patrick.net

Keep saving, Condos are horrible idea.
Especially for renting, you'll be legally liable for your Renters actions and the result of any condo violations they may incur.

Also there's that $500 monthly condo fee, and on top of that, a condo can come out of the blue and decide to do a major property update, and bill you your share any time. Even if you couldn't afford it at that time.

When you own a condo, or any home with a HOA, your rights are second to the HOA.

When I found out at the Car dealer recently, that I have stellar credit, I almost said never mind, I wanted to leave and go apply for a prime loan for a MFH. But I left with the car instead. I'll have to wait a year or so now.

There's a couple 2 and 3 br 4 plexes ranging between 120000 and 199999 around that at that price, not only would it cover the mortgage on that place, but the house I bought last year.

for less than $800 a month I pay in mortgage, I could rent the 4P and make $4800 a month.

Malkovich says

Can anyone comment on why I should or should not consider buying a condo for all cash?
Should I continue renting and hope that housing prices will decline even further?
Should I not give up on my plan to get a multi and continue searching?

In short, its how much to pay. Your margin of safety, should include pre bubble prices say 1997 plus factor increase for inflation and wages say 35-40% since rational pricing.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Charts/ZIPSFC.aspx

Everyone seems to point to 1997 as the pre bubble year... To me it looks like a low point rather than a median in home prices. In Los Angeles median home prices were higher in 1988 than 1997... so 1997 marked the low point in housing after nearly a 10 year decline.

1997 is nearly 15 years ago... In my neighborhood of 1950s tract housing... The lowest price home i could find in 1997 sold for 165K and is recently Zestimated to be worth $388K.

Mortgage interest rates were 8% in 1997 vs. 4% heading into 2012.

Assuming an appreciation of 3% a year... that $165K home should be worth $258K in 2012.

But a $258K home at 8% interest has a monthly payment of about $1800 a month prinicpal/interest.

If it sold today for $388K at 4% interest the monthly prinicpal/interest would be about $1800 a month.

So all said and done... someone buying at zillows price estimate today at current interest rates is basically already paying 1997 monthly nut.

If REAL prices fell to 1997 levels and interest rates stayed at or below 4%... Then monthly payments would be ridiculously low historically.

I'd never want renters. I dislike condos also in general because you are never finished paying those dues.
If I had such high income, I would just buy Vanguard or T.Rowe Price retirement type investments. Vanguard Tax-managed funds are the ultimate in flexibility, you won't get a big 1099 DIV but you have no penalty for early cashing some of it out.
I would also buy bond funds from Vanguard, various are good over there.
I would also not pay cash for property in areas that may still be experiencing a bubble.

When you buy RE for yourself or investment, always consider the fact that in some point in the future you will go to sell it. Condo can be great for you, for investment however it depends; on location, age, who is in HOA Board, current and future restriction, financing ability.
4-plex also have they own issues. Can be rent controlled. Usually are pretty old and more maintenance required. In your situation I will by condo close to business but not all cash. If you get into problems is always easier to go after somebody asset when is free and clear. Beside you are good candidate to join partnership and buy fully managed newer multifamily complex. Perhaps outside of CA for better cash flow.

Malkovich says

My primary motivation comes from the fact that I am never going to get the money I am paying for rent back ($21K/yr). I also have some secondary motivations such as wanting better weather (I live in the outer richmond fog zone), and wanting to be closer to work (my office is near the Embarcadero), and hedging against inflation/rent increases.

If you are making $250k+/yr why are you worried about $21k a year in rent in SF? I understand the motivation for better weather and shorter commute but at that income $21k shouldn't hurt you much.

New renter says

If you are making $250k+/yr why are you worried about $21k a year in rent in SF? I understand the motivation for better weather and shorter commute but at that income $21k shouldn't hurt you much.

Come'on, you're no fun.

Not asking Bay Area Hipsters on patrick.net would be passing an opportunity to boast about our success and personal finances and savvy.

New renter says

Malkovich says

My primary motivation comes from the fact that I am never going to get the money I am paying for rent back ($21K/yr). I also have some secondary motivations such as wanting better weather (I live in the outer richmond fog zone), and wanting to be closer to work (my office is near the Embarcadero), and hedging against inflation/rent increases.

If you are making $250k+/yr why are you worried about $21k a year in rent in SF? I understand the motivation for better weather and shorter commute but at that income $21k shouldn't hurt you much.

I just started making this kind of money in the last couple years. Before that I was on a 4-year sabbatical traveling around the world as a carefree bum.

I just moved into my flat earlier in the year. Was living in a house share in a crappy area of the Mission for $500/mo for many years and though I loved saving money, I just couldn't deal with the 'hood anymore.

Is blowing $21K on rent the norm? Heck, you tell me. I am just trying to make the best financial moves I can. Hoping to retire in ten years and have some more fun before my body starts falling apart.

I am thankful for Patrick.net as it is about the only guidance I have in regards to real estate. So, if I sound like an idiot, well, guilty as charged!

Well grossing $250k a year u should be a millionaire in another 5-7 Years max. But if Bubble Sitter and others predictions on pat.net of a 20-40% drop in home prices occurs the odds are your business will go under because the economy will enter a depression and unemployment will soar to 40%.

So just keep renting i guess... Or...

I say get a 30 year mortgage with 20% down... Keep plenty of cash on hand if a depression develops. Ride out the downturn and eventually you will be able to pay off that mortgage easily with a hyperinflated currency.

Los Angeles Owner says

Bubble Sitter and others predictions on pat.net of a 20-40% drop in home prices

Yes it will be over the period of 5 to 7 years in not more.

Los Angeles Owner says

if a depression develops.

Very likely.

bubblesitter says

Los Angeles Owner says

Bubble Sitter and others predictions on pat.net of a 20-40% drop in home prices

Yes it will be over the period of 5 to 7 years in not more.

Los Angeles Owner says

if a depression develops.

Very likely.

So you are on record as stating basically zero appreciation in home prices for 22 years... If you bought a house in 1997... In 2019 Home prices will be at 1997 levels. I've already made the case that im basically paying the same monthly for my home as someone that bought 15 years prior due to low interest rates. If interest rates dont rise in the next 5 years and home prices fall another 40%... Then by my calculations my home 4 bed/2bath pool home in LA could be owned for under $1000 a month.... Less than my first 1 bedroom apt i rented out in 2002 when i moved to cali... Um, and do pigs fly in your neighborhood?

Interest rates are going to remain low until inflation forces them up, wage inflation to be specific. That may take 5-10 years.... But Banks and the govt know higher rates will just make all their bad assets worth much less.... So they will work together and do whatever to keep rates low until some new energy breakthrough or invention causes wage inflation.

If that breakthrough doesnt occur then our society is doomed moving forward anyway. Civil unrest, war and famine will make a falling real estate market the least of anyones worries.

Los Angeles Owner says

until inflation forces them up, wage inflation to be specific.

No. Govt is going to do every thing to keep it down and push it even down. Wage inflation in near term is out of question,so home prices have only one direction to go and that is DOWN.

Los Angeles Owner says

So you are on record as stating basically zero appreciation in home prices for 22 years... If you bought a house in 1997... In 2019 Home prices will be at 1997 levels. I've already made the case that im basically paying the same monthly for my home as someone that bought 15 years prior due to low interest rates. If interest rates dont rise in the next 5 years and home prices fall another 40%... Then by my calculations my home 4 bed/2bath pool home in LA could be owned for under $1000 a month.... Less than my first 1 bedroom apt i rented out in 2002 when i moved to cali... Um, and do pigs fly in your neighborhood?

Give me a catapult and yes, pigs will fly!

And yes, home prices will come down. They are doing so now and will continue to do so for the foreseeable future.

Malkovich says

Is blowing $21K on rent the norm? Heck, you tell me. I am just trying to make the best financial moves I can. Hoping to retire in ten years and have some more fun before my body starts falling apart.

It seems pretty good to me. You are bragging aren't you?

We pay $2k/mo for a 2br in San Jose, but that is with a short term lease and extra for pets.

If you are really interested in saving more dough can you move your business to a cheaper area? Tracy, Stockton, Gilroy, Hollister and Fresno are probably 1/2 the price of what you are paying. Then again you'd be living in Tracy, Stockton, Gilroy, Hollister or Fresno. Not as nice as the city.

New renter says

Malkovich says

Is blowing $21K on rent the norm? Heck, you tell me. I am just trying to make the best financial moves I can. Hoping to retire in ten years and have some more fun before my body starts falling apart.

It seems pretty good to me. You are bragging aren't you?

We pay $2k/mo for a 2br in San Jose, but that is with a short term lease and extra for pets.

If you are really interested in saving more dough can you move your business to a cheaper area? Tracy, Stockton, Gilroy, Hollister and Fresno are probably 1/2 the price of what you are paying. Then again you'd be living in Tracy, Stockton, Gilroy, Hollister or Fresno. Not as nice as the city.

Bragging about what? I don't understand.

Malkovich says

I am thinking about chucking the idea of finding a multi and being a landlord with a mortgage and am now considering buying a 1bd condo in OAK for all cash in the $200K or less range. The HOA would likely be $400-500 on such a condo.
My primary motivation comes from the fact that I am never going to get the money I am paying for rent back ($21K/yr). I also have some secondary motivations such as wanting better weather (I live in the outer richmond fog zone), and wanting to be closer to work (my office is near the Embarcadero), and hedging against inflation/rent increases.
Can anyone comment on why I should or should not consider buying a condo for all cash?

I don't generally recommend that you consider your home as an investment, however, but generally speaking condos don't perform as well as single family homes. Just look at condo prices in SF vs. houses. 1BR generally performs much worse than a 2BR, as someone already said.

You are also subject to the whims of the HOA and HOA assessments, especially if some of those neighbors are having their units foreclosed. Also, is the building largely owner-occupied? That would be better than majority rented, generally.

A third option, albeit more risky, is to get a loan on your condo, and use the rest of the money for the multi-family property you want in Oakland in a neighborhood you might not want to live in. I don't mean a dangerous neighborhood, just slightly sketchier than you would have wanted. There are some of those available that I've seen, although they seem to move quickly, and many of them need some fixing up.

Show a little backbone Malkovich; West Oakland BART -- as close as you can get to the City via BART. Mandela Parkway is a nice, modern thoroughfare . http://www.redfin.com/CA/Oakland/1415-10th-St-94607/home/524988
With the amount of cash you have on hand, maybe you could pick up an Adams Point condo at a foreclosure auction and then take out a mortgage.

There is no way I'd ever buy a condo. Why own an apartment?

The exception to that rule would be to own a loft (warehouse conversion) in the heart of downtown. I did that a number of years ago in the Minneapolis Warehouse District. It was great walking to work.

http://www.801washingtonlofts.org/

I think somebody here is not been objective.

How can a person making 250K/year can live in Oakland? I mean I know there are nice areas of Oakland but those are very few. Making that money and having savings he can buy something in SF and avoid the comute which surelly is not pleasant.

EBGuy says

Show a little backbone Malkovich; West Oakland BART -- as close as you can get to the City via BART. Mandela Parkway is a nice, modern thoroughfare . http://www.redfin.com/CA/Oakland/1415-10th-St-94607/home/524988

With the amount of cash you have on hand, maybe you could pick up an Adams Point condo at a foreclosure auction and then take out a mortgage.

Haha.. thanks for the laugh. I already did my time - 5 years at 16th and South Van Ness. I work too hard to come home to quality of life issues. I considered West O at the beginning of my search. But after driving around there during the day a few times (didn't go at night) I just didn't feel very good about the place - lotta sketchy characters and most blocks are sort of ugly. If I were 20 years younger I'd probably be all over this. Now? Forget it. Too old for that crap and my 95lb girlfriend probably wouldn't much care for it either.

We live in a townhouse, another name for a condo. It's a lot cheaper than houses that's for sure.

lserranov says

How can a person making 250K/year can live in Oakland? I mean I know there are nice areas of Oakland but those are very few.

Dude, have you been to the Oakland Hills? Nicer than half of SF. The problem is Oakland high schools, although SF high schools aren't that much better after Lowell and some specialized programs/magnets.

lserranov says

Making that money and having savings he can buy something in SF and avoid the comute which surelly is not pleasant.

Buying in SF is sort of a minefield. It's politically unstable in certain ways, the voting is dominated by special interests, the property regime is insane, the planning department can be somewhat crazy, and your NIMBY neighbors can be crazier.

Parts of Oakland have shorter commutes to SF than parts of SF. In many ways, some parts of Oakland/Berkeley have been the Brooklyn for people not wanting to pay SF prices, but still wanting urban living with good restaurants, etc.

I'm guessing you don't live in the Bay Area and are just a random out of town Oakland disser like on SFGate. Most people just know about Oakland what they see on TV. It's a big city.

Corntrolio.

Obviously I know Oakland Hills and that is why I said there are few nice areas in Oak. However poster said was considering to buy something in the 200K range and you bring Oak Hills to the conversation? Come on! He may never find anything in there for such $$

I think he is fooling us by telling he makes a lot of money but wants to live in Oak in cheap area. I know people that makes less money and they look for greener grass.

Anyway everybody can do whatever they like with their money and also with their time. I'm not wasting mine anymore reading this nonsense thread.

We owned a condo until 1997 when we sold and moved to a SFH. I wouldn't want to own a condo again, for several reasons, and it's not the monthly fee. First of all, you never know when you're going to be hit with a mandatory assessment for repairs, like the roof (we got that) or the fences (we got that, too) where you have to come up with several thousand dollars or else, and forget the deferred maintenance if you happen to be broke or out of work at the time; second, even if you can inspect the financial statements of the homeowners' association, you have no way of knowing the financial situation of your neighbors despite being dependent on them to help support the communal areas and pay the common bills, such as water garbage landscape and security; third, when you try to sell the condo it may be very difficult or impossible for even a willing buyer to get financing from the banks. Never mind that you can't do a darn thing without the HOA's ok, from hanging your laundry in your patio to putting out a flower pot by the front door. (I won't mention the vicious parking space wars.)

Malkovich says

my personal finances: My business is doing well, I've had a great couple years, and predict that I'll continue to pull in at least $250K/yr (pers income) if not more. I have $150K saved for a down and another $200K in savings.

Malkovich says

bragging about what? I don't understand.

lserranov says

Corntrolio.

Obviously I know Oakland Hills and that is why I said there are few nice areas in Oak. However poster said was considering to buy something in the 200K range and you bring Oak Hills to the conversation? Come on! He may never find anything in there for such $$

I think he is fooling us by telling he makes a lot of money but wants to live in Oak in cheap area. I know people that makes less money and they look for greener grass.

Anyway everybody can do whatever they like with their money and also with their time. I'm not wasting mine anymore reading this nonsense thread.

I'm not fooling anyone. I've been thrifty all my life. My friends have even called me cheap at times.

I *just* started making good money a couple years ago. Honestly, I sometimes look at my P&L and can't believe it. My accountant tells me I should by a new car, get a nicer office (I have an office share - $250/mo), and buy a house.

So, maybe you think I should be looking for a place in SF and, yes, I could afford it but I think to myself, "What if my business fails? What if my health fails?"

I don't ever want to be one of these people whining about my mortgage and how I can't afford it. I am responsible and accept the consequences for every decision I've made in my life. I can't and won't blame things I can control on others.

So, yah, I make OK money but I've only got about 10 more years of working hard left in me. After that I am heading to Thailand, Panama, Malaysia, or some other country where the living expenses are low and the women are nice. :)

Well, seems like that post-work Heineken is taking effect now. I hope I've cleared things up.

lserranov says

he is fooling us by telling he makes a lot of money but wants to live in Oak in cheap area

Iserranov, could be.
But I think there are folks with a lot of money who like to live in cheap places.
In fact, I know there are such folks because I know some of them.

You could be cynical and say that they are just out to "fool" the rest of us, but that's not it. It's more about personal preference than foolery, and about humility and sensitivity to others. But, you really have to know them well to know that they have a lot of money, because they certainly don't go around boasting about it.

Queenie says

I wouldn't want to own a condo again, for several reasons, and it's not the monthly fee

There's nothing wrong with living in multifamily housing, most people in the world live that way. But I agree with your preference, besides what you wrote, less worries about neighbors being careless with fire hazards.

lserranov says

However poster said was considering to buy something in the 200K range and you bring Oak Hills to the conversation? Come on! He may never find anything in there for such $$

Now you're just changing the subject because you got called out. That is not what you said. You asked why someone making $250K/year would live in Oakland and said very little about the OP's request.

You suggested he should buy something in SF, which he certainly couldn't find in the $200K range without being in Hunter's Point, so you're being a bit disingenuous here with your response. The parts of Oakland the OP is looking at would have a faster commute than the parts of SF where you could find a property that cheap.

Malkovich says

So, maybe you think I should be looking for a place in SF and, yes, I could afford it but I think to myself, "What if my business fails? What if my health fails?"
I don't ever want to be one of these people whining about my mortgage and how I can't afford it. I am responsible and accept the consequences for every decision I've made in my life. I can't and won't blame things I can control on others.

I thought your plan made sense in the first place in some ways, but I think there are some pitfalls with condos, particularly 1BR ones.

B.A.C.A.H. says

There's nothing wrong with living in multifamily housing, most people in the world live that way.

I agree, in theory. On the plus side, we became good friends with our neighbors, and got to know people all around us, which was really nice. And it was nice for our kids, because they got to play with a lot of other little kids in the common areas, and still could be right outside the window, within view and away from the streets. I think the density helped with socializing because so many parents are away at work and the kids are in daycare. Play dates are less spontaneous and more difficult to arrange, plus our kids had to play with whoever was around and that was definitely a diverse bunch.

Besides wanting a garden, I just think there's too much financial risk involved because you're in a communal financial situation.

I hadn't considered the fire, but there's another concern!

From what I know of condo ownership, many folks (most?) purchase a condo bc they lack the income/savings for a SFH. As you probably well know the common play is to purchase a condo and spend 5-10 years building equity, then advance to a SFH, assuming a rising or at least stable market. (I think there is also a substantial number of empty nest boomers who purchase downtown condos for a variety of reasons, but that's a whole different topic)

But you've already got a substantial amount of cash for a DP, a very high income, and solid savings, so perhaps you don't really need those "training wheels" that many condo buyers need to "get on the ladder." You'd be purchasing problems that others accept bc they are trying to get to a position like yours. Leapfrog the condo buy if you are going to buy at all, no?

The other thing is, I've watched the condo market in Oak (in the 200K-250K range) for at least 2 years now. I've only seen prices drop, and often by more than 10%. If you bought a year ago, that's lost money, and you'd have been paying $500/month in HOAs that whole time, too. plus property taxes, maintenance, etc.

So instead of buying the condo last year, maybe you just SAVED money by instead continuing to rent at $21K year in SF, however foggy.

I would think you'd be among the competitors for picking up a multi in a halfway decent OAK or BERK neighborhood. That seems like it was your original idea, and is probably the best one. (Again, if you are going to buy at all)

Finally, what is your line of business where you can take a 4 year sabbatical traveling the world then return to $250K annual?!?!? Nicely done! I am in the wrong business!

Thanks everyone for your comments and advice.

I spoke on the phone yesterday to the selling realtor of a condo I was potentially interested in and she mentioned that the HOA has recently added a mandatory $1000 fee for "joining the HOA."

This struck me as sort of odd and made me realize that, being the control freak I am, perhaps condo living isn't for me. I'll have to think about it some more.

Again, I very much appreciate everyone's input regarding the pros and cons of a condo.

(Bayarearenter, I have a small IT outsourcing business - we do IT consulting, service, and support for small and mid-sized businesses. I've been very fortunate in that I was able to quickly build a good client base, land some larger accounts, and find some great employees. And, of course, there was a lot of hard work involved as well.)

I live in a 1bedroom condo in the Oakland Hills and have the following feelings on the matter:

#1 - 1 bedroom condos are much tougher to sell compared to two bedroom condos, despite the lower initial buy-in. When I bought in '07, the 2 bedrooms were about $100K more and just out of reach for me at the time.

#2 - HOAs are asbolutely killer for what you get back.

#3 - You own no land.

Of course as a single guy who is occuppied with work, education, and social life, I very much enjoy not having to worry about yard work or exterior mainenance, but when the smoke clears, I regret buying the condo and should have held out for a house (and not bought at the height of the boom of course)... hind-sight.

lserranov says

How can a person making 250K/year can live in Oakland?

Oh brother... Take a cruise through the Oakland Hills sometime and lust over some of the most affluent real estate in the Bay Area...

Huge spectrum in Oakland... It's not just what you see on the news, lol.

Forget condos. For those that have lived in, or are living in apartments...ask yourself if you would pay a significant fraction of a million dollars to be stuck there indefinitely.

PROS:
- Rent doesn't go up at the end of a lease.

CONS:
- Same noise from the neighbors.
- Still have to keep quiet so as not to be an asshole neighbor yourself.
- HOA dues that can be changed arbitrarily.
- HOA assessments that are assessed without your consent.
- NO LAND.
- Same fucked parking situations.
- Nowhere to work on your car, if you are so-inclined...you have to pay shops & hope that they do it right.
- Remodeling restrictions (most of the time).
- Property tax increases as the state goes more broke / "value" increases on property (constrained by Prop13, but it can still go up every year...so let's say that this and the only PRO cancel out)

Honest-to-god, I can't understand why anyone would want to buy an apartment for any reason other than renting it out. OK, sure, there are places where there just isn't anything else available. In the Bay Area, for the most part, there are a lot of other options.

To a large extent, I feel the same way about "Townhouses". They share most of the cons with condos, minus the garage/yard part (sometimes, anyway).

bmwman91 says

Honest-to-god, I can't understand why anyone would want to buy an apartment for any reason other than renting it out.

to save money long term.

quite a few condos are below rental parity, if you plan to stay in a condo long term (some people actually do this) then it may make sense to buy it.

Hysteresis says

to save money long term.

quite a few condos are below rental parity, if you plan to stay in a condo long term (some people actually do this) then it may make sense to buy it.

If they are far enough below rental parity to cover all of the closing costs when you sell, along with purchase-related fees, any maintenance/upgrades, and the HOA didn't go out of its was to bone you, then sure, I'll concede that there can be A point in buying one.