Decisions to rent v. buy smaller home (Prospect: apartment, foreclosures)

[derbycitydarlin]

I am getting ready to be an empty nester. I own a home in Prospect. I am thinking about selling and renting an apartment for one year just for the relief of responsibilities. I raised my two sons on my own and provided for them alone. I am ready for a little break.

Any thoughts on the pros and cons of this idea?

I plan to save and invest the profits from my home for retirement. (and keep some out for a down payment if I decide to downsize and buy another home or condo).

[tomocox]

First of all stay away from condo's at nearly all costs. I can give you a long list of risks condo-ownership brings. Sure there are benefits, but Kentucky law makes condo ownership extremely risky.

If you are planning to pay a mortgage, home ownership still gives you a tax break that you won't have with a rental. With the exception of the past two years, a typical homeowner could live for free or nearly free while rent is always an expense.

[derbycitydarlin]

Thank you for your advice...Condo and townhome are my last choice....

Does anyone else have any more advice? I understand about the tax break, but my home costs me so much in maintenance that I don't even break even in that regard...I do realize by owning my home I am building equity.

Has anyone experienced this situation?

[wrx04]

[quote=tomocox;9687540]First of all stay away from condo's at nearly all costs. I can give you a long list of risks condo-ownership brings. Sure there are benefits, but Kentucky law makes condo ownership extremely risky.


Could you elaborate on this for me? I am looking for a single family home near the highlands, but I found a condo that is a really good price and is in a good location. What about KY law makes owning a condo risky? Thanks.

[tomocox]

[quote=wrx04;9706170]

Originally Posted by tomocox

First of all stay away from condo's at nearly all costs. I can give you a long list of risks condo-ownership brings. Sure there are benefits, but Kentucky law makes condo ownership extremely risky.


Could you elaborate on this for me? I am looking for a single family home near the highlands, but I found a condo that is a really good price and is in a good location. What about KY law makes owning a condo risky? Thanks.

KY law does not require adequate reserves for condo management firms. The closest example I can share is that an insurance company without adequate reserves could be unable to pay claims for catastrophic losses.

If you are in a condo association, you must know where it's operational breakeven occupancy and/or income is. Example, you live in a condo that has 100 units. To breakeven on a monthly basis, it might need to have 91 units paying its monthly condo fee. However, lets assume that its a new condo development with exactly 93 of the units sold and normally paying its monthly fees. With the downturn in the economy, three of those families lose their jobs. Suddenly, the condo is loosing money. The size of the associations reserves will determine how long the yard is mowed, the halls are painted and the common area repairs are made. Ever seen a broke condo's green swimming pool, I have.

This means that although you have done everything right and even maybe above the call of reasonability, you could lose your entire home investment.

You will also find that in many condo associations, there will be a boss hog. That person will file complaints against you for any number of what he/she sees as a major infraction, but you see as perfectly normal living. For example, you love to cook with pungent spices, to him/her that might be an annoyance.

Condo living is as close to controlled living as I know of. Even renters can't be that controlled.

[wrx04]

[quote=tomocox;9709418]

Originally Posted by wrx04

KY law does not require adequate reserves for condo management firms. The closest example I can share is that an insurance company without adequate reserves could be unable to pay claims for catastrophic losses.

If you are in a condo association, you must know where it's operational breakeven occupancy and/or income is. Example, you live in a condo that has 100 units. To breakeven on a monthly basis, it might need to have 91 units paying its monthly condo fee. However, lets assume that its a new condo development with exactly 93 of the units sold and normally paying its monthly fees. With the downturn in the economy, three of those families lose their jobs. Suddenly, the condo is loosing money. The size of the associations reserves will determine how long the yard is mowed, the halls are painted and the common area repairs are made. Ever seen a broke condo's green swimming pool, I have.

This means that although you have done everything right and even maybe above the call of reasonability, you could lose your entire home investment.

You will also find that in many condo associations, there will be a boss hog. That person will file complaints against you for any number of what he/she sees as a major infraction, but you see as perfectly normal living. For example, you love to cook with pungent spices, to him/her that might be an annoyance.

Condo living is as close to controlled living as I know of. Even renters can't be that controlled.

That makes a lot of sense. Thanks for the insight. I was never big on condo living in the first place, but i will keep that in mind when looking at properties.

[tigerlillydownunder]

Glad I read this thread! My mom is selling her house to my sister, and wants to move into a patio home or a condo. She's leaning more towards the condo.

I will have to get onto her, and let her know about these risks. it's not something any of us ever gave thought to.

Cheers for that!

[Off Topic]

I think these problems come more with co-op's, rather that condos. I know lots of people who live in condos and love it. No cutting the grass, no worry about fixing the roof, etc. The economic collapse of a condo complex is a concern, but it rarely happens outside of new developments. (I'm sure people could cite examples of when this happened, but that's a small proportion of all the condo developments in Jefferson County. It happens, but it's hardly an every-day occurance.)

However, no question some condo/patio home developments are run by someone who has mistaken the office of association president for the office of an emperor. And the more neighbors you get, the more chance you'll have to deal with a nut. (All of which is also true in home subdivision developments and all of which is true when renting.)

So to me, the key is getting the right development, which means you have to do your homework. You have to ask around, talk to current and former residents, and maybe even attend an association meeting. I would not automatically rule out living in a condo.

[tomocox]

Originally Posted by Off Topic

I think these problems come more with co-op's, rather that condos. I know lots of people who live in condos and love it. No cutting the grass, no worry about fixing the roof, etc. The economic collapse of a condo complex is a concern, but it rarely happens outside of new developments. (I'm sure people could cite examples of when this happened, but that's a small proportion of all the condo developments in Jefferson County. It happens, but it's hardly an every-day occurance.)

However, no question some condo/patio home developments are run by someone who has mistaken the office of association president for the office of an emperor. And the more neighbors you get, the more chance you'll have to deal with a nut. (All of which is also true in home subdivision developments and all of which is true when renting.)

So to me, the key is getting the right development, which means you have to do your homework. You have to ask around, talk to current and former residents, and maybe even attend an association meeting. I would not automatically rule out living in a condo.

You have made some excellent points. Young people can correct their errors, but people living off of retirement money? The Bernie Madoff industry is a prime example of my concerns about investing in things you do not control. Your points about investigations are right on!

Another point, never buy a stock or a home that you can not sell. Even at a loss in equity, stay on top of the market. Know your condo's/co-op's business and if you see trouble brewing, get out. I assure you hiring a professional, or the kid next door, to mow your law 15-20 times per year can be much less expensive than the price of your neighbors' foreclosures in a condo neighborhood.