia. This is all about your mental health and your dreams.

 

[Childs]

Depends on the HOA fee. Around here its not uncommon for the fees to range from $300 to $600 per month for $500K condos.

 

[zCypher]

Buying vs renting always has a certain monetary point where one is more worth it than the other. There's no such thing as one that is always better than the other in all circumstances, so ignore anyone that says any such nonsense.

Once you've crunched the numbers to see which one makes more financial sense, the rest is more of a personal decision than anything else. There are pros and cons to each, and it really depends on your needs and your lifestyle. In my case, I don't need a lot of space for now. My rent costs me significantly less than the total amount of unrecoverable home ownership expenses that are not going towards building equity. So it's financially better, in my circumstances.

I would definitely consider buying regardless, but a big part of that is as you pointed out, about putting down roots. Living in my apartment gives me a lot of flexibility. I can leave more or less whenever I want, it will be very very little hassle. If I decide to travel for an extended period of time, my rent is so cheap that I could afford to hold on to my apartment for quite some time without needing to worry about it.

So the "when is it worth it", financially, would be when the total cost of unrecoverable home ownership expenses are cheaper than the rent in the area. It doesn't make much sense at all to compare mortgage payment to rent payment, since they're two totally different things, and the *overall* expense of owning a home is always going to be higher, but the idea is that it would be worth it.

So, if your total sum of property/school taxes, utilities, electricity, heat, hot water, any HOA/condo fees etc = less money than rent, then it makes good sense to buy, in terms of dollars, if your financial situation permits.

 

[SketchMaster]

Good conversation so far. There are a lot of good points here, on buying vs renting.

I tweaked my OP to reflect more of what I was going for: When would you buy a Condo/Apt over a SFH?

 

[Imp]

So, if your total sum of property/school taxes, utilities, electricity, heat, hot water, any HOA/condo fees etc = less money than rent, then it makes good sense to buy, in terms of dollars, if your financial situation permits.

Understanding that it's just a rough guideline and not a perfect cost-benefit analysis, that sounds reasonable to me.

The downpayment is another big consideration though, specifically the opportunity cost. If you were to put 20% down on a $300k home, that's $60k that can be earning ~5%/year. That's $3k or maybe two to three months of rent.

Also, closing costs can get pretty big (e.g. lawyer, moving, land transfer tax, commission). If you're in a stagnant market, that can take a pretty big bite out of you even if your home didn't lose value.

 

[Red Squirrel]

It gets under my skin when I see statements to this effect. That statement is only true if you stay through the duration of a mortgage. I got fed the line of "if you're paying rent you're wasting money" for long enough that I finally caved and bought a house. Of course life reared its ugly head and I was put in a position of having to sell after being there for over 6 years. Guess what I had to show for my mortgage payments? A bill for $70,000 if I wanted to sell and a rental market so soft I couldn't rent it out for half of what the mortgage was. I wish I had a box of rent receipts instead myself.

I guess it depends on your goal in life. Personally I bought a house with the intention of staying here for a long time and settling. It's a lot of work to move, I don't intend on doing it more than I have to. Even if somehow the value was to drop, yeah it's a kick in the face to know that I could have bought it for much cheaper if I waited or that I wont get much if I do sell, but w/e, I'd just keep making the payments. If it comes back up, great, if not, oh well, a house's primary purpose is to have a place to live, the fact that it can be an investment is a bonus.

And yeah the upfront cost is something to consider, it's always going to be more expensive to buy a house, but it's a price you pay for more independence. (not having shared walls, being able to modify it etc) so it depends how much that matters to you.

 

[Imp]

I guess it depends on your goal in life. Personally I bought a house with the intention of staying here for a long time and settling. It's a lot of work to move, I don't intend on doing it more than I have to. Even if somehow the value was to drop, yeah it's a kick in the face to know that I could have bought it for much cheaper if I waited or that I wont get much if I do sell, but w/e, I'd just keep making the payments. If it comes back up, great, if not, oh well, a house's primary purpose is to have a place to live, the fact that it can be an investment is a bonus.

To be fair, you live in Timmins so you probably get a big lot, lots of open/green space, and relatively low property prices:thumbsup:.

 

[Red Squirrel]

To be fair, you live in Timmins so you probably get a big lot, lots of open/green space, and relatively low property prices:thumbsup:.

I have a fairly small lot but houses here are a decent price at least compared to the 1mil+ like in the south. That's insane. Even here houses have been going up in price though but it's not as bad. Mine was 165k, now worth 220k or so.

My dream is to eventually find a big lot out of jurisdiction by a lake and go mostly off grid though, that would be awesome. I'd want to bring in internet but do my own power/water/sewage treatment etc. Maybe if I win the lotto and no longer have to work.

Actually another thing to consider when you own is taxes, that's kinda like paying rent, it's money that you'll always have to pay no matter what, and it will keep going up each year.

 

[TheGardener]

You also left out not having to mow the lawn, repair the roof and paint the house. Well that depends I guess. Maybe you'll get your parking space plowed out, and a big whoop if you don't even have to shovel the white stuff. The differences are huge. Depends on what your lifestyle is and what kinds of compromises you are willing to make. Condos come with lots of rules beyond municipal ordinances. Also be careful of how many of the units are rented out. Makes a huge difference when you buy and when you sell.

 

[drinkmorejava]

You listed a bunch of qualitative factors. Personally, when I bought my condo it was because it was cheaper than renting in Boston. I ended up only living there for two years, and now I'm renting it out at 150% of costs.

I'd say there is enormous benefit to really figuring out the costs, because even if you don't enjoy the place, it can put you in a very good (or bad) financial position. I also knew I wasn't going to stay for five years, which meant I would be violating one of the traditional rules of thumb. It really came down to what the health of the Boston market was, the resilience it had in 08, and spending a shit ton of time building cost models. It turned out that a 7 year interest only loan was the most cost effective for me--low monthly payments made the cash flow on renting extremely positive, and the benefits (lower interest rate, owning more principal for appreciation) offset the opportunity cost of a higher down payment. The 7 year fixed APR also lined up well with my intentions to sell it at some point rather than keeping it indefinitely.

But maybe you really just want a place that will make you happy...I'll tell you how to do that if I ever figure it out