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Can I Afford this vs Should I Buy it

Home Mortgages and Home Buying Can I Afford this vs Should I Buy it

  • Avatar CBan01 
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    Status: Physician
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    Joined: 03/11/2018

    Hey all- first post here. I’m a 2nd year private practice attending in a medium-sized non-coastal city with a moderate cost of living. Single, no kids, just paid off my $150k in student loans last year. My income was 330k last year and ought to grow more over the next few years as I take over the practice I joined. I won’t have to take out a loan to buy in – there is a 5 year transition plan that is essentially sweat equity. I’ve been renting my apartment the last 2 years and looking to buy. There’s a new condo bldg in my neighborhood going up and it’s exactly what I want. The problem is I really don’t know what is reasonable to spend. The two units I’m considering are 500k and 573k (just to be clear, I’m only considering buying one, not both). Originally I thought high 400s was my criterion for the mortgage. I should have the 20% saved up soon. Question is – as a first time buyer, am I foolish for considering spending this much? I think I can afford it, but it seems like a ton of money.

    #109104 Reply
    Vagabond MD Vagabond MD 
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    Status: Physician
    Posts: 3486
    Joined: 01/21/2016

    Hey all- first post here. I’m a 2nd year private practice attending in a medium-sized non-coastal city with a moderate cost of living. Single, no kids, just paid off my $150k in student loans last year. Y income was 330k last year and ought to grow more over the next few years as I take over the practice I joined. I won’t have to take out a loan to buy in – there is a 5 year transition plan that is essentially sweat equity.

    I’ve been renting my apartment the last 2 years and looking to buy. There’s a new condo bldg in my neighborhood going up and it’s exactly what I want. The problem is I really don’t know what is reasonable to spend. The two units I’m considering are 500k and 573k (just to be clear, I’m only considering buying one, not both). Originally I thought high 400s was my criterion for the mortgage. I should have the 20% saved up soon. Question is – as a first time buyer, am I foolish for considering spending this much? I think I can afford it, but it seems like a ton of money.

    Click to expand…

    It sounds like you are abiding by the WCI rule of “less than 2x your salary for your house/condo”, IIRC, and off-the-cuff, it seems like you can swing it. It also sounds like you are planning on staying in the area long term. I see no reason to talk you out of it.

    #109120 Reply
    Avatar jhwkr542 
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    Status: Physician
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    Joined: 02/15/2016

    Certainly those are reasonable prices.  The only issue would be your time commitment.  Generally, you need to stay in a place you purchase for about 5 years to break even (dependent on a lot of factors).  Financially, this is a reasonable price, assuming there’s not some unusual expenses you’re not disclosing (massive credit card debt, supporting parents, etc).  The only thing that could change all of this is if you meet someone, get married, and want to move to something like a single family home.  Even then, you could easily recover from it.  Yeah, $500k is a lot of money, but there are people making significantly less than you in homes that price.  You’ll be fine.

    #109127 Reply
    Liked by hatton1
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
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    1. Lived in the area long enough to know where you want to live? Check
    2. Buying housing < 2x Salary? Check
    3. Low or no other debt? Check
    4. 20% down? Check
    5. Plan to live in the home at least 5 years? Check (I think, unless you marry and/or have kids in the next 5 years and outgrow it.)
    6. Good credit rating = low mortgage rate? Unknown, presume Check.

    If it’s exactly what you want and you can check off the last 2, then I think you’re good to go.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    Avatar LasixDrip 
    Participant
    Status: Physician
    Posts: 18
    Joined: 12/09/2017

    If you’ve thought about it, slept on it, reflected on it, and it’s still “exactly what I want”, then go for it!  Very exciting!

    #109140 Reply
    White.Beard.Doc White.Beard.Doc 
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    Status: Physician
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    Joined: 02/06/2016

    Another thought about real estate.  Yes, it is good to be staying longer term to avoid excessive transaction costs.  And yes, it seems most likely that you will be staying in this home long term, so you can go for it and enjoy it.

    And one more thought…  It is often good to have more than one exit strategy with real estate when possible.  If you were to outgrow the condo, could it be rented out on a cash flow positive basis?  That could offer a reasonable second exit strategy if you need to move to different housing.  Some areas of the country will cash flow negative, some positive.  It is worth running the numbers before committing.  If the monthly numbers work, it is one more reason that it is reasonable to proceed with the purchase.  Certainly this is not necessary to go ahead, but it could offer additional reassurance that you are making a good decision.

    #109149 Reply
    Liked by hatton1
    CordMcNally CordMcNally 
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    Status: Physician
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    Joined: 01/03/2017

    It sounds like that’s what you want and there really isn’t a reason not to unless you have some other crazy monthly expenses but I don’t suspect that is the case. Enjoy your new place!

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #109163 Reply
    q-school q-school 
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    Joined: 05/07/2017

    you can definitely afford it.

    i don’t really know how to answer questions like should you, so i leave that to you.  🙂

    good luck!

    although it is perhaps the first big purchase (other than education), it is unlikely it will be the last.

    #109166 Reply
    Liked by Vagabond MD
    MPMD MPMD 
    Participant
    Status: Physician
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    Joined: 05/01/2017

    Financially it sounds fine.

    Full disclosure: I also own a condo.

    I would spend at least a few hours educating yourself on the unique challenges of condo ownership.

    In a rapidly growing area I would pay particular attention to rental caps. A condo building can turn into a rental apartment building pretty quickly and that can drastically affect your value and resale. I have seen this happen to friends who bought in sexy, glittering newly rehabbed towers only to see them turn into de facto rental buildings. The problem is if the building allows 40% rental you can be stuck either a) not being able to rent when you move or b) not being able to sell at your desired price b/c the building is full of rentals.

    In smaller 3-5 flat units you have to realize that 1 crazy and/or broke neighbor can ruin your life.

    ENT Doc ENT Doc 
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    Status: Physician
    Posts: 3567
    Joined: 01/14/2017

    Ditto to MPMD’s comments. I will never own a condo again. The HOA goes one way (up) and what you get for your money is not optimal. You could literally have neighbors in every direction depending on the condo, all of whom have to be completely chill and respectful for you to enjoy your experience. And the board will not always make decisions in your best interest. I already have politicians raising property taxes and making decisions not in my best interest. I don’t need that two times over. Beware.

    I would recommend finding a single family home as long as it fits your alternative goals as a single person (perhaps being near spots to go out, for example). But that’s just me.

    #109179 Reply
    Liked by SLC OB, portlandia
    MPMD MPMD 
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    Status: Physician
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    Joined: 05/01/2017

    My personal experience in a condo has been great, but several things are working in my favor:

    1. My condo is 1/4 mile from lake Michigan and from the L, so it has some basic factors that make it relatively protected from market swings.

    2. My neighbors have been awesome

    3. I live in part of the country where condo/apt living is very much the rule rather than the exception.

    1 and 3 are not going to change but 2 definitely could. I know there were bad dynamics in the past. At one point there were water issues in the ground unit (now mine) and obviously the owners wanted the assoc to pay for an absolutely Cadillac redo of the grading, this was done but it was incredible expensive and somewhat controversial. Right as we moved in the top floor neighbor was moving out and lets just say we had a good trade. Basic dynamic to expect is that if it’s an assoc issue that doesn’t directly affect unti X, expect X to push for the cheapest work possible and balk at “doing it right.” When the next issue affects X expect for them to demand shared payment for top-drawer work. Fortunately my current neighbors and I joke that we have adopted a “NATO charter” where an attack on one is an attack on all and it’s worked out great. But again, that could go out the window with a new owner and they wouldn’t even have to be some crazy jerk to make that happen, they would just have to be at the 40th percentile for generosity and neighborliness or just not have the money to be so flexible.

    #109187 Reply
    Avatar ajm184 
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    Status: Other Professional
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    Joined: 07/14/2017
    1. My condo is 1/4 mile from lake Michigan and from the L

    Click to expand…

    Out of curiosity, what stop on the ‘L’, not a lot near the lake until you get further north?  Used to live near the Chicago/Milwaukee stop off the blue line.  A 10 to 20 minute commute was a great selling point for me as a worked off the Dearborn/Monroe stop.

    #109214 Reply
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2598
    Joined: 05/01/2017
    1. My condo is 1/4 mile from lake Michigan and from the L 

    Click to expand…

    Out of curiosity, what stop on the ‘L’, not a lot near the lake until you get further north?  Used to live near the Chicago/Milwaukee stop off the blue line.  A 10 to 20 minute commute was a great selling point for me as a worked off the Dearborn/Monroe stop.

    Click to expand…

    Belmont. Live right in the middle of Boystown.

    It’s a quarter mile each way, so it’s about 1/2 mile from lake to stop.

    #109216 Reply
    Avatar spotty_dog 
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    Status: Spouse
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    Joined: 01/08/2016

    I think your post title is well-phrased. Can you afford it is a pretty different question from should you buy it. Clearly, by all measures you can afford the loan payments on this piece of property, without affecting your ability to feed yourself/your family or have some other hobbies. However, once you calculate up the payment on a 15-year loan, the taxes and condo fees, the 3-4% per year maintenance, the increased emergency fund to be able to easily cash flow any problems that crop up; and once you consider the ways that home ownership ties you down…that’s where you get to ask yourself if this is where you WANT to put your money.

    I mean, the “<2 years annual salary” rule for housing is like the “about 3 months’ salary” rule for buying an engagement ring. Yeah, maybe it represents what’s “affordable” across the spectrum of incomes, but if you’re making $300k that doesn’t oblige your special someone to walk around with a $75k rock on their finger.

    #109245 Reply
    Avatar Seabass 
    Participant
    Status: Physician
    Posts: 80
    Joined: 01/19/2018

    That is an Awesome analogy spotty!!

    I heard they got rid of analogies on the SATs. Lost art I guess.

    #109285 Reply
    Liked by Hank, spotty_dog

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