When is LBYM going to far?

[aaronc879]

I'm thinking about buying a place of my own to stop renting. I want to live below my means( my income is 44K/yr) but is this going to far? I'm single, no kids and plan to stay that wayso it should be enough room. My income is about 4K from being maxed out. The condo is <10 miles from work and most of my family. I think it's good enough and will allow me to continue to save aggressively for FIRE. Any thoughts?

Condo/Townhouse/Co-Op - 1161 GILLINGHAM RD, Neenah, City of, WI, 54956 - Realtor.com

 

[Sandy]

Not really sure what you are asking. what do you mean "income is about 4K from being maxed out"? Why do you want to buy versus rent? Are you seeing this as a step up (higher cost) or a step down (lower cost) from where you currently live?

 

[aaronc879]

Not really sure what you are asking. what do you mean "income is about 4K from being maxed out"? Why do you want to buy versus rent? Are you seeing this as a step up (higher cost) or a step down (lower cost) from where you currently live?

What i'm asking is is buying an almost slum -like $43K condo going too far with LBYM. What I mean by "income is 4K from being maxed out" is that I get paid by the hour and based on the top pay for my department I am only about 4K away from top pay. As far as buying versus renting, my mortgage payment will be about 400/mo. Average rent for a comparable apartment is about 500/mo. I should be able to pay it off quickly and then have very minimal living costs. I'm just wondering if living in a place that is only 1/4 of what I can qualify for is going too far with "LBYM".

 

[W2R]

I'm thinking about buying a place of my own to stop renting. I want to live below my means( my income is 44K/yr) but is this going to far? I'm single, no kids and plan to stay that wayso it should be enough room. My income is about 4K from being maxed out. The condo is <10 miles from work and most of my family. I think it's good enough and will allow me to continue to save aggressively for FIRE. Any thoughts?

Condo/Townhouse/Co-Op - 1161 GILLINGHAM RD, Neenah, City of, WI, 54956 - Realtor.com

If it's good enough, and will allow you to continue to save, why not?

By the way, when do you plan to FIRE? You might not want to keep paying condo fees after FIRE. They're sort of like rent, I suppose. So, if it was me I'd pay about twice that for a house instead, if I could find one for that price. Then I'd pay off the house. But I'm in the "pay off the mortgage" camp, and there are equally persuasive arguments for not doing so.

If you plan to FIRE soon, and plan to move elsewhere, selling the condo might not be easy in this market.

Personally I like living <2 miles from work and it saves gas $$$.

 

[dumpster56]

The place looks well nice. pool, and park. Is the area rural? Poor? Cost wise what are the common fees on top of the small mortgage?

I bet the ice skating on the lake in the area would be fantastic!

 

[Spanky]

The condo is <10 miles from work and most of my family. I think it's good enough and will allow me to continue to save aggressively for FIRE. Any thoughts?

As long as it fits your needs, go ahead. It's affordable and close to work for now.

 

[aaronc879]

If it's good enough, and will allow you to continue to save, why not?

By the way, when do you plan to FIRE? You might not want to keep paying condo fees after FIRE. They're sort of like rent, I suppose. So, if it was me I'd pay about twice that for a house instead, if I could find one for that price. Then I'd pay off the house. But I'm in the "pay off the mortgage" camp, and there are equally persuasive arguments for not doing so.

If you plan to FIRE soon, and plan to move elsewhere, selling the condo might not be easy in this market.

Personally I like living <2 miles from work and it saves gas $$$.

I'm a "young dreamer" 20+ years until FIRE. Condo fees are 110/mo. Property taxes are only 800/year. Some condos in this area have 3x the property taxes at only about $80-100K purchase price so this condo seems like a good deal. I would probably keep this condo for ever and buy an additional one in a warmer climate in retirement and spend half the year in each.

 

[Dawg52]

If you think it is slum like, will you really be happy there? Looks ok but no way for me to tell what the surrounding area is like.

 

[Andre1969]

It looks like a nice place to me. Could you elaborate on why you call it a slum? Simply because it's cheap, or because it's actually run-down and in a bad neighborhood? Condo fee doesn't seem bad. However, keep in mind that those fees can go up at an alarming rate. Also, I dunno how true this is, but I heard a statistic a few years back, when I owned a condo, that something like 1/3 of condo associations, over the course of their existence, file for bankruptcy. And when they do that, they have trouble getting insurance, and that makes it harder to get financing, which makes selling one a real pain.

I bought my condo in 1994 and the fee was $120 per month. When I sold in 2004, it was up to something like $239

 

[dumpster56]

I'm a "young dreamer" 20+ years until FIRE. Condo fees are 110/mo. Property taxes are only 800/year. Some condos in this area have 3x the property taxes at only about $80-100K purchase price so this condo seems like a good deal. I would probably keep this condo for ever and buy an additional one in a warmer climate in retirement and spend half the year in each.

Think of the condo as an expensive car! Pay it off quickly.

 

[aaronc879]

If you think it is slum like, will you really be happy there? Looks ok but no way for me to tell what the surrounding area is like.

I guess the area really isn't that bad. The price just makes me feel like i'm buying an inferior place but maybe i'm just getting a good deal.

 

[tightasadrum]

I've never been a fan of condos. Too much depends on others: condo association, other condo owners (or worse, renters), etc. And appreciation tends to be limited somewhat. I agree with W2R. If you want to buy something, buy a house. Or even better, buy something where you can live in part of it and rent out the rest. Think duplex, quad, or bigger. YOu could start with a duplex needing life support and fix it up. Then trade up and start again. Being single with all that extra time on your hands, you could pump up your balance sheet significantly over time. Maybe your could even RE.

 

[aaronc879]

Think of the condo as an expensive car! Pay it off quickly.

Keep in mind I only make $44k/year and I max out my 401k. That only leaves me with about $1500 take home pay every 4 weeks. I plan to get a 15 year mortgage with bi-weekly payments so at most it'll take 13 years to pay off. I'll probably pay it off sooner but I want to make sure I max the 401k.

 

[dumpster56]

Neehah WI

Take a look Here..Neenah, Wisconsin (WI) Detailed Profile - relocation, real estate, travel, jobs, hospitals, schools, crime, news, sex offenders

Looks nice on paper!

 

[W2R]

What about something like this?

http://www.realtor.com/realestate/neenah,+city+of-wi-54956-1085495284/

Now that looks nice to me, and no condo fees or worries. You could probably talk the guy down to $85K or lower, if your area is suffering from market slump like many. You could pay it off in 10 years and use that as a down payment on a house twice as expensive. Then in 20 years, sell that, buy your two condos and pocket the difference. Well, that strategy is not everyone's cup of tea but it appeals to me.

 

[dumpster56]

Me Like that idea!

 

[aaronc879]

What about something like this?

Single Family Home - 938 GAIL AVE, Neenah, City of, WI, 54956 - Realtor.com

Now that looks nice to me, and no condo fees or worries. You could probably talk the guy down to $85K or lower, if your area is suffering from market slump like many. You could pay it off in 10 years and use that as a down payment on a house twice as expensive. Then in 20 years, sell that, buy your two condos and pocket the difference. Well, that strategy is not everyone's cup of tea but it appeals to me.

I don't like debt. Not even "good" mortgage debt. It's hard for me to even take on $43K let alone more than twice that amount. I work in manufacturing which has had a lot of job loss in this area lately. If I lost my job my income would likely go from $43k to about $22K and that's if I could find anything at all. In my department 6 out of 20 people were fired last year.

 

[armor99]

For me LBYM does not, and should never mean, making yourself unhappy to reach a financial goal. Going out to dinner less, not buying expensive gadgets you don't need, not buying an expensive car every few years. These are the types of things that I try to achieve. At the same time, you must always remember that this is YOUR life, the only one you have. So while saving for retirement is certainly important, you do not want to live so meagerly that you feel like a slave to it. This is a personal choice and limit for each person. What one person would call squalor, another might call luxury, that is for each one of us to decide.
I once had some friends that wanted to go to Vagas for a weekend and not buy a hotel room. They planned on just roaming around for 3 days, and then crash if they needed to, out at a hotel pool on their lounge chairs. Back in my college days, that might have been OK... but at the age I was then, I did not condider that to be fun in anyway whatsoever. There is a point where you can "cheap" yourself into not enjoying life anymore, and that was over my limit.

 

[Moemg]

There is nothing wrong with buying less than you can afford .I've done it my whole life and it has helped me reach FI easily.

 

[Sandy]

First you have to be comfortable in it. But also:

What is the condo association's reserve look like (do they have enough/plan to cover new roofing, paving, etc). This is very important or you could be subjec to special assessments that could be quite steep. You call it "slumlike" does that mean it hasn't been maintained? That would be a big red flag.

Can you walk at night or leave your car in the parking lot without worry?

For the complex, what is the owner occupied versus rented ratio? (owner occupied is better for many reasons).

What is the average age of current residents?

Do you have access to grocery or other desired amenities (that is location in addition to family).

Can you make interior changes without permission of the board?

Cheap is not necessarily bad, but you need to understand what your $$ is getting you - sometimes it is not a good deal, other times it is a real bargain.

 

[aaronc879]

First you have to be comfortable in it. But also:

What is the condo association's reserve look like (do they have enough/plan to cover new roofing, paving, etc). This is very important or you could be subjec to special assessments that could be quite steep. You call it "slumlike" does that mean it hasn't been maintained? That would be a big red flag.

Can you walk at night or leave your car in the parking lot without worry?

For the complex, what is the owner occupied versus rented ratio? (owner occupied is better for many reasons).

What is the average age of current residents?

Do you have access to grocery or other desired amenities (that is location in addition to family).

Can you make interior changes without permission of the board?

Cheap is not necessarily bad, but you need to understand what your $$ is getting you - sometimes it is not a good deal, other times it is a real bargain.

I'm waiting to hear back today about what the reserve is. I'm not too worried about assessments though because there are 12 units in each of 2 buildings so a new parking lot or something like that would be split up between 24 units. The citi-data link provided in a earlier post shows well below average crime. At least 4 of the 12 units in my building are rented. It appears that everyone in the building is middle-age or older. That's ok. That probably means they're quite and so am I so that's good. Yes grocery, bank, wal'mart are all within a few miles. I can make interior changes that don't alter the lay-out. ie. can't tear down a wall.

 

[megacorp-firee]

Buying property is not the thing to cheap out on.
The experts say that the key to buying property is location location location. If you are buying a broken down condo (i.e. needs renovation or remodeling) and it is in a great neighborhood, then go for it. You will profit in the long run. If you are buying in a slum (as you put it) then I would advise against it. In the long run, you will get less appreciation and could even lose value on the property if it is in an declining area.
... my 2 cents worth ... and worth every penny

 

[Nords]

Why do you want to own your home? Security, comfort, quiet, flexible décor, not having to deal with landlords? Those are all good deals but they come with baggage. Are the advantages more than the distractions and the sweat equity you're gonna have to put forth? Or would you make more money by buying stock in a nice downtrodden shipper or retail bank?

A couple issues to consider:
- At least one poster on this board bought the condo of their dreams, only to see the neighbors change from quiet middle-aged couples to late-night-noisy street-partying 20-somethings. They sold just to find new neighbors. The "good" news is that their hard-partying 20-something buyers thought they were getting a great deal.

- If your area's had a loss of manufacturing jobs, is that likely to depress your real estate values? I'm talking 1980s Houston after the oil crash.

- Ask your prospective neighbors how the condo association is and how the meetings are going. Having lived in a condo of 63 units, I think that 24 units is very shallow in the governance talent pool and way too small to share the condo-association workload. There's a real risk of it being taken over by rules-niggling parlimentary authoritarians.

- Speaking from more personal experience, find out how much it would cost to repaint, reroof, and repave-- and then compare that to the reserves. If you get blank looks in response then run away fast.

- Very few people buy homes for "only a few months or so", but the median ownership is barely seven years. How will you deal with the curve balls of a downsizing, a new/better job, a spouse/family, extended travel, or an unusually harsh Wisconsin winter?

- Houses generally appreciate at the rate of inflation, although if you find a bargain you may gain more for a few years. But if you're planning to live in it for the "long term" then those gains are at risk of vaporizing during the next economic downturn.

 

[free4now]

Funny how local real estate is... In San Francisco a smaller 1br/1ba condo sells for about 15x the price of that!

I would echo the comments to not buy in a "slum". The most important thing in real estate investing is to be in a place where values go up as much as possible.

I'd wait a few years until the RE market settles down anyway.

 

[SecondCor521]

I'm just wondering if living in a place that is only 1/4 of what I can qualify for is going too far with "LBYM".

I think it is a personal decision. I would say you're going too far with LBYM if:

1. It endangers your or your family's health or safety.
2. It is "penny wise and pound foolish", meaning you'll either (a) buy something for cheap and then end up spending more money to get it the way you want it than if you'd just bought what you wanted in the first place, or (b) buy this place even though it doesn't meet your needs and you end up trading up later, with all the associated transaction costs and hassle.
3. You're not buying what you need.

I wouldn't say it is going too far if you're just going against cultural norms -- in this case the norm is to buy whatever the bank will say you qualify for -- but that is easier said than done.

2Cor521