Advice on Buying Condo

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Topic Author
cwk328
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Joined: Tue Jun 16, 2020 7:34 pm

Advice on Buying Condo

Post by cwk328 »

Hi all, looking for your advice on my situation and thoughts on the numbers. Long story short, wife and I purchased a house that had some issues come up during inspection and we backed out. Like everyone else right now, this was about our 10th offer and really one of the only homes that we found that we liked. We’re tired of fighting this market and looking at other possibilities.

We live in Chicago where housing market is crazy but condo market is not — and is actually very affordable right now. We were thinking about buying a cheaper condo now that is far under our budget, living in it for 1-3 years, and then keeping it as an investment property when we then do buy a home.

The condo we are looking at is in a very desirable neighborhood (Gold Coast, if familiar) and is in a historical building. There are four units in the building, and the unit right below the one we are looking at is comparable and rents for about 4500/month as a 3 bed 2 bath at 1800 square feet. The unit we are looking at is also 3/2 but is 2000 square feet. The mortgage on the condo would be about 3k including HOA, but I think the condo needs about 30k in upgrades. This would be our first home purchase.

Ok so numbers:

Age:
30 (husband) 29 (wife)

Income:
375k base + 50k guaranteed bonus for wife (usually more like 70)
Wife’s job is extremely stable and represents 300k of base, and will go up another 100 or so in the next 2 years. My career is just getting started after PhD

Debt:
600.00 car payment per month (I know, pay this off)

Retirement:
Wife = 150k in 401k and 15k in IRA
Husband = 10k 403b and 25k in IRA

Savings:
12K in taxable (ITOT and IXUS)
200k in HYSA for down payment. Would use about 60% of this for 20% down on condo.
5k in iBonds

I know that realistically we can afford to buy the condo and then buy a house again in 3 years or less, but as a first time home buyer, I’m a little hesitant to plan on essentially buying two homes at once with one being a full time rental. We are also planning on starting a family in the next 2 years.

I know that’s a lot, thanks for any advice or insight you might have!
THY4373
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Re: Advice on Buying Condo

Post by THY4373 »

cwk328 wrote: Mon Jun 14, 2021 7:28 pm We live in Chicago where housing market is crazy but condo market is not — and is actually very affordable right now. We were thinking about buying a cheaper condo now that is far under our budget, living in it for 1-3 years, and then keeping it as an investment property when we then do buy a home.
I would only do this if renting the condo makes financial sense right now and you want to be landlords. You need to crunch those numbers and also make sure the condo can be rented (some HOAs limit the number of condos that can be rented for example). I also would not be surprised if rents are similarly depressed since I imagine the same trends are that are keeping condo prices down are doing the same to apartment rents. Personally unless you really want to be a landlord I see no reason to purchase a condo know if your heart is set on buying a house in a 1-3 year horizon. Keep renting and saving in my book.
delamer
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Re: Advice on Buying Condo

Post by delamer »

If you can’t see yourself living in the condo for at least 5 years, then don’t buy it.

The residential housing market, including mortgage interest rates, simply isn’t predictable.

At the risk of geezering, my first mortgage — also for a condo — was 12.75%. Not 2.75%, 12.75%.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
cwk328
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Re: Advice on Buying Condo

Post by cwk328 »

THY4373 wrote: Mon Jun 14, 2021 7:46 pm
cwk328 wrote: Mon Jun 14, 2021 7:28 pm We live in Chicago where housing market is crazy but condo market is not — and is actually very affordable right now. We were thinking about buying a cheaper condo now that is far under our budget, living in it for 1-3 years, and then keeping it as an investment property when we then do buy a home.
I would only do this if renting the condo makes financial sense right now and you want to be landlords. You need to crunch those numbers and also make sure the condo can be rented (some HOAs limit the number of condos that can be rented for example). I also would not be surprised if rents are similarly depressed since I imagine the same trends are that are keeping condo prices down are doing the same to apartment rents. Personally unless you really want to be a landlord I see no reason to purchase a condo know if your heart is set on buying a house in a 1-3 year horizon. Keep renting and saving in my book.

Thanks for this. We actually are interested in owning investment properties, but, as you’ve said, we may be more interested in this now than we would normally be just because of the situation.

The HOA does not seem to have any rental restrictions, but that would obviously be something we’d look much more closely into.

Rent in the building has been between 3000 and 5000 a month for the smaller (1 bed 1 bath) and larger units (3/3) respectively for about the pst 5 years. I should mention that we previously looked at renting in this building 3 years ago, so we do have some idea of the rent/tenants.

Thanks again.
Topic Author
cwk328
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Re: Advice on Buying Condo

Post by cwk328 »

delamer wrote: Mon Jun 14, 2021 7:49 pm If you can’t see yourself living in the condo for at least 5 years, then don’t buy it.

The residential housing market, including mortgage interest rates, simply isn’t predictable.

At the risk of geezering, my first mortgage — also for a condo — was 12.75%. Not 2.75%, 12.75%.
Ouch. 2.70 is about what we’re getting quoted.
delamer
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Re: Advice on Buying Condo

Post by delamer »

cwk328 wrote: Mon Jun 14, 2021 7:54 pm
delamer wrote: Mon Jun 14, 2021 7:49 pm If you can’t see yourself living in the condo for at least 5 years, then don’t buy it.

The residential housing market, including mortgage interest rates, simply isn’t predictable.

At the risk of geezering, my first mortgage — also for a condo — was 12.75%. Not 2.75%, 12.75%.
Ouch. 2.70 is about what we’re getting quoted.
Ouch is right!

My point was that in 2 years, say, you have no way of knowing what mortgage rates will be or what housing prices/availability will look like.

So you need to be prepared to stay where you are if moving isn’t feasible on your preferred time frame.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
cwk328
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Re: Advice on Buying Condo

Post by cwk328 »

delamer wrote: Mon Jun 14, 2021 7:57 pm
cwk328 wrote: Mon Jun 14, 2021 7:54 pm
delamer wrote: Mon Jun 14, 2021 7:49 pm If you can’t see yourself living in the condo for at least 5 years, then don’t buy it.

The residential housing market, including mortgage interest rates, simply isn’t predictable.

At the risk of geezering, my first mortgage — also for a condo — was 12.75%. Not 2.75%, 12.75%.
Ouch. 2.70 is about what we’re getting quoted.
Ouch is right!

My point was that in 2 years, say, you have no way of knowing what mortgage rates will be or what housing prices/availability will look like.

So you need to be prepared to stay where you are if moving isn’t feasible on your preferred time frame.
Yes, I understand. And living in the unit for a longer period of time would be doable but would probably not be preferable. My wife and I both work from home multiple days per week, and we’ve got two dogs. If we have 1-2 kids in the next 3-5 years, the 4th floor condo is going to be tight. Thanks again.
alex_686
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Re: Advice on Buying Condo

Post by alex_686 »

I would vote against.

3 years is too short of a time period for buying.

Condos tend not to be strong rental investments. Returns tend to be sub-par.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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cchrissyy
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Re: Advice on Buying Condo

Post by cchrissyy »

I think you're fine with buying a condo or a house, whatever you prefer, but I think it's a mistake to knowingly buy a rental that doesn't make profit. The qualities a person looks for in a long run investment property are simply not the qualities you need in a primary residence. 4500/m rent sounds strong but you don't say the purchase price. I'm deducing from your down payment that it's about 600k. That is not a good enough return.
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davibi02
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Re: Advice on Buying Condo

Post by davibi02 »

My first home purchase was a condo because it was the only thing I could afford. I expected to be there for a year or two and turn it over for a bit more money after my wages increased enough to allow me to buy a "real" home. I won't recount the countless horrors, but I'll say I'm still there 14 years later.

I would never buy a condo again. And I tell anyone that asks for my advice to never buy one either.
Topic Author
cwk328
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Re: Advice on Buying Condo

Post by cwk328 »

cchrissyy wrote: Mon Jun 14, 2021 8:31 pm I think you're fine with buying a condo or a house, whatever you prefer, but I think it's a mistake to knowingly buy a rental that doesn't make profit. The qualities a person looks for in a long run investment property are simply not the qualities you need in a primary residence. 4500/m rent sounds strong but you don't say the purchase price. I'm deducing from your down payment that it's about 600k. That is not a good enough return.
Thanks for this, very helpful. And yes, the price is 605
Topic Author
cwk328
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Re: Advice on Buying Condo

Post by cwk328 »

davibi02 wrote: Mon Jun 14, 2021 8:35 pm My first home purchase was a condo because it was the only thing I could afford. I expected to be there for a year or two and turn it over for a bit more money after my wages increased enough to allow me to buy a "real" home. I won't recount the countless horrors, but I'll say I'm still there 14 years later.

I would never buy a condo again. And I tell anyone that asks for my advice to never buy one either.
Would you mind sharing the reason(s) that you’re stuck? I assume it’s not just because your wages never increased.
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davibi02
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Re: Advice on Buying Condo

Post by davibi02 »

cwk328 wrote: Mon Jun 14, 2021 8:44 pm
davibi02 wrote: Mon Jun 14, 2021 8:35 pm My first home purchase was a condo because it was the only thing I could afford. I expected to be there for a year or two and turn it over for a bit more money after my wages increased enough to allow me to buy a "real" home. I won't recount the countless horrors, but I'll say I'm still there 14 years later.

I would never buy a condo again. And I tell anyone that asks for my advice to never buy one either.
Would you mind sharing the reason(s) that you’re stuck? I assume it’s not just because your wages never increased.
I bought April of 07, not too long before the RE crash. It wasn't until 2019 that my place was worth as much as I paid for it. On top of that we've have two special assessments totaling 75k. My own personal code of ethics meant a short sale was off the table. (I could afford my mortgage, and I agreed to pay it when I signed the papers.) I wasn't able to afford keeping a mortgage on my place and buy elsewhere, so I missed the dip in prices. Now I have a condo which Zillow says is worth what I've put into it (original cost + special assessments), but home prices have EXPLODED where I live in the Seattle area.

I don't like that I am reliant upon other people to keep up on maintenance (which they don't, hence the special assessments).
I don't like people making rules which I have no ability to change.
I don't like that shared plumbing has flooded my place twice.
My upstairs neighbor is a hoarder. (Of rotten food!)
Another ex-neighbor was literally crazy and tried to murder her neighbor and burn our units down.
We had a SWAT team break into another unit two doors down for selling meth.

It's a quaint city, and this complex is (was?) NOT some crime-ridden ghetto. I researched the complex before I bought in. Very minimal police calls, etc... but you can't pick your neighbors, and things change.

The reasonable people are, frankly, oppressed by the HOA rules. And the unreasonable people... well... can't be reasoned with.

I plan to move out of state to be closer to family in about a year, so I'm just sticking around until the time comes. Meanwhile, prices are going up where my family lives! I hope the timing works out a little better for me this time around. :)
Topic Author
cwk328
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Re: Advice on Buying Condo

Post by cwk328 »

davibi02 wrote: Mon Jun 14, 2021 9:49 pm
cwk328 wrote: Mon Jun 14, 2021 8:44 pm
davibi02 wrote: Mon Jun 14, 2021 8:35 pm My first home purchase was a condo because it was the only thing I could afford. I expected to be there for a year or two and turn it over for a bit more money after my wages increased enough to allow me to buy a "real" home. I won't recount the countless horrors, but I'll say I'm still there 14 years later.

I would never buy a condo again. And I tell anyone that asks for my advice to never buy one either.
Would you mind sharing the reason(s) that you’re stuck? I assume it’s not just because your wages never increased.
I bought April of 07, not too long before the RE crash. It wasn't until 2019 that my place was worth as much as I paid for it. On top of that we've have two special assessments totaling 75k. My own personal code of ethics meant a short sale was off the table. (I could afford my mortgage, and I agreed to pay it when I signed the papers.) I wasn't able to afford keeping a mortgage on my place and buy elsewhere, so I missed the dip in prices. Now I have a condo which Zillow says is worth what I've put into it (original cost + special assessments), but home prices have EXPLODED where I live in the Seattle area.

I don't like that I am reliant upon other people to keep up on maintenance (which they don't, hence the special assessments).
I don't like people making rules which I have no ability to change.
I don't like that shared plumbing has flooded my place twice.
My upstairs neighbor is a hoarder. (Of rotten food!)
Another ex-neighbor was literally crazy and tried to murder her neighbor and burn our units down.
We had a SWAT team break into another unit two doors down for selling meth.

It's a quaint city, and this complex is (was?) NOT some crime-ridden ghetto. I researched the complex before I bought in. Very minimal police calls, etc... but you can't pick your neighbors, and things change.

The reasonable people are, frankly, oppressed by the HOA rules. And the unreasonable people... well... can't be reasoned with.

I plan to move out of state to be closer to family in about a year, so I'm just sticking around until the time comes. Meanwhile, prices are going up where my family lives! I hope the timing works out a little better for me this time around. :)
Wow, I’m sorry to hear about all that. Hopefully it works out for you. Thanks for sharing.
Modelslashactor
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Re: Advice on Buying Condo

Post by Modelslashactor »

I live in a condo in Chicago in a different neighborhood and was in a very similar situation as you when I bought. Biggest problem with the Gold Coast is the insane assessments (2-3k/mo) - hopefully this means no special assessments and that literally everything is covered (electric, gas, HVAC, 24 hr maintenance, internet/TV, etc). If so then, while still excessive, at least you’re getting something in return. In your case in a smaller building maybe this doesn’t apply. Extra questions that would help make your decision:

-when is tax reassessment time? You can usually expect a hike in Cook County each time, sometimes 10-20%, not to mention having to pay a lawyer to negotiate down
-what is the special assessment history? Will you have to do masonry/roof upkeep or is that covered in monthly fees? Are the windows old and potentially in need of replacement? These are big ticket items that can be serious with our winters.
-do you get parking or do you have to buy/rent a spot?
-read the condo board minutes closely and look for red flags about upkeep or problems
-old buildings are not well sound insulated. Try to spend some time in the unit to see if you’ll hear neighbors, traffic etc

In general I would not buy unless you plan to stay at least 7 years. Chicago property appreciation has been worst of any metro in the country the past few years due to declining population and unfavorable tax environment. You can’t count on an increasing price and the transaction costs will eat the 3 years of equity you put in. Agree with others that small condo buildings don’t tend to be the best rentals.

It’s a beautiful neighborhood though.
word
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Re: Advice on Buying Condo

Post by word »

West Looper in a timber/brick loft here that purchased a 3bdrm this month. We plan to live in it long term.

Agree with the previous poster, you'll want to understand the state of the building. Even newer stuff can be poorly built and thus need work that totals 100k+. In a historical building like you note... well when was the last time the roof was replaced? What about the HVAC (10k expense if just for your unit)?

Honestly, I wouldn't buy an investment property in Gold Coast, but that's just me. The property cost is going to be quite high for the return. When renting you're going to want to put 10% at least away for normal repairs, that alone is $450/month. Combined with potential vacant months will eat any potential profit.
mrsgoldilocks
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Re: Advice on Buying Condo

Post by mrsgoldilocks »

As an real estate investor myself (I have 4 SFH rentals), I strongly against buying condo.

1. condo doesn't appreciate as much as SFH or townhomes.
2. Condo fee is eating too much into the profit. and you have no control how the condo association going to use the money and who they will hire. But of course, if your building is only 4 units, it may be easier. And your condo fee will not go down. It will only go up and up.
3. in terms of financing, if your building renter vs owner ratio reaches certain point, you may have a hard time to finance the property. meaning your buyer will also have a harder time to finance it. At least that the case I heard about in MD.
4. particularly to your building, since you mention it's historical, do you know if there is any restriction on the house renovation. for example, when you want to replace windows, you may be limited to a high end at least $1,500 wooden window due to the building code for the preservation of the look and feel of a historical building.

You mention you want to own rental property, and you may want to check out more info online so you know what you are getting into and how to evaluate a deal.

1. If your HOA+P+I+tax+insurance about 3K a month and then your rent is 4K a month. you are only getting a 1K cashflow for a 600K property. how much vacancy you should be expecting? How long it takes to rent it out on average?
2. how is the tenant-landlord law in Chicago? Is that tenant-friendly? I had a squatter at one of my property. she didn't pay a penny since July 2020 and due to eviction moratorium, I couldn't evict her and all eviction were canceled. The court was not even opened to process cases. She knew the law, and she even claimed that she didn't need to pay rent because it's covid. Eventually, she moved out in Jan 2021 voluntarily. 7 months not a single penny and then not to mention the other unpaid rent before that plus the water bill she left behind that is linked to the house. So all in all, I lost 20K there. Can you stomach this kind of loss?

I'm not trying to scare ppl to be real estate investor/landlord, but I think a lot of ppl don't know what they are possibly getting into (that includes myself haha). It can be very profitable especially if you buy at the dip; but there is also risk. Eviction is not as quick a process as everyone thinks. I always tell my husband that in a way my tenants are hosting my property as hostage! Even when I had that squatter, my prayer was that she would not destroy my house. Rent, forget about it. I just wanted to get it back.
59Gibson
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Re: Advice on Buying Condo

Post by 59Gibson »

If I'm reading correctly, both of you make nearly 700k/yr and on the way to 800k. Why bother w/ a condo rental. You don't need the hassle over peanuts.
manuvns
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Re: Advice on Buying Condo

Post by manuvns »

if the condo morgage payment is less than your current rent payment it might be worth it . the reason condo are cheap is because there is little to no price appreciation . i generally stay away from condo becaue of crazy HOA fees /assessments and someone living on your roof or below you .
Thanks!
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