Luxury condo

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Topic Author
InvestInLife
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Luxury condo

Post by InvestInLife »

Hi everyone, I have my eye on a luxury condo. It is *just about* everything I ever wanted in a living space, with a "million-dollar" skyline view. But the numbers simply don't add up. It could be purchased for $520k, HOA assessments are $950 per month, taxes are $10k/year. The entire unit would rent for $3k/month.

The numbers say never, ever, ever. "I" say, "How can i make this work?" The numbers are winning.

So I am trying to think if there is a way, before I chuck the idea competely and for always. I'm 38, in accumulation stage, 600k equities, 100k CDs & bonds, 300k in local real estate equity. I own four houses which are all being rented out for a net income of $2,000/month. I make between 50-100k salary in a normal year. Living in this condo puts me closer to my industry and so could raise my salary but that is a remote and unquantified possibility.

Even if I purchased the condo and rented it out until I could move in, that's $1k/month profit, or $12k/year, before management fees––which would be essential. So I'd make a little north of $10k/year on a $500k+investment… a 2% cap rate. Compare that to the opportunity cost of leaving half a mill (most of my portfolio) in stocks, and it plainly sucks.

I could put 25% down and mortgage the property, and then the problems compound quickly. Now my monthly mortgage payment is 3,122, resulting in negative cash flow of over $27k, or 19%, per year.

My long-term ideal is to have a condo in each of the two different cities I live and work in. After years of research in the other city, *this* would be *the one.* The numbers say this one will never be possible. Would you agree?
Last edited by InvestInLife on Tue Oct 01, 2019 3:51 pm, edited 3 times in total.
ralph124cf
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Re: Luxury condo

Post by ralph124cf »

That HOA assessment would stop me. What are you getting for that much money?

Try to get association financial data for the last few years to try to judge how the board is managing the associations money. Sometimes a management company runs wild with the association's checkbook.

Ralph
runner3081
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Re: Luxury condo

Post by runner3081 »

ralph124cf wrote: Tue Oct 01, 2019 3:46 pm That HOA assessment would stop me.
And it will keep going up and up.
montanagirl
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Re: Luxury condo

Post by montanagirl »

I don't know how people can handle HOA fees. There is no limit to how high they can go, and owners are liable for others' default.

Which is too bad because a condo would make sense for me otherwise.
catalina355
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Re: Luxury condo

Post by catalina355 »

ralph124cf wrote: Tue Oct 01, 2019 3:46 pm That HOA assessment would stop me. What are you getting for that much money?

Try to get association financial data for the last few years to try to judge how the board is managing the associations money. Sometimes a management company runs wild with the association's checkbook.

Ralph
If the condo is in a city the HOA fee may include utilities, snow clearing, internet etc.
HomeStretch
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Re: Luxury condo

Post by HomeStretch »

Agree about HOA fees.

I don’t see how renting the condo for $3k/mo would give you $1k/mo in profit before management fees. The HOA fee and property taxes are $1,783/mo before factoring in Insurance, maintenance and downpayment/mortgage payment.
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Wiggums
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Re: Luxury condo

Post by Wiggums »

HomeStretch wrote: Tue Oct 01, 2019 4:00 pm Agree about HOA fees.

I don’t see how renting the condo for $3k/mo would give you $1k/mo in profit before management fees. The HOA fee and property taxes are $1,783/mo before factoring in Insurance, maintenance and downpayment/mortgage payment.
I agree. I don’t see how the numbers work. Not sure what your expenses are, but your 50-100k salary in a normal year is another concern.
Last edited by Wiggums on Tue Oct 01, 2019 4:30 pm, edited 1 time in total.
sd323232
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Re: Luxury condo

Post by sd323232 »

Agree with the rest, HOA is deal killer here, and it will only increase. No deal.
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LilyFleur
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Re: Luxury condo

Post by LilyFleur »

They will be maintaining the exterior of your condo for you and all of the common areas. I have a friend with a condo in a high-rise building who has access to a very nice gym with a steam shower and underground parking for himself and his guests, as well as tennis courts, a jacuzzi and a swimming pool, and a very expensive coastal location. One whole wall is windows, and the view is absolutely incredible. They have on-site managers and guarded access to the property.
HOAs can do special assessments for things like new roofs or painting. It's a bit of a wild card, but so is owning a single-family home when you have water damage and have to replumb, etc.
Is there an elevator so that you can age in place? I would talk to the residents and ask how they feel about the HOA management. Would you have a washer and dryer in your unit, or down the hall?
As I get older, I value that the property management company takes care of all of these things for me, including landscaping and gardeners and irrigation. I find keeping the interior of my unit in good repair and up-to-date is enough for me, but I am not a handyman type. I go to the association meetings and volunteer to help, so when I need help from them, they know me and help me out.
As people age, they become less able to maintain a home. Living in a condo can be a relief, especially to one's children (on whose shoulders the maintenance and repairs fall on).
Do the HOA fees include property taxes? Utilities? Enclosed parking? Are there parking spaces available for permitting for overnight guests?
I won't comment on your numbers, as others have done so.
Last edited by LilyFleur on Tue Oct 01, 2019 4:11 pm, edited 1 time in total.
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Watty
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Re: Luxury condo

Post by Watty »

I am confused about what you are trying to do.

Without even crunching numbers the obvious choice would be to rent a condo in that building for $3K a month from someone else and live in it.

Am I missing something?
stoptothink
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Re: Luxury condo

Post by stoptothink »

catalina355 wrote: Tue Oct 01, 2019 3:59 pm
ralph124cf wrote: Tue Oct 01, 2019 3:46 pm That HOA assessment would stop me. What are you getting for that much money?

Try to get association financial data for the last few years to try to judge how the board is managing the associations money. Sometimes a management company runs wild with the association's checkbook.

Ralph
If the condo is in a city the HOA fee may include utilities, snow clearing, internet etc.
Community center, pool, gym, neighborhood park(s), lawn service...ours covers all the aforementioned things and is $200/month. I'd love to see the amenities this place has for 4.75x our cost. The numbers simply don't make sense at all for someone with that level of income.
Last edited by stoptothink on Tue Oct 01, 2019 4:17 pm, edited 1 time in total.
TSR
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Re: Luxury condo

Post by TSR »

Does the HOA allow rentals starting the month you purchase? A lot don't allow them at all, or have a two-year waiting period after purchase, or have restrictions on total number of renters, etc.
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JoeRetire
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Re: Luxury condo

Post by JoeRetire »

InvestInLife wrote: Tue Oct 01, 2019 3:33 pm Hi everyone, I have my eye on a luxury condo. It is *just about* everything I ever wanted in a living space, with a "million-dollar" skyline view. But the numbers simply don't add up. It could be purchased for $520k, HOA assessments are $950 per month, taxes are $10k/year. The entire unit would rent for $3k/month.

I make between 50-100k salary in a normal year.
So rent it, instead of purchasing it.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
investorpeter
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Re: Luxury condo

Post by investorpeter »

InvestInLife wrote: Tue Oct 01, 2019 3:33 pm It could be purchased for $520k, HOA assessments are $950 per month, taxes are $10k/year. The entire unit would rent for $3k/month.

...that's $1k/month profit, or $12k/year, before management fees––which would be essential. So I'd make a little north of $10k/year on a $500k+investment… a 2% cap rate.
What about insurance? repairs? management companies may help find you a plumber but you still have to pay the plumber. what about temporary vacancies when leases end, etc?

The HOA fees and taxes seem out of proportion to the asking rent. Sounds like a building in a death spiral in a troubled municipality. HOA fees keep going up because of delinquent owners, taxes keep going up because of fixed expenses and declining tax revenues, and meanwhile asking rents drop because no one wants to live there. Would stay away from this one (or rent it as the previous post mentioned).
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Sandtrap
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Re: Luxury condo

Post by Sandtrap »

HOA would be a deal killer for me.
1. It will keep going up.
2. "Special assessments" are not under your control and subject to billing on top of the HOA.
3. 2% CAP is not very good at all. Not at all.
4. Suggest rent.

j
Last edited by Sandtrap on Tue Oct 01, 2019 4:34 pm, edited 1 time in total.
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fru-gal
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Re: Luxury condo

Post by fru-gal »

What are you living in now, cost/expenses?
Topic Author
InvestInLife
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Re: Luxury condo

Post by InvestInLife »

HomeStretch wrote: Tue Oct 01, 2019 4:00 pm Agree about HOA fees.

I don’t see how renting the condo for $3k/mo would give you $1k/mo in profit before management fees. The HOA fee and property taxes are $1,783/mo before factoring in Insurance, maintenance and downpayment/mortgage payment.
I have a spreadsheet which calculates all the little things... management fees, including 100/month randomly unexpected fees. After all is counted up, it yields 12k/year without factoring vacancies. Actual rents are from 3000-3200. Actual tax is 97XX, and so on.

Property insurance is included in the HOA... I'm supposed to buy more but am told it isn't that much.
True, any plumber calls would be a hundred bucks here and there. Most things are factored into the HOA, including all utilities except electric (excluding ac). I may be guilty of some rounding. If HOA is just above 10k/year and taxes are just below 10k/year, that's around 20k...plus fees for management and minor repairs, I'd budget for about 2k/month costs.
Mortgage payment is in addition to, as covered in my subsequent paragraph.

This move would not be LBYM. More akin to lifestyle creep, as I suppose with all luxury items.
The larger question is: How do people afford these places? The answer seems to be...they don't. Or for billionaire tycoons only.
I wonder if a time will come when I could do it, but that time doesn't seem to be on the horizon.
Last edited by InvestInLife on Tue Oct 01, 2019 5:20 pm, edited 6 times in total.
Topic Author
InvestInLife
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Re: Luxury condo

Post by InvestInLife »

fru-gal wrote: Tue Oct 01, 2019 4:34 pm What are you living in now, cost/expenses?
I essentially have no overhead. I currently live and work out of a large building I own, and rent out the other spaces. Building is paid off, has low taxes, and pays for itself.
If it ever becomes worth something i have a backup 2 bedroom rental house I could move into for again virtually nothing.

My current location is a bit off the beaten path. I don't mind slumming it up here. It's also why the idea of having a diamond residence in my other big city is appealing.
Last edited by InvestInLife on Tue Oct 01, 2019 5:00 pm, edited 2 times in total.
ohai
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Re: Luxury condo

Post by ohai »

1) If the cap rate is lower than similar properties, then the price could be too high. You can low ball bid for the condo if you believe that is the case.
2) You could just rent the condo if you like living there.

It could just be a messed up pricing situation. In NY, as an example, new condos have been sitting on the market for years in some cases. However, developers would rather these condos go unsold than lower the prices, thus equivalently marking down the prices of all units in the building, many of which were sold for higher prices earlier. I know the prices are too high and the seller knows the prices are too high. However, it does not make sense for either to move.
Topic Author
InvestInLife
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Re: Luxury condo

Post by InvestInLife »

ohai wrote: Tue Oct 01, 2019 4:38 pm 1) If the cap rate is lower than similar properties, then the price could be too high. You can low ball bid for the condo if you believe that is the case.
2) You could just rent the condo if you like living there.

It could just be a messed up pricing situation. In NY, as an example, new condos have been sitting on the market for years in some cases. However, developers would rather these condos go unsold than lower the prices, thus equivalently marking down the prices of all units in the building, many of which were sold for higher prices earlier. I know the prices are too high and the seller knows the prices are too high. However, it does not make sense for either to move.
The unit is on par with others in the area, or arguably a deal. Yelp reviews for this building management are very positive. I got an email from the listing realtor today letting me know they're dropping the price...prompting me to revisit my numbers. I suppose if I had a job offer that was 30k or more higher in that city, it might be worth the move... but that aside, it could put my financial independence at risk.

There's a similarly laid out condo about half this size, at about half the price, with HOA at 550/month, which rents for about half nearby. Yelp reviews point out that building is managed like a discount Vegas hotel...the contrast between the two buildings ("this is the best place I've lived" vs "this is the worst place I've lived") is stark.
averagelonghorn
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Re: Luxury condo

Post by averagelonghorn »

HomeStretch wrote: Tue Oct 01, 2019 4:00 pm
Property insurance is included in the HOA... I'm supposed to buy more but am told it isn't that much.
<SNIP>
The larger question is: How do people afford these places? The answer seems to be...they don't. Or for billionaire tycoons only.
I wonder if a time will come when I could do it, but that time doesn't seem to be on the horizon.
Sorry to be blunt, but:
Short answer: People afford these places by making a lot more than you do.
Other thoughts:
If you put 20% down at 3.5% on a 30 year mortgage, with 10K in property tax and assuming a pretty small insurance rate of 0.68% and typical closing costs for Austin TX (but shouldn't be much less in other places, could definitely be more) you're talking 4005/month. (Yes, I'm including Homeowners insurance.... HOA has insurance on exterior structure and grounds, doesn't cover anything inside your unit.... That's the part you need to insure.... yes, it's cheaper than on a whole single family unit; but not insignificant.)

If your estimate of rental income is right, you're looking at a cash flow of -1k give or take before considering a property manager or depreciation, which I suppose could offset a bit, but still a loss.

Getting back to short answer; this condo is WAY above your means.

Stretching a little to get your "dream house" can be ok; stretching THIS much is asking for trouble.
All Just My Humble Opinion.
Topic Author
InvestInLife
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Re: Luxury condo

Post by InvestInLife »

averagelonghorn wrote: Tue Oct 01, 2019 5:21 pm Sorry to be blunt, but:
Short answer: People afford these places by making a lot more than you do.

Getting back to short answer; this condo is WAY above your means.

Stretching a little to get your "dream house" can be ok; stretching THIS much is asking for trouble.
I think this is a great answer.
Dottie57
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Re: Luxury condo

Post by Dottie57 »

I live in a condo complex with few amenities. No common room, exercise room, tennis court or large outdoor open spaces.
I pay about 375 a month.

Includes

winter heat -baseboard
Outside maintenance (physical structures, mowing, snow removal, plantings, common plumbing)
Cleaning of hallways.
Garage cleaning
Large maintenance fund
Internet
Cable tv

I receive a budget each year so I know line item expenses.
stoptothink
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Re: Luxury condo

Post by stoptothink »

averagelonghorn wrote: Tue Oct 01, 2019 5:21 pm
HomeStretch wrote: Tue Oct 01, 2019 4:00 pm
Property insurance is included in the HOA... I'm supposed to buy more but am told it isn't that much.
<SNIP>
The larger question is: How do people afford these places? The answer seems to be...they don't. Or for billionaire tycoons only.
I wonder if a time will come when I could do it, but that time doesn't seem to be on the horizon.
Sorry to be blunt, but:
Short answer: People afford these places by making a lot more than you do.
End of thread
HomeStretch
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Re: Luxury condo

Post by HomeStretch »

InvestInLife wrote: Tue Oct 01, 2019 4:34 pm The larger question is: How do people afford these places? The answer seems to be...they don't. Or for billionaire tycoons only.
I wonder if a time will come when I could do it, but that time doesn't seem to be on the horizon.
Your highest earning years are in front of you. You might need a more experience or a graduate degree or a different job/field to break the $50k - $100k salary mark. Buying a property that is 5x - 10x your annual salary is just not affordable. It will really set back your retirement savings.
Topic Author
InvestInLife
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Re: Luxury condo

Post by InvestInLife »

averagelonghorn wrote: Tue Oct 01, 2019 5:21 pm Short answer: People afford these places by making a lot more than you do.
What sort of a plan would I need to put together to afford this?
Is that ever possible?
If I had ten rental houses bringing in 5k/month...then?
If I were selling 300k/year at my job instead of ~80k?

Even in an ideal situation, the condo still loses money.
HomeStretch
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Re: Luxury condo

Post by HomeStretch »

stoptothink wrote: Tue Oct 01, 2019 5:26 pm
averagelonghorn wrote: Tue Oct 01, 2019 5:21 pm
HomeStretch wrote: Tue Oct 01, 2019 4:00 pm
Property insurance is included in the HOA... I'm supposed to buy more but am told it isn't that much.
<SNIP>
The larger question is: How do people afford these places? The answer seems to be...they don't. Or for billionaire tycoons only.
I wonder if a time will come when I could do it, but that time doesn't seem to be on the horizon.
Sorry to be blunt, but:
Short answer: People afford these places by making a lot more than you do.
End of thread
The quote above isn’t from me, rather it is from OP. :happy
averagelonghorn
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Re: Luxury condo

Post by averagelonghorn »

HomeStretch wrote: Tue Oct 01, 2019 5:29 pm The quote above isn’t from me, rather it is from OP. :happy
Sorry, I get a little sloppy editing quotes.
Sentiment remains. Others, who make more money can probably afford the condo... whether they SHOULD afford that particular condo is a different question. :wink:
(I'm a Realtor and I just find an HOA fee that high hard to stomach; and would always point that out to a potential buyer if I represented them.... if I represented a seller in such a situation, I would hope the buyer didn't notice how high the HOA fee was, and if they did, I would hope there were really (and I mean REALLY) great amenities I could point to that made it worthwhile. But I don't know the market OP is talking about, perhaps such high HOA fees are the norm there, I have no idea.

Regardless, on 50-100k income, even ignoring HOA fee; that's just too high a price for OP, unless there's a ton of cash sitting around, but even then, probably.
Mr. Rumples
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Re: Luxury condo

Post by Mr. Rumples »

If part of your consideration is the income from renting it out, be sure you can. Many HOA's have restrictions on the number of units in the building which can be rented or that rental agreements must be no shorter than 30 days (a popular choice to prevent airbnb's) or 12 months - each HOA is different. Also, be sure how its going to be managed. While my HOA no restrictions on the number of rental units - at the time the governing documents were written it wasn't thought of - unless there was a fire, water or other similar emergency, all communication had to go through the owner. That can be a real pain. (For example, something as simple as access codes to the building. We changed ours monthly, the owner had to notify the renter; sometimes there were emergency access code changes, what if you miss that notification and the renter is locked out of the building?) The theory was that the HOA did not manage rental properties and that the management contract was with the owners and HOA not the HOA and renters.
CMD1
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Re: Luxury condo

Post by CMD1 »

You don't say what the average home/condo price is for your market. Where I live in a VHCOL, $520k is hundreds of thousands below the medium and therefore you gotta pay if you want to own and would NEVER buy if you look at it as a cap rate analysis. Then again, those that did buy have doubled in the last 7 years.

You also don't mention the age of the building. Obviously the age in the building and HOA health is huge. If the HOA dues is just enough for the association to get by and will need to special assess for any major maint and repairs that is quite different then having millions in the bank to do major work. Quite frankly, in most major cities, after the run up in prices we have seen, cap rates generally stink, but if your in a HCOL area your not buying for cap rate, your buying for quality of life and appreciation. But it sounds like you cash flow on your other rentals so maybe that's not the case in your area.

How much do you pay in rent now, versus the what this condo would be?
Mr. Rumples
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Re: Luxury condo

Post by Mr. Rumples »

montanagirl wrote: Tue Oct 01, 2019 3:51 pm I don't know how people can handle HOA fees. There is no limit to how high they can go, and owners are liable for others' default.

Which is too bad because a condo would make sense for me otherwise.
It really varies by both state and the HOA. Some states require a vote of the owners; some have caps; some have statutory requirements on reserves and so forth. But having lived in an HOA and having served on the board for several years, I prefer my own home and my own land :)
gougou
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Re: Luxury condo

Post by gougou »

Why don't you just rent the condo for $3K/month and invest the $500K?
Mr. Rumples
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Re: Luxury condo

Post by Mr. Rumples »

CMD1 wrote: Tue Oct 01, 2019 6:20 pm You don't say what the average home/condo price is for your market. Where I live in a VHCOL, $520k is hundreds of thousands below the medium and therefore you gotta pay if you want to own and would NEVER buy if you look at it as a cap rate analysis. Then again, those that did buy have doubled in the last 7 years.

You also don't mention the age of the building. Obviously the age in the building and HOA health is huge. If the HOA dues is just enough for the association to get by and will need to special assess for any major maint and repairs that is quite different then having millions in the bank to do major work. Quite frankly, in most major cities, after the run up in prices we have seen, cap rates generally stink, but if your in a HCOL area your not buying for cap rate, your buying for quality of life and appreciation. But it sounds like you cash flow on your other rentals so maybe that's not the case in your area.

How much do you pay in rent now, versus the what this condo would be?
The age of the building is critical. How old is the roof, the HVAC system and the plumbing? If the plumbing is copper and dates from the 1970's, its reaching the point where replacement may be needed...that is a huge cost if a special assessment is needed (not only for the plumbing but for the asbestos abatement) and a huge inconvenience to your tenants. If the building dates from the 1970's, when was the last time the HOA had an engineer out? In Denver a few years ago, a parking deck collapsed from a high rise from that era. Fortunately, no one was hurt or killed, just a lot of crushed cars.
Last edited by Mr. Rumples on Tue Oct 01, 2019 6:31 pm, edited 1 time in total.
chrisdds98
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Re: Luxury condo

Post by chrisdds98 »

If I really wanted to live there I would rent unless I were absurdly wealthy. I have no idea how landlords make money on condos like this that don't even come close to the 1% rule.
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HomerJ
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Re: Luxury condo

Post by HomerJ »

runner3081 wrote: Tue Oct 01, 2019 3:48 pm
ralph124cf wrote: Tue Oct 01, 2019 3:46 pm That HOA assessment would stop me.
And it will keep going up and up.
This.

22k a year in HOA (which will increase) and property taxes is a heavy load, even after you pay off the mortgage.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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HomerJ
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Re: Luxury condo

Post by HomerJ »

stoptothink wrote: Tue Oct 01, 2019 4:10 pm
catalina355 wrote: Tue Oct 01, 2019 3:59 pm
ralph124cf wrote: Tue Oct 01, 2019 3:46 pm That HOA assessment would stop me. What are you getting for that much money?

Try to get association financial data for the last few years to try to judge how the board is managing the associations money. Sometimes a management company runs wild with the association's checkbook.

Ralph
If the condo is in a city the HOA fee may include utilities, snow clearing, internet etc.
Community center, pool, gym, neighborhood park(s), lawn service...ours covers all the aforementioned things and is $200/month. I'd love to see the amenities this place has for 4.75x our cost. The numbers simply don't make sense at all for someone with that level of income.
Yeah my condo at the lake is $300 a month, and that covers the parking lot, roof, lawn service, two pools, two swimming docks, and the actual boat docks (that's the huge one - dock maintenance can be expensive... I love that that HOA handles that)
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
bradinsky
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Re: Luxury condo

Post by bradinsky »

Are the HOA fees $300 per month?
CMD1
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Re: Luxury condo

Post by CMD1 »

The 1% rule is great, but it's useless in today's market in HCOL markets. Maybe 0.25-0.5%. But many landlords in these expensive coastal markets have made life changing amounts due to appreciation and it's hard to argue with the long term record of appreciation in many of the markets. Could also be a sign that its a lousy time to buy, as was 2007.
surfstar
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Re: Luxury condo

Post by surfstar »

chrisdds98 wrote: Tue Oct 01, 2019 6:29 pm If I really wanted to live there I would rent unless I were absurdly wealthy. I have no idea how landlords make money on condos like this that don't even come close to the 1% rule.
This.

Factor in what your $500k would yield in the stock market, plus renting out your current live/work space, and simply rent a "luxury condo" for a while. See if you think its worth the expense. Maybe the market will crash (RE and/or stocks?) then think about buying something else - who knows.

Just seems crazy to buy it, now. I mean its not like it was beachfront with a great surf spot to walk to. Then I could see the value. :P
randomguy
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Re: Luxury condo

Post by randomguy »

InvestInLife wrote: Tue Oct 01, 2019 3:33 pm Hi everyone, I have my eye on a luxury condo. It is *just about* everything I ever wanted in a living space, with a "million-dollar" skyline view. But the numbers simply don't add up. It could be purchased for $520k, HOA assessments are $950 per month, taxes are $10k/year. The entire unit would rent for $3k/month.
Just use appreciation of 6% and buying pretty much always wins:)

Quick math would be
18k interest
10k taxes
12k in HOAs

40k/year costs to own versus 36k/year to rent. Through in some opportunity cost of locking up 80k. Renting is a bit cheaper but not enough to keep me up at night if I wanted to live in this unit for the next 10 years as you would need pretty minimal appreciation to come out ahead. Obviously this is just the rent versus buy discussion. As other people point out, either option might be pretty poor.

HOA seems crazy high but you do see them with the places with gyms, indoor pools, doorman, and so on. Or they might just be really short in the rainy day fund and are charging everyone for not putting enough away in previous years.
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unclescrooge
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Re: Luxury condo

Post by unclescrooge »

Watty wrote: Tue Oct 01, 2019 4:09 pm I am confused about what you are trying to do.

Without even crunching numbers the obvious choice would be to rent a condo in that building for $3K a month from someone else and live in it.

Am I missing something?
+1

I would never subsidize my tenants housing costs, but if someone wanted to subsidize mine, I would be all over that.
DonIce
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Re: Luxury condo

Post by DonIce »

HOA dues in HCOL cities are spiraling out of control with no end in sight. $950 today could easily be $1500 5 years from now and $2000 in 10 years, and you have no recourse other than trying to sell it and get out. For example, condo HOA fees in Seattle doubled over a 15 year period:

In 2018, that number is up to $0.71/sqft, up another 45% in just 4 years.

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randomguy
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Re: Luxury condo

Post by randomguy »

unclescrooge wrote: Tue Oct 01, 2019 11:07 pm
Watty wrote: Tue Oct 01, 2019 4:09 pm I am confused about what you are trying to do.

Without even crunching numbers the obvious choice would be to rent a condo in that building for $3K a month from someone else and live in it.

Am I missing something?
+1

I would never subsidize my tenants housing costs, but if someone wanted to subsidize mine, I would be all over that.
And I bet the landlord is happy that you are subsidizing their loan. Costs them 10k to rent to you and they make 20k in appreciation. Sounds like a win/win. HCOL land lording where you make your money on appreciation is a lot different than LCOL real estate where you make money on cash flow.
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unclescrooge
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Re: Luxury condo

Post by unclescrooge »

randomguy wrote: Tue Oct 01, 2019 11:55 pm
unclescrooge wrote: Tue Oct 01, 2019 11:07 pm
Watty wrote: Tue Oct 01, 2019 4:09 pm I am confused about what you are trying to do.

Without even crunching numbers the obvious choice would be to rent a condo in that building for $3K a month from someone else and live in it.

Am I missing something?
+1

I would never subsidize my tenants housing costs, but if someone wanted to subsidize mine, I would be all over that.
And I bet the landlord is happy that you are subsidizing their loan. Costs them 10k to rent to you and they make 20k in appreciation. Sounds like a win/win. HCOL land lording where you make your money on appreciation is a lot different than LCOL real estate where you make money on cash flow.
I didn't disagree with that, but based on the $500k purchase price I assumed it was MCOL.

Here in Los Angeles, condos in downtown start near $700k for a 1 bedroom.
Mr. Rumples
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Re: Luxury condo

Post by Mr. Rumples »

The HOA fee where I lived in Colorado is now, I checked, $0.48 a square foot. We always checked to be sure we had reserves for major structural components, but while doing so we were able to stay in the middle of square footage fees in our area. But one really has to look at what the HOA fee covers. Ours covered heating and cooling, water, trash, a gym, indoor pool and so on. The average utility bill for each unit was less than $25 since the only thing an owner/renter had to pay for were the lights, appliances and the electric blower which went over the heating/cooling fan coils in each unit. (Most folks had cable, but many, like us, did without. There was an antenna on the roof whose signal picked up over 25 stations, units could tap into that for free.)

My heating/cooling/trash removal/sewage is now $182 a month in a stand alone house, with the exception of about $25 a month, those costs were in my HOA fees. When I count the cost of the yard, funding a "reserve" to replace the HVAC and roof when the time comes, the sewage / water supply lines from the edge of the property to my house, exterior painting, gutter cleaning and all the other joys of home ownership, it seems a wash.

On the other hand, I don't have to worry about crazy things, like folks wanting to put a mansard style roof on a 1970's era high-rise.
Gnirk
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Re: Luxury condo

Post by Gnirk »

InvestInLife wrote: Tue Oct 01, 2019 3:33 pm Hi everyone, I have my eye on a luxury condo. It is *just about* everything I ever wanted in a living space, with a "million-dollar" skyline view.
Something to think about:
That million dollar skyline view may disappear someday if there is the possibility of another building going up in front of it. This has been happening in Seattle and Bellevue . Friends have lost their million dollar views of Puget Sound, Lake Union, or Mt Rainier when the lower buildings in front of them were torn down and new high-rise buildings built in their places. This has happened to more than one person I know. And when the view goes, so does a lot of your value, because you are paying a premium for the view.
Sic Vis Pacem
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Re: Luxury condo

Post by Sic Vis Pacem »

Our HOA dues in a medium sized midwestern city downtown condo are about $475 a month, with no amenities to speak of. It can cost quite a bit just to keep the place lit, heated, and clean. Based on my research on other condos in the city, our dues are about average (although newer buildings have more amenities and less of the cost goes to caring for an older structure). Our board has projected a roughly 1.5% increase on dues per year for the foreseeable future to keep up with increased bills on electricity, waste management, etc.

And that doesn't even count the special assessments. Since I've lived there, we've had a leak in the roof, new elevators, and a city-mandated facade repair. None of those were cheap. YMMV.
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Wiggums
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Re: Luxury condo

Post by Wiggums »

I was the President of two 700+ home communities. We had a management company that loved to consult with lawyers, take on tasks to generate fees, do wasteful mailings, etc. I put controls in place and stopped the waste. I kept the HOA fees pretty much level for five years. After I moved to another neighborhood, the new board doubled the HOA fee because they wanted to take on several big projects all in one year. I found that even other board members do not understand the budget, reserved, etc.

In another community, the HOA had responsibility for the main asphalt road into the community. That road was also used by the shopping center. Not only is that a big expense, the developer did the shopping center owner a big favor by getting the county to make this road an HOA expense. So always ready the HOA document and review the budget before making a purchase.
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oldcomputerguy
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Re: Luxury condo

Post by oldcomputerguy »

This topic is now in the Personal Finance forum (mortgage and loan issues). -- mod oldcomputerguy
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)
ohai
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Re: Luxury condo

Post by ohai »

InvestInLife wrote: Tue Oct 01, 2019 4:56 pm
ohai wrote: Tue Oct 01, 2019 4:38 pm 1) If the cap rate is lower than similar properties, then the price could be too high. You can low ball bid for the condo if you believe that is the case.
2) You could just rent the condo if you like living there.

It could just be a messed up pricing situation. In NY, as an example, new condos have been sitting on the market for years in some cases. However, developers would rather these condos go unsold than lower the prices, thus equivalently marking down the prices of all units in the building, many of which were sold for higher prices earlier. I know the prices are too high and the seller knows the prices are too high. However, it does not make sense for either to move.
The unit is on par with others in the area, or arguably a deal. Yelp reviews for this building management are very positive. I got an email from the listing realtor today letting me know they're dropping the price...prompting me to revisit my numbers. I suppose if I had a job offer that was 30k or more higher in that city, it might be worth the move... but that aside, it could put my financial independence at risk.

There's a similarly laid out condo about half this size, at about half the price, with HOA at 550/month, which rents for about half nearby. Yelp reviews point out that building is managed like a discount Vegas hotel...the contrast between the two buildings ("this is the best place I've lived" vs "this is the worst place I've lived") is stark.
"The unit is on par with others in the area, or arguably a deal."

This statement seems problematic, as the whole area could be over valued. Real estate has poor short term price action, unlike stocks or more liquid assets. Say something happens in the economy that lowers the fundamental value of real estate by 10%. Sellers will not drop their prices - they will just let the units linger on the market at the previous high price. That is why real estate analysis always involves "volumes". If fewer people pay the price that was common before, that indicates the price might be too high.

Your own analysis seems to indicate that you don't think the price is rational. Don't compare it to other units that could also be irrationally priced.
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