Time to Buy a Condo or Keep in Renting?


Never let it be said that you weren’t advised:  Renting is the equivalent of throwing
money out the window, month, after month, after month.

If you are sincerely trying to maximize your take-home pay, the government at
every level ALSO wants you to BUY a home, or at least a condominium, and is
willing to put its money where its mouth is in the form of tax breaks and deductions
from your gross income.  Sound good?

The bottom line:  If you are paying $1,500 a month in rent, you could probably
afford to buy a $250,000 condo!  Really!

Let’s start with a typical renter’s goal:  Make the rent each month and fulfill one’s
contractual obligations to a landlord.  What do landlords want?  For you to help
them maximize their Return on Investment (ROI).  You are living in their financial
investment, pure and simple, and contributing to their American Dream.  There is
no question about this.  You pay, they collect and invest.  Maybe it’s time for YOU
to begin investing in your future.

Landlords achieve their goals by minimizing their expenses and maximizing their
returns.  Most are happy to “improve” you unit slightly, perhaps by buying a new
stove or refrigerator, if they can then pass along these incremental costs, by
adding them to your rent.  It is also in their best interest to effect repairs slowly and
carefully, using the cheapest labor then can find.  Finally, they come down on
renters like a ton of bricks if the monthly rental check is late.  First come fines,
then, eventual eviction.

YOUR goal, of course, is to minimize your monthly fixed costs.  However, are your
costs really minimized when you rent?  Yes, renting can be cheaper.  But cheaper
is not always better in the long term.

Let’s start with your rent.  When does your current lease expire?  You might want
to start looking for a condominium about three (3) months ahead of your next
rental contract renewal.  It can take time (a couple of weeks or more in today’s
market) to find just the right place, then follow-through on the mortgage and
required buying paperwork (perhaps another six weeks or so).  Most important,
what rent increase is your landlord planning when you renew - - 2%, 3% more?  

On the other hand, here’s how a condo purchase works in today’s market:  
Mortgage rates remain at historic lows (hovering in the 6-7% range) and there
seems to be a mortgage banker (bank or investor) or mortgage broker (a third-
party salesperson) behind every tree.  Certainly they are no more than a phone
call away, or a couple of Internet clicks. Of course, there are banks galore in most
cities.  We have hundreds in our area.  If you are breathing and have a
reasonable credit rating, they can lavish money on you, with literally hundres of
different mortgage choices, based on the monthly payments you select.  You don’t
necessarily need a “salary” or “paycheck,” just a good credit history and some
evidence of your primary sources of income.  Many loans are issued today to
families or individuals who have “no verifiable sources of income”  (like a maid,
bartender, waitress, or thousands of other service providers with small incomes but
large tips and other income sources), and ones who have some money in the bank
and a good history of bill paying in a timely manner.

Get your banker or broker to walk you through some of the basic terminology, and
watch for fees, expenses, recurring costs, and extra costs in the fine print, either
before the loan is issued, during the loan period, even, at the end of your loan.  
There still can be extra costs.

For example, on a $300,000 condo, if you borrowed the ENTIRE amount at 6%,
you’d be making monthly payments of about $1,800 a month, plus, generally, your
annual property taxes, divided by 12.   (Most likely, this adds another $200-$300 a
month to your monthly mortgage outlay.)  Also, your condominium association
most likely passes along its expenses, as monthly maintenance costs (also
deductible).

But there’s more, as the commercial says!

In Stamford and its surrounding communities, the condo market shows that the
average condominium that has been maintained in reasonable condition can
“appreciate” in value somewhere between 5-10% per year when you go to sell it.  
That means in two years, your condo might now be worth $330,000+, figuring a 5%
/year increase in value.  That’s more than a $30,000 bonus for just living there!  
Plus, you’ve been enjoying it all this time!

When’s the last time your landlord handed you this kind of bonus?

Next, we have income and state taxes deductions for the interest and property
taxes you’ve been paying out.  This also lowers your annual outlays of money.  
These deductions can mean more thousands of dollars saved over the years!

Finally, if you have made any costly improvements to your unit (which you can’
t/shouldn’t do in a rental unit  - - such as gutting the kitchen and putting in fancy
appliances, flooring and tile), then save the receipts, because you may be able to
deduct these expense from the “appreciated profit” when you sell your unit, thus
reducing the tax bite on that $30,000 “win-fall bonus” if you sold your unit after
three years (many people do, and buy a bigger one, things have worked out so
well!).

In addition, you also are beginning to live the so-called “American Dream”  - -
home ownership, relatively inexpensively, as you are feathering your nestegg and
building up equity in your condominium (equity equals your monthly mortgage
payments, minus the interest paid - - over time, you’ll eventually have equity equal
to the purchase price of your unit, but have been in a tax-deductible, larger,
interest amount, depending upon the interest rate of your loan.

Now, if you haven’t discussed your financial situation with a mortgage banker or
mortgage broker lately, you might be amazed at all of the financial instruments
they have available to meet your current situation.  Do you need low monthly
payments, or can you afford higher ones?  Are you planning to live they a couple
of years, or a lot more?  Are you trying to use your home as a “forced savings
account” or just trying to improve your living standards?  These are the sorts of
questions you’ll be asked, so be candid, and see what sorts of deals can be
tailored to your situation.

Then compare these monthly costs to your monthly rent.  If the amounts are fairly
close, it might pay to investigate the purchase of a home.

Therefore, as a belated New Years Resolution, consider saving every dollar you
can to assemble some cash for a condo purchase.  It makes financial sense and
generates immediate satisfaction.

As a real estate agent, I see the joy in the faces of families moving out of rental
units into condominiums, some with pools, health clubs, Jacuzzis, whirlpools and
more.  It’s just remarkable!  To a person, they all say, “Why didn’t we do this years
ago!”

Please give me the opportunity of discussing your specific condo purchase
requirements to see if and when it makes sense for you to “make the big leap.”  Let’
s run some numbers and see if it makes sense, or when it might.

Home ownership:  Better late than never, as the old wives tale notes.

- Stephen Bornet, Licensed real estate agent, with Weichert Capital Properties &
Estates in Fairfield County, CT   646 734-8525
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