Would You Buy This Condo or Continue To Rent ?

[Modeone]

Greetings All,

My spouse and I have been renting the same apartment for the last ten years and it is a space and a neighborhood that we really love. But now the building owner is converting the units to condos and we have an opportunity to buy. Apartment is currently renting for $1,300/mth which is WAY under market for rents in our HCOL area. Currently rents for a similar quality apartments are running $2,000 - $2,500; so if we are to move to another rental in this area, we will be facing a significant increase in our monthly housing expense.

A LITTLE MORE BACKGROUND:

We are in a neighborhood of Newark NJ that is rapidly gentrifying. Rents are increasing like crazy as people are moving out from Manhattan, Brooklyn, Jersey City and beyond looking for lower (lower than NYC ) rents, resulting in the prices here increasing wildly over the last three years. The neighborhood has three different options of public transportation to NYC (about 25-30 min commute time) which is another reason why the area is growing in popularity. Amazon, Whole Foods, Audible etc. have all been moving into the downtown area as well, and there is A LOT of development going on all around.

The apartment itself is really great; top floor with lots of light, view of NYC skyline (if you care about such things) two bedroom, 1200 sq ft, modern refurbished loft style (only two units per floor) and six units total only in building. Two parking spaces come with the unit as well that I could rent for $80/mth each since we don't want to be car owners. I would see this as making the monthly HOA fees ($250) more palatable (-$160 ).

THE DOWNSIDE:

- Apt. is 4th floor WALK-UP, and I'm concerned about the resale potential of this in the future - despite the growing popularity of the neighborhood. I would expect to stay in the apt. for another 7 years min. however, but it is not my idea of a forever home esp. with the stairs!
Wife and I are thinking of relocating to LCOL area in around 7 years - maybe mid-west college town where I was educated, or even overseas since she is from and has family and dual citizenship abroad.
- Even tho we are on the top floor, a portion of the apt. has an attic space over our living rm and second bedroom - that is part of the duplex unit next door. I'm not happy about the sound of people walking about up there, and I think this would annoy me even more if I were to buy-in.
- Another downside is that at the moment, only one of the six units has been sold (to an investor) and we would be the only owner occupied unit at this time. I'm concerned about how this might affect our ability to sell in the future as well, if more owner occupied units don't materialize.

THE DETAILS:

Asking price for unit around $250,000 and I'm only willing to put 10% down. (Dont want to cash out investments for this, just using savings and would still have about two years living expenses in cash left over)
Property Tax = $4,600/yr $383/mth
HOA Fees = $250/mth minus potential rent on parking spaces.

We are in our mid-50's
Little over $300K in retirement accounts (IRA's) and I have an early retirement pension that is currently paying $33,000/yr and I am still working on freelance basis.
Savings = $70,000 cash
Wife also works full time - around $41,000/yr
All total over $75,000 in income per year fixed, and sometimes A LOT more than this due to freelance nature of my work.

Since I'm not happy with where our retirement savings/investment number is at currently for our age, I'm feeling very wary of investing in a condo at this time.
HOWEVER, I've run a lot of the rent v.s. buy calculators, esp. this one: https://michaelbluejay.com/house/rentvsbuy.html
and it seems that even after seven years we still come out ahead by buying, esp. in that our housing expenses would be fixed. The calculator does include possible 5% worst case scenario ? increase in HOA fees per year and also takes int account rent inflation.
Also considering that after we move, we could still rent out the apartment for higher rent than we are paying on mortgage.

The mortgage calculators seem to be showing the following for our monthly expense (with 10% down):
@250,000 purchase price (30 year fixed) 4.7% interest rate & including HOA, tax, insurance = $2,092/mth
@220,000 purchase price = $1857
and so on . . . obviously the lower the purchase price the better it works out for us, and it may be that we can in fact purchase for a lower price.

This would be our first home purchase ever. I'm sure there are a lot more experienced folks on the forum -- and I greatly appreciate anyone who takes the time to slog through my long post and share your thoughts, opinions, and insights We've been torturing ourselves over this decision for months now -- and this makes me feel that maybe this is another sign that it's just not the right thing for us to do at present -- even though moving and renting at a higher rate would be a real drag as well. We are between a rock and a hard place with this but i really do want to make a careful and informed decision for the sake of our financial futures!

I'm torn between making this purchase (potential investment?) OR continuing to rent/save/invest the downpayment amount, and then maybe buying a SFH either here or elsewhere in the future.
Looking at prices in previously mentioned mid-west college town is pure torture -- and for the sake of my own sanity I should probably stop looking at those listings while we are still living and working here

Thanks very much in advance!

[adamthesmythe]

The three things that would most concern me

- apartment conversions tend to make less satisfactory condominiums (you are aware of this, people are more accepting of transmitted noise if they don't own the property)

- hard to tell whether the initial HOA fees are high enough to sustain

- saleability of a top floor unit without an elevator (this you can probably determine by looking at similar units for sale)

This will be a difficult decision, best wishes. There will be no perfect solution.

[pennylane]

Very tough to resell a 4th floor no elevator condo. I would pass just purely on that alone. Check if there's plans to put in an elevator.

[nymeria.stark]

I vote yes, buy it. Locks in your housing costs for the next seven years. Plus, $250,000 for a condo that close to NYC (in a gentrifying neighborhood)...you should be able to get your money back when you sell. Just my

But also think about what improvements might need to be made to your condo or the building itself. Are you looking at significant capital investments over the next 7 years that you'll have to pay out of pocket? We bought a house three years ago, and have since had to replace the water heater, the furnace, do some ductwork, replace a fridge, fix some plumbing and electric...all stuff a landlord would take care of in a rental.

(Not sure I'd look at real estate as an investment or expect to make very much off of it, especially in the short term. But that's a personal preference--I don't like playing that game. Many do.)

[psteinx]

I'm not too familiar with greater NYC real estate, and it's been a long time since I bought real estate (our current suburban, midwestern house), so take my input with a grain of salt.

To some extent your decision needs to be top down, rather than bottom up. i.e. What do you want to do with your lives, rather than, is this particular purchase a good decision? That said, this outside change is impacting you, and perhaps forcing you to confront some of this.

The general thing that strikes me is that your financial situation is not too strong, IMO, for your age and for living in a HCOL area. Granted, it's easy on these forums to get an inflated sense of typical financial norms, but still...

Savings not TOO bad - $370K. But income is relatively modest for mid-50s - $41K for wife, $33K for your pension, and apparently just a trickle from your freelancing? You say all total of* $75K, so that implies very little aside from wife's job and your pension.

[EDIT - OP said "over" - implies at least somewhat more than $75K, but perhaps not too much...]

OK, so $75K + $370K in savings, mid-50s, is not easy street, but neither is it penury. That said, you're in an HCOL area, and you don't really seem to be reaping the benefits. Wife's income of $41K is not too commensurate with an HCOL area. Your pension is presumably fully portable - I assume you'd get the same amount living in Newark, Nashville, or Nicaragua.

So, the real question I think is, how strongly do you feel about the area? You're ambivalent - talking about being there maybe 7 years, then considering other options. If you're say, 80% likely to move within 10 years, then buying real estate is iffy. But if you're 40% likely to move, and more likely to maintain the status quo well into retirement, then securing a condo that you're at least reasonably satisfied with seems pretty reasonable.

You've listed some flaws with your current place, but every dwelling has flaws. If you wait for perfection, you'll be waiting a long time. A 4th floor walk-up probably doesn't work into advanced old age (i.e. you probably don't want to be trudging up the stairs at 80), but if you're both in pretty good health and decent shape now, then I would think it might be reasonable up to one's late 60s/early 70s. Do you see elderly folks around you with high-ish floor walk-ups? How do they do?

As for the pure #s of the potential purchase, a lot has to do with your true rentable alternatives. Comparing the condo purchase o the $1300/mo you've been paying may look bad. But if you'll really be paying close to $2500/mo for the same quality, if you don't buy now, then maybe it's better. I'm not going to crunch the numbers, but ballpark, paying $250K for a condo that you'd otherwise rent for $2500/mo sounds pretty reasonable, if you're going to be there for a decent number of years. Maybe even at an alternative rent of $2000 it might be good - depends on details, number crunching, etc...

[niners9088]

If you decide to buy you should put 20% down to avoid PMI. PMI is typically 0.5-1% on the entire loan amount. So if you put 10% down and take out a $225k loan you will be paying $1125 to $2250 (.005*225000) extra per year. This equates to a 4.5-9% interest rate on the extra $25k needed to avoid the PMI. Couple this with the normal mortgage interest rate and its virtual impossible to find a better return not to mention a risk free return.

[Modeone]

The three things that would most concern me

- apartment conversions tend to make less satisfactory condominiums (you are aware of this, people are more accepting of transmitted noise if they don't own the property)

- hard to tell whether the initial HOA fees are high enough to sustain

- saleability of a top floor unit without an elevator (this you can probably determine by looking at similar units for sale)

This will be a difficult decision, best wishes. There will be no perfect solution.

Agree with all of the above. Thank you!

[Modeone]

I vote yes, buy it. Locks in your housing costs for the next seven years. Plus, $250,000 for a condo that close to NYC (in a gentrifying neighborhood)...you should be able to get your money back when you sell. Just my

This has been my thinking as well, however the lack of elevator really worries me. I think it automatically limits my pool of potential buyers in the future. I know this is not the case in NYC, but here not so sure. Landlord did do a study to see if elevator could be installed, but for various structural reasons it is not possible, or prohibitively expensive, hard to get a complete answer from him regarding this.

Thanks very much for your reply

[Modeone]

To some extent your decision needs to be top down, rather than bottom up. i.e. What do you want to do with your lives, rather than, is this particular purchase a good decision? That said, this outside change is impacting you, and perhaps forcing you to confront some of this.

The general thing that strikes me is that your financial situation is not too strong, IMO, for your age and for living in a HCOL area. Granted, it's easy on these forums to get an inflated sense of typical financial norms, but still...

Thank you very much for taking the time to give this detailed response to my post. I really appreciate it

You certainly hit the nail on the head re: "thinking of what you want to do with your lives" I think this is what I've been grappling with underneath and aside from the financial decision. Agreed too, about our financial situation being 'not too strong' I think this is what makes the decision feel all the more fraught.

It sure is a strange thing to experience this sort of gentrification and insane increase in COL. It has just exploded on us in what seems like overnight. I've always read about it, having lived in and around the NYC area for 30 yrs, but never thought I'd experience it quite so personally. Makes me want to finally be done with the area, but wife has ties here and work that she loves. That complicates things a bit more -- at present anyway.

Thanks again!

[Pajamas]

You like where you live and you have been there quite some time but don't buy the apartment you are in by default. If you are going to buy an apartment, look at and carefully consider other apartments before deciding to buy.

The lack of sales might not bother me depending on how long the apartments have been on the market, but one investor buying six would make me think twice. You don't want to end up paying to own and live in a rental building, especially if one or a few people can control the board.

Fourth floor walkups are also somewhat iffy. They are fine when you are young but even then, getting anything in or out is a pain, even groceries, as I'm sure you're well aware. Someone with a baby or who has visitors who are mobility impaired or who becomes mobility impaired even temporarily might find it to be a major problem. You might even consider buying a different apartment in your current building if you do decide to buy.

[Modeone]

If you decide to buy you should put 20% down to avoid PMI. PMI is typically 0.5-1% on the entire loan amount. So if you put 10% down and take out a $225k loan you will be paying $1125 to $2250 (.005*225000) extra per year. This equates to a 4.5-9% interest rate on the extra $25k needed to avoid the PMI. Couple this with the normal mortgage interest rate and its virtual impossible to find a better return not to mention a risk free return.

Agreed. Thank you for breaking this down for me!

[57Ab90tH4]

As an aside, housing prices (and rents) are skyrocketing in most major metropolitan areas. (It isn't just NY metro).

As one of the first potential owners to buy in, you would be involved in setting up a new board for your condo association. If units quickly sell out to high quality owners, it could work out but still be a fair amount of work. If sales lanquish or you get deadbeats, well...you can see the problems that could develop.

Good luck with your decision. I was raised in East Brunswick, my Dad owned a biz in Elizabeth. We moved to MN in 1977.

I love the Twin Cities now and come back East in my RV for my East coast fix when I need one.

[123]

If you landlord is in a "selling" mood your present favorable rent situation could possibly be sold out from underneath you. If the landlord can't sell all the units individually he/she may just sell the remaining units in a bulk sale.

I think you're in a buy or move situation. You have no guarantee that your current favorable rental situation will remain as an alternative with your present landlord or whoever he sells out to.

[Modeone]

If you landlord is in a "selling" mood your present favorable rent situation could possibly be sold out from underneath you. If the landlord can't sell all the units individually he/she may just sell the remaining units in a bulk sale.

I think you're in a buy or move situation. You have no guarantee that your current favorable rental situation will remain as an alternative with your present landlord or whoever he sells out to.

Yes, he is fact talking already about putting the whole thing in a bulk sale this Fall. I agree that we will most likely lose our favorable rent situation here. There is no way that it would make sense for anyone to buy and rent out for $1300/mth. now. thanks for your reply

[BolderBoy]

THE DOWNSIDE:

- Apt. is 4th floor WALK-UP...

Deal breaker for me.

[Pajamas]

This has been my thinking as well, however the lack of elevator really worries me. I think it automatically limits my pool of potential buyers in the future. I know this is not the case in NYC, but here not so sure.

It is the case in NYC that walk-ups have a more limited pool of prospective renters or buyers. One positive factor is that a walk-up is less expensive than an identical apartment with an elevator would be. There are often other factors in this than just the lack of stairs: walk-ups usually have no doorman, the super is probably part-time, residents may have to carry their garbage to the ground floor or basement, etc.

[jimb_fromATL]

... converting the units to condos
... top floor
.... 4th floor WALK-UP
...concerned about the resale potential
... not my idea of a forever home esp. with the stairs!
... only one of the six units has been sold (to an investor) and we would be the only owner occupied unit at this time. I'm concerned about how this might affect our ability to sell in the future as well, if more owner occupied units don't materialize.

... Property Tax = $4,600/yr $383/mth
HOA Fees = $250/mth minus potential rent on parking spaces.

All total over $75,000 in income per year fixed

... considering that after we move, we could still rent out the apartment for higher rent than we are paying on mortgage.

The mortgage calculators seem to be showing the following for our monthly expense (with 10% down)...

I suspect it's going to be very difficult to get a mortgage at a reasonable rate for that condo -- if at all. A lot of lenders won't make normal rate owner-occupied mortgage loans on condos where there is a high percentage of rental units. It's not going to help that they may not be separate units, especially if they share HVAC and utilities. And I doubt that it's going to help that it is a 4th floor walkup.

As for the 10% down, that's a problem. You'll need to put 20% down to get the best rates and to avoid having top pay PMI (Private Mortgage Insurance). PMI protects the lender because they are higher risk that a borrower will default on the loan if times get tough financially, and when the borrow does not have a substantial amount of their own money tied up as equity. I'd guess that a conversion from rental, and the iffy possibility of all the units being sold and/or the neighborhood not going downhill would be another negative in the lender's view.

With 10% down it also sounds like your income may be borderline for qualifying for a mortgage. For a conversion condo with lots of rental units (and a 4th floor walkup) I suspect a lot of lenders and underwriters won't be interested in making the loan. So I'd guess that you might be forced to go with an FHA loan -- IF the building will qualify for FHA backing.

With a 10% down payment and PMI in mind, here is another guesstimate of how much it might cost:

• For a home selling for $240,000 with 10% down ($24,000) the balance to finance would be $216,000.
  
  Adding 1.75% ($3,780) for the up-front mortgage premium and 1.5% closing costs rolled into the loan would make the mortgage a total of $223,020. So you'd need a total of $24,000 due at closing -- plus prepaid proportions for the first partial month's interest and escrow for taxes and insurance.
  
  At perhaps 4.5% for 30 years the payment for P&I would be $1130 per month.
  
  The mortgage insurance premium at an estimated 0.8% of the loan balance would be around $144 per month.
  
  Adding perhaps 2.42% of the home's value for taxes and insurance ($383 tax and $100 insurance = $483 escrow per month) would give you a total payment of $1,757 per month.
  
  Adding HOA/condo fees of $250 per month make your housing cost $2007 month for qualifying for the loan.
  
  Allowing perhaps 1.% of the home's value for annual maintenance and repair expenses, would add another $200 per month you'd need to be able to set aside.
  
  That's a total of about $2,207 per month to own the home, and that's before you heat it cool it and furnish it.

At the FHA normal guideline of about 31% debt to income ratio for the home, and if the lender does not count the maintenance allowance, the $2007 per month ($24088 per year) for housing cost would require an income of about $6,475 per month, $77,704 per year to qualify for the loan.

If the lender includes the maintenance allowance in qualifying, your income would need to be about $85,446 per year. You'll be even further over the normal limit if you have to pay more for the condo.

However, FHA does allow a larger "back end" DTI ratio. Since you don't have a car (or car payment) to add to the back-end ratio of total debt that might be a mitigating factor in qualifying. So assuming no other debts, you may still be in the ballpark with some lenders.

The problem is ... even if you can qualify for the loan does not necessarily mean that you can afford it comfortably.

Your month-to-month cost to live there will be considerably higher than you're paying in rent now. And when something does break or wear out or get clogged, it will be YOU who has to pay to repair it. (You'll You're the landlord/super of your own property. Plus condo owners can be subject to fairly high assessments for unexpected maintenance and repairs to the structure and grounds -- which YOU will have to pay, rather than having a landlord who has to absorb all the extra expenses.

While this could be a great investment opportunity in an area that is gentrifying, it could be a disaster if there's a crash in the economy or real estate market, or if the neighborhood goes downhill instead of up. (Presumably Newark NJ has gone uphill a lot since my impression of it when I spent a few snow and smog-fille months at Ft.Dix in the winter of '65-66.

But even if the area does continue to improve, I suspect that a 4th floor walkup is NOT going to be seeing as much of an increase in value as homes that are more easily and comfortably accessible to a lot more people.

Tough call. Are your jobs fairly portable to other locations? Have you looked into how much income you'd need to live in a comparable home -- either renting or buying -- in a much lower-tax and lower cost-of-living area?

jimb

[Steelersfan]

No comment on the financial aspects but some perspective based on experience as a condo owner and board member.

We have seven three story buildings in our condo association, and none of them have elevators. The buildings are 90 years old. Our top floor units sell for just as such as the lower units. Will one more floor make a difference? Some, but probably not much. If the area is gentrifying that should mean lots of younger folks moving in. It's surprising to me how used you get to climbing up stairs. I do my three flights several times a day with zero difficulty and I'm well into Social Security age. Yet when younger workers come to my unit to fix something they're huffing and puffing straight away.

Will the condo have any restrictions on renting? Ours didn't and we got to more and more rentals, approaching 50% rentals. We passed a by-law change with 75% approval, to prohibit renting except to family members, for anyone who newly purchased a unit. Current owners were grandfathered and can rent as long as they own the unit. We're now below 20% rentals after four years. Two things happened: sales prices went up faster than they had in the past, and the condo has become a quieter, nicer place to live (see number one). Check the proposed Rules And Regulations before you buy.

[Modeone]

I suspect it's going to be very difficult to get a mortgage at a reasonable rate for that condo -- if at all. A lot of lenders won't make normal rate owner-occupied mortgage loans on condos where there is a high percentage of rental units. It's not going to help that they may not be separate units, especially if they share HVAC and utilities. And I doubt that it's going to help that it is a 4th floor walkup.

As for the 10% down, that's a problem. You'll need to put 20% down to get the best rates and to avoid having top pay PMI (Private Mortgage Insurance). PMI protects the lender because they are higher risk that a borrower will default on the loan if times get tough financially, and when the borrow does not have a substantial amount of their own money tied up as equity. I'd guess that a conversion from rental, and the iffy possibility of all the units being sold and/or the neighborhood not going downhill would be another negative in the lender's view.

With 10% down it also sounds like your income may be borderline for qualifying for a mortgage. For a conversion condo with lots of rental units (and a 4th floor walkup) I suspect a lot of lenders and underwriters won't be interested in making the loan. So I'd guess that you might be forced to go with an FHA loan -- IF the building will qualify for FHA backing.

With a 10% down payment and PMI in mind, here is another guesstimate of how much it might cost:

• For a home selling for $240,000 with 10% down ($24,000) the balance to finance would be $216,000.
  
  Adding 1.75% ($3,780) for the up-front mortgage premium and 1.5% closing costs rolled into the loan would make the mortgage a total of $223,020. So you'd need a total of $24,000 due at closing -- plus prepaid proportions for the first partial month's interest and escrow for taxes and insurance.
  
  At perhaps 4.5% for 30 years the payment for P&I would be $1130 per month.
  
  The mortgage insurance premium at an estimated 0.8% of the loan balance would be around $144 per month.
  
  Adding perhaps 2.42% of the home's value for taxes and insurance ($383 tax and $100 insurance = $483 escrow per month) would give you a total payment of $1,757 per month.
  
  Adding HOA/condo fees of $250 per month make your housing cost $2007 month for qualifying for the loan.
  
  Allowing perhaps 1.% of the home's value for annual maintenance and repair expenses, would add another $200 per month you'd need to be able to set aside.
  
  That's a total of about $2,207 per month to own the home, and that's before you heat it cool it and furnish it.

At the FHA normal guideline of about 31% debt to income ratio for the home, and if the lender does not count the maintenance allowance, the $2007 per month ($24088 per year) for housing cost would require an income of about $6,475 per month, $77,704 per year to qualify for the loan.

If the lender includes the maintenance allowance in qualifying, your income would need to be about $85,446 per year. You'll be even further over the normal limit if you have to pay more for the condo.

However, FHA does allow a larger "back end" DTI ratio. Since you don't have a car (or car payment) to add to the back-end ratio of total debt that might be a mitigating factor in qualifying. So assuming no other debts, you may still be in the ballpark with some lenders.

The problem is ... even if you can qualify for the loan does not necessarily mean that you can afford it comfortably.

jimb

Wow! Thanks for all the time you put into answering my question and for your working out the math on this so thoroughly. I am aware of the mortgage insurance and my understanding is that with FHA loans PMI does not go away, unless I refinance. My reluctance to put 20% down is probably a sign that I am not really ready and/or willing to go ahead with this.

I did hear that for the one unit that has sold, the buyer put down more than 20% and it still took some arm twisting and extra work to get the mortgage approved. You are probably right, that it will not be easy to procure.

I will spend some time digesting what you have written above. My conclusion at a glance however is, sadly, that if we want to stay in this neighborhood and have as near equivalent as possible nice apartment -- we will still end up paying $2,000 or more in RENT Unless we accept living in a more downscale place, relocate, or look into a less expensive SFH that needs fixing up etc. There are a few of those around too.

Thanks! You've been an immense help!

[middistancerunner]

Others have made excellent points but I wanted to chime in as someone who was in a not-dissimilar situation. My partner and I were recently asked by our landlords to either buy our condo or accept a substantial rent hike or move. Incidentally, we are also in a ~1200 square ft loft conversion in a growing/gentrifying neighborhood of a VHCOL urban area.

We chose to buy and are *extremely* happy with the decision so far.

Though our condo and rent were both more expensive than yours, like you the price per square foot is way below nearby similar options in our neighborhood, and I think the ultimate financial considerations were pretty similar to yours - our monthly outlay on PITI is very similar to when we were renting, as it sounds like yours would be. So it was kind of a wash financially for us in terms of cash flow (after we handed over most of our savings in the down payment!)

Reasons why it's really great to buy the place you live:
-Much lower transaction costs for buying property; most rent v buy calculators and generic advice assume a lot of ancillary costs associated with buying: the cost of a move, the cost of new furniture and appliances that fit/match the new space, the cost of random repairs you discover right when moving in. Our housing costs temporarily went *down* for a few months when we bought, which is not particularly normal.
-You already have a good idea of exactly how expensive it is to maintain your place, and should have some sense of what maintenance is on the horizon, etc, which helps a lot in terms of planning your cash flow. A big part of the difficulty in buying a house is uncertainty in this domain. For example, we knew the only known pressing maintenance was that water heater is faulty (and its issues would not have been caught by most inspectors... it's the kind of thing you discover when you start using it). We got a discount on the purchase price to replace it, and have some peace of mind that there aren't undisclosed other problems. All in all we had a better sense of the state of repair of our place than our landlords, and that gave us a bit of leverage.
-Fewer surprises, financial and non-financial. You mention noise - as others have said, every house has its problems and downsides. Our place is also nosier than some might like. We know we don't mind it since we've rented here a long time. I've often imagined buying a place and discovering such a problem post-purchase, and have imagined the stress involved in trying to figure out whether you can deal with it or not, after you've already spent your life savings on the down payment...
-You don't lose all the capital improvements you've made to the place as renters. (maybe you haven't made any, but I would guess you have if you've been there ten years!)
-No bidding wars. In our area almost everything is going over asking right now. A condo in our building that is inferior to ours went on the open market a month after we bought, and went over asking in four days, at a price that was 7% higher than what we payed for ours.
-Also, less stress generally in the buying process compared to shopping on the open market.
-Relative to continuing renting, you lock in your housing costs. We were worried we would eventually get priced out of our area due to rising rents.
-BTW, when we plugged into the rent-v-buy calculator on the NYTimes as you did, its answer was basically "you are insane for even considering not buying this."

Other feedback:
-<$300,000 for 1200 square feet seems insanely cheap to me for the NYC area, but I don't know the details of Newark. It seems unlikely the condo would ever go for a premium price due to being a 4th floor walkup, but people make sacrifices all the time to own 1200 square foot loft condos in major urban areas. I would be surprised, if the area continues to gentrify, if there weren't many buyers whenever you decide to sell, despite its deficiencies.
-See if First Republic Bank will do a subsidized mortgage for your area ("Eagle Community Loan"); they work in traditionally redlined neighborhoods and offer deeply discounted interest rates (we have 3.4% on a 30-year fixed, which was originated only 2 months ago, so over a full percentage point below market.), and they pay almost all closing costs. But they are only in a few areas nationally. There may be something similar from another bank if they don't operate there.
-I'd suggest doing research now on your options for places to move -either rent or buy - in Newark. Figure out your next best option if you do move, and price out *all the costs.* I suspect you'll end up paying a lot more in rent, or take a much inferior place, or both.
-If you end up moving to a LCOL area in retirement, you'll be able to buy more with the equity you have from NYC property. Going the other direction is much harder.

Again, I don't understand Newark property or trends, and it is important to figure out if there is a realistic downside scenario where the property substantially depreciates. But if not I'd recommend seriously considering buying it.

[Modeone]

It's surprising to me how used you get to climbing up stairs. I do my three flights several times a day with zero difficulty and I'm well into Social Security age. Yet when younger workers come to my unit to fix something they're huffing and puffing straight away.

I agree with you. This has been my experience as well, including the 'huffing and puffing' of people who aren't used to it daily as we are!

Will the condo have any restrictions on renting? Ours didn't and we got to more and more rentals, approaching 50% rentals. We passed a by-law change with 75% approval, to prohibit renting except to family members, for anyone who newly purchased a unit. Current owners were grandfathered and can rent as long as they own the unit. We're now below 20% rentals after four years. Two things happened: sales prices went up faster than they had in the past, and the condo has become a quieter, nicer place to live (see number one). Check the proposed Rules And Regulations before you buy.

Great advice. I will check out everything. Interesting to hear that sales prices went up. Thanks very much for your info!

[CurlyDave]

Can you buy a similar unit on a lower floor?

If there are more units and only one sold so far, a second floor unit might be ideal. High enough to discourage burglars coming in the window, but low enough that no elevator is not an issue.

[middistancerunner]

Oh also. Like you, when we were first offered to buy the place, we were thinking we could only do 10%, because like you we were caught by surprise and had not been planning for a down payment. As we ran the numbers more and more, we figured out a way to get to 20%, and are very glad we did. We did some not-boglehead-approved tactics like took $10,000 from a Roth IRA. We planned to either roll it back in as 60-day indirect rollover if we could, or keep it out and use the first time homebuyer exception. We ended up rolling it back in so our retirement accounts did not take hit in the end.

And seriously, I'd strongly recommend finding out if you can qualify for any mortgages that are discounted due to your area, and I don't mean FHA (ours isn't FHA). There are federal subsidies that go to banks relating to their origination in low income areas, and this is why First Republic and others have these little-known programs.

[Modeone]

Can you buy a similar unit on a lower floor?

I thought about this too -- but that is "the one" that has already been sold. There is a smaller and darker one bedroom on the 2nd floor still. Not sure I want to make that trade off tho. Thanks!

[Modeone]

Oh also. Like you, when we were first offered to buy the place, we were thinking we could only do 10%, because like you we were caught by surprise and had not been planning for a down payment. As we ran the numbers more and more, we figured out a way to get to 20%, and are very glad we did. We did some not-boglehead-approved tactics like took $10,000 from a Roth IRA. We planned to either roll it back in as 60-day indirect rollover if we could, or keep it out and use the first time homebuyer exception. We ended up rolling it back in so our retirement accounts did not take hit in the end.

And seriously, I'd strongly recommend finding out if you can qualify for any mortgages that are discounted due to your area, and I don't mean FHA (ours isn't FHA). There are federal subsidies that go to banks relating to their origination in low income areas, and this is why First Republic and others have these little-known programs.

Thanks very much! I will look into the First Republic loan programs. You are the second person to mention that to me on the forum today!

[stats99]

Google fourth floor walkup. Looks like in NYC 4th and 5th and even 6th floor walkups are holding their own.

[middistancerunner]

Thanks very much! I will look into the First Republic loan programs. You are the second person to mention that to me on the forum today!

Fingers crossed for you!

Oh and one more thing (sorry this topic makes me very excitable!): "The apartment itself is really great; top floor with lots of light, view of NYC skyline (if you care about such things) two bedroom, 1200 sq ft, modern refurbished loft style (only two units per floor) and six units total only in building.

This sounds lovely and a lot like ours - we have two walls of windows and a great view. We are in our early 30s and it is a common occurrence when our friends walk into our place for the first time that they kind of gasp and then profusely express their jealousy and desire to live somewhere like this. Even if (some) older folks would balk at a walkup, I think many younger folks would make a compromise for that, if it is as lovely as it sounds.

[sport]

Wife and I are thinking of relocating to LCOL area in around 7 years - maybe mid-west college town where I was educated, or even overseas since she is from and has family and dual citizenship abroad.

Why wait 7 years? Move now and the problem disappears. Your wife's low-paying job should not be a deterrent. You can collect your pension anywhere.

[Steelersfan]

Can you buy a similar unit on a lower floor?

If there are more units and only one sold so far, a second floor unit might be ideal. High enough to discourage burglars coming in the window, but low enough that no elevator is not an issue.

The first condo we bought decades ago was a rental that converted to condo. That's exactly what we did with that one.

One advantage of a top floor unit is that you don't get any noise from above, which is the most common complaint we hear from our unit owners when noise is raised as an issue. It does happen from time to time.

Trade offs, trade offs. Life's full of them.

[Modeone]

Others have made excellent points but I wanted to chime in as someone who was in a not-dissimilar situation. My partner and I were recently asked by our landlords to either buy our condo or accept a substantial rent hike or move. Incidentally, we are also in a ~1200 square ft loft conversion in a growing/gentrifying neighborhood of a VHCOL urban area.

We chose to buy and are *extremely* happy with the decision so far.

Though our condo and rent were both more expensive than yours, like you the price per square foot is way below nearby similar options in our neighborhood, and I think the ultimate financial considerations were pretty similar to yours - our monthly outlay on PITI is very similar to when we were renting, as it sounds like yours would be. So it was kind of a wash financially for us in terms of cash flow (after we handed over most of our savings in the down payment!)

Thanks for this very informative reply. Its nice to hear from someone who was thrust into the same situation. If I had control over the situation I would be happiest to just continue renting . . . but you make a very good point about using the equity later in life when relocating to LCOL area. Much to think about and I will definitely look into the "First Republic Loan Programs" Thanks for letting me know about this!

You are also correct too in that there is a savings in not moving and not having to compete in the open market. Having lived here for so long we are completely furnished and set up. It would be a real hassle and expense just to move everything!

Best regards to you

[Modeone]

Thanks very much! I will look into the First Republic loan programs. You are the second person to mention that to me on the forum today!

Fingers crossed for you!

Oh and one more thing (sorry this topic makes me very excitable!): "The apartment itself is really great; top floor with lots of light, view of NYC skyline (if you care about such things) two bedroom, 1200 sq ft, modern refurbished loft style (only two units per floor) and six units total only in building.

This sounds lovely and a lot like ours - we have two walls of windows and a great view. We are in our early 30s and it is a common occurrence when our friends walk into our place for the first time that they kind of gasp and then profusely express their jealousy and desire to live somewhere like this. Even if (some) older folks would balk at a walkup, I think many younger folks would make a compromise for that, if it is as lovely as it sounds.

Same here. Windows and light and view everywhere and we always get this gasping and gushing response from visitors Thanks again!

[baliktad]

My spouse and I have been renting the same apartment for the last ten years
[…]
HOA Fees = $250/mth minus potential rent on parking spaces.

I encourage you to carefully assess your assumptions about the cost to maintain this property before proceeding much further. HOA dues set by a developer should be considered 'bait' to lure in unsuspecting buyers - they are universally set as low as possible in order to maximize the developer's selling price. There is no requirement that dues amounts be realistic or prudent. Ask for the current operating budget and reserve study, but be aware that these are also prepared with the seller's interests in mind.

Condo fees are meant to cover both the operating expenses (electricity, insurance, landscaping, administration, etc.) AND long-term savings for major maintenance and repairs (new roof, new paint, new asphalt, etc.). It is extremely common for developers to massively underestimate or completely omit the savings portion when setting the dues rate on marketable properties. For a property that is at least 10 years old, it is likely that you have some major maintenance items that are due now or coming due soon, which means there should be a reserve fund with 10 years+ worth of savings. I expect that it will be paltry at best if it even exists at all.

My rule of thumb is that reserve savings rate should be approximately equal to the operational expenses rate, but you will need a thorough, independent reserve study to confirm this. In the absence of other information, I would assume that the $250/mo. estimate only covers current operating expenses, and you should expect to spend at least another $250/mo. in dues to contribute towards the reserve fund for long-term expenses. Depending on the age/condition of the building, you might also ballpark $20-$30K (10 years of those reserve contributions) that should be in the reserve for your unit alone. If not, it might be prudent to keep a similar amount on hand after purchasing for the inevitable special assessment that will come due when major repairs arise.

Look around at the property and make a mental note of everything outside your unit on this parcel of land: roofs and gutters, asphalt roads/parking spaces and concrete sidewalks, planters or green spaces, common areas/hallways, stairs and railings, doors or security devices, fire suppression systems, mailboxes, signs, lighting, irrigation/drainage, everything that's not maintained by the city. All of these things wear out and must eventually be repaired or replaced, and you as an owner will ultimately share in the cost of these replacements. These costs are not insignificant and should not be ignored as you make a purchasing decision.

[Steelersfan]

My spouse and I have been renting the same apartment for the last ten years
[…]
HOA Fees = $250/mth minus potential rent on parking spaces.

I encourage you to carefully assess your assumptions about the cost to maintain this property before proceeding much further. HOA dues set by a developer should be considered 'bait' to lure in unsuspecting buyers - they are universally set as low as possible in order to maximize the developer's selling price. There is no requirement that dues amounts be realistic or prudent. Ask for the current operating budget and reserve study, but be aware that these are also prepared with the seller's interests in mind.

Modeone makes good points about developer's incentive to low ball the common charges and to do your due diligence.

As a point of reference, our condominium association consists of 44 units in 7 buildings that were built in the late 1920's and take up almost an entire (small) square block. We don't have any roads, but we do have a parking lot for 44 cars that we maintain and resurface when needed. Our common charges are currently $468 a month and that has gone up slowly the 10 years I've been on the board, mainly to increase our level of reserves.

However, our buildings were built as apartments with central water and gas, so those are paid through our common charges. The water bill pays for everything in the kitchen and bathroom. The gas bill pays for gas usage by the boilers in the basements that heat the units, and the gas ranges in each kitchen. Together they amount to about 1/3 of our common charges.

[Golf maniac]

Sound like the 4th floor walk up is the biggest concern. Check with a good local realtor and discuss what they are seeing in the area and their thoughts.