Keep Condo or Sell? Buy new house? (tenant, mortgage, mortgages)

[ecsdude]

I live in Northern California, in Sacramento, where it's been a seller's market for quite some time now. Prices for homes old and new seem to be on the high side and maybe peaking and leveling off a bit. The increase in home prices may be partly explained by relatively low inventory and SF Bay Area people moving to the area and driving up prices.

I was fortunate that I was able to buy my first house in 2010, about a year before the historic lows after the last bubble bursted. While I didn't buy at the ultimate lows, it was low enough for me. I held the house for 5 years and sold it for about $95K profit, took the money and moved to a better area, into a condo that had 200sqft less space but was in newer condition and would be lower maintenance and a good property/location to rent out eventually. The condo has appreciated about $80K and may eventually reach $100K appreciation.

If I stay put, my total cost for mortgage, interest, property taxes, insurance and HOA is $1500. This is about $200-300 lower than market rate apartments of the same size in my immediate area.

Lately, I've been wanting to buy a house in the 2200-2400sq ft range, maybe an newish, pre-owned house in an established area or a brand new build in a new part of town. I don't absolutely NEED a home or new place of that size, but it would be nice to have. I'd like extra space for a dedicated home office, a modest but nice yard for my pets and for my own enjoyment, a home design that enables my elderly parent to have access to bedroom, bath, laundry, kitchen all on ground floor, rather than have to walk up a flight of stairs in my current condo to get to the main floor where everything is (ground floor is just garage and main door).

Homes in the 4bdrm/3ba, 2000-2400sqft range go for anywhere from $450K-550K to start, depending on lot size and other factors. With HOA and/or mello roos, property taxes, insurance, principal and interest, the total monthly cost would be anywhere from $2400-$3000/mo. This is roughly $1000-1500 more per month than my current 2bd/2ba condo. Over a year, it's anywhere from $12000-$18000 more to move to such a house, or the same amount saved if I stay put in my condo.

I currently take home just under $4000/mo after taxes, and over the next year I expect to take home maybe an additional $400 or so after taxes, so $4400.

My car will be paid off in 3 months @ $336/mo. I have $3K left in student loans that will be paid off in 12 months. Aside from that I have no other debt aside from my current condo mortgage.

I have about $15K in savings/rainy day funds and could stand to put a lot more into my 401K. I don't get a match from my employer but I do get a pension.

I'm trying to decide if I should rent out my condo and buying a house, selling the condo and buying a house, or just keeping the condo and stay living in it. I could easily rent out for $1500/mo due to proximity to a major employer and shopping, and due to being $300 below market rate for similar sized and featured apartment in the area. I could probably ask for $1700 and a renter would still save $100 off apartment rates in the area plus have the advantage of a condo vs apartment. So someone would be at least paying off my condo mortgage, and I could possibly also make a "profit" or $200/mo. I could put that into a fund for condo upkeep and repairs or what not, and/or eventually apply that $200/mo towards mortgage payments on a house.

If I buy a house and keep the condo and rent it out, I wouldn't have 20% down for the new house ($90-100K), and would probably have to put down only 3.5% or so.. at most 10% down. This means the loan amount would necessarily be higher and so would the interest owed. And I'd be paying 60-75% of my after tax take home pay per month towards the home loan, interest, property tax, insurance and HOA/mello roos, leaving me with $1000-1600 left for other things (food, utilities, phone, gas, savings, retirement). This means I'd have less to put away towards retirement or savings.

I work a state job which is pretty secure and will get a pension that is at most 40% of my highest take home pay over my last 3 years of service before retirement. In about 4 years I will max out at my current salary cap of $96K, so I can expect at least 40% of that in pension if I were not to move up and increase my pay beyond that before retirement at 62. I'd really prefer to retire at 55, but that would mean my pension would only be 20% or so instead of 40% of my annual salary.

I don't see the condo or a new house appreciating significantly more over the next 5-10 years, at least not to the degree properties did after 2011. Because my condo price may be peaking and I'd be buying a new house at a peak right now. Maybe over 20 years it would be trending upwards and the value of the condo and a new house will likely go up.. maybe $35-75K, let's say. So I wouldn't quite be getting rich going this route. I'd be paying down my mortgages and building equity on both properties though. But i'd also be living pretty much paycheck to paycheck to cover all of the added costs and not plugging away as much into savings/retirement as I should.

If I sell the condo, I'd have 20-25% to put down on a new house and wouldn't have to deal with potential headaches of being a landlord on the apartment. I'd not have the stress of worrying about a missed payment from tenant requiring me to make the mortgage payment on a given month out of my own pocket. I can just focus on paying down and maintaining the house. I probably wouldn't see a windfall of money due to the home value skyrocketing since i'd be buying near the peak. I would just be buying the house for personal enjoyment and greater comfort and space reasons.

If I keep the condo and don't buy a new house.. just stay put. I'd be able to put away $12-15K per year after taxes. This means I could plug away more towards retirement/savings for rainy days, annual vacations, and other things.. but I feel a bit cramped in a 2bd/2ba condo right now that's 1100sqft. If I only had another room for guests and another for a personal office that would be nice.

What would you do? I realize that'd be buying more house than my income comfortably allows, but it could work... the question is would it be worth it?

[beckycat]

Originally Posted by ecsdude

I live in Northern California, in Sacramento, where it's been a seller's market for quite some time now. Prices for homes old and new seem to be on the high side and maybe peaking and leveling off a bit. The increase in home prices may be partly explained by relatively low inventory and SF Bay Area people moving to the area and driving up prices.

I was fortunate that I was able to buy my first house in 2010, about a year before the historic lows after the last bubble bursted. While I didn't buy at the ultimate lows, it was low enough for me. I held the house for 5 years and sold it for about $95K profit, took the money and moved to a better area, into a condo that had 200sqft less space but was in newer condition and would be lower maintenance and a good property/location to rent out eventually. The condo has appreciated about $80K and may eventually reach $100K appreciation.

If I stay put, my total cost for mortgage, interest, property taxes, insurance and HOA is $1500. This is about $200-300 lower than market rate apartments of the same size in my immediate area.

Lately, I've been wanting to buy a house in the 2200-2400sq ft range, maybe an newish, pre-owned house in an established area or a brand new build in a new part of town. I don't absolutely NEED a home or new place of that size, but it would be nice to have. I'd like extra space for a dedicated home office, a modest but nice yard for my pets and for my own enjoyment, a home design that enables my elderly parent to have access to bedroom, bath, laundry, kitchen all on ground floor, rather than have to walk up a flight of stairs in my current condo to get to the main floor where everything is (ground floor is just garage and main door).

Homes in the 4bdrm/3ba, 2000-2400sqft range go for anywhere from $450K-550K to start, depending on lot size and other factors. With HOA and/or mello roos, property taxes, insurance, principal and interest, the total monthly cost would be anywhere from $2400-$3000/mo. This is roughly $1000-1500 more per month than my current 2bd/2ba condo. Over a year, it's anywhere from $12000-$18000 more to move to such a house, or the same amount saved if I stay put in my condo.

I currently take home just under $4000/mo after taxes, and over the next year I expect to take home maybe an additional $400 or so after taxes, so $4400.

My car will be paid off in 3 months @ $336/mo. I have $3K left in student loans that will be paid off in 12 months. Aside from that I have no other debt aside from my current condo mortgage.

I have about $15K in savings/rainy day funds and could stand to put a lot more into my 401K. I don't get a match from my employer but I do get a pension.

I'm trying to decide if I should rent out my condo and buying a house, selling the condo and buying a house, or just keeping the condo and stay living in it. I could easily rent out for $1500/mo due to proximity to a major employer and shopping, and due to being $300 below market rate for similar sized and featured apartment in the area. I could probably ask for $1700 and a renter would still save $100 off apartment rates in the area plus have the advantage of a condo vs apartment. So someone would be at least paying off my condo mortgage, and I could possibly also make a "profit" or $200/mo. I could put that into a fund for condo upkeep and repairs or what not, and/or eventually apply that $200/mo towards mortgage payments on a house.

If I buy a house and keep the condo and rent it out, I wouldn't have 20% down for the new house ($90-100K), and would probably have to put down only 3.5% or so.. at most 10% down. This means the loan amount would necessarily be higher and so would the interest owed. And I'd be paying 60-75% of my after tax take home pay per month towards the home loan, interest, property tax, insurance and HOA/mello roos, leaving me with $1000-1600 left for other things (food, utilities, phone, gas, savings, retirement). This means I'd have less to put away towards retirement or savings.

I work a state job which is pretty secure and will get a pension that is at most 40% of my highest take home pay over my last 3 years of service before retirement. In about 4 years I will max out at my current salary cap of $96K, so I can expect at least 40% of that in pension if I were not to move up and increase my pay beyond that before retirement at 62. I'd really prefer to retire at 55, but that would mean my pension would only be 20% or so instead of 40% of my annual salary.

I don't see the condo or a new house appreciating significantly more over the next 5-10 years, at least not to the degree properties did after 2011. Because my condo price may be peaking and I'd be buying a new house at a peak right now. Maybe over 20 years it would be trending upwards and the value of the condo and a new house will likely go up.. maybe $35-75K, let's say. So I wouldn't quite be getting rich going this route. I'd be paying down my mortgages and building equity on both properties though. But i'd also be living pretty much paycheck to paycheck to cover all of the added costs and not plugging away as much into savings/retirement as I should.

If I sell the condo, I'd have 20-25% to put down on a new house and wouldn't have to deal with potential headaches of being a landlord on the apartment. I'd not have the stress of worrying about a missed payment from tenant requiring me to make the mortgage payment on a given month out of my own pocket. I can just focus on paying down and maintaining the house. I probably wouldn't see a windfall of money due to the home value skyrocketing since i'd be buying near the peak. I would just be buying the house for personal enjoyment and greater comfort and space reasons.

If I keep the condo and don't buy a new house.. just stay put. I'd be able to put away $12-15K per year after taxes. This means I could plug away more towards retirement/savings for rainy days, annual vacations, and other things.. but I feel a bit cramped in a 2bd/2ba condo right now that's 1100sqft. If I only had another room for guests and another for a personal office that would be nice.

What would you do? I realize that'd be buying more house than my income comfortably allows, but it could work... the question is would it be worth it?

Although it would be nice to have a house, it's important to live within your means. Since you have a mortgage on the condo, I'd take the extra money and pay it down as quickly as I could. You said you don't need the house, you want it. There's a big difference between the two. This is where people get themselves into trouble.

You live an area where for the most part real estate will continue to appreciate. If it were me, I'd hang tight. I know, I know it's hard to do but it's the sensible thing to do.

Another possible scenerio: What if you bought a smaller house, not over 2000 sq feet? I know you said you feel cramped in the condo but with the right layout, an extra 500 sq feet can make a big difference. Then, the cost would be less as well.

[Sunshine Rules]

I realize that'd be buying more house than my income comfortably allows, but it could work... the question is would it be worth it?


You actually answered your own question. You would be buying more house than you can comfortably afford.

If you buy a home that puts a strain on you financially without room for error, what will you do if something happens, such as a disabling illness or accident, job issues that make staying in your current position undesirable, or other personal crisis?

Financial problems often start with high basic living expenses. The most basic of these is your monthly house payment. If the house payment is high, other expenses seem to follow suit. There are higher utility costs, higher insurance costs, higher property taxes, higher maintenance costs, higher repair bills. By having low basic living expenses – including your housing expense – you’ll be in a better position to deal with any financial crisis that might come about.


If you buy less house than you can afford, you may not like your house as much, but you’ll probably enjoy your life a lot more.