Buying a house vs apartment - near future lending option (Cincinnati: sales, apartment complexes)

[stefsj]

Hello,

I have lived around Cincinnati for 10 years now and plan to finally make a home purchase now that I got married. I am tired of renting and paying other people but moving around with schools has forced me to.

My big concern is what to buy and where. We plan to (possibly) move to another city in 2-3 years, but the low costs of property are very appealing right now. The options are two - condo/apartment which we can possibly rent out when we move out or a house which we can later sell, because I think renting a house will not be as easy especially if it is in the suburbs. This would be more of an investment opportunity than our 'dream home' purchase.

We still would like to be a nice and safe neighborhood and affordable property.

Does anyone know how is the apartment/condo market in Cincinnati in general? As majority of the people are pushing for the suburbs, I am not too sure what will happen to the condo in few years if we decide to relocate. And on the other hand buying a house in suburb areas like Loveland or Anderson might be tricky in the long run as well. Because of the planned relocation in the near future, there is also an option of keep renting .
Work is downtown and price limit is 150-175k.

Thanks in advance!

[Sarah Perry]

If you can find a landlord who'd be interested in a land contract arrangement, that might be a good option for you. Your payments would be going toward purchase IF you decided to purchase in a couple years when the relocation issue is resolved. If not, you could walk away, just as you would from a rental.

About 15 years ago, I made a ginormous financial mistake when I bought a couple of rental properties about 75 miles away from where I lived. I thought I could be my own property manager. It didn't work. Distance wasn't the only problem, but it was a big one. I strongly suggest if you do buy a property with an eye to moving out of town and renting it, that you make sure it'll still be profitable when you factor in costs for someone to take care of all the local management including collecting rent, arranging for repairs, and advertising and showing it when it's vacant.

[jlawrence01]

Originally Posted by stefsj

My big concern is what to buy and where. We plan to (possibly) move to another city in 2-3 years, but the low costs of property are very appealing right now. The options are two - condo/apartment which we can possibly rent out when we move out or a house which we can later sell, because I think renting a house will not be as easy especially if it is in the suburbs.

If you are not going to live in a location for more than five years, it is generally a big mistake to purchase a home. As you might know, there are significant expenses buying a home and selling a home (6-7% commission, for example).

As for renting out properties long distance, it not a good idea. I have seen people trash a place with out-of-town owners time after time. If you have to pay a management firm, you are generally not going to make any money on the deal.

[stefsj]

Thank you for the responses!

Sarah, where is the best place to find such landlords? I assume these would not be apartment complexes, but rather single buildings - craigslist? I am wondering if that option would work if the prices of property go up?

jlawrence01, I see your point on managing - similar to what Sarah said as well. That is one reason why I didn't invest already because of my fear of relocating and paying the big cost of fixing the place over and over.

Finding a good tenant is always an option though, isn't it? I think I need to make my mind about the move before I make a purchase.

[Sarah Perry]

[quote=stefsj;16207508]Thank you for the responses!

Sarah, where is the best place to find such landlords? I assume these would not be apartment complexes, but rather single buildings - craigslist? I am wondering if that option would work if the prices of property go up?\quote]

With a land contract, you agree on an eventual sales price at the beginning of the financial arrangement. If property prices go up over the time you're making payments and before you actually assume ownership, you win.

A single family or perhaps a duplex would be a good type of property to buy on land contract. If you can do a lot of your own management and repairs, the rent from the second unit in a duplex can help you make the monthly payment.

I don't know the best way to find such a property. Probably by looking for rentals you think you would be interested in owning, and asking the landlord if they've ever considered selling. I think there are more than a few people out there who might be willing to get rid of a rental property if given a good opportunity.

[jlawrence01]

Originally Posted by stefsj

jlawrence01, I see your point on managing - similar to what Sarah said as well. That is one reason why I didn't invest already because of my fear of relocating and paying the big cost of fixing the place over and over.

Finding a good tenant is always an option though, isn't it? I think I need to make my mind about the move before I make a purchase.

When my brother got married, he bought a duplex in Norwood. He lived in the upper and had an elderly lady in the lower who had been renting for years. The old lady eventually died and he found a good tenant for a couple of yers.

As his kids approached school age, he moved to Anderson. He rented out the top unit to someone with good references and all the like. Two weeks later the lower tenant calls and tells him to "get over there." To make a long story short, there were 20 people living in the duplex. In three weeks, the group caused about $4000 in damages not including the $600 cash that my brother paid them to vacate the premises THAT DAY.

If finding "good tenants" was as easy as you 'd think it would be, being a landlord would be a joy. Rarely is it.

[Sarah Perry]

I was soooo clueless when I became a landlord. I thought I could succeed at it, just because I was able to run the numbers for a "best case" scenario. Inability to do routine repairs myself was a minor part of my problem; inability to effectively screen out bad tenants was the major part.

Managing rental property takes its own unique set of skills. I have the utmost respect for people who treat their tenants fairly and find a way to make it profitable. It was a big learning experience, and one I don't wish to ever repeat.

[jlawrence01]

Originally Posted by Sarah Perry

I was soooo clueless when I became a landlord. I thought I could succeed at it, just because I was able to run the numbers for a "best case" scenario. Inability to do routine repairs myself was a minor part of my problem; inability to effectively screen out bad tenants was the major part.

Managing rental property takes its own unique set of skills. I have the utmost respect for people who treat their tenants fairly and find a way to make it profitable. It was a big learning experience, and one I don't wish to ever repeat.

Actually, my first landlord was the MOST EFFECTIVE. All of his rentals were rooms in a small town in the south. He'd buy huge old houses, break it into sleeping rooms, and charge $150/mo. ALL rent was due on the 1st of the month by 8 pm. If you did not have it in, he would come with a couple of guys to relocate your belongings out in front of the house on the morning of the 2nd.

[wolden]

Originally Posted by stefsj

We plan to (possibly) move to another city in 2-3 years, but the low costs of property are very appealing right now.

Many sources suggest that if you don't plan to stay in a house for 5-7 years you will lose money (regardless of resale price) simply due to the fees and costs of buying and selling (eg most notably the realtors fees, title searches, etc). Hence if you really plan to move in 2-3 years you will likely lose money. If you don't care about that then go for it. There are some excellent "rent vs buy" calculators that will show you how much you can lose by buying vs renting given many different parameters. Here is one:

Rent vs. Buy Calculator - Trulia

However, be careful how you use these calculators as many of the assumptions are no longer true (for example, many have a default setting of 8% gain on investments, hard to do these days).

Of course any buyer now also has to parse whether they will lose their equity if they buy now, i.e. you need to have an opinion on whether local prices have bottomed. Otherwise you are just throwing your money away.

Finally, you should examine your feeling that when you rent you feel like you are throwing your money away. You feel like you could buy the same amount of house, and pay less per month for the mortgage. However, when you take out a loan, you also throw away the interest payments. Due to how mortgages are amortized, this is especially true in the first ten years of the loan. The banks are very smart about screwing people in this way-- they get their interest and you get little equity in the first few years. Finally, the reason your rent is higher than the equivalent mortgage is the owner of the property is assuming all the risk. When you buy a house, you take on the re-sale and value risk yourself. Many more people now understand this point much to their distress.

[stefsj]

Thank you for the calculator link wolden.

You are right - you never know what will happen with prices in the city. Maybe that's why I want to take the safer route (as first property) and purchase an apartment or duplex. Based on my experience with Cincinnati people it seems that people are more likely to rent or even buy an apartment from me within the city limits, rather than the suburbs. Tell me if I am wrong.