My fear about buying a house justified?

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mbdav
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My fear about buying a house justified?

Post by mbdav » Thu Oct 26, 2017 8:30 am

My husband & I are 40 year old with no kids and live in Washington DC metro area. My husband works for government with yearly gross $109,000. We have about $200,000 in cash, $160,000 in CD accounts, $50,000 in retirement savings. My part time work earns about $13,000 yearly. The reason we have more cash in our savings account than in the retirement account is that we were hoping to buy a house in the area for the last two years. The market has been really hot, unfortunately, and it has been very difficult to find anything affordable & likable for us.

My husband’s monthly income after tax/insurance/thrifty savings is about $5200, rent $1700. We save about $2500 monthly. We feel comfortable with our current arrangement. But of course, our current place a 1BR condo, and we can’t have a guest or family members staying with us.

So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.

If we buy the condo it will leave us about $25,000 in cash initially. And our saving rate would decrease.

It seems doable, but I do have reservation/fear about losing the financial ease we feel currently.

Is my fear justified?

Any thoughts/advice would be very appreciated.

(FYI, We had another thread last year when we were thinking of buying a house: viewtopic.php?f=2&t=188022)

Chadnudj
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Re: My fear about buying a house justified?

Post by Chadnudj » Thu Oct 26, 2017 8:36 am

Why not rent the 2 bedroom condo? It would cost you $2500 a month vs. $2800 for mortgage ($2500) plus HOA ($300), but would leave your cash untouched.

You could then invest the $200k cash and $160k in CDs into a stock/bond allocation that makes sense for you, with a goal to bump up those retirement savings ($50k at 40 isn't too much for the Boglehead crowd).

Seems to me like that would be the smarter economic choice. If you can rent for less than you'd buy, the smart choice is to rent.

McGilicutty
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Re: My fear about buying a house justified?

Post by McGilicutty » Thu Oct 26, 2017 8:44 am

Your fear is definitely justified. It seems clear in this case that renting the 2 BR is the better way to go, but here is a good calculator that can show you how much better it is: https://www.nytimes.com/interactive/201 ... lator.html

Jayhawk11
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Re: My fear about buying a house justified?

Post by Jayhawk11 » Thu Oct 26, 2017 8:45 am

If you want a house the difference of 800 a month, when you're saving 2500 right now, is totally fine, IMHO. While it might not be the strictly "correct" economic analysis, homeownership is about a lot more gaining an economic advantage.

You should also factor the tax advantages into your analysis (if you haven't already).

I am also looking to buy in DC right now and it is a nightmare.

KlangFool
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Re: My fear about buying a house justified?

Post by KlangFool » Thu Oct 26, 2017 8:48 am

mbdav wrote:
Thu Oct 26, 2017 8:30 am

So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.
mbdav,

It is cheaper to rent by a large margin. Why would you buy? The opportunity cost of 160K downpayment is at least 8K per year with a conservative return rate of 5%.

KlangFool

Dottie57
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Re: My fear about buying a house justified?

Post by Dottie57 » Thu Oct 26, 2017 9:19 am

Chadnudj wrote:
Thu Oct 26, 2017 8:36 am
Why not rent the 2 bedroom condo? It would cost you $2500 a month vs. $2800 for mortgage ($2500) plus HOA ($300), but would leave your cash untouched.

You could then invest the $200k cash and $160k in CDs into a stock/bond allocation that makes sense for you, with a goal to bump up those retirement savings ($50k at 40 isn't too much for the Boglehead crowd).

Seems to me like that would be the smarter economic choice. If you can rent for less than you'd buy, the smart choice is to rent.
50k in retirement is not enough.

Rent instead. Invest your cash. Rent.

Having guests and family stay over is over-rated.

remomnyc
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Re: My fear about buying a house justified?

Post by remomnyc » Thu Oct 26, 2017 9:29 am

Continue to rent your one bedroom and offer to pay for a hotel for close family/friends to visit. It would be cheaper than buying or renting a 2-bedroom if you don't need the space except for guests.

Agent007
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Re: My fear about buying a house justified?

Post by Agent007 » Thu Oct 26, 2017 9:31 am

TL;DR - It's not worth it.

My wife and I have accumulated a pretty nice nest egg for ourselves over the past several years and this weekend, we were looking at buying a larger house because "wouldn't it be nice if we had X". We don't have kids yet but we talk about a time in the future when it would be nice to have a master bathroom, a larger kitchen (ours is tiny), a place for guests to stay, etc. It would be nice.

My wife and I work but in reality, we're a 3 income family - I have a job that brings in money, my wife has a job that brings in money, and we have this pile of cash that also brings in money through investments. If we put that money towards a down payment for a larger home we lose that third income and over the years, I have discovered that the secret to getting rich is to have money. Money makes money.

We're comfortable where we're at and at some point, life will tell us that we really need a larger place. Until then, I'm not willing to deviate from the plan.

On your situation, look at in on an annual basis and ask yourself if it's worth the tradeoff. A larger place will cost you $18,000 / year more and also add up the opportunity lose by not having the ability to invest that money. Is having the extra space worth that much each year? You might come back with "yes" and that's fine - it's something that you need. But if you look at it and hesitate - e.g. "That seems like a lot for the ability to do X" - then put it down as something that you would like "some day".

barnaclebob
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Re: My fear about buying a house justified?

Post by barnaclebob » Thu Oct 26, 2017 9:39 am

How much is a condo in a moderately nice DC area instead of a very nice DC metro area? Most here would consider you guys far behind on retirement savings, me included. I would say that if you can't afford to contribute the full pretax amount to the TSP with owning a condo then you can't afford it.
Last edited by barnaclebob on Thu Oct 26, 2017 9:43 am, edited 1 time in total.

DVMResident
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Re: My fear about buying a house justified?

Post by DVMResident » Thu Oct 26, 2017 9:42 am

Outsource the guests to the local B&B. It'd be less than renting a second bedroom for +$800/mo.

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jadd806
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Re: My fear about buying a house justified?

Post by jadd806 » Thu Oct 26, 2017 9:51 am

Jayhawk11 wrote:
Thu Oct 26, 2017 8:45 am
If you want a house the difference of 800 a month, when you're saving 2500 right now, is totally fine, IMHO. While it might not be the strictly "correct" economic analysis, homeownership is about a lot more gaining an economic advantage.

You should also factor the tax advantages into your analysis (if you haven't already).

I am also looking to buy in DC right now and it is a nightmare.
I would agree with you if the $800/month meant the difference between a single family home and renting a condo/apartment. But I wouldn't pay an extra $800/month to "own" a condo over renting one.

Call me a market timer, but this seems like an absolutely awful time to be a first time home buyer in the Northeast. You cannot dollar cost average or rebalance into a house like you can with stocks. All I need to do to convince myself of this is to look at my peers who are buying houses. The vast majority have no business doing so, and the only reason they're able to get in to the market is by putting 0-5% down. The most common refrain I've heard is "I'll just wait a couple years for the price to go up to get rid of PMI." I have relatives who are real estate agents in my local area, and during the past year their clients have started having to overbid by 5-10% of the list price in order to get the house. Definitely a seller's market. The wannabe house flippers who have no experience other than watching HGTV are starting to pop up again, too.

No thanks, I'd rather have more money in my 3 Fund Portfolio.

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lthenderson
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Re: My fear about buying a house justified?

Post by lthenderson » Thu Oct 26, 2017 9:56 am

remomnyc wrote:
Thu Oct 26, 2017 9:29 am
Continue to rent your one bedroom and offer to pay for a hotel for close family/friends to visit. It would be cheaper than buying or renting a 2-bedroom if you don't need the space except for guests.
+1 on this advice.

I just see a lot of things that can go wrong. Your spouse could lose their job or become unable to work and now you have only 25k in savings, very little retirement savings and only 13k coming in with a bank expecting payments or they foreclose. Those sorts of things would keep me up at night.

Riley15
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Re: My fear about buying a house justified?

Post by Riley15 » Thu Oct 26, 2017 9:57 am

I tend to differ in opinion than all others. I will say go ahead and buy if you plan to settle in the area. There's a lot of things some of the responses are not taking into account. First and foremost, you'll be be building equity in a home which is also a form of investment, retirement or otherwise. Not to mention, the mortgage interest and property tax deduction which will reduce your taxable income. There is no lost opportunity cost if the returns in investment accounts don't outperform real state. Neither one is guaranteed to appreciate and you can gain/lose money either way. You'll be increasing your quality of life, is there no ROI in that.
Last edited by Riley15 on Thu Oct 26, 2017 10:00 am, edited 1 time in total.

student
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Re: My fear about buying a house justified?

Post by student » Thu Oct 26, 2017 9:59 am

I would be worried about buying too. At first glance, $50,000 in retirement account is not enough. However, if your husband gets a good government pension, it may be ok.

fishmonger
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Re: My fear about buying a house justified?

Post by fishmonger » Thu Oct 26, 2017 10:03 am

I don't think you can afford this. Buying a place that is over 4x your annual income is not smart. There will be folks chiming in saying that living in HCOL area like DC you have to change the rules, but you are also quite behind on retirement savings

TonyDAntonio
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Re: My fear about buying a house justified?

Post by TonyDAntonio » Thu Oct 26, 2017 10:11 am

I have no scientific opinion here but I will make post some thoughts:

1. Had I been reading this site before we bought our first house we may not have bought any house.
2. Had I been reading this site before we had kids (twins no less) we may not have had kids.
3. We couldn't afford to live and buy in the SF Bay Area, at least in the nearby areas, so we rented and then bought in the much cheaper suburbs.
4. The cost of housing right now has far outpaced most salaries, at least in some Urban areas, so it does appear much much harder to buy a home. My kids, ages 32, are experiencing this.
5. Having kids and buying, and paying off, a house have been two of the best decisions we've ever made.
6. I'm glad we were young and didn't over think these decisions.

I'll stop.

Nate79
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Re: My fear about buying a house justified?

Post by Nate79 » Thu Oct 26, 2017 10:19 am

If you plan to stay in the condo for many years then yes I would seriously consider buying. The cost for rent vs buy are almost the same and part of the mortgage payment goes toward asset value. However, I would make sure in the calculation that you can put a reasonable percentage to retirement as well.

Do you want to be a renter or a home owner for the rest of your life? What do you and your spouse see for your life long term in terms of owning vs renting? I also think the comparison to 2Br apt is the proper comparison. If you guys want a 2Br then you should upgrade instead of being miserable. There is always something cheaper around the corning - you could live in a cardboard box on the street and that would be much cheaper.....

msk
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Re: My fear about buying a house justified?

Post by msk » Thu Oct 26, 2017 10:29 am

My rules-of-thumb that have worked very well for me from my 20s to early retirement at age 55:

Save and invest 30% of after-tax income. Building up equity in your home counts in here, but not paying interest in a mortgage.
Never buy a home worth more than 3x annual income. $300k max for a home would be sensible in your case, 500k is not, IMHO
Never acquire a car or cars worth more than 6 months income.

Good luck at arriving at a sensible decision. Renting a house is invariably much cheaper in an over-heated RE market than owning it. All those landlords in London, San Francisco, Vancouver, etc. are betting on capital appreciation to balance their books, one day. If you decide to join the betting with them, do so with eyes wide open. Sometimes it does work out :moneybag

randomguy
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Re: My fear about buying a house justified?

Post by randomguy » Thu Oct 26, 2017 10:41 am

KlangFool wrote:
Thu Oct 26, 2017 8:48 am
mbdav wrote:
Thu Oct 26, 2017 8:30 am

So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.
mbdav,

It is cheaper to rent by a large margin. Why would you buy? The opportunity cost of 160K downpayment is at least 8K per year with a conservative return rate of 5%.

KlangFool
Funny that most people here think 5% is super aggressive return and that you should be using 1-2%.:)

It is very close.
House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100
So buying the same house is cheaper. The question is does the added bedroom add enough value to your life to pay for it? That is a personal choice.

And obviously all this assumes that 2 bedrooms will be enough (i.e. you don't decide in 3 years to have triplets), move in the short term, and so on.

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Meg77
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Re: My fear about buying a house justified?

Post by Meg77 » Thu Oct 26, 2017 11:00 am

mbdav wrote:
Thu Oct 26, 2017 8:30 am
The reason we have more cash in our savings account than in the retirement account is that we were hoping to buy a house in the area for the last two years. The market has been really hot, unfortunately, and it has been very difficult to find anything affordable & likable for us...So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.
You've been thinking about buying for two years and have saved a large pot of cash toward that goal. Assuming you plan to stay in DC for the long term, I would endorse going ahead and buying. It's a goal you've saved for and have enough money to make a reality - that's what personal finance is all about. Of course there are cheaper ways to live, but that's always the case.
mbdav wrote:
Thu Oct 26, 2017 8:30 am
My husband’s monthly income after tax/insurance/thrifty savings is about $5200, rent $1700. We save about $2500 monthly. If we buy the condo it will leave us about $25,000 in cash initially. And our saving rate would decrease. It seems doable, but I do have reservation/fear about losing the financial ease we feel currently.
It's great that you're saving half your after tax income. That large savings rate has enabled you to amass a large pile of cash and also makes you feel safe and secure. You're right that buying this home will slash your savings rate which will in turn reduce your financial flexibility and increase the number of years your husband will have to stay in the workforce before you can afford to retire. Many people make that tradeoff. It is "doable" of course - but it is also "doable" to spend 30-40 years working before you retire and "doable" to live paycheck to paycheck, as most people do. It's also "doable" to save half your take home pay for a decade or maybe two and then retire in your 40s. It's all about choices.
mbdav wrote:
Thu Oct 26, 2017 8:30 am
We feel comfortable with our current arrangement. But of course, our current place a 1BR condo, and we can’t have a guest or family members staying with us.
This is not a good reason to buy a larger home. People in high cost of living cities - even people who make a lot more than you and your husband - are not expected to have larger homes in order to provide guest bedrooms for family members or friends. It's not rude to refer guests to airbnb or a hotel.
mbdav wrote:
Thu Oct 26, 2017 8:30 am
Is my fear justified? Any thoughts/advice would be very appreciated.
Since you asked, if you were to earn more it would help to keep your savings rate high even if you choose to buy, and it would likely reduce your financial insecurities and make you feel more empowered in general.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Atgard
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Re: My fear about buying a house justified?

Post by Atgard » Thu Oct 26, 2017 11:06 am

You really need more details to do the true rent vs. buy calculation. While rent is a nice easy number, the true cost of owning a house is more like:

Monthly mortgage payment + HOA fees + home insurance + property taxes + maintenance costs (hard to estimate but 1% of house value/yr is rule of thumb) + opportunity cost of down payment not earning anything + extra services (yard? pest control? extra utilities that were covered in rent?), - amount of principal payment - mortgage interest income tax deduction beyond standard deduction (if any).

So there are quite a few moving parts to calculate beyond "rent vs. mortgage payment."

Then, of course, there are non-monetary factors, like feeling of owning something vs. flexibility to move, etc. And all of that is assuming an apples to apples comparison of buying or renting the same unit, whereas usually it's more like renting a 2-bedroom apartment vs. buying a 3 or 4-bedroom house & yard...

I can't say what the right choice is for YOU, but I will say (as a recent homeowner after long-time renter) NOT to listen to people that "you're throwing money away renting" or "you'll miss out if you don't buy" or whatever. While homeownership DOES encourage some non-savers to "accidentally" save up equity in the house, for a diligent saver/investor you are likely to do as well or better over time by saving the difference and investing it according to Boglehead principles.

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Re: My fear about buying a house justified?

Post by Grt2bOutdoors » Thu Oct 26, 2017 11:06 am

Chadnudj wrote:
Thu Oct 26, 2017 8:36 am
Why not rent the 2 bedroom condo? It would cost you $2500 a month vs. $2800 for mortgage ($2500) plus HOA ($300), but would leave your cash untouched.

You could then invest the $200k cash and $160k in CDs into a stock/bond allocation that makes sense for you, with a goal to bump up those retirement savings ($50k at 40 isn't too much for the Boglehead crowd).

Seems to me like that would be the smarter economic choice. If you can rent for less than you'd buy, the smart choice is to rent.
Some Boglehead members can be out of touch since the uber earners and uber savers fail to realize how most of America lives. The OP also has a pension, that is worth considerably more than $50k. The OP should not invest monies needed in 5 years or less in the market.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: My fear about buying a house justified?

Post by Grt2bOutdoors » Thu Oct 26, 2017 11:13 am

fishmonger wrote:
Thu Oct 26, 2017 10:03 am
I don't think you can afford this. Buying a place that is over 4x your annual income is not smart. There will be folks chiming in saying that living in HCOL area like DC you have to change the rules, but you are also quite behind on retirement savings
They have a government pension that could be worth 30% of final salary, not including social security. They are not that far "behind".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

feehater
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Re: My fear about buying a house justified?

Post by feehater » Thu Oct 26, 2017 11:23 am

barnaclebob wrote:
Thu Oct 26, 2017 9:39 am
How much is a condo in a moderately nice DC area instead of a very nice DC metro area?
That's what I was wondering about. DC is expensive, but it's not NYC. You can go a few more miles west of Bethesda or a few miles south of Vienna and buy a perfectly nice single family home for around that price. Especially if schools for kids aren't an issue. I hope your husband will have an awesomely short commute at that price point!

Edited to add: I just read your previous post and see that your husband can bike to work and you don't have to own cars. Now I'm thinking it might be worth it to preserve that quality of life.

p0nyboy
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Re: My fear about buying a house justified?

Post by p0nyboy » Thu Oct 26, 2017 11:28 am

If you buy you will be house poor. Keep renting...keep socking away money. Start to beef up your retirement account.

michaeljc70
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Re: My fear about buying a house justified?

Post by michaeljc70 » Thu Oct 26, 2017 11:31 am

Assuming that the condo for sale is truly equivalent to the $2500 rental, I would be concerned. Buying in any hot market would make me concerned. However, it is similar to the stock market. What if the market remains hot for 10 years and prices continue to rise? Then the rents most likely will rise accordingly.

I find a lot of these comparisons between renting/buying not that accurate as rentals often aren't as nice as condos, aren't the same size, location, etc. so it is not apples to apples.

runner540
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Re: My fear about buying a house justified?

Post by runner540 » Thu Oct 26, 2017 11:51 am

michaeljc70 wrote:
Thu Oct 26, 2017 11:31 am
Assuming that the condo for sale is truly equivalent to the $2500 rental, I would be concerned. Buying in any hot market would make me concerned. However, it is similar to the stock market. What if the market remains hot for 10 years and prices continue to rise? Then the rents most likely will rise accordingly.

I find a lot of these comparisons between renting/buying not that accurate as rentals often aren't as nice as condos, aren't the same size, location, etc. so it is not apples to apples.
+1 good comments. I'm a renter as well.

Current prices in many markets make economic sense ONLY if you believe that the home will appreciate fast.

Case in point: house down the street is for sale. Went to the open house and it's a Very good comp for the house we rent. People talk about "throwing money away on rent". But, by my calculations, the taxes + insurance + maintenance on that house would be about the same as our rent (say $1500). So even if I pay cash for the house (say $300k) I'm still "throwing away" the same monthly nut, but now instead of having $300k in a diversified, liquid investment, I have a concentrated, illiquid position. In both scenarios, I'm shelling out the same amount for a place to live, and none of it is building equity.

No reason to buy for me. It makes sense only if I think the house will appreciate faster than my investments, and by enough to compensate for the added risk.

From our landlord's perspective, they bought the house when it was much cheaper than the one down the street, and have a much lower tax bill. Buying it now would not make sense. Plus, tons of new rental units are coming online soon in the area.

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MikeWillRetire
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Re: My fear about buying a house justified?

Post by MikeWillRetire » Thu Oct 26, 2017 11:55 am

I can provide my experience as one data point. When we bought our house in the DC suburbs 24 years ago, our mortgage was twice our combined incomes. We were also government employees like you with little saved for retirement. We were able to raise two children, pay for daycare/private schools/public university, and still were able to save on average about 9% per year (plus 5 % matching) into our retirement account.

It sounds like your mortgage will be 3 times your income, which may be doable provided you aren't planning to have children in daycare, private schools, etc.

mbdav
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Re: My fear about buying a house justified?

Post by mbdav » Thu Oct 26, 2017 3:27 pm

Thanks all for the comments! I think we will skip the condo. Perhaps in a year or so we will revisit the subject.

About the retirement savings, I think we are very behind as you all pointed out. My husband tells me his Thrifty savings plan has 3% rate, which probably is not very high. He's been a government employee only since 2015.

From what I gather saving $2500 per month does not compensate/compare to contributing to retirement savings and investing. Is that correct?

My only exposure to retirement savings is contributing for two years to Vanguard Roth IRA(S&P index & 30 year target). After that we put our money in savings account(thinking to buy a house). We have zero experience in investing. The only reason I was introduced to Vanguard was my husband's previous employer offered Vanguard IRA. This is to say how illiterate we are financially. 8-)

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Artsdoctor
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Re: My fear about buying a house justified?

Post by Artsdoctor » Thu Oct 26, 2017 3:51 pm

mbdav wrote:
Thu Oct 26, 2017 3:27 pm
Thanks all for the comments! I think we will skip the condo. Perhaps in a year or so we will revisit the subject.

About the retirement savings, I think we are very behind as you all pointed out. My husband tells me his Thrifty savings plan has 3% rate, which probably is not very high. He's been a government employee only since 2015.

From what I gather saving $2500 per month does not compensate/compare to contributing to retirement savings and investing. Is that correct?

My only exposure to retirement savings is contributing for two years to Vanguard Roth IRA(S&P index & 30 year target). After that we put our money in savings account(thinking to buy a house). We have zero experience in investing. The only reason I was introduced to Vanguard was my husband's previous employer offered Vanguard IRA. This is to say how illiterate we are financially. 8-)
You are not illiterate. And welcome to the forum.

Spend some time reading the basics on the Wiki here. You won’t be disappointed.

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bottlecap
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Re: My fear about buying a house justified?

Post by bottlecap » Thu Oct 26, 2017 4:02 pm

Your fear is absolutely justified.

And the fact that you have fear just thinking about it will make the reality worse every month when you come up short of your goals.

The only thing that would make it easier is that you don't have kids, so it would just be you fretting and going without when you do.

You seem to be doing fine right now. Guests can be put up in hotels.

I wouldn't sacrifice peace of mind to be able to put up a guest now and again.

Good luck,

JT

rebellovw
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Re: My fear about buying a house justified?

Post by rebellovw » Thu Oct 26, 2017 4:08 pm

TonyDAntonio wrote:
Thu Oct 26, 2017 10:11 am
I have no scientific opinion here but I will make post some thoughts:

1. Had I been reading this site before we bought our first house we may not have bought any house.
2. Had I been reading this site before we had kids (twins no less) we may not have had kids.
3. We couldn't afford to live and buy in the SF Bay Area, at least in the nearby areas, so we rented and then bought in the much cheaper suburbs.
4. The cost of housing right now has far outpaced most salaries, at least in some Urban areas, so it does appear much much harder to buy a home. My kids, ages 32, are experiencing this.
5. Having kids and buying, and paying off, a house have been two of the best decisions we've ever made.
6. I'm glad we were young and didn't over think these decisions.

I'll stop.
I completely agree - best decision ever - and best decision joining this site. The poster is in their 40's - we had our first house in our 30's - it was tough and stressful (two kids) - the Bay Area and we were mortgaged to the hilt - and lived in the burbs - that house increased in value and we were able to buy our second house - and did well with that house. We did well with real estate - that wasn't our intention - we just wanted a house. Lower the expectations - buy a fixer upper - have a commute - I can't imagine it being worse than a Condo.

I'd for sure buy a house vs a Condo as well.

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BolderBoy
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Re: My fear about buying a house justified?

Post by BolderBoy » Thu Oct 26, 2017 9:04 pm

mbdav wrote:
Thu Oct 26, 2017 8:30 am
My husband works for government with yearly gross $109,000. My part time work earns about $13,000 yearly.

Any thoughts/advice would be very appreciated
Yeah, if you get a job making a lot more money, you can do it. Otherwise it is going to be a real stretch and you may feel house-poor.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

venkman
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Re: My fear about buying a house justified?

Post by venkman » Thu Oct 26, 2017 9:58 pm

mbdav wrote:
Thu Oct 26, 2017 8:30 am
My husband’s monthly income after tax/insurance/thrifty savings is about $5200, rent $1700. We save about $2500 monthly. We feel comfortable with our current arrangement. But of course, our current place a 1BR condo, and we can’t have a guest or family members staying with us.
I highlighted the part that I think should guide your decision. :happy

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boomer
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Re: My fear about buying a house justified?

Post by boomer » Thu Oct 26, 2017 10:48 pm

I would say keep renting your one bedroom. Buy a nice high queen-size air mattress with a built-in pump, or get a sofa with a good quality pull-out mattress for when people stay over. Or you can buy them a hotel room nearby, or contribute to the cost of a hotel room, however you see fit. Either way is much more cost-effective than buying or renting more house than you actually need. I have done both and it has worked out well.

randomguy
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Re: My fear about buying a house justified?

Post by randomguy » Thu Oct 26, 2017 11:08 pm

MikeWillRetire wrote:
Thu Oct 26, 2017 11:55 am
I can provide my experience as one data point. When we bought our house in the DC suburbs 24 years ago, our mortgage was twice our combined incomes. We were also government employees like you with little saved for retirement. We were able to raise two children, pay for daycare/private schools/public university, and still were able to save on average about 9% per year (plus 5 % matching) into our retirement account.

It sounds like your mortgage will be 3 times your income, which may be doable provided you aren't planning to have children in daycare, private schools, etc.
You both would have roughly the same monthly payments. Assume you were both making 100k/year

Yours: 200k @8% = 1473
Hers: 300k @4% = 1432

Need to throw in taxes and insurance and the like to make it really accurate.

If I planned on living in the area for 10+ years I would buy. If I wasn't sure I would rent.

Nearly A Moose
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Re: My fear about buying a house justified?

Post by Nearly A Moose » Fri Oct 27, 2017 3:06 am

I live in DC. I honestly can't figure out how people do it in this city on government salaries alone (that's not a knock on government work - I think a lot of government workers in DC are undercompensated). If you're just trying to get more guest space, I don't think buying makes sense. I'd just either rent a 2br place or a I br placed that had a layout that gives you a bit more space in the main living area (eg a I br + den). Or if you feel you have enough space in the living area for guests, get the nice air mattress someone mentioned or go to Room and Board and splurge on a nice hideaway sofa. Buying a condo in Bethesda or Arlington or something would be nice, but I don't really know you get all that much more than you do renting under that scenario, and I agree you'd probably feel house poor, which stinks. Btw, you could rent a rowhome in the Hill for what you're looking at - walkers/bikers paradise.

You might want to make a post more generally about your long-term financial plan based on your comments. I agree you have a large skew towards cash, and it sounds like you may not be taking maximum advantage of your tax deferred accounts. I also assume your husband is a federal govt employee based on the reference to the "Thrifty" savings plan (I assume you mean the Thrift Savings Plan /TSP). You can count things like a pension in your retirement planning, but that assumes you will stay a Fed long enough to get the whole thing. Also, earning a 3% return in the current environment suggests you're invested pretty conservatively - presumably the F fund (a general bond fund) - although I think the default is if you don't make any specific selections, all TSP contributions but default go into the G fund. So it might be with reassessing whether you're making your money work hard enough for your. Finally, my position is that you count anything you're saving to spend in retirement as "retirement savings." That money could be saved in tax-defered or tax-preferenced retirement plans, it could be saved in a taxable account, or both. But if it's saved in a taxable account for buying a house, it's "savings" but not "retirement savings." So again, posting separately on the larger financial plan (which could still include buying a home) might be helpful.

Finally finally, as another poster asked in a well-meaning way, is there a particular reason you're working part time rather than pursuing a full time job? There are any number of reasons why that would be fine, so I ask only because raising family income is one way to help make financial concerns go away, especially if you don't increase your spending in the process.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

edge
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Re: My fear about buying a house justified?

Post by edge » Fri Oct 27, 2017 3:24 am

Many of the ones that have pensions spend all their income.
Nearly A Moose wrote:
Fri Oct 27, 2017 3:06 am
I live in DC. I honestly can't figure out how people do it in this city on government salaries alone (that's not a knock on government work - I think a lot of government workers in DC are undercompensated). If you're just trying to get more guest space, I don't think buying makes sense. I'd just either rent a 2br place or a I br placed that had a layout that gives you a bit more space in the main living area (eg a I br + den). Or if you feel you have enough space in the living area for guests, get the nice air mattress someone mentioned or go to Room and Board and splurge on a nice hideaway sofa. Buying a condo in Bethesda or Arlington or something would be nice, but I don't really know you get all that much more than you do renting under that scenario, and I agree you'd probably feel house poor, which stinks. Btw, you could rent a rowhome in the Hill for what you're looking at - walkers/bikers paradise.

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jadd806
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Re: My fear about buying a house justified?

Post by jadd806 » Fri Oct 27, 2017 8:19 am

mbdav wrote:
Thu Oct 26, 2017 3:27 pm
About the retirement savings, I think we are very behind as you all pointed out. My husband tells me his Thrifty savings plan has 3% rate, which probably is not very high. He's been a government employee only since 2015.
Your husband should increase his Thrift Savings Plan contribution to at least 5%. He is missing out on free matching money. I believe he is getting 4% matching for his current 3% contribution (7% total). If he contributes 5%, he will get an extra 1% matching money for a 10% total contribution.

If he never bothered to increase his contribution to 5%, it's possible he never bothered to change his contribution allocations. By default, all of his investments would be going to the G Fund, which is a bond fund. In your situation, I would recommend using the L Fund which most closely aligns with his targeted retirement year. If he hasn't been doing this, he will want to do a contribution allocation change to put all future TSP contributions in that fund, as well as an interfund transfer to move the money currently in his account to that fund. The L Funds are very good target date funds for a hands-off approach to investing. Personally I'd recommend contributing more to the TSP (potentially even maxing it out, given that you have $2500/month of free cash flow and your house fund appears to be very healthy).

lostdog
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Re: My fear about buying a house justified?

Post by lostdog » Fri Oct 27, 2017 8:21 am

We have no kids and bought a house back in 2003. It's paid off. If I could go back in time we would not have bought a house. We're selling our house next Spring and putting our money in more productive assets.

I suggest renting. Keep things simple. Keep your peace of mind.
Last edited by lostdog on Fri Oct 27, 2017 8:28 am, edited 2 times in total.

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dumbbunny
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Re: My fear about buying a house justified?

Post by dumbbunny » Fri Oct 27, 2017 8:23 am

student wrote:
Thu Oct 26, 2017 9:59 am
I would be worried about buying too. At first glance, $50,000 in retirement account is not enough. However, if your husband gets a good government pension, it may be ok.
This.
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"

KlangFool
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Re: My fear about buying a house justified?

Post by KlangFool » Fri Oct 27, 2017 8:38 am

randomguy wrote:
Thu Oct 26, 2017 10:41 am
KlangFool wrote:
Thu Oct 26, 2017 8:48 am
mbdav wrote:
Thu Oct 26, 2017 8:30 am

So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.
mbdav,

It is cheaper to rent by a large margin. Why would you buy? The opportunity cost of 160K downpayment is at least 8K per year with a conservative return rate of 5%.

KlangFool
Funny that most people here think 5% is super aggressive return and that you should be using 1-2%.:)

It is very close.
House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100
So buying the same house is cheaper. The question is does the added bedroom add enough value to your life to pay for it? That is a personal choice.

And obviously all this assumes that 2 bedrooms will be enough (i.e. you don't decide in 3 years to have triplets), move in the short term, and so on.
randomguy,

My mistake.

It is between renting 1 BR Condo ($1,700) versus buying 2BR Condo ($2,800). My usual observation applies. People justify their purchase decision by comparing apple and orange. OP do not plan to rent a 2BR Condo.

KlangFool

Riley15
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Re: My fear about buying a house justified?

Post by Riley15 » Fri Oct 27, 2017 9:16 am

mbdav wrote:
Thu Oct 26, 2017 3:27 pm
Thanks all for the comments! I think we will skip the condo. Perhaps in a year or so we will revisit the subject.

About the retirement savings, I think we are very behind as you all pointed out. My husband tells me his Thrifty savings plan has 3% rate, which probably is not very high. He's been a government employee only since 2015.

From what I gather saving $2500 per month does not compensate/compare to contributing to retirement savings and investing. Is that correct?

My only exposure to retirement savings is contributing for two years to Vanguard Roth IRA(S&P index & 30 year target). After that we put our money in savings account(thinking to buy a house). We have zero experience in investing. The only kreason I was introduced to Vanguard was my husband's previous employer offered Vanguard IRA. This is to say how illiterate we are financially. 8-)
You’re not financially illiterate. You’re doing better than 90%+ of people your age, don’t fret. Sometimes ignorance is bliss!

rebellovw
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Re: My fear about buying a house justified?

Post by rebellovw » Fri Oct 27, 2017 9:48 am

I think perhaps you are being too picky about your first house. A first house should be a fixer upper. Perhaps you are looking for a perfect turn key house which is going to come at an inflated price.

I think this is cute- but I don't know the area:

https://www.realtor.com/realestateandho ... 42#photo17

I can't imagine it being worse than living in a condo. Condo's have no space and absolutely no privacy. Not to mention all the noise from neighbors (on top below and on both sides)- and having to deal with neighbors so close - that would drive me absolutely crazy. And I wouldn't buy a condo (again) as a bad neighbor can affect its price.

Above is just one sample from realtor.com - only criteria I used was single family house and price < 600K. Something like 30 pages.

Typically there are many houses for sale where the owners are old - and the place needs updating and that is what you are looking for. Hopefully you husband is handy - it isn't too tough to get up to speed these days with lowes and home depot classes.

Paint, patching holes in walls - removing carpet, installing new appliances and fixtures is very easy to do yourself. Have a pro do flooring.

Many here think - stay where you are based on your comments that you are comfortable - I do not believe it - I would never be comfortable in a condo - I need a yard - I need privacy - that only comes with a house.

Best of luck!

randomguy
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Re: My fear about buying a house justified?

Post by randomguy » Fri Oct 27, 2017 10:02 am

KlangFool wrote:
Fri Oct 27, 2017 8:38 am
randomguy wrote:
Thu Oct 26, 2017 10:41 am
KlangFool wrote:
Thu Oct 26, 2017 8:48 am
mbdav wrote:
Thu Oct 26, 2017 8:30 am

So now we are pondering about buying a 2br condo in a very nice DC metro area at $520,000. If we put down $160,000 the monthly mortgage would be about $2500(w hoa $300). The rent for 2br in the area is about $2500 currently.
mbdav,

It is cheaper to rent by a large margin. Why would you buy? The opportunity cost of 160K downpayment is at least 8K per year with a conservative return rate of 5%.

KlangFool
Funny that most people here think 5% is super aggressive return and that you should be using 1-2%.:)

It is very close.
House: 2800-800 (paying off mortgage)-300 (tax savings) + 2-400 (opportunity cost) = 1900-2100
So buying the same house is cheaper. The question is does the added bedroom add enough value to your life to pay for it? That is a personal choice.

And obviously all this assumes that 2 bedrooms will be enough (i.e. you don't decide in 3 years to have triplets), move in the short term, and so on.
randomguy,

My mistake.

It is between renting 1 BR Condo ($1,700) versus buying 2BR Condo ($2,800). My usual observation applies. People justify their purchase decision by comparing apple and orange. OP do not plan to rent a 2BR Condo.

KlangFool
There are two choices
a) Live in a 1 bedroom or a 2 bedroom
b) rent versus buy

A 1 bedroom is cheaper than a 2 bedroom. Buying is likely to be slightly cheapr than renting. Now you might not be willing to commit to 10 years in a 1 bedroom but are for 2 bedroom.

randomguy
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Re: My fear about buying a house justified?

Post by randomguy » Fri Oct 27, 2017 10:07 am

rebellovw wrote:
Fri Oct 27, 2017 9:48 am
I think perhaps you are being too picky about your first house. A first house should be a fixer upper. Perhaps you are looking for a perfect turn key house which is going to come at an inflated price.

I think this is cute- but I don't know the area:

https://www.realtor.com/realestateandho ... 42#photo17

I can't imagine it being worse than living in a condo. Condo's have no space and absolutely no privacy. Not to mention all the noise from neighbors (on top below and on both sides)- and having to deal with neighbors so close - that would drive me absolutely crazy. And I wouldn't buy a condo (again) as a bad neighbor can affect its price.

Above is just one sample from realtor.com - only criteria I used was single family house and price < 600K. Something like 30 pages.

Typically there are many houses for sale where the owners are old - and the place needs updating and that is what you are looking for. Hopefully you husband is handy - it isn't too tough to get up to speed these days with lowes and home depot classes.

Paint, patching holes in walls - removing carpet, installing new appliances and fixtures is very easy to do yourself. Have a pro do flooring.

Many here think - stay where you are based on your comments that you are comfortable - I do not believe it - I would never be comfortable in a condo - I need a yard - I need privacy - that only comes with a house.

Best of luck!
That is pretty much all personal opinion. Some people are fine living in condos (I have spend a decade in them and I have never heard my neighbors. ) and don't want yards. Others do. And without knowing the person you have to way of judging if you have moved the person from a 10 min commute to a 60 min one. Or if you have picked high crime areas. And so on. As always people need to figure out what matters to them and what doesn't.

KlangFool
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Re: My fear about buying a house justified?

Post by KlangFool » Fri Oct 27, 2017 10:11 am

randomguy wrote:
Fri Oct 27, 2017 10:02 am

There are two choices
a) Live in a 1 bedroom or a 2 bedroom
b) rent versus buy

A 1 bedroom is cheaper than a 2 bedroom. Buying is likely to be slightly cheapr than renting. Now you might not be willing to commit to 10 years in a 1 bedroom but are for 2 bedroom.
randomguy,

You are correct. But, people will rent 1BR Condo but buy 2 BR Condo. They would never rent a 2 BR Condo. But, they use the rent of 2BR Condo to justify their purchase of 2BR Condo.

This is the usual game that people play to trick themselves into buying.

We should have a name for this LIE/GAME. It is a very common occurrence.

KlangFool

rebellovw
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Re: My fear about buying a house justified?

Post by rebellovw » Fri Oct 27, 2017 10:39 am

randomguy wrote:
Fri Oct 27, 2017 10:07 am

That is pretty much all personal opinion. Some people are fine living in condos (I have spend a decade in them and I have never heard my neighbors. ) and don't want yards. Others do. And without knowing the person you have to way of judging if you have moved the person from a 10 min commute to a 60 min one. Or if you have picked high crime areas. And so on. As always people need to figure out what matters to them and what doesn't.
Of course it is personal opinion and I don't know the area - that is a given and a commute could easily be negatively affected. Being from the Bay Area - an hour commute sucked - but was a fact of life - buy a nice car stereo.

Anyhow - I find it impossible to believe that you never heard your neighbors - must have been a very nice condo. If I had people living on top of me and can hear them walking around - I'd never get to sleep - I'd stew.

I think it would be rare not to want privacy and a yard - that you can go out into (BBQ) and sit and chill - relax after a tough week at work.

You definitely have to weigh the pros and cons - how do you want to spend the life you have? If the condo has great views, privacy, and dead silence where you can sleep undisturbed - then perhaps stay.

randomguy
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Re: My fear about buying a house justified?

Post by randomguy » Fri Oct 27, 2017 12:01 pm

rebellovw wrote:
Fri Oct 27, 2017 10:39 am
randomguy wrote:
Fri Oct 27, 2017 10:07 am

That is pretty much all personal opinion. Some people are fine living in condos (I have spend a decade in them and I have never heard my neighbors. ) and don't want yards. Others do. And without knowing the person you have to way of judging if you have moved the person from a 10 min commute to a 60 min one. Or if you have picked high crime areas. And so on. As always people need to figure out what matters to them and what doesn't.
Of course it is personal opinion and I don't know the area - that is a given and a commute could easily be negatively affected. Being from the Bay Area - an hour commute sucked - but was a fact of life - buy a nice car stereo.

Anyhow - I find it impossible to believe that you never heard your neighbors - must have been a very nice condo. If I had people living on top of me and can hear them walking around - I'd never get to sleep - I'd stew.

I think it would be rare not to want privacy and a yard - that you can go out into (BBQ) and sit and chill - relax after a tough week at work.

You definitely have to weigh the pros and cons - how do you want to spend the life you have? If the condo has great views, privacy, and dead silence where you can sleep undisturbed - then perhaps stay.
Now imagine that the person here was thinking about a house in Pac Heights and your listing was on in say hunters point (i.e. assuming it is still as crime ridden as a decade ago). I know when I was in the area my mom used to send me listing of places in East Palo Alto saying they looked nice...... And you might be willing to give up 2 hour/day of your life to save a bit of money. Other people people aren't.

Condos have vastly different levels of constructions quality. I had far less noise in my 17th floor one in SF than in a stand along house in the surburbs. In the suburbs you would constantly be hearing the noise of people running their lawn mowers and leaving their dogs outside to bark. In the end it is all about trade offs. Having a BBQ is nice. Walking 2 blocks and being able to be at a dozen nice restaurants was also nice.

I think a lot of what people buy is crazy. But I also realize that I am injecting my values into their lives.

rebellovw
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Re: My fear about buying a house justified?

Post by rebellovw » Fri Oct 27, 2017 12:09 pm

randomguy wrote:
Fri Oct 27, 2017 12:01 pm
rebellovw wrote:
Fri Oct 27, 2017 10:39 am
randomguy wrote:
Fri Oct 27, 2017 10:07 am

That is pretty much all personal opinion. Some people are fine living in condos (I have spend a decade in them and I have never heard my neighbors. ) and don't want yards. Others do. And without knowing the person you have to way of judging if you have moved the person from a 10 min commute to a 60 min one. Or if you have picked high crime areas. And so on. As always people need to figure out what matters to them and what doesn't.
Of course it is personal opinion and I don't know the area - that is a given and a commute could easily be negatively affected. Being from the Bay Area - an hour commute sucked - but was a fact of life - buy a nice car stereo.

Anyhow - I find it impossible to believe that you never heard your neighbors - must have been a very nice condo. If I had people living on top of me and can hear them walking around - I'd never get to sleep - I'd stew.

I think it would be rare not to want privacy and a yard - that you can go out into (BBQ) and sit and chill - relax after a tough week at work.

You definitely have to weigh the pros and cons - how do you want to spend the life you have? If the condo has great views, privacy, and dead silence where you can sleep undisturbed - then perhaps stay.
Now imagine that the person here was thinking about a house in Pac Heights and your listing was on in say hunters point (i.e. assuming it is still as crime ridden as a decade ago). I know when I was in the area my mom used to send me listing of places in East Palo Alto saying they looked nice...... And you might be willing to give up 2 hour/day of your life to save a bit of money. Other people people aren't.

Condos have vastly different levels of constructions quality. I had far less noise in my 17th floor one in SF than in a stand along house in the surburbs. In the suburbs you would constantly be hearing the noise of people running their lawn mowers and leaving their dogs outside to bark. In the end it is all about trade offs. Having a BBQ is nice. Walking 2 blocks and being able to be at a dozen nice restaurants was also nice.

I think a lot of what people buy is crazy. But I also realize that I am injecting my values into their lives.
Yeah - you definitely have to know the area. Having grown up the Bay Area - I knew the areas and have to assume the OP is familiar with DC.

I'd certainly give up backyard BBQ for any food in SF - that is a gold mine of food - which you cannot find ANY where else.

I agree with you - it depends on the pros/cons and the area.

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