Another "Am I ready to buy?" post

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DJB
Posts: 92
Joined: Sun Mar 11, 2012 1:38 pm

Another "Am I ready to buy?" post

Post by DJB »

HI All,

I've been firmly in the "rent my whole life" camp for a while, at least living in the SF Bay area (Oakland to be precise). A couple factors have me starting to think about potentially buying a place:
Friction with my landlord who I share the house with but who is rarely home. I currently pay $1500 inc. utilities, which is a bit below market in the area.
I am in a long distance relationship, and my GF is considering staying with me for ~3 months. Above landlord does not appear to too fond of the idea of her staying here, even after I offered to pay for her time. It seems like it's probably time to leave.

The housing market around here is crazy. Renting a decent 1-BR around here will run me 1600-2000/month + utilities. I can buy a comparable 1-BR condo for 265K-325K. Some relevant background:
  • 29/single. No kids on the horizon but possible in 5+ years
    I make low 6-figures at a stable job I like where I've worked for the last 6 years
    265K in Boglehead-y retirement account, plus another
    100K in taxable mutual funds I would be willing to use as a down payment, but would eat a tax bill if sold
    Have the emergency fund.
    I currently save 40% of my salary in retirement accounts (all tax-advantaged, Roth IRA + 401K + 401K after tax in-service rollovers)
I feel great about my current financial picture and savings rate. All the finances work out with $1500 rent, but buy or rent, moving is going to stretch me and I'd feel like I would need to cut back on my savings rate. I don't want to leave the area or feel house poor if I can avoid it.

Any suggestions from this great Bogleheads community? How should I feel about cutting back my savings rate at this point? Should I give more consideration to buying something? As always I appreciate your input and advice.
yosef
Posts: 355
Joined: Tue May 24, 2011 2:10 pm

Re: Another "Am I ready to buy?" post

Post by yosef »

I'd say you can definitely afford it; though how long do you anticipate you'd keep a 1BR condo? If kids in 5 years is a real possibility then it seems like such a purchase would be short-lived.
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kenyan
Posts: 3015
Joined: Wed Jan 12, 2011 11:16 pm

Re: Another "Am I ready to buy?" post

Post by kenyan »

I'm not a fan of purchasing when your living situation is still fluid and/or when your holding period may be short. You lose close to 10% off the top on round-trip transaction fees, and are taking a substantial risk on potential short-term losses. Yes, the Bay Area market is hot and has been for a while. That can change.

A 1-BR condo is something that has a high probability of not being suitable for you for long. If/when you get married, you or your spouse might not like it any longer. Certainly if you start a family. There is a possibility of you coming out ahead with buying after 5 years, but there is also a possibility that you won't, and your risk is definitely higher if you buy.

I'm a few years older than you, and we faced a similar choice several years back in SoCal. Buy the type of place we could afford (but knew would not be a long-term solution) or continue to rent. We rented and saved. 5 years after we faced that decision, we would've been significantly under water, stuck in a place that would now be too small for our (since expanded) family, in a terrible school district and with a longer commute. It could've gone another way, but our experience is something that you should definitely consider as within the realm of possibility.

We did end up purchasing a little over a year ago, but it is a place suitable for our family to reside for many years.
Retirement investing is a marathon.
Traveler
Posts: 848
Joined: Fri Aug 30, 2013 9:07 pm

Re: Another "Am I ready to buy?" post

Post by Traveler »

I would be leery of buying a 1 bedroom because I think they are more difficult to sell and most are quite small to meet your needs over several years. Another thing to consider with a condo is the HOA fees. Those can be quite high depending on the complex. Have you looked into renting somewhere else? Maybe you could rent for <$2000 which would allow you to continue to save and not have the headaches of owning. If you end up getting married I doubt a 1 bedroom would suffice and if you're locked into a purchase, you run the risk of trying to sell in a down market (if there is such a thing in the bay area) and incur real estate fees. Sounds like you can afford a condo, but there's probably some things I'd think about further before doing so.
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