Starter Home vs. Stay in Condo?

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Starter Home vs. Stay in Condo?

Postby DoubleDraw » Sun Mar 24, 2013 6:49 pm

We are making a plan about when to buy a home and move out of my condo. My girlfriend and I have been seeing each other for about 5 years and living together for 2. I am 30 and she is 29. She was recently accepted into a 4+ year chemistry phd program in the city we live in that starts in the fall. Now that we have a much better of idea of her financial and work situation for the next few years, we’d like to make housing plans for the next 5+ years.

We currently share a 2bd 2.5ba 1750 sqft condo valued at around $162k with $209/mo HOA dues. It is more than adequate in size and the location is quite convenient for me, right between work and my favorite recreation spots. The location is not optimal for her school, but is still only 25 or so minutes away by car or 15 minute drive to the park n ride plus a 30 minute light rail ride.

We are considering purchasing a home closer to her school and much closer to the light rail system so that she could walk or ride a bike for less than 5 minutes to the nearest stop. We would be looking at a 2-3bd 1000-1500 sqft starter home in the $150-$200k range.

Advantages of moving to a home:
closer to light rail for my gf - her car would likely last much longer if light rail was closer and she was riding it more often
backyard space = dog and a garden (love dogs but dont have a yard now) as well as having a private outdoor space for us to use
garage (huge plus for us)
no HOA ($209/mo!)
no shared wall neighbors, less interaction with neighbors in terms of trash/parking/common areas (current neighbors don’t care nearly as much about the property as we do)

Disadvantages of moving to a home:
transaction costs of selling condo and buying home (6% of $160k = ~$9.5k)
additional upkeep costs (time and money)
moving costs (time and money)
additional costs of owning a dog
no shared wall neighbors = potentially higher utilities (could be equal but want to plan for the worst)

Our situation is:

Emergency funds: $14000 = 6-8 months

Income:
Him: $55k+15% possible bonus = $63k so $55-$63k
Her: $22k/year +$1900 for health insurance + free tuition

Debt:
Him:
Car $8200 left at 0.9% - paying $375/mo
Mortgage: $117,800 at 3.125% - making biweekly payments of $500 and am only a year or so into a 15 yr mortgage (refi - I’ve been in the condo about six years)
Her:
17k in student loan debt

Assets:
Him:
$280k in taxable investment accounts
$65k in retirement accounts
$42k+ in equity in condo
$17k+ equity in car

Her:
$14k in 401k
$2k car

I believe about $100/mo of the current HOA would be spent in additional costs in a potential home (water/trash/repairs)

What do bogleheads think? We think we would live in the home for 5-7yrs at least, but would likely need another home when we start a family. I think our quality of life would be higher in a home due to shorter commute time for my gf (about 5 mins more each way for me), a dog, a garden and living in a freestanding home. I am mostly worried about the transaction cost of selling my condo which fits our needs at the moment but isn’t where we would ideally be living for the next few years. If we were to wait until my gf graduates and starts her career, we would potentially be able to afford the home we imagine spending 20+ years in (larger and nicer - $300k+) and would plan to save enough for a sizeable down payment in the next five years.

What would be the better option for us in terms of cost to quality of life improvement tradeoff? Any advice is appreciated. Thanks!
Last edited by DoubleDraw on Thu Dec 12, 2013 12:41 am, edited 1 time in total.
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Re: Starter Home vs. Stay in Condo?

Postby avalpert » Sun Mar 24, 2013 6:58 pm

This isn't really a financial decision it is a consumption/life style one. No one can tell you what the quality of life impact will be - you need to figure that out for yourself. It doesn't sound like you would be putting yourself into a financially precarious situation so my advice would be let:
I think our quality of life would be higher in a home due to shorter commute time for my gf (about 5 mins more each way for me), a dog, a garden and living in a freestanding home.

be the controlling opinion

One aside though, you could look into renting a house in the same area if they are available.
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Re: Starter Home vs. Stay in Condo?

Postby DoubleDraw » Sun Mar 24, 2013 7:02 pm

avalpert wrote:This isn't really a financial decision it is a consumption/life style one. No one can tell you what the quality of life impact will be - you need to figure that out for yourself. It doesn't sound like you would be putting yourself into a financially precarious situation so my advice would be let:
I think our quality of life would be higher in a home due to shorter commute time for my gf (about 5 mins more each way for me), a dog, a garden and living in a freestanding home.

be the controlling opinion


Thank you for your response.

I put it in this forum because I agree with you that it is as much a lifestyle choice as it is a financial decision. I was hoping that some others had made this choice and had some input as to whether the home life really is that much better or if the additional upkeep, yard work and liability (roof, driveway, yard) really make it more of a wash.
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Re: Starter Home vs. Stay in Condo?

Postby holycow2013 » Sun Mar 24, 2013 7:19 pm

OP which city are you in?

I hate to say it as it may not sound good in your position but things cannot be taken for granted and I would definitely recommend considering only your financial situation for the new house. I think you bring more to the table anyways. I would recommend doing it. I live in a Condo and the SFH is a good investment IMHO.

I would recommend paying off the Car asap to improve your cash flow situation even if it means reducing investment as well as paying your current mortgage to the minimum required.
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Re: Starter Home vs. Stay in Condo?

Postby DoubleDraw » Sun Mar 24, 2013 7:31 pm

holycow2013 wrote:OP which city are you in?

I hate to say it as it may not sound good in your position but things cannot be taken for granted and I would definitely recommend considering only your financial situation for the new house. I think you bring more to the table anyways. I would recommend doing it. I live in a Condo and the SFH is a good investment IMHO.

I would recommend paying off the Car asap to improve your cash flow situation even if it means reducing investment as well as paying your current mortgage to the minimum required.


Thanks for your reply. I'd rather not say which city I'm in if that's ok. In terms of considering our financial situation together, we are thinking that within the next year or two she will become Mrs. DoubleDraw so we are making this decision together though the house may be purchased under my name since I will be providing the down payment and the bulk of the mortgage.

If we decide to start looking at homes I will consider all options including paying off the car to improve cash flow. At 0.9% interest, I prefer to keep the money in the market at the moment since I can afford to max out my 401k and IRA and still make the payment with no problem. I get paid bi-weekly and like the idea of making an extra full payment per year if only because it forces me to "save" the money.
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Re: Starter Home vs. Stay in Condo?

Postby avalpert » Sun Mar 24, 2013 8:03 pm

DoubleDraw wrote: I get paid bi-weekly and like the idea of making an extra full payment per year if only because it forces me to "save" the money.


Since you will be looking to move again in a few years when you have kids you won't save any money in reduced interest by the extra payments so you are probably better off skipping them. If you really need that discipline of forced savings have part of your paycheck direct deposited into a second account that is targeted for investing/saving.
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Re: Starter Home vs. Stay in Condo?

Postby telemark » Sun Mar 24, 2013 9:30 pm

Don't count on saving all of that $209 a month. A lot of it probably goes for things that you will have to pay for directly with a house: water and sewer connections, building maintenance, mowing and watering the yard, clearing snow off the sidewalks, etc.

Neighbors can be the most important thing in a condo, and this is something you have little control over. You can have bad neighbors in a house too, of course, but at least you have some buffer space.
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Re: Starter Home vs. Stay in Condo?

Postby holycow2013 » Sun Mar 24, 2013 10:25 pm

DoubleDraw wrote:Thanks for your reply. I'd rather not say which city I'm in if that's ok. In terms of considering our financial situation together, we are thinking that within the next year or two she will become Mrs. DoubleDraw so we are making this decision together though the house may be purchased under my name since I will be providing the down payment and the bulk of the mortgage.

If we decide to start looking at homes I will consider all options including paying off the car to improve cash flow. At 0.9% interest, I prefer to keep the money in the market at the moment since I can afford to max out my 401k and IRA and still make the payment with no problem. I get paid bi-weekly and like the idea of making an extra full payment per year if only because it forces me to "save" the money.


yes, 0.9% is a good rate. Meanwhile you sound disciplined enough based on how you are doing and hence I did not see the forcing yourself side of things. If you plan to use a portion of your taxable investments for the down payment that seems fine. Condos can be hard to sell especially if there is a inventory of SFH around and counting on the equity may not be a good idea. If you believe you can sell it, I would just do it to get out of the Condo. They have their conveniences (less insurance, less work on your part to maintain, snow removal etc) but privacy, HOA are two big reasons to get out.
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Re: Starter Home vs. Stay in Condo?

Postby DoubleDraw » Sun Mar 24, 2013 10:28 pm

avalpert wrote:
DoubleDraw wrote: I get paid bi-weekly and like the idea of making an extra full payment per year if only because it forces me to "save" the money.


Since you will be looking to move again in a few years when you have kids you won't save any money in reduced interest by the extra payments so you are probably better off skipping them. If you really need that discipline of forced savings have part of your paycheck direct deposited into a second account that is targeted for investing/saving.


While it probably won't reduce my interest payments by much it does reduce my leverage and thus risk in owning real estate. My other investments are quite risky by boglehead standards, so I feel like this is a small way to reduce my overall risk. Also, I will probably end up using the proceeds from the sale of this condo towards a home whether it be now or in 5 years, so any additional money I can save towards that larger downpayment will hopefully be a good thing.

Might be something I will take a look at if we decide to buy a home sooner than later, as I could use that extra $1k towards moving expenses etc.

telemark wrote:Don't count on saving all of that $209 a month. A lot of it probably goes for things that you will have to pay for directly with a house: water and sewer connections, building maintenance, mowing and watering the yard, clearing snow off the sidewalks, etc.


Thanks for your response but I addressed this in my OP, I believe the extra cost would be around half the current HOA bill. I'm the treasurer of our HOA, so I'm well aware of what is paid for through our HOA dues.

telemark wrote:Neighbors can be the most important thing in a condo, and this is something you have little control over. You can have bad neighbors in a house too, of course, but at least you have some buffer space.


We like the neighbor below us a lot and the one across from us is OK. It is more of the other people in the condo community that litter trash, park giant vehicles blocking sidewalks and let their kids poop in the pool (not joking).
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Re: Starter Home vs. Stay in Condo?

Postby icefr » Mon Mar 25, 2013 2:14 pm

It seems like this needs to be made as a lifestyle decision, not a financial one, as it sounds like the finances would work themselves out just fine.

Ignoring money, do *you* want to live in a house versus your current condo? Does your girlfriend? Do you want to have a yard? Do you want to mow the lawn? Do you want to care about replacing roofs and cleaning gutters and siding? Do you dislike the condo you're living in now? Do you guys want to move out of it? Are all the things you want about a house worth selling your place, looking for a house, AND moving for? Do you want these things THIS year? If not, would it make more sense to stay where you are and buy a non-starter house? Going from a condo, which is a starter property, to a starter house to a non-starter house seems a bit expensive to me.

I would ask those questions and other ones before looking at the numbers since they would likely work out. I can't believe your HOA is $209/month on a $160k condo! Mine isn't much more than that on a more expensive condo.
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Re: Starter Home vs. Stay in Condo?

Postby Call_Me_Op » Mon Mar 25, 2013 2:38 pm

What are the downsides to living in a condo that you are trying to change?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Starter Home vs. Stay in Condo?

Postby Watty » Mon Mar 25, 2013 5:20 pm

It was not clear if you would be buying the home together or if you would be buying it just in your name.

Buying a house with someone you are not married to can cause lots of problems if the relationship does not work out so it would be a good idea to not buy the house together if you are not ready to get married. Do not underestimate the chances of there being problem in the relationship, I can understand not being ready to get married yet but that should also be a clue that you are not ready to buy a house together.

If you do decide to buy the house together then you should have a lawyer draw up an agreement on how the house will be handled if you split up.

You have a lot more assets than she does so you should also talk to a lawyer about what sort of pre-nuptial agreement would be appropriate. You have enough in your taxable account so that you would have the option of buying the house for cash before you are married and that might be one way to help protect your assets if you get married then get divorced later.

Be sure to look at the PHD programs completion rate, there is a significant possibility that she will not finish the program. It would be good to wait until she has at least finished the first semester to see how she does in the program. If she drops out of the program after a semester or two it would be awkward if you bought a house to live in while she is in school.

Planning to live in the house more than four years is likely not realistic since once she graduates it is likely that her first job will be in a different city since PHD positions are sort of specialized. Even if she finds a job in the same city it might be across town and a terrible commute from the house you buy.
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Re: Starter Home vs. Stay in Condo?

Postby DoubleDraw » Mon Mar 25, 2013 8:56 pm

icefr wrote:It seems like this needs to be made as a lifestyle decision, not a financial one, as it sounds like the finances would work themselves out just fine.

Ignoring money, do *you* want to live in a house versus your current condo? Does your girlfriend? Do you want to have a yard? Do you want to mow the lawn? Do you want to care about replacing roofs and cleaning gutters and siding? Do you dislike the condo you're living in now? Do you guys want to move out of it? Are all the things you want about a house worth selling your place, looking for a house, AND moving for? Do you want these things THIS year? If not, would it make more sense to stay where you are and buy a non-starter house? Going from a condo, which is a starter property, to a starter house to a non-starter house seems a bit expensive to me.

I would ask those questions and other ones before looking at the numbers since they would likely work out. I can't believe your HOA is $209/month on a $160k condo! Mine isn't much more than that on a more expensive condo.


Wow lots and lots of great questions here, thanks for taking the time to post them. I think you make lots of great points and I agree with you about going through 3 transactions being quite expensive. As for the HOA dues, they are terrible. Essentially, our property was mismanaged for most of the past 30 years and now we are trying to make up for that. Will definitely make it a lot tougher to sell!

On a side note, it is amusing to me that several bogleheads have now mentioned that the finances of the house don't seem to be quite as important. It's buying a house, for many people the financials are all that matter! Ha!

Call_Me_Op wrote:What are the downsides to living in a condo that you are trying to change?


Thanks for your response. The main things are a lack of an outside area, garage and a lack of privacy and dealing with all the people in the condo community. When I came home today there were 3 (THREE!) cars parked in non parking spaces blocking other people's access to their parking, there was new graffiti on our entrance sign and a man smoking right outside my front door. I have generally found people to be inconsiderate of others and the fewer I have to share common living space with, the better.

Watty wrote:It was not clear if you would be buying the home together or if you would be buying it just in your name.

Buying a house with someone you are not married to can cause lots of problems if the relationship does not work out so it would be a good idea to not buy the house together if you are not ready to get married. Do not underestimate the chances of there being problem in the relationship, I can understand not being ready to get married yet but that should also be a clue that you are not ready to buy a house together.

If you do decide to buy the house together then you should have a lawyer draw up an agreement on how the house will be handled if you split up.

You have a lot more assets than she does so you should also talk to a lawyer about what sort of pre-nuptial agreement would be appropriate. You have enough in your taxable account so that you would have the option of buying the house for cash before you are married and that might be one way to help protect your assets if you get married then get divorced later.

Be sure to look at the PHD programs completion rate, there is a significant possibility that she will not finish the program. It would be good to wait until she has at least finished the first semester to see how she does in the program. If she drops out of the program after a semester or two it would be awkward if you bought a house to live in while she is in school.

Planning to live in the house more than four years is likely not realistic since once she graduates it is likely that her first job will be in a different city since PHD positions are sort of specialized. Even if she finds a job in the same city it might be across town and a terrible commute from the house you buy.


You bring up questions that I am unsure of the answer to. I think I would buy the home under my name, but I'm not sure how that would work if we got married afterwards. We have been talking about marriage and I believe we will probably get married within the next year or two, but neither of us want to rush into it. I don't think either of us have any doubt that we want to get married to each other, but don't see any reason to hurry into it. We have also discussed a pre nuptial agreement and she is more than ok with it since that is one of my concerns about marriage and she wants me to be 100% comfortable with it if we do end up tying the knot.

I like your idea of making sure she has finished at least one semester/year of school before purchasing a house. However, she is one of the hardest working people I know and really loves being in the laboratory, which is the majority of the work on her PHD would be done. As an example of her work ethic she worked full time (30+hrs/week) while going to school full time (12 credit hrs) and also volunteering in the lab 15-20hrs/week. I don't think the workload will be a problem for her and her love of chemistry should help her get through some of the frustrations that go with a PHD program.

In terms of our plans after her school, I hadn't considered her having to move. One of the main reasons she wanted to go to our local school is that the chemistry research community here is quite vibrant and has deep connections with the school. Hopefully, she would be able to find a good job here. However, I think you are right that we shouldn't assume that we will be living here after she is done with school.

The neighborhood we are looking in is very centrally located and wouldn't be more than a 15-20minute commute from just about anywhere that she would potentially be employed. Again, a very good point to bring up and one that we hadn't truly considered, though we are considering drive times to more than just our current work and school.

Thank you very much for this thought provoking reply. We will probably spend the evening discussing the points you brought up!
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Re: Starter Home vs. Stay in Condo?

Postby donall » Mon Mar 25, 2013 9:46 pm

Sell the condo, rent a house close to GF's school. Advice on this was not asked, but GF should make sure she has a good advisor or someone who will help her in her career, so she is not just doing the lab work for a big name professor.
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Re: Starter Home vs. Stay in Condo?

Postby Breezy » Tue Mar 26, 2013 4:30 pm

I second the advice to sell the condo and rent a house or condo in the neighborhood you like, and not buy until you can afford to buy the larger (non-starter) place you'll live in longer.

Or, sell the condo and buy a duplex in the neighborhood you like and live in one unit.
Or, rent your condo and rent in the neighborhood you like.
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Re: Starter Home vs. Stay in Condo?

Postby DoubleDraw » Tue Mar 26, 2013 8:47 pm

donall wrote:Sell the condo, rent a house close to GF's school. Advice on this was not asked, but GF should make sure she has a good advisor or someone who will help her in her career, so she is not just doing the lab work for a big name professor.


Thanks for the advice, she says that she will keep that in mind and has a couple of people in the field that went to the same school that are advising her.

Breezy wrote:I second the advice to sell the condo and rent a house or condo in the neighborhood you like, and not buy until you can afford to buy the larger (non-starter) place you'll live in longer.

Or, sell the condo and buy a duplex in the neighborhood you like and live in one unit.
Or, rent your condo and rent in the neighborhood you like.


Lots of advice to rent, we are taking it under consideration. Unfortunately, the only home we have been able to find for rent in the specific area we are looking at is $1450/mo and a bit too large for us. One option that we are looking at is a home with a legal mother-in-law apt that we could rent or airbnb. That would significantly reduce the cost of the mortgage and might be a great option. We'll keep looking and aren't making any quick decisions! Thanks for the advice
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