Leaning towards buying a 1-BR condo in Bay Area

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DJB
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Leaning towards buying a 1-BR condo in Bay Area

Post by DJB »

I have never thought it would make financial sense to buy in the Bay Area, but I am close to making an offer on a 1BR condo in the East Bay.

The way the numbers work out, the mortgage + taxes + HOA will be approximately the same as the cost to rent a comparable unit. Overall, it appears slightly cheaper when I factor in tax deductions, although I know these are not huge.

I'm 29, have a very stable career in the area, and don't plan to have kids for 5+ years. So I would plan to stay in this unit for at least that time, and I would be open to being a landlord beyond that if I chose to upgrade. I don't plan on capital appreciation, and even with this unit I can continue maxing out my tax advantaged accounts (about 40K per year).

I found a unit I really like in a great location. It's cosmetically challenged with ugly paint and carpet. It has been on the market for about a month and I am likely to make a semi-low ball offer to start the negotiating.

Any wise Bogleheads have a good reason not to do this? Any other words of wisdom or things to consider? You have all be so helpful up to this point.
47Percent
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by 47Percent »

It looks like you have pretty much everything under control.. especially for a 29 year old!

Some of things that come to my mind:

Just as you should do for buying any home, check the place out at various times.. day/night/evenings/weekends/work days/holidays to see you are comfortable with what you observe.

Confirm that the unit is readily marketable if required and generally will appeal to a broad audience.

You didn't mention how old the unit was. You have to factor in some maintenance issues based on its age.

Another thing is to look at the HOA a bit closely to see they don't have any existing ongoing issues, and also look for any impending major issues just below the surface. The HOA fees have a way of outpacing inflation and getting out of hand quickly with special assessments etc.
poker27
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by poker27 »

Just because the house will be the same price monthly doesn't mean that it's a better deal. Remember you are probably factoring your down payment into the monthly costs, which is money that is sitting idle. Also maintenance costs, fees to buy and sell, and other stuff really adds up.

If you think you'll be in the area for the long term, and this unit will suffice, I say go for it. It's really a life style choice more than anything else
SDBoggled
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by SDBoggled »

Just some random ideas:

- 2 bedroom with roommate
- Single family or duplex in less trendy, but still good commute and safe area
- It is well worth studying the neighborhoods in the East Bay... IMHO there are some gems
john94549
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by john94549 »

Many condo associations use professional property managers. If your prospective HOA does, ask if you can speak with them regarding any deferred (or contemplated) "big ticket" items which might result in an assessment. The HOA meetings are often attended by the property manager, and minutes are generally available. Read them, going back a couple of years or so.

If the condo has common areas where folks mill about, you might find a person or two willing to chat, as well.
Billyboy
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by Billyboy »

One of my daughters lived in various areas of SF over a period of 12 or so years. What stands out to me the most was the lousy parking situation. If you are lucky enough to have a designated parking spot, that's worth extra $$'s and you've won half the parking battle. Any visitors may have to hunt for parking spots, if in similar areas that I'm familiar with. Also as 47Percent pointed out, observe the area at all different times of the day and night.
Check any parking restrictions, i.e. can't park on certain sides of the street some days because of trash pickup, street sweeping, etc.
Small items; however, all contribute to quality of life issues for you and your guests.
I would imagine, you've checked into the demand for a 1-BR, as to possible resale value?
Good luck in whatever you decide.

Bill
denovo
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by denovo »

Conventional wisdom says 1 bedrooms have poor resale value and prospects. Could you swing a 2 bedroom and get a roommate?

Edited to fix typo-
Last edited by denovo on Mon Oct 13, 2014 8:46 pm, edited 3 times in total.
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LadyGeek
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by LadyGeek »

This thread is now in the Personal Consumer Issues forum (home purchase decision).
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icefr
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by icefr »

denovo wrote:Conventional wisdom says 2 bedrooms have poor resale value and prospects. Could you swing a 2 bedroom and get a roommate?
Do you mean that 1 bedrooms have poor resale value? 2 bedrooms are so much more marketable in my area.
Calm Man
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by Calm Man »

How much does it cost?
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JMacDonald
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by JMacDonald »

Others have given you good suggestions. Here are a few more:

Make sure you read the CC&Rs and rules for the condo.
Ask about any disclosure issues with the unit or the building.
What is the financial situation with the building? By that I mean, how much money is in the reserve fund?
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Taylor Larimore
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The mortgage ?

Post by Taylor Larimore »

DJB:

Can you provide information about your intended mortgage? We might be able to offer suggestions.

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
denovo
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by denovo »

icefr wrote:
denovo wrote:Conventional wisdom says 2 bedrooms have poor resale value and prospects. Could you swing a 2 bedroom and get a roommate?
Do you mean that 1 bedrooms have poor resale value? 2 bedrooms are so much more marketable in my area.

Sorry for the goof I edited my initial comment. That's what I meant.
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Ron Ronnerson
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by Ron Ronnerson »

If you think you're a long way away from a relationship & kids, buying a 1 bedroom wouldn't be bad. If not, you'll need some space to grow. Will a 1 bedroom suffice in such a scenario? If this stuff is possible, I wouldn't want the hassle of buying a house only to turn around and sell it shortly thereafter. Also, there are closing costs involved. By the way, I live in the East Bay and love it here. There really are great neighborhoods for much more reasonable prices around here (relatively speaking, of course).
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Watty
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by Watty »

DJB wrote:I'm 29, have a very stable career in the area,
I have seen job offers and promotions go to the person who could relocate the easiest so that could be an issue. Even in the same general area taking a job on the other side of town could make your commute bad. At your age being able to easily relocate can be a huge career advantage.

If you are not married yet then not owning a condo will give you a lot of flexibility if you do get into a relationship.

DJB wrote: I would be open to being a landlord beyond that if I chose to upgrade.
If condo price just keeps up with inflation then you could have significant capital gains by the time you are ready to move. You would likely qualify for the homeowners capital gains exclusion if you sold it when you moved but if you keep it for a rental for more than a few years then you would lose that exclusion. This alone often makes keeping a house as a rental a poor choice when home prices have been increasing.

Be sure to check the condo rules very carefully to see if you will actually be able to rent the condo. It is not uncommon for there to be a restriction on the number of rental units that are allowed since if there is too high a percentage of rentals condos in the building will not qualify for some types of mortgages.
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DJB
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by DJB »

Thanks for all the wonderful suggestions already in this thread!
Taylor Larimore wrote:DJB:

Can you provide information about your intended mortgage? We might be able to offer suggestions.

Thank you and best wishes.
Taylor
The 1-BRs I'm looking at run about 300K. I am considering making an offer on a unit now for 260K, with between 60-80K down depending on the mortgage rates. I have about 100K in taxable mutual funds I could use as a down payment, and my parents have offered to "gift" me some money using a ~2% home equity loan. I definitely have flexibility on my side.

Using mortgage calculators, I am finding that my total monthly payment, including mortgage, taxes, HOA, and insurance will be right around $1600. Certainly the first few years I would receive some tax benefits as well. Comparable rental units in this area are going for $1800+ per month. I might be able to find a rental for about $1600/mo that I'd be happy with. I might not. I know this doesn't guarantee the condo is a good deal, but the numbers seem to make some sense.
denovo wrote:Conventional wisdom says 1 bedrooms have poor resale value and prospects. Could you swing a 2 bedroom and get a roommate?

Edited to fix typo-
I would love to. The problem is 2-BR/2-BA units in my desired neighborhoods are going for closer to 500K, which is beyond my means even if I had a roommate. I know 1-BRs are less desirable, but I figure if I buy well, it will make up for the difficulty I may encounter down the road in trying to sell. I definitely don't want to overpay.
Ron Ronnerson wrote:If you think you're a long way away from a relationship & kids, buying a 1 bedroom wouldn't be bad. If not, you'll need some space to grow. Will a 1 bedroom suffice in such a scenario? If this stuff is possible, I wouldn't want the hassle of buying a house only to turn around and sell it shortly thereafter. Also, there are closing costs involved. By the way, I live in the East Bay and love it here. There really are great neighborhoods for much more reasonable prices around here (relatively speaking, of course).
True! But my friends in the midwest cringe at the cost of tiny condos here.
Watty wrote:[If you are not married yet then not owning a condo will give you a lot of flexibility if you do get into a relationship.
Last edited by DJB on Fri Oct 17, 2014 1:13 pm, edited 1 time in total.
icefr
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by icefr »

People seem to be really against buying when you're single. I encountered the same issue when I talked about buying a 2BR condo while single a few years ago. I did it and I'm so glad I did! Rent prices have soared and I just absolutely love homeownership. It sounds like you've done your due diligence, so I would go for it! I would never buy a 1BR myself (I love space too much), but it sounds like it would work great for you! I must say though that I'm so glad I bought a 2BR because now my boyfriend is moving in with me and we could not have done that had I bought a 1BR.
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Taylor Larimore
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A starter home.

Post by Taylor Larimore »

DJB:

Upon returning to the States after World War II, we purchased a small house with a G.I. mortgage. As prices rose and our equity increased we upgraded from our small house to larger and larger homes from that original purchase.

Probably the best investment we ever made.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
denovo
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by denovo »

icefr wrote:I must say though that I'm so glad I bought a 2BR because now my boyfriend is moving in with me and we could not have done that had I bought a 1BR.
Not to pry, but I don't get it. Does your boyfriend sleep in a different room?
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kramer
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by kramer »

Sounds good to me . . . and I lived in the Bay Area for 12 years and always rented.

The issue with less of a market with 1 bedrooms . . . you are benefiting from that now when you buy at a good price.

The hidden issue with home ownership there is that when you change jobs you may end up with a bad commute or your job search may be more restricted. I worked for the same company my whole time there but that involved three different locations (Menlo Park, Newark, and Santa Clara). I moved each time close to my work but that was easy because I was renting. Most of my co-workers were owners and often ended up with terrible commutes.
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Rosebud
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by Rosebud »

denovo wrote:Conventional wisdom says 1 bedrooms have poor resale value and prospects.
The complex where I live in Emeryville has 1,249 condominiums, the vast majority of which are studio and one bedroom units. There are a very limited number of two bedroom units and there is always a battle with developers trying to get them to include anything larger than one bedroom units because they make most of their money on studios and one bedrooms. This results in a premium being paid for two bedrooms because they are not as common as they might be in other parts of the country. San Francisco is skyrocketing in rentals and sales because of the Technology boom and that has really increased pressure on the cost of renting and buying in the East Bay as well. The East Bay is fairly large, so I would imagine the availability of a reasonably priced two bedroom condo would depend more specifically on where in the East Bay you are looking.

You might be interested in the linked article from U.S.A. Today that references the high cost of renting in certain neighborhoods in the United States. Number five on the list is the zip code where I live and it encompasses an area of North West Oakland and Emeryville. Costs have been skyrocketing the past year for rentals and properties for sale.
http://www.usatoday.com/story/money/per ... /16961889/

Good luck and let us know what you decide (if you're so inclined, of course)! It's a great area to live in.
icefr
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Re: Leaning towards buying a 1-BR condo in Bay Area

Post by icefr »

denovo wrote:
icefr wrote:I must say though that I'm so glad I bought a 2BR because now my boyfriend is moving in with me and we could not have done that had I bought a 1BR.
Not to pry, but I don't get it. Does your boyfriend sleep in a different room?
No, but we are both introverted and like personal space. The second bedroom isn't used for sleeping, but is used for creating a second room for someone to hang out in so we can have personal space. It also means that the living room isn't right next to the bedroom, so one person can stay up later than the other or get up earlier.
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