Thinking about buying..Am I crazy?

[movielover]

Hi All,

New to this website, but it’s been very informative. I know all of you are saying to wait, but I’m thinking about buying a condo now. I’m 27 yo, make between 70-75k/year, and currently paying $1200 in rent in UTC area for a 1bdr apt. I can get a first-time homebuyer loan at slightly below market for either a 30yr fixed or 40 fixed with the first 10 years interest only.

I got approved for $355k but asked to only get approved for $250k, but realistically, I’m looking to only get a condo around $200-225. My lease ends in May, and based on everyone’s post, it says to wait until at least 2008. However, I’m just afraid that the interest rates will be higher, and at the same time, my rent will go up as well. Me paying $1200 in UTC for an 880sq ft apt is a steal, but I don’t want to pay more than that either for renting. I could move out and get a roommate, but again, rent is going up and I just can’t justify spending $700 plus to share an apt together.

Also, my company doesn’t match 401k, so I aside from a flexible spending account, I don’t get any tax breaks. In short, I’m planning on buying a condo for about $225 or less, and because it is a buyer’s market, I plan on getting some money from the seller to buy down interest rate even lower. My primary motivation is for tax advantages, and also for fear of higher rent and higher interest rates if I wait.

Anyway, reading everyone’s comments now I’m a little confused and worried about what to do. If you can provide your thoughts/comments, that would be great!

[CardiffBaseball]

Short answer: Keep reading the site, and don’t buy the condo. We make around 150k and have no plans to buy, the hell with the tax break. If I get a tax break on a depreciating asset, what have I done?

Investigate one of these 5% interest banks out there, and put some money away into a down payment account, and that grow.

[an]

Your company doesn’t match doesn’t mean there’s no tax break. There are several tax break out there for retirement account. The money you put away in 401k, regardless of match is tax deferred, that that in itself will help you in taxes. Then there’s Roth IRA, although you have to invest w/ after tax $, the $ you make from it is tax FREE. Like CB said, tax break means nothing if your asset is worth less than it was before. Here’s now low I think it’ll go, based on what happened the last cycle: I know someone who bought a 3bed/2bath house in Mira Mesa in 1998, their mortgage came out to be about $1000/month. At that same time, rent on a 2 bed/2bath apartment was $900/month. So, it it can happen before in 1998, in the midst of .com boom, it can happen again.

[bubble_contagion]

“and because it is a buyer’s market,”

That is not true, right now it is a renters market not a sellers or a buyers market. Nothing wrong with buying now if that is what you want. New cars are sold everyday and depreciate 15% as soon as they are driven off the lot. People still buy them.

[(former)FormerSanDiegan]

No, it’s not crazy to think about buying in the current conditions.

People do it on this board all the time, it’s just that the numbers do not yet seem to work out in favor of buying at this time. I think it’s worth reviewing the current prices, rates and rental comps about every three months.

At some point it will make sense to buy, so keep thinking about it.

[davelj]

I agree with most here… keep thinking about it but don’t act yet. Prices are trending lower. Open up a small deposit account with a credit union here in San Diego (there’s a boatload of them) and you’ll probably get the best borrowing rate when the time comes. I bet if you wait another 2-3 years you’ll be looking at a 5% fixed-rate mortgage and prices that are 20% lower than they are today. Just my opinion.

[sdcellar]

Also, it’s interesting that it’s common for people to think that renting is throwing money down the drain, but how is that any different than throwing money away on an interest-only loan? It’s no different in a flat or declining market when there’s a premium to be paid for the privilege of “ownership”, it’s even worse.

As far as tax breaks are concerned, don’t forget that additional expense of property tax and HOA fees (and the latter tends to run higher for condos).

[poorgradstudent]

The smartest thing to do is to wait and save up to make a bigger down payment at a lower price.

Do you see yourself living in a condo for the next 10+ years? Or do you want to eventually move into a house? If the latter is true, maintaining flexibility is probably a good strategy.

What’s the difference between renting and having an interest only mortgage?

Waiting and watching for the next 6 months to year has no real danger, and can only benefit you. Interest rates aren’t going to skyrocket, prices will drop, and you can save the difference in what you’d pay on your mortgage and your rent in a dedicated down payment savings account.

[La Jolla Renter]

If you really want to buy now. I would determine today’s market value of the property(s) you want and then low ball them 15% to 20%, promising to close by the end of the year. You might get lucky and find someone that has to sell now and thinks your offer is as good as it is going to get. I figure 10% of the sellers out there are just as convinced as we are that the market is heading lower and there will be no spring rebound next year.

PS The market value is not what they are listing the property for and it is probably not 3 plus month old comps.

[Anonymous]

Yes, you are crazy for thinking about it. Don’t do it!

[NateK]

I really don’t understand why some people say that their primary motivation to buy homes is for tax advantages. Since the biggest deduction comes from mortgage interest payments. And if you have a choice of paying a 0% fixed mortgage compared to a 6% fixed. So are you saying that you’d take the 6% loan because it gives you a better “tax advantage”? And since you are worried about higher interest rates. Why don’t you look at Rich’s last post/graph when he compares mortgage rates with home prices during the last housing downturn.

But if you want to buy for the sake of wanting to own. Go right ahead and then of course the tax advantage should be considered as an extra bonus, but not the other way around.

[PerryChase]

I beleive that one way to reform the tax code is to get rid of the home mortgage interest deduction. It was meant to encourage home ownership. However, it’s doesn’t do any good because the market simply priced that tax break into the prices of houses.

If the tax deduction were taken away, home prices would drop accordingly and affordability would remain the same.

Generally, the government should get out of micro-managing and let the markets take care of themselves.

[no_such_reality]

If you have a locked loan rate for 30 years at or below 6%, then you numbers are very close. The HOA rate may be a deal breaker, but if it is under $300, the numbers get close.

Currently, you have $1200 out of pocket to live.

If you buy at $200K, you have ~$1200/mortgage, $200/mnth property taxes and $300/mnth HOA for ~$1700 out of pocket. You get a little kick back on taxes, but lose your standard deduction, which you’re probably close on with State tax anyway.

At the current rental rate, after taxes, it’ll still cost you about $200 more per month to own if you buy at $200,000.

UTC has a large number of condo conversion on the market, similar to downtown, the big question is ‘are the rents going to hold’. Currently they’re running up, but there are significant numbers of units on the side lines.

If the units that are offline come back, I suspect we will see more of what we saw in ’93-’96 range where “rent” is $1200/month, however you get last month free with 12 month lease and/or half of the move in month etc. That way, the complex can maintain the higher price on renewal, still report $1200 as average rent even when your effective rent is only $1000. The drawback as a renter, you have to negotiate or move to get those rates. Often, larger complexes will churn you instead of refreshing an incentive.

If you could pick the condo up for $170/180K you may be good. If the HOA is closer to $200 and not $300, then $180/190K works if you’ll live their long enough and rents hold.

[sdcellar]

nsr– Good advice and reasonable assumptions.

movielover– Just don’t forget to factor in how craptastic this $170-200K condo actually is. If it represents a lower standard of living than the $1200 rental, then you’re comparing apples to oranges.

[movielover]

Thanks for everyone’s comments.

As mentioned earlier, I was thinking about buying because of the tax advantages, plus fear of rent going up around UTC. I was approved for $355k, but I know better, and realistically, I don’t want to buy anything unless it’s listed around 200-225. A comment was made that I should low ball by offering 15-20% of the lowest list price. That is exactly what I intend to do.

I’m approved through ACORN, a non-profit that helps first-time homebuyers. I can either get a 30yr fixed, or a 40 year fixed loan, but on the 40 yo, I only pay interest for the first 10 years, but the interest remains fixed. I’m a little weary about that, so I’m going for the 30 yr. I’m planning on having mortage, HOA and taxes to be roughly around 12-1400/mth. I rather pay that knowing that I’m owning rather than pay rent, which, as someone already mentioned, seems to be trending up. Mind you, my budget is based on the fact that I still claim 0 deduction and still manage to sock away money for emergency savings and IRA account (considering I don’t get any matching for 401k).

[Author]

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