Thursday, June 19, 2008

The Right Time to Buy is Now (except we can't)

So since this topic is fairly interesting me and at least some of my readers, I just wanted to share my thoughts on why (if you had enough of a down payment) it's a GREAT time to buy a house/condo etc. And it's anecdotal evidence so I'm not so sure it's applicable to every market.

But take this condo Boyfriend wants to buy is being sold for $149,900 (according to the Seller). Yet, it is listed on Zillow as being offered at $157,900. The seller even told us he would take off 2% since Boyfriend is not working with an Agent. That brings us to about $143,000 (aka $12k cheaper than it was when it was listed on Zillow 168 DAYS AGO). It is a STEAL (which is what we'd have to do to purchase it but that's a whole other story).

Check out this lobby! Right now I have to dodge crackheads to get to Boyfriend's Apartment!!

And, besides having a place to stay, what would purchasing this condo mean in the long term? Take a look at this fancy chart courtesy of Zillow showing the property valuation over time:

In the past five years this place has TRIPLED in price. In fact, had I not gone to school and just moved up here after college and bought it for $60k in 2003, I would have 1) not had to pay rent and 2) made $80k. Damn, I'm in the wrong business.

But anyway, that's my two cents, coincidentally that's also all I have to devote to a condo purchase right now, but if only....


Anonymous said...

But why are you so in hurry? Market is going down and according to many experts for years it is not going to triple. Dont worry you will see "deals" alot in the future. In fact more than you think.

Jim ~ said...

If you have a good down payment, emergency fund of 6 months, and no debt.... it's a great time to buy a home. These banks are only going to make loans to the responsible people now since they got burned on the ones who couldn't afford them. Don't use Zillow as a guideline for buying real estate either. If you want to get a good idea of the market talk to a realtor who can show you history. You're just getting excited for/with him about owning a place rather than renting.

Chicky: I don't know which experts you're claiming the market is still going down. The numbers have actually shot way up in May. There are 4 states that are officially in real estate recession (negative growth rate), California, Nevada (Vegas area), Michigan (Detroit), and Florida (Miami you can get a 500k condo for 200-300k, nobody is jumping though). Runners up are Arizona and Atlanta Georgia area. A condo is a short term purchase so these areas are not worth looking at right now. If you're buying a single family home on a 10 year plan, great deals in these areas. I would say nationally though the market officially hit bottom in March this year. It will take over a decade to recover to the values we saw 2-3 years prior.

Sallie's Niece said...

Yeah you guys are right. He (we, me, etc.) were getting a tad too excited about the whole thing.

It's just he thinks buying property is a way to reduce his AGI and pay less taxes. Also we both feel with the rising gas prices, condos in our area will jump in value (and there's not that many of them to begin with).

But alas, first he needs a sizable downpayment (he already has an Emergency Fund and maxed 401(k) in case you were curious).

Jim ~ said...

The 401k only comes into play if you're trying to avoid BK or foreclosure, so don't even think about it. Has he pulled his credit report and looked it over? I could care less what his FICO score is because it is irrelevant. Now is a good time to start reviewing things to make sure it is all in order when banks look at credit later. As long as he has a consistent track record of paying rent and all his bills are current, the FICO score doesn’t matter.

If he's thinking about buying a house to reduce AGI through a tax deduction, it's a matter of math. Example: If he was in the 25% tax bracket and has a 10k tax deduction, he would get back 2.5k. Why would you pay a dollar to get a quarter back from the IRS? Very wealthy people donate a lot of money to charity to get a tax deduction high enough as a way to reduce their tax brackets. I doubt he is one of them. Condo values are going to go up over a long haul, but you're always going to have that. Make sure to consider all the costs involved with owning a place rather than renting. Mortgage, insurance, taxes, association fees, utilities, and maintenance costs should be weighed against what he's currently paying. When I bought my house not all these things were considered, and it's a real eye opener when a great deal ends up costing more than what was intended.

Sallie's Niece said...

Thanks for the comments. I was only mentioning the 401k and Emergency Fund to say his ducks are (sorta) in a row but he wouldn't tap them for a down payment.

The costs of a mortgage are higher than he's paying in rent, I agree. The condo we looked at (the one he was interested in) has a $385 HOA fee which includes heat, hot water, and (soon) free wifi. Those things are great, but alas, his rent is pretty cheap (I'm not kidding about the crackheads either). To rent a comparable place it would be about $1000 so yes, owning is more expensive.

I think this whole process has been eye-opening for both of us. We've had frank conversations about money and our goals. He understands I'm getting my "financial house" in order because I HAVE to, whereas he's getting his in order because he SHOULD.

So, as of last night, the whole matter is tabled for a while, but I hope we both continue to focus on our finances so that in the future we can be in a better position.