House vs. Condo/Townhome

**red92s** · 02-12-2010, 05:02 PM

My cut-check first reaction says you very likely can't comfortably afford either, unless you have roomatesh. A down payment for even an entry-level townhome or house in most areas would decimate the savings you currently have.

The largest problem I see is that any downpayment of substance would leave you with a $0 emergency fund for the inevitable repairs and costs homeowners incur in the first year of ownership.

Instead of throwing away money renting an apartment, I'd rather invest in a house, especially the bonus of low interest rates, and tax bonus.

I know condo/townhomes are a nice option [...] But not as great investment as a house would. Yet more affordable.

Drop these attitudes immediately.

A) Renting is not "throwing money away". You are paying for a service and use of a facility, just like your gym membership and cell phone. Ask the people who are six-figures underwater on the homes they bought 3 years ago if they still think renting is throwing money away.

B) The first-time home buyer credit is not a "bonus". If you need that credit to make owning a home affordable, I'd argue you probably still can't afford it. If you were going to buy otherwise, but sitting on the fence because of current market conditions, it's a good incentive. But it should not be used to justify (financially, and logically) buying a home when you wouldn't normally be considering it.

C) A house is NOT an investment (see the last sentence of A). A house is a place to live. It's not easy to pick out people in today's housing market who could reasonably sell a house they bought in the 2000's at a profit today.

You are young. There are advantages to renting. You don't deal with repair bills, taxes, or failed appliances. You don't deal with maintenance or HOA fees. You can remain flexible, able to chase job or relationship opportunities that might come up.

**jIM_Ohio** · 02-12-2010, 08:08 PM

Originally posted by investingnoob View Post

Hey guys, just looking for some advice on whether to buy a house or condo/townhome?

First my situation is, I'm 22 years old, Single, no kids.
Take home is around 2800/mo. sometimes more from overtime.
Car payment= 373/mo with 6k left.
Insurance= 280/mo
Cell= 98/mo
gym=15/mo

I've got $12k saved all together.
I know everyone here thinks you should have a great deal more but how long will the tax bonus and interest rates last?

Instead of throwing away money renting an apartment, I'd rather invest in a house, especially the bonus of low interest rates, and tax bonus.

I would really like to get a house but I'd be living on bread and water unless I had a roomate or two. I know condo/townhomes are a nice option too since I'm young and single, no yard upkeep. But not as great investment as a house would. Yet more affordable.

any help would be appreciated.

I think you need to take a step back... do not buy real estate because of timing, buy it because you want a place to call HOME.

Second, townhouse vs single family house is more about lifestyle than cost. Establish what you can afford, then decide on lifestyle, then find condo or single family home which suits you.

Third, you have no long term savings, and are not showing any other way of improving your personal balance sheet.

Here is my advice.

Every month, set aside 20% of gross income
put 10% in a retirement account
put 10% towards savings (emergency fund and house)

Spend less than you earn by saving that 20% above... in 20 months the car is paid off, then you might be ready for a mortgage in the budget.

**docstudent** · 02-12-2010, 08:55 PM

What is the typical cost of a home/condo in your area? I purchased using a FHA loan, and I did not put down 20%. However, I did have additional funds put aside to get me through a rough path. In addition, the tax credit is a good incentive, because it can replenish your savings. You're young, so I would not be a rush, however, if you stumble upon a steal, I would go for it! I'd rather live pay to pay...today, opposed living pay to pay, 30 years from now. If you'r responsible, and manage your finances well....buy!

**red92s** · 02-13-2010, 05:30 AM

Originally posted by docstudent View Post

I'd rather live pay to pay...today, opposed living pay to pay, 30 years from now.!

I'd rather never live paycheck to paycheck, and just delay having a mortgage until I was in a financial position to do so.

**Ima saver** · 02-13-2010, 06:34 AM

I was very fortunate to be able to buy my first home at a young age. It was a brand new home and I was 21 years old. I paid extra on the home as much as I could and paid it off at age 32. I have lived payment free since then. Of course, that was a long time ago and houses were much more affordable, but I think it was the smartest financial decision I ever made. If I had a choice between a house and a condo, I would choose a house every time.

**disneysteve** · 02-13-2010, 06:51 AM

I agree 110% with red92s' post above. You are looking at this all wrong and are heading down a dangerous path.

A house IS NOT an investment!
Renting IS NOT throwing away money!
You should NOT buy a house/condo because of market conditions, tax breaks or any other reason if you are not in need of a house AND financially ready to make the purchase!

**project15** · 02-13-2010, 10:33 AM

Paying taxes, interest, and maintenance on a house is throwing away money. My taxes, interest, and maintenance cost me more than what I was paying in rent. If you don't need the extra space in a house, keep living cheaply in a small rental. I'm married with a kid on the way so we needed the space, but I'm jealous of batchelors who live with roomates for a couple hundred in rent and can sock away thousands for the future.

**investingnoob** · 02-13-2010, 05:37 PM

Here is my advice.

Every month, set aside 20% of gross income
put 10% in a retirement account
put 10% towards savings (emergency fund and house)

Spend less than you earn by saving that 20% above... in 20 months the car is paid off, then you might be ready for a mortgage in the budget.[/QUOTE]

Forgot to mention that, which was already included by the way.
I invest 8% into my companies 401k. (with the first 4% match, considering decreasing my contributions to 4%?)
I invest 10% into my Roth IRA.

Looks like the verdict is I should just get into an apartment and save up for a house?

**snafu** · 02-13-2010, 08:51 PM

How secure is your employment? Would you consider moving to another city if terms and conditions were sweet? What do homes [single/townhse] in your area, with amenities you seek cost? Do you want to live in suburbs? Have an informal talk with your loans officer to see [generally] sum/terms of eligibility & deals. Start watching listings on-line. Next pay start living like a homeowner, rent substituting for mort. + utilities, + taxes + HOA + 10% holdback for possible repairs or special assessments etc. to discover if you can manage financially.

Alternatively, seek the cheapest accommodation with roomates to see if you can tolerate that type of living arrangement. Good for $$$ but many issues around privacy, facilities, cleanliness, personalities, GFs , socializing etc.

**disneysteve** · 02-14-2010, 06:20 AM

It is great that you have 18% going to retirement. Congrats on that. Lots of 20-somethings could learn a lesson from you in that regard. Heck, lots of 30 and 40 and 50-somethings could too.

How about posting your full budget. You only listed 4 of your monthly expenses. Let's see the whole thing: rent, food, clothing, entertainment, auto expenses, travel, medical, etc. What are you actually left with each month after all of the bills are paid?

**jIM_Ohio** · 02-14-2010, 06:32 AM

Originally posted by investingnoob View Post

Here is my advice.

Every month, set aside 20% of gross income
put 10% in a retirement account
put 10% towards savings (emergency fund and house)

Spend less than you earn by saving that 20% above... in 20 months the car is paid off, then you might be ready for a mortgage in the budget.

Forgot to mention that, which was already included by the way.
I invest 8% into my companies 401k. (with the first 4% match, considering decreasing my contributions to 4%?)
I invest 10% into my Roth IRA.

Looks like the verdict is I should just get into an apartment and save up for a house?

Thank you for the correction.

I assume you are living with parents now, you have 1 of 3 or 4 routes to go:

1) continue living where you are and save for house or condo
2) rent a single bedroom apartment and save for house or condo
3) rent a larger condo or townhouse and get roomates, save for a house or condo
4) try to find a cheap condo or house now and move there

Each has pluses and minuses. Being 20 something, its possible that life with roomates is something to explore (in my early 20's having roomates was lots of fun).

**disneysteve** · 02-14-2010, 06:42 AM

Keep in mind that roommates may or may not be a good thing. It really depends on you and on the roommates. Personally, the only reason I lived with a roommate in college is because I had to. I couldn't wait to graduate and get my own place. I'd much rather be alone. I lived alone from the time I graduated college in June 1986 until I got married in July 1992. Yes, it would have been cheaper to have a roommate but it wasn't a financial decision in my mind. The savings wasn't worth the sacrifice.

**myc2004** · 02-27-2010, 06:40 PM

I was in your situation when I was around your age. So I pulled the trigger and bought a townhouse in CT. Now I am 29, and live in the same townhouse. I do rent out the spare rooms in my townhouse to make the cost of owning the townhouse almost the same as living in an apartment except that I am building equity. In addition, I am aggressively paying off my mortgage so I can refinance to a 15 year mortgage in a few years. Its a good feeling that you have a place to call your own. Feel free to ask me any questions.

**investingnoob** · 03-05-2010, 06:54 AM

Hate to revive this thread but...
I bit the bullet and made an offer on a house. It was a foreclosure (builder went bankrupt) brand new and never been lived in. Just a steal, the homes in the gated development were sold for 250k+ just in sept. 09. The bank accepted my offer of 198k and pay my closing costs.

My brother n law is doing my loan for me and closing date is the 16th of next month. I'm so excited and a little nervous.

I know you were all against me to do this because it looks super tight, but I'm going to take that risk and know i'll make it.

Anyways I'll update it once I get the house.

and here she is! Still can't believe i didn't end up in a shack for this price!

House vs. Condo/Townhome