Condo purchase advice

[REWahoo]

If you were retired and renting, all assets in a standard conservative portfolio, what is the maximum percentage of your total assets you would consider spending on a house or condo?

Of course it depends on the size of your assets , but I would say less than 20%.

 

[Walt34]

My only experience with multi-story buildings has been apartment living, and invariably the people above me would tromp loudly on the floor in the middle of the night. I remember one who would throw his big work boots on the floor in his bedroom (right above mine) at 2 AM and wake me up. The bass from his stereo nearly removed all of my fillings. Plus, I swear he gave his toddle billiard balls to bounce and roll around the kitchen floor (sounded like it, anyway). And then my last apartment (before this house) was awful because I thought (but was not sure) that the ear-splitting screaming coming through my bedroom walls from the next apartment might be part of a spousal abuse situation and was constantly conflicted about whether or not to report it. I had no facts but it was an uncomfortable situation.

That about mirrors my experience living in apartments. Never again, unless I go deaf.

 

[kcowan]

It looks like we are going to have to move out of our tiny, funky, aerie-on-the-alley (recently sold and new owners unlikely to want strangers living in their back yard)

so we are thinking about buying a condo....

Have you considered renting in any other "laneway homes"? They seem to provide the best of all worlds. Maybe the new owners will like you as tenants? Show them the numbers.

Avoid buying a condo in pre-release. It is quite possible that you will get stuck with less than 100% occupancy. And then you will pay extra HOAs to cover the shortfall. e.g at 75% occupancy, the HOA fees need to be 33% higher than normal before considering reserves.

For an SWR of 4%, I would say no more than 1% should be devoted to housing expense. Anything above that would be considered lifestyle expense that would detract from other budget items.

 

[W2R]

Wow, thank you all for all of the responses. Lemme ask another question.
If you were retired and renting, all assets in a standard conservative portfolio, what is the maximum percentage of your total assets you would consider spending on a house or condo?

I'd have no problem spending 20% of my total assets on the cash purchase of a house or condo if I felt it would lead to a huge improvement in quality of life.

I originally said "20%-25%" but after thinking about it, I think 20% tops. I dunno. Maybe if a place was unbelievably perfect in all possible ways, 25%. I'm not so sure that a place like that exists, though.

That said, I am planning to spend less than 10% of my total assets (including proceeds from my present house), on my next house up north. All I need in a house is peace and quiet in a relatively low crime neighborhood near businesses (and of course, near Frank so we have to coordinate our home purchases when we move). I don't need square footage or a newer home so that helps. Just because I feel that I *can* afford to spend 20% doesn't mean I have to spend that much.

 

[CuppaJoe]

Wow, thank you all for all of the responses. Lemme ask another question.
If you were retired and renting, all assets in a standard conservative portfolio, what is the maximum percentage of your total assets you would consider spending on a house or condo?

I am retired and renting within walking distance of everything I want including National Park land. Zero percent.

 

[IndependentlyPoor]

Have you considered renting in any other "laneway homes"? They seem to provide the best of all worlds. Maybe the new owners will like you as tenants? Show them the numbers.

Avoid buying a condo in pre-release. It is quite possible that you will get stuck with less than 100% occupancy. And then you will pay extra HOAs to cover the shortfall. e.g at 75% occupancy, the HOA fees need to be 33% higher than normal before considering reserves.

For an SWR of 4%, I would say no more than 1% should be devoted to housing expense. Anything above that would be considered lifestyle expense that would detract from other budget items.

We have asked the real estate agent to contact the new owners and find out what their intentions are. However, I am not hopeful. They just sold their internet company and are rolling in dough. They dropped $1.15MM cash on this place just to have a place to live while their new house is being built. Our rent is pocket change to them.

This is one of those what do you want decisions. We could afford the condo, but as you say, it would throw our budget out of balance. Koyaanisqatsi and all that. We wouldn't exactly be eating beenie weenies every day, but it wouldn't be LBYM either.

 

[haha]

I am retired and renting within walking distance of everything I want including National Park land. Zero percent.

How does 0% pay your rent?

Ha

 

[CuppaJoe]

How does 0% pay your rent?

Ha

and I thought it was not rocket science, my number's up. Since I'm planning no changes in residence, I would not take any percentage of my NW for a house or condo.

 

[DangerMouse]

We just bought a condo so went thru what you are going thru now. It is easy to get dazzled by new construction, everything is lovely and shiny as you walk thru the display unit, until you smack yourself around the head and realise your furniture is going to be vastly different.

We made a list on what we wanted, and going into the process we realised we would like have to compromise on something. The compromise for us in the end was not having a sea view. We did look at new construction, however what put us off in each instance was the location, usually newer building are in the less choice locations, because the best locations were built out years ago.

After my first round of viewings I also made a list of what the monthly fees were in each of the condos in Honolulu and what was included. Making that list helped me identify what I felt comfortable with. Some complexes had monthly fees of $800+ a month and I knew those fees would only head in 1 direction. I figured I could live with up to $650 a month, however where we bought was only $470.

I probably looked at 30+ complexes. The first time I looked at the condo complex we purchased in I thought it was ok. However, after viewing a number of other apts, some with the ocean view, I went back to our complex. I walked in and it just felt right. Our complex was built in 1963 so the teething problems are gone. I read the condo minutes, studied the financials, there have been no defaults or foreclosures in the association, only 1 person has been late paying their monthly fees. In Hawaii, a condo association is required to have a 20 year plan for their reserves, so was able to see what work is scheduled for the next 20 years and how they will get the money to do it.

I would not buy into a complex just because it was cheap, nor would I buy because it is best in town. For me, you know when you walk in, it's the general vibe of the place. We have really high ceilings, fresh breezes, it's a good walking distance from restaurants and coffee shops, walkable to the beaches. I would rather spend a bit extra to get what I want than settle for something that is ok.

 

[DangerMouse]

One thing that was mentioned when I was looking, normally if you buy in new construction, the owners are required to each put up 2 months of the monthly fees in advance to seed the reserve funds.

Another reason I would not buy new construction is you do not know what litigation may be around the corner. One of the best new buildings in HOnolulu built in the past few years is the subject of litigation between the owners and builders so as you can imagine banks will not give loans to purchase in that complex and there are a bundle of apts for sale. Not a nice position to find yourself in.

 

[tuixiu]

We went from house to condo about five years ago and remain quite pleased with the decision. Some things we do have that mitigate our biggest concerns to joining the shared-wall club:

1. Our unit is two floors, so nobody above us which in our experience with apartments back in the day is where most of the noise comes from.

2. We have windows on three sides, just one shared wall that is a thick firewall. Many we looked at lack natural light, that would bother me.

3. Garage. It's single car so must be creative with storage but having that securable parking/storage area is huge.

The reason we like the lifestyle is just less time spent dealing with it. Less yardwork, not dealing with external repairs (at least directly) yet still having the flexibility to do what we want inside. We got lucky with the association, they won a very large judgement recently so have money pouring out of their ears and have been spending it making needed infrastructure improvements like replacing the aging water lines, repaving the parking lot, updating the landscaping, fixing roofs etc. all without any assessment.

Biggest suck-point is the business over the wall has bought a forklift that they drive around (beep, beep, beep, zoom, beep, beep, zoom, etc.) earlier and earlier in the morning, I keep meaning to research if there is some zoning ordinance for that.

 

[Zoocat]

When I sold my townhome I did some house hunting before I ultimately decided to rent. I made a mortgage application with my lender and while we were talking, he shared a few gems of information.
1. Condos always fall in value before single family homes.
2. Banks have a list of condo HOAs that have been analyzed and approved. HOAs without a sufficient reserve are not being approved for mortgages. Although that didn't turn out to be the case in my sale, the buyer's bank was in NJ, not CO.
3. New construction with a lot of unsold units makes a mortgage banker very nervous.

 

[Brat]

We just purchased in a co-op in Portland's core area. During the process of making the decision we considered several properties. Contact me if you are looking in this area and I will share my information, and gossip, about buildings.

 

[DangerMouse]

I think that something else that is key when you are looking for a condo, is the percentage of owner occupied. From what I saw, the higher the %, the better the complex will be maintained and the more vigilant the HOA is to enforce rules and make sure there are sufficient funds.

Our condo is over two floors as well. We have no-one above us, we have an end unit so there is only the floor and one wall in common with a neighbour.

 

[jIMOh]

Thank you very much for the info. How large should a reserve fund be? The place we are looking at is new, so the HOA is still under the control of the developer. It is a 42 story tower with 260 units.

I have read first 3-4 posts.

I have owned one condo (actually a townhouse) before and before that had money down on another, but pulled out because the salecritter and related folks could not get permits.


I would ask the following questions (some might be asking yourself these questions, not someone else) LOL...


1) What happens if the community does not finish building?
a) in my case, both units above were "new contruction". The reason we did not buy the unit we walked away from was the building permit process was taking too long. The unit we ended up buying (12 months later) was done and ground had not even been broken on the one we walked away from.

b) think of it in terms of property values, the various promotions sales critters will run to [-]sell the units[/-] fill the units.

2) I don't know how to interrogate an HOA. I would look for the following though
a) cap on the HOA fees (will they be fixed, or will they change drastically year over year)
b) if fees cannot be fixed, what is their history. Past performance cannot predict future results yadda yadda but past performance is all we have to go on sometimes.
c) what is provided with HOA fees (garbage, water, sewer, pool, snow removal, roof replacement, insurance all make my list).

The HOA fee is "dead weight" on the price of the unit... meaning when you sell (eventually) you cannot recover the fees you paid in, and the buyer has to assume the fees the HOA assesses yet it does not get factored into the purchase price at all (its almost like [-]a tax[/-] another bill. You probably already knew this, when comparing HOA fees, low is good if they pick the trash up, insure the properties and generally try to not be too ambitious with social events or other money draining line items (my current HOA has a social budget).

 

[NW-Bound]

In watching HGTV, I have seen some shows about apartment lofts in downtown areas. Looked very interesting and attractive, but I guess these tend to be really pricey.

 

[Zoocat]

FYI.

"FHA lending last quarter may have topped the combined volume of government-supported Fannie Mae and Freddie Mac in a home-lending market that’s still a “government-financed market,” David Stevens, the agency’s head, said today at a conference in New York, citing research by consultant Potomac Partners.

“This is a market purely on life support, sustained by the federal government,” he said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”

FHA Home-Financing Volume Sign of ‘Very Sick System’ (Update2) - BusinessWeek

 

[beowulf]

Whether a condo makes sense depends primarily on where it's located. In NYC, expecially Manhattan, a condo or co-op makes a lot of sense - if you have a lot of money. We have lived in rental apartments, town houses, single family homes and now own a vacation condo that could become permanent. We have been in our main home (single family) for nearly 30 years and we have lived through all phases of maintenance. The HOA fee is $400 per year and includes trash collection and maintenenace of all common areas. Everything else is on us.

We bought our condo in AZ about 6 years ago - at the beginning of the price run up. Didn't help a lot, we are still underwater. The development was 7 years old at the time and the construction is pretty solid. We are on the second floor, which is the top floor. I have no real problems with the unit, except for the $225 monthly HOA fee, which is actually reasonable for the area. Also, at 1250 sq feet, it's kind of small and we do share 2 common walls. In retrospect, we should have rented, but we would have needed 100% hindsight to know that. At the time, it seemed to be the right thing to do.

When it comes time to fully retire, we will not buy an apartment condo, no matter what the sales pitch is. Just too many hassles and the HOA is a PITA, though they are so restrictive there are not many rentals (and no 2 week vacation rentals allowed in the development).

I like the idea of either renting or buying a small house in an established community. But time will tell. We may just stay where we are until they wheel us away.

 

[Katsmeow]

Many years ago I lived in a townhouse. Never again. After I had been there awhile a roof leak appeared in the units. Long story short. It was intractable. Many repairs, no resolution. Resulted in a huge special assessment. This was about 2.5% of the cost of a unit so was very significant. And it still didn't solve the problem. I didn't like the lack of control over things.

The world is divided into those people who love HOAs and those who hate them. Suffice it to say that condo HOAs tend to be HOAs on steroids. Be very, very, very sure that you are willing to live with their rules whatever they may be.

As far as yard maintenance I'm not sure that is a reason to buy a condo. First, think patio home. That gets rid of most of maintenance issues but without the negatives of condos.

As far as homes, there are many yard choices that are low maintenance. (I still recall the yard I saw many years ago that was all gravel and cacti). In any event, yard maintenance is something you can hire out. It is likely to be less than the cost HOA fees.

 

[Brat]

There is no free lunch...

Husband and I purchased a unit in a co-op, the building dates to the late 1950s and its target market is mature adults who are down-sizing. Because it is a co-op and purchasers must pay cash the market value is 10-20% less than a comparably sized condo. However, there are few 'unknowns'. A co-op is typically more controlling than a condo, "Mother may I?" is an appropriate reflection of the culture. However, that means that you won't have to deal with owners who don't give a fig about others.

This co-op anticipates building needs, the plumbing stack has been replaced, electrical up to the distribution point at each floor is up to date, reserves to replace the roof and re-paint are factored in. I suppose that there are 'cheaper' HOAs but none of comparable value. HOWEVER, just because it is a co-op does not mean that it has a culture of investing in the building long term.

 

[NW-Bound]

... My only experience with multi-story buildings has been apartment living, and invariably the people above me would tromp loudly on the floor in the middle of the night. I remember one who would throw his big work boots on the floor in his bedroom (right above mine) at 2 AM and wake me up. The bass from his stereo nearly removed all of my fillings. Plus, I swear he gave his toddle billiard balls to bounce and roll around the kitchen floor (sounded like it, anyway)...

You could have tried to make the best of the situation. Anyone else here remembers this song from the 70s like I do?

YouTube - Knock Three Times - Tony Orlando and Dawn

 

[haha]

There is no free lunch...

Husband and I purchased a unit in a co-op, the building dates to the late 1950s and its target market is mature adults who are down-sizing. Because it is a co-op and purchasers must pay cash the market value is 10-20% less than a comparably sized condo. However, there are few 'unknowns'. A co-op is typically more controlling than a condo, "Mother may I?" is an appropriate reflection of the culture. However, that means that you won't have to deal with owners who don't give a fig about others.

This co-op anticipates building needs, the plumbing stack has been replaced, electrical up to the distribution point at each floor is up to date, reserves to replace the roof and re-paint are factored in. I suppose that there are 'cheaper' HOAs but none of comparable value. HOWEVER, just because it is a co-op does not mean that it has a culture of investing in the building long term.

That's for sure. There are 60+ coops in Seattle, mostly on Capitol Hill, Lower Queen Ann and the University District. Most of them are downright dumps. Reserves in horrible shape, building with many and unknown problems, hallways and common areas slummy.

Usually the individual apartments are very nice once you get inside the unit. Owners are pretty much all ages, late twenties up to people ready to stop breathing.

My friends were full of excitement and anticipation when they bought an old and pretty unit on Capitol Hill for $400,000 in 2007. By mid 2009 they had received news that there was going to be a $35,000 special assessment for each of the following 3 years. Apparently water had been entering under the lintels and had rotted much of the framing of the building. It was a nightmare. The condition of the Seattle housing stock would shock people from many other areas of the US. Most of the single family homes within Seattle city limits are dumps and money pits, no matter what the price point. Eventually all but the most expensive and architecturally interesting of these these old junkpiles will be pulled down and replaced by multifamily housing or expensive townhouses, some detached, some semi-detached or linked in a cluster. It is happening all over the city already, but very strongly in the CD and North Seattle. Some of these are pretty nice, but the small lots force some very odd floorplans, and of course only an under-house garage for one car and little extra space.

No place for an older person who hopes to age in place either. One of my sons has one of these and from the garage to the top floor where there is a nice view and where they spend most of their time at home is four long flights of stairs. I toured one like this on Queen Ann Hill and it had an elevator. A tiny, slow one, but an elevator nonetheless. The salesman told me they hoped to attract downsizers selling their expensive homes on Queen Ann and wanting less space. $900,000.

I live on a very expensive street of turn of the century mansions, very pretty large brick houses. Every summer a good number of them are scaffolded and undergoing some sort of renovation or other. To buy a home here would use up all my net worth for one of the cheaper ones. The nicer ones would take 2-4 times my net worth. And it would still be a 100 year old money money pit.

Ha

 

[W2R]

You could have tried to make the best of the situation. Anyone else here remembers this song from the 70s like I do?

Well, this was 34 years ago. The fellow upstairs was a big, ugly, tough blue collar worker living with his wife and toddler. I was a Navy wife living with my (now ex) husband, and we were sleep deprived. The situation was not quite as sexy as it might have sounded.

 

[Ronstar]

We have a condo (townhouse) and like it. But condo owners are at the mercy of the HOA boards. They can raise rates, add a special assessment, or change rules whenever they desire.

One such "rule" mandated that the owners redo their sink, toilet, etc plumbing supply lines in the wake of a fire sprinkler system leak that flooded some snowbird units causing hundreds of thousands of dollars in damages. The HOA had to pick up the tab because the fire sprinkler link happened in the common area of the building. So the board took an action that would not solve the problem they were trying to fix.

Also, economic conditions have spiked an increase in owners that are not paying their HOA fees. These are costly and difficult to collect and most likely will cause HOA fees to increase.

 

[NW-Bound]

...The situation was not quite as sexy as it might have sounded...

Just teasing... And I couldn't pass up a chance to demonstrate my superior memory. Now only if I could control what I wanted to remember.

Anyway, I did not realize that song was such a hit. Here from Wikipedia,

"Knock Three Times" is a popular song recorded by Tony Orlando and Dawn. It was released as a single in November 1970, paired with their other hit song, "Candida". The single hit number one on the Billboard Hot 100 in January 1971 and eventually sold nine million copies, also claiming the number-one spot on the UK Singles Chart...

Knock Three Times actually sold more than 100 thousand records a day in New York City alone for ten straight days...​