Condo purchase

[Naijaba]

Hey all, I wanted to share my experience buying a condo. I'm a bit older (30 y/o) and about to start intern year followed by radiology residency, both in Seattle. I missed out on an opportunity to purchase a condo in the Bay Area just before prices went up 4-fold. It looks like the same situation is happening in Seattle, so I decided to purchase now.

My first takeaway is that there are hidden costs everywhere, and it doesn't make sense to buy a condo if you're just looking to save on rent. You should buy if the market is expected to increase substantially over the next 5+ years. Amazon's zealous growth in Seattle is making the city the second Silicon Valley, and I'm banking somewhat on their continued expansion. My condo is in an area that is quickly becoming gentrified.

Here are a summary of my finances:

Pre-inspection: $300
Condo price: $280,000; 1 bedroom / 1 bath
Closing costs: $7,000
Down-payment: $55,000
Loan: $225,000 @ 4.250% interest rate
Monthly payment: $1,100 (loan payment + interest) + $600 (property taxes + home owner's insurance) + $300 (HOA) = $2,000 per month

In summary, I needed $55,000 + $7,000 = $62,000 to close and took out a mortgage of $280,000. My expected salary is $53K, or $3500 monthly, after taxes. That means over half my salary is going to housing costs. I started the process the day I matched and expect that it will take another three weeks before I'm officially the owner.

---

Members don't see this ad.

 

[ThoracicGuy]

Hey all, I wanted to share my experience buying a condo. I'm a bit older (30 y/o) and about to start intern year followed by radiology residency, both in Seattle. I missed out on an opportunity to purchase a condo in the Bay Area just before prices went up 4-fold. It looks like the same situation is happening in Seattle, so I decided to purchase now.

My first takeaway is that there are hidden costs everywhere, and it doesn't make sense to buy a condo if you're just looking to save on rent. You should buy if the market is expected to increase substantially over the next 5+ years. Amazon's zealous growth in Seattle is making the city the second Silicon Valley, and I'm banking somewhat on their continued expansion. My condo is in an area that is quickly becoming gentrified.

Here are a summary of my finances:

Pre-inspection: $300
Condo price: $280,000; 1 bedroom / 1 bath
Closing costs: $7,000
Down-payment: $55,000
Loan: $225,000 @ 4.250% interest rate
Monthly payment: $1,100 (loan payment + interest) + $600 (property taxes + home owner's insurance) + $300 (HOA) = $2,000 per month

In summary, I needed $55,000 + $7,000 = $62,000 to close and took out a mortgage of $280,000. My expected salary is $53K, or $3500 monthly, after taxes. That means over half my salary is going to housing costs. I started the process the day I matched and expect that it will take another three weeks before I'm officially the owner.

Spending half your salary on a mortgage is not smart. While home prices can go up, they can also go way down. Being in a four year residency, there is a concern of even breaking even if you sale when you finish.

 

[sazerac]

Spending half your salary on a mortgage is not smart. While home prices can go up, they can also go way down. Being in a four year residency, there is a concern of even breaking even if you sale when you finish.

The debt to (pretax) income ratio is 45.3% which is incredible. This loan won't even be conforming. I guess the bank plans on keeping it until the salary rises, or maybe there are other income sources we haven't been told about.

I have been monitoring home price histories at my future residency site, and mostly people are buying houses and selling them 4 years later for a 6% profit. Except they are sold on a 6% commission, so nobody is making any money at all except the real estate agents.

 

[DrBowtie]

You are lucky to have had a 55k down payment. Most traditional students would not have that without family help.

 

[Raryn]

Hey all, I wanted to share my experience buying a condo. I'm a bit older (30 y/o) and about to start intern year followed by radiology residency, both in Seattle. I missed out on an opportunity to purchase a condo in the Bay Area just before prices went up 4-fold. It looks like the same situation is happening in Seattle, so I decided to purchase now.

My first takeaway is that there are hidden costs everywhere, and it doesn't make sense to buy a condo if you're just looking to save on rent. You should buy if the market is expected to increase substantially over the next 5+ years. Amazon's zealous growth in Seattle is making the city the second Silicon Valley, and I'm banking somewhat on their continued expansion. My condo is in an area that is quickly becoming gentrified.

Here are a summary of my finances:

Pre-inspection: $300
Condo price: $280,000; 1 bedroom / 1 bath
Closing costs: $7,000
Down-payment: $55,000
Loan: $225,000 @ 4.250% interest rate
Monthly payment: $1,100 (loan payment + interest) + $600 (property taxes + home owner's insurance) + $300 (HOA) = $2,000 per month

In summary, I needed $55,000 + $7,000 = $62,000 to close and took out a mortgage of $280,000. My expected salary is $53K, or $3500 monthly, after taxes. That means over half my salary is going to housing costs. I started the process the day I matched and expect that it will take another three weeks before I'm officially the owner.

Most people starting residency don't have $62000 for up-front costs. And if you take that out of the equation, add PMI and the crappier interest rate for having a lower down payment on top of that, you'd probably add an extra $500-600/month to your PITI. Your math doesn't even work out for you (with a 20% down payment) and it certainly won't work for the average resident. You can't eat equity.

 

[DrfluffyMD]

I encourage everyone to read the white coat investor. Just the resident section, it's a quick read.

 

[Naijaba]

I appreciate all of the comments. Putting half my income towards rent was a tough decision, and an expected return of 6% over five years would not make the investment worth the risk. I took the chance because Seattle is a very unique market. The price of a 1-bedroom condo went up 17.9% last year alone, with the overall Seattle housig market increasing by 50% in the past five years.

I may bit emotionally involved based on my prior experience. I made an offer - and was about to close - on this condo back in 2013 for $300,00. It's now listed for $689,950. The deal fell through because I was working as 1099 contractor and couldn't secure a loan. It's not too good to reminiscent on the past, but I can't help wonder how that purchase alone would've paid for my entire medical education.

 

[DrfluffyMD]

I can already see how this purchase may become the white elephant in your life. IR jobs are less plentiful due to the amount of spots being not that many. You are banking on the IR job market up ticking (it could) or the house market uptick (it could also).

But imagine this scenario, you are doig your second year and at a cross road in your life, you ended up deciding between a two year IR residency and may not be able to return to seattle, versus doing a one year DR fellowship with follow up job. Suddenly it's your condo vs your passion. Having a significant other tied down to a location has a similar effect.

Right now there isn't enough volume in my mid west town to support additional IR and no job is insight. I could go back to Cali but then I would leave my wife stranded here...

 

[gutonc]

My condo is in an area that is quickly becoming gentrified.

ROFL at the U District just now becoming gentrified...that happened 20+ years ago.

 

[pedstar09]

I bought a condo back in November of my first year of residency. So far so good. The only reason I did it is the total of mortgage + tax + condo fees < rent fees. So, that was helpful and rest can be used for savings/other stuff. Everyone says that owning house is terrible since everything breaks, but I havent had any MAJOR thing required. Needed better coloring, so we painted walls in one weekend and that was that.

In general, it is doable if your finances add up. If you have good property and things dont break, then that is even better!

 

[RookTookIt]

Here are a summary of my finances:

Pre-inspection: $300
Condo price: $280,000; 1 bedroom / 1 bath
Closing costs: $7,000
Down-payment: $55,000
Loan: $225,000 @ 4.250% interest rate
Monthly payment: $1,100 (loan payment + interest) + $600 (property taxes + home owner's insurance) + $300 (HOA) = $2,000 per month

In summary, I needed $55,000 + $7,000 = $62,000 to close and took out a mortgage of $280,000. My expected salary is $53K, or $3500 monthly, after taxes. That means over half my salary is going to housing costs. I started the process the day I matched and expect that it will take another three weeks before I'm officially the owner.

I'm in the processing of buying as well, but I'm surprised by some of your numbers. Through a physician loan program I have a $0 down-payment and a lower interest rate as well.

 

[RangerBob]

I bought a condo back in November of my first year of residency. So far so good. The only reason I did it is the total of mortgage + tax + condo fees < rent fees. So, that was helpful and rest can be used for savings/other stuff. Everyone says that owning house is terrible since everything breaks, but I havent had any MAJOR thing required. Needed better coloring, so we painted walls in one weekend and that was that.

In general, it is doable if your finances add up. If you have good property and things dont break, then that is even better!

Mortage/rent/insurance should always be less than rent, as when you buy a home you should be setting aside funds for major repair work. I just spent $8,000 last year to replace the heater/AC. Fortunately we had prepared for a big expense like that and saved up for it.

People should be very careful if buying a home while in residency. I would argue finances should never be the reason to buy compared to renting. You always take on some risk when buying--the OP at least minimizes it by having put money down (it's harder to go underwater if you put 20% down compared to 0% with physicians loans), but there's still the possibility of buying prior to a bubble/correction. Anyone who buys a home/condo should only do so if they're willing to sell at a loss, willing to hold onto an empty home in the event of a slow market, etc. And obviously they need to have the time to actually maintain it.

I advise the vast majority of residents to not buy a home or condo. There are some cases where it may be worth it, but renting is almost always going to be the best route--both from a financial perspective, as well as time/energy.

 

[RookTookIt]

Mortage/rent/insurance should always be less than rent, as when you buy a home you should be setting aside funds for major repair work. I just spent $8,000 last year to replace the heater/AC. Fortunately we had prepared for a big expense like that and saved up for it.

People should be very careful if buying a home while in residency. I would argue finances should never be the reason to buy compared to renting. You always take on some risk when buying--the OP at least minimizes it by having put money down (it's harder to go underwater if you put 20% down compared to 0% with physicians loans), but there's still the possibility of buying prior to a bubble/correction. Anyone who buys a home/condo should only do so if they're willing to sell at a loss, willing to hold onto an empty home in the event of a slow market, etc. And obviously they need to have the time to actually maintain it.

I advise the vast majority of residents to not buy a home or condo. There are some cases where it may be worth it, but renting is almost always going to be the best route--both from a financial perspective, as well as time/energy.

As someone who is planning to purchase a home during residency, I appreciate your comments. I have a couple of questions.

1) If finances are not the reason to decide between buying vs. renting, then what is? I have plenty of reasons for wanting to own, but I would be lying if I said that finances weren't at the top of the list.

2) Can you elaborate on how a down-payment minimizes risk? I can afford to put money down if I choose, but with mortgage interest rates so much lower than my student loan interest rates, it doesn't seem like a good use of money.

Thanks in advance.

 

[RangerBob]

As someone who is planning to purchase a home during residency, I appreciate your comments. I have a couple of questions.

1) If finances are not the reason to decide between buying vs. renting, then what is? I have plenty of reasons for wanting to own, but I would be lying if I said that finances weren't at the top of the list.

2) Can you elaborate on how a down-payment minimizes risk? I can afford to put money down if I choose, but with mortgage interest rates so much lower than my student loan interest rates, it doesn't seem like a good use of money.

Thanks in advance.

My wife and I wanted to rent/buy a home because we were sick of living under noisy neighbors and it was affecting the quality of our life. We both love gardening and working on the home as well. The cheapest home we could find to rent at the time was about $1500/month (if we had waited something better may have popped up...), and we found a very affordable home in a really great neighborhood that was walking distance to 50% of my rotations (and a 10 minutes drive/15 minute bike ride to the other 50%). It was about $770/month, so we calculated that we'd save a lot monthly, which would let us save up a lot in the event of major repair work, having to sell at a loss, etc. We really enjoyed the home--it's great not having to deal with a landlord, to be able to put value into your home with the work you do (we did extensive landscaping all on our own), etc. But we also both had the time for all of that (many residents don't). Had I been in a heavier residency I think owning a home would've been too big a burden/hassle with maintenance issues.

The down payment minimizes risk in that if you buy a home for $100,000 but put $20,000 down, then the home needs to go down a decent amount in value for you to lose money at closing (because now you only owe $80,000 on it, so it can drop about 10% or so if you take into account closing costs). If you have that money set aside in savings, it's basically the same thing. The minimization of risk is that you have the equity or dedicated savings to fall back on. That's what we did--we took out a physician's loan with $0 down, and had about 10% of the home value in savings. Because the monthly costs were so low, it was easy to save money. The key is to not spend it!! When the heater/AC broke down, I was sort of pissed, but we had planed and saved for it (we knew they were on their last leg) and were able to pay cash to replace them.

I agree that it makes more sense to pay down student loans, but just be careful that you maintain enough savings for at least one major repair (heater/furnace, roof, basement, etc.) at any given time. I think having a minimum of 10% of the value of your home in savings would be needed. (But 20-30%+ is better, because then you've also got savings to deal with the possibility of losing money at closing, or having to pay double rent/mortgage if you move right away after residency but can't sell the home right away)

 

[RookTookIt]

My wife and I wanted to rent/buy a home because we were sick of living under noisy neighbors and it was affecting the quality of our life. We both love gardening and working on the home as well. The cheapest home we could find to rent at the time was about $1500/month (if we had waited something better may have popped up...), and we found a very affordable home in a really great neighborhood that was walking distance to 50% of my rotations (and a 10 minutes drive/15 minute bike ride to the other 50%). It was about $770/month, so we calculated that we'd save a lot monthly, which would let us save up a lot in the event of major repair work, having to sell at a loss, etc. We really enjoyed the home--it's great not having to deal with a landlord, to be able to put value into your home with the work you do (we did extensive landscaping all on our own), etc. But we also both had the time for all of that (many residents don't). Had I been in a heavier residency I think owning a home would've been too big a burden/hassle with maintenance issues.

The down payment minimizes risk in that if you buy a home for $100,000 but put $20,000 down, then the home needs to go down a decent amount in value for you to lose money at closing (because now you only owe $80,000 on it, so it can drop about 10% or so if you take into account closing costs). If you have that money set aside in savings, it's basically the same thing. The minimization of risk is that you have the equity or dedicated savings to fall back on. That's what we did--we took out a physician's loan with $0 down, and had about 10% of the home value in savings. Because the monthly costs were so low, it was easy to save money. The key is to not spend it!! When the heater/AC broke down, I was sort of pissed, but we had planed and saved for it (we knew they were on their last leg) and were able to pay cash to replace them.

I agree that it makes more sense to pay down student loans, but just be careful that you maintain enough savings for at least one major repair (heater/furnace, roof, basement, etc.) at any given time. I think having a minimum of 10% of the value of your home in savings would be needed. (But 20-30%+ is better, because then you've also got savings to deal with the possibility of losing money at closing, or having to pay double rent/mortgage if you move right away after residency but can't sell the home right away)

Makes sense, thanks. I think I'm in a similar situation and feel pretty confident about buying: in a residency with relatively regular hours and with a spouse who works a 9-5 and is interested in home improvement and landscaping. There's a lot of anti-buying sentiment around here, but for us I feel that it's the right choice. I think the key is to not look at buying as an investment, but simply as a different purchase than renting.

 

[RangerBob]

Makes sense, thanks. I think I'm in a similar situation and feel pretty confident about buying: in a residency with relatively regular hours and with a spouse who works a 9-5 and is interested in home improvement and landscaping. There's a lot of anti-buying sentiment around here, but for us I feel that it's the right choice. I think the key is to not look at buying as an investment, but simply as a different purchase than renting.

There's a lot of anti-buying sentiment for good reason--the majority of residents won't come out ahead financially, nor will they have the time to deal with maintenance issues. So if you have the time and the mindset that it's not necessarily going to save you money, and are comfortable with the possible prospect of having to hold onto a property or rent it out if you can't sell it (more likely in a Midwest city like mine than Seattle like the OP), then go for it if it's what is the right decision for you and your spouse. Just set aside the money you save each month vs renting to put into savings for maintenance (and student loan repayment). And don't buy more home than you need! 750sq feet (plus basement) was plenty for my wife and I. We could've done fine without the basement. And of course, location matters the most (will make it easier to sell).

I think things would've been much simpler if I had rented, but I am very happy with the purchase we made. I have a lot of great memories working on and living in that home.

Like I said, I recommend most residents don't buy, but there are a select few who I think it makes sense for. And typically those are people who like you, have thought long and hard about it and aren't doing it purely for financial reasons. I know one resident who finances played a big role, but her husband is getting a PhD and they'll be in the area for 8+ years, so at that point the odds are strongly in favor of coming out quite a bit ahead (or hopefully at least breaking even in the event of a larger correction/bubble).

 

[Raryn]

Makes sense, thanks. I think I'm in a similar situation and feel pretty confident about buying: in a residency with relatively regular hours and with a spouse who works a 9-5 and is interested in home improvement and landscaping. There's a lot of anti-buying sentiment around here, but for us I feel that it's the right choice. I think the key is to not look at buying as an investment, but simply as a different purchase than renting.

You just have to understand very well the various things that go into the math. People neglect to think of:

1. Closing costs (~3% of the purchase price)
2. Costs when selling the condo (~6% of the sale price)
3. Opportunity cost of the down payment (possible return if invested in equities or going towards student loans)
4. Property taxes
5. Homeowners insurance
6. Maintenance (could be near-zero over 3-5 years... could be huge)

If you take all of these things into account, even over ~4 years, it may be financially beneficial to buy, depending on the market. But there's a few assumptions that underly that: you have to assume housing prices continue to appreciate, that you can sell on schedule, and that maintenance isn't more than the average of 1-2% of price/year. Those assumptions hold, on average. But not for everyone. It's easy enough to see clinically, but people somehow ignore standard deviations financially.

You specifically have to do the math on the DEGREE of financial benefit to buying rather than renting. I like the NYTimes calculator to put this into perspective. You can play with the sliders and see how huge of a difference things like housing appreciation rate make. Change it to 0% and renting comes out looking pretty darn good. Change it to 10%/year and it basically would make sense to buy even if the alternative was a negative rent and people were paying you to rent their apartments.

A typical scenario for a resident might have it beneficial by $10-15k over 3 years. That's with favorable interest rates, modest growth in home price (a few % a year), minimal maintenance, and being able to buy/sell on schedule. Great. So by taking the risk of things going pear shaped and you stuck being underwater on a condo you never planned to own long term, you save a months worth of attending salary. That's not an insignificant amount, don't get me wrong, but it's also not a major windfall for your risk.

So more or less, that's your answer: With favorable assumptions, you might come out ahead. Or you might not. But the gamble isn't worth it over a short period of time most of the time. Obviously if you're there for an 8 year neurosurgical residency the math is very different. YMMV.

 

[Naijaba]

I like the NYTimes calculator to put this into perspective.

Thanks so much for this calculator. I like that it assumes you'd invest the down-payment if renting instead. It also handles things like inflation and closing costs. The break-even point for me is an expected growth rate of 8.5%. 1-bedroom homes in Seattle have increased by 12.3%, 10%, 9%, 16%, and 12.5% over the past 5 years; increasing every year since 2012. Fingers-crossed for a similar trend over the next five years.

 

[sazerac]

I appreciate all of the comments. Putting half my income towards rent was a tough decision, and an expected return of 6% over five years would not make the investment worth the risk. I took the chance because Seattle is a very unique market. The price of a 1-bedroom condo went up 17.9% last year alone, with the overall Seattle housig market increasing by 50% in the past five years.

Wouldn't you know, 1.5^(1/5)=1.084, so the overall Seattle housing market increased by 8.4% a year for the last five years.

Just curious, in that NYT app what did you use for market returns? Morningstar says a broad stock index fund returned 13.25% a year over the last 5 years, and MoneyChimp says an S&P500 fund returned 15% a year from Jan 2012 to Dec 2016.

 

[Raryn]

Thanks so much for this calculator. I like that it assumes you'd invest the down-payment if renting instead. It also handles things like inflation and closing costs. The break-even point for me is an expected growth rate of 8.5%. 1-bedroom homes in Seattle have increased by 12.3%, 10%, 9%, 16%, and 12.5% over the past 5 years; increasing every year since 2012. Fingers-crossed for a similar trend over the next five years.

You need 8.5% to break even. You need more than that to come out ahead. Is it worth the gamble? Long term housing appreciation (like really long term, 100+ years) tends to be approximately equal to inflation. What are you going to do if that trend reverts to the mean? It will eventually.

 

[DrfluffyMD]

His thing is betting on things like Seattle housing boom as well as AI advances in radiology, which can well happen.

 

[Naijaba]

His thing is betting on things like Seattle housing boom as well as AI advances in radiology, which can well happen.

Well, I'm also planning on renting-out the bedroom of the condo and staying in the living room. The living room has regular-size doorways to enter it and is easily closed off. I don't expect to be home most of the time, especially during prelim surgery.

 

[Raryn]

Well, I'm also planning on renting-out the bedroom of the condo and staying in the living room. The living room has regular-size doorways to enter it and is easily closed off. I don't expect to be home most of the time, especially during prelim surgery.

Make sure to then compare your math to renting a room in someones house.

 

[Naijaba]

Make sure to then compare your math to renting a room in someones house.

Well, yeah it'd be like $600-1000 for a room rental. Pretty cheap, probably cheaper than owning, but with no potential for payoff. I am really banking on Seattle becoming the next SF.

 

[gutonc]

Well, yeah it'd be like $600-1000 for a room rental. Pretty cheap, probably cheaper than owning, but with no potential for payoff. I am really banking on Seattle becoming the next SF.

If you had started this thread off with "I'm trying to become a real estate speculator in a market that's already blown up" it would have been much shorter.

 

[sazerac]

It has been a long time since I examined the Seattle housing market, but the appropriately named blog SeattleBubble has all sort of interesting tidbits:

3 month inventory levels being at their lowest in a decade
81% of home sales being done without buyers inspection contingencies
Buyers saying they have to buy now or be "priced out forever"

Sounds like good times.

 

[Naijaba]

It has been a long time since I examined the Seattle housing market, but the appropriately named blog SeattleBubble has all sort of interesting tidbits:

3 month inventory levels being at their lowest in a decade
81% of home sales being done without buyers inspection contingencies
Buyers saying they have to buy now or be "priced out forever"

Sounds like good times.

People laugh, but this is what happened in the Palo Alto area following the Facebook IPO. In one day there were 1,000 new millionaires (assuming they sold their stock) and 2,000+ people who made $100K+ (all on top of their base salaries). There are no 1-bedroom condos for less than $350,000 from Santa Clara to Burlingame, and only one 2-bedroom condo for less than $500K (here it is if you're curious).

Edit: Should mention that at my away rotation the attendings at Stanford told me that it's hard for them to buy houses because of the tech-inflated housing market. Whether you like to admit it or not, tech is the basis of the new service economy, and those cities with the most tech workers are going to have ridiculous growth in housing prices.

 

[DrfluffyMD]

Any candidate companies like that in Seattle?

 

[Bobblehead]

I've been in a similarly appreciating city for the last decade and more. As long as you're willing to become a landlord if/when life circumstances change (spouse, kids, end of training) buying a condo isn't all that terrible in case you can't unload it when you hope to.

The math will often not add up as many people point out above but the math for anything more than a bare bones car that gets you from point A to point B also doesn't add up yet there's plenty more cars sold.

As long as you're not banking on striking it rich on the condo and are doing it as much for lifestyle as for making up for past regrets it's not as bad of a crapshoot as others make it out to be.

 

[Naijaba]

Any candidate companies like that in Seattle?

Only one I can think of is Valve (the video game company). They own the app store for games on desktop computers. They've been privately held for decades, with estimates putting their value at $1 billion in 2012, probably $5-10 billion now.

Fortunate maintains a list of unicorn companies (private companies valued at >$1 billion). It's not up-to-date as Snap, Inc. is still on there, but it gives you a rough idea: The Unicorn List 2016

^The only Seattle-based company is Adaptive Technologies, but quite a few of those companies have sites in Seattle.

Of course, the Facebook IPO was insane ($16 billion). The only U.S.-based IPO larger than Facebook was VISA, and they make money every time you use your credit card.

 

[DrfluffyMD]

Only one I can think of is Valve (the video game company). They own the app store for games on desktop computers. They've been privately held for decades, with estimates putting their value at $1 billion in 2012, probably $5-10 billion now.

Fortunate maintains a list of unicorn companies (private companies valued at >$1 billion). It's not up-to-date as Snap, Inc. is still on there, but it gives you a rough idea: The Unicorn List 2016

^The only Seattle-based company is Adaptive Technologies, but quite a few of those companies have sites in Seattle.

Of course, the Facebook IPO was insane ($16 billion). The only U.S.-based IPO larger than Facebook was VISA, and they make money every time you use your credit card.

Cannot see valve going public as long as Gaben is alive.

 

[Neuronix]

I made an offer - and was about to close - on this condo back in 2013 for $300,00. It's now listed for $689,950.

Just because something is listed doesn't mean it will sell. My owner had the condo I rent listed for a year for $1.5 million. Nobody came to look at it. It's really worth about half that (slightly above what he paid).

You also don't know how much work they had to put into it. There are a lot of flippers out there, but we're medical people, not construction workers.

I have been monitoring home price histories at my future residency site, and mostly people are buying houses and selling them 4 years later for a 6% profit. Except they are sold on a 6% commission, so nobody is making any money at all except the real estate agents.

Second this. Don't forget that HOA fee: $300/mo over 4 years ($14,400 -- assuming no increases or assessments). That's 5% of what you paid for it right there.


People act like it's super easy to rent condos. The last building I lived in had a five year waitlist if you wanted to rent your condo. Good luck with that. People were going underwater after the last bubble burst and couldn't get out of there.

When the market swung around, my favorite was the discussion in the elevators or amenities with new owners who were eager to rent out their new investments. Like... Really? You didn't bother to find out the rental policies before you bought?

The new one is AirBnB. It's illegal here with fines over $20,000. Yet... People are still buying expecting to rent daily, weekly, or monthly (illegal and enforced).

 

[Naijaba]

ROFL at the U District just now becoming gentrified...that happened 20+ years ago.

We may be using different definitions of gentrification. U-District is very Berkeley-esque: A large homeless population, VAPE shops, low-cost Asian foods (which I love), Goodwill/Buffalo Exchange/Thrift Stores/etc. My definition of gentrification is the tech infiltration driving increased prices: Luxury apartments with Gigabit Ethernet, Chipotle-like Asian food run by student entrepreneurs, tech incubators, etc. The U-District is not gentrified from a tech business perspective. You can rent an office on University Ave for $2,542 per month. That office includes parking, 6 private offices, a retail space, and a bathroom. Compare this to Palo Alto: For $2696 you get a one-room office with three desks, a street over from University. Further evidence is that the U-District is being rezoned to look remarkably similar to Palo Alto's University Ave: lots of open space, increased walkability, and a focus on "green" companies.

For what it's worth, my condo purchase worked out amazingly well. It's been 3 weeks since the seller accepted our offer, and 3 days since closing. Condo prices in Seattle are through the roof. The cheapest 1-bedroom in the U-District is now $465,000, a full $186,000 more than I paid...I'm really stoked, but how the heck can the market move that fast? My dad can't believe it and is suggesting that we flip it right now and pay off my student loans. Turns out Seattle is the hottest real estate market in the whole nation. That article is about 100-year old homes costing a ton, no joke - my place is from the 1920s.

 

[DrfluffyMD]

We may be using different definitions of gentrification. U-District is very Berkeley-esque: A large homeless population, VAPE shops, low-cost Asian foods (which I love), Goodwill/Buffalo Exchange/Thrift Stores/etc. My definition of gentrification is the tech infiltration driving increased prices: Luxury apartments with Gigabit Ethernet, Chipotle-like Asian food run by student entrepreneurs, tech incubators, etc. The U-District is not gentrified from a tech business perspective. You can rent an office on University Ave for $2,542 per month. That office includes parking, 6 private offices, a retail space, and a bathroom. Compare this to Palo Alto: For $2696 you get a one-room office with three desks, a street over from University. Further evidence is that the U-District is being rezoned to look remarkably similar to Palo Alto's University Ave: lots of open space, increased walkability, and a focus on "green" companies.

For what it's worth, my condo purchase worked out amazingly well. It's been 3 weeks since the seller accepted our offer, and 3 days since closing. Condo prices in Seattle are through the roof. The cheapest 1-bedroom in the U-District is now $465,000, a full $186,000 more than I paid...I'm really stoked, but how the heck can the market move that fast? My dad can't believe it and is suggesting that we flip it right now and pay off my student loans. Turns out Seattle is the hottest real estate market in the whole nation. That article is about 100-year old homes costing a ton, no joke - my place is from the 1920s.

Flip it right now.

 

[RangerBob]

We may be using different definitions of gentrification. U-District is very Berkeley-esque: A large homeless population, VAPE shops, low-cost Asian foods (which I love), Goodwill/Buffalo Exchange/Thrift Stores/etc. My definition of gentrification is the tech infiltration driving increased prices: Luxury apartments with Gigabit Ethernet, Chipotle-like Asian food run by student entrepreneurs, tech incubators, etc. The U-District is not gentrified from a tech business perspective. You can rent an office on University Ave for $2,542 per month. That office includes parking, 6 private offices, a retail space, and a bathroom. Compare this to Palo Alto: For $2696 you get a one-room office with three desks, a street over from University. Further evidence is that the U-District is being rezoned to look remarkably similar to Palo Alto's University Ave: lots of open space, increased walkability, and a focus on "green" companies.

For what it's worth, my condo purchase worked out amazingly well. It's been 3 weeks since the seller accepted our offer, and 3 days since closing. Condo prices in Seattle are through the roof. The cheapest 1-bedroom in the U-District is now $465,000, a full $186,000 more than I paid...I'm really stoked, but how the heck can the market move that fast? My dad can't believe it and is suggesting that we flip it right now and pay off my student loans. Turns out Seattle is the hottest real estate market in the whole nation. That article is about 100-year old homes costing a ton, no joke - my place is from the 1920s.

The Seattle market is insane. You may very well (and I hope you do) make a killing. It's all about timing, and a big spoonful of luck. I've been watching the Seattle news/market news lately as I move there in July and after my fellowship ends in 2018, there's certainly a possibility we'll try to say. I'm rather nervous about how much home prices are going up just within the last year, as we're at least a year away from buying. It looks like there's a gross under-supply of homes--fewer homes are on the market (possibly because people are either too nervous to move/buy a new place locally, or think they can hold onto their home and do better by waiting to sell), and a lot of new jobs.

A lot still comes down to risk.

My parents bought a nice average 50's ranch home in the SF Bay Area for about $150k back in the mid 80's. They put maybe $50-100k max into the home in add-ons. The thing was literally an average 50's ranch home and would run about $200-$300k at most over here in a very nice suburb. They sold for a bit over $1mil before the bubble burst. Now it's worth over $1.6mil.

It's ridiculous. But some people just end up being lucky in where and when they buy. My cousin who bought a home in the Bay Area right before the bubble burst quickly went underwater, though the CA market has recovered pretty well. It's all up to how much risk you're willing to take. It seems unlikely to me that Seattle is going to have a big bubble burst over the next year, but then all it takes is one big Cascadian subduction zone earthquake to tank property values (same would be true for SF, LA, though they're better prepared and would both suffer less damage per household, and repair quicker). Odds of that happening in any given year are quite ridiculously small though.

The West is a very desirable place to live, and combined with restrictive zoning laws/building regulations (SF is much worse than Seattle here), few available old or new housing units, and a large supply of new jobs/new people moving into the area (not to mention the effects of real estate spectators), serves to drive home prices way up.

 

[cabinbuilder]

As someone who is planning to purchase a home during residency, I appreciate your comments. I have a couple of questions.

1) If finances are not the reason to decide between buying vs. renting, then what is? I have plenty of reasons for wanting to own, but I would be lying if I said that finances weren't at the top of the list.

2) Can you elaborate on how a down-payment minimizes risk? I can afford to put money down if I choose, but with mortgage interest rates so much lower than my student loan interest rates, it doesn't seem like a good use of money.

Thanks in advance.

I would not buy a home in residency especially if you plan on leaving the area once you are done. I bought a home in residency and was not able to sell it. I had a family member live in it for 1/3 the mortgage (high crime area) just to have a body in the house I could trust. I paid on that stupid thing for 7 years since my husband(now ex) didn't want to put in on the market and displace his brother. I was too busy to care about it. Fast forward 7 years, I got divorced and put in almost 15,000 in repairs just to get the house to pass inspection. Now, if you plan to have a property management company deal with things that's different. I personally would not want to try to sell a home AND look for a job AND deal with bringing everything up to code to pass inspection. Just my 2 cents.

 

[Neuronix]

Flip it right now.

Haha, all of this is exactly what people were saying in 2007.

 

[DrfluffyMD]

Haha, all of this is exactly what people were saying in 2007.

Not sure what that means I live a differently and prefer to invest very conservatively so maybe that's a bit different? I rather take no debt than a potential big pay day.

 

[RookTookIt]

I would not buy a home in residency especially if you plan on leaving the area once you are done. I bought a home in residency and was not able to sell it. I had a family member live in it for 1/3 the mortgage (high crime area) just to have a body in the house I could trust. I paid on that stupid thing for 7 years since my husband(now ex) didn't want to put in on the market and displace his brother. I was too busy to care about it. Fast forward 7 years, I got divorced and put in almost 15,000 in repairs just to get the house to pass inspection. Now, if you plan to have a property management company deal with things that's different. I personally would not want to try to sell a home AND look for a job AND deal with bringing everything up to code to pass inspection. Just my 2 cents.

I appreciate your insight and damn, that sounds like a tough situation.

Ultimately, I did end up buying. A main priority for me when looking to buy was that it would be a relatively easy sell. I think I have a great realtor who is pretty blunt about what he thinks can and can't sell. I'll just have to hope he's right (but of course since he'll be the eventual selling agent, he also hopes that he's right).

I ended up buying a condo in a great neighborhood that I think is a good mix of safe and fun. It was built only 10 years ago and I don't envision needing to put much work into it. The HOA also hires a property management company. Coincidentally, I bought it from a resident who used a physician loan to pay for it. It was on the market for less than a week when I bought it.

Anyway, I'm incredibly excited to be moving into my own place. I understand that it doesn't work for everyone and maybe I'll be kicking myself in a few years, but I've done as much homework on this as I could to understand the risks and to take steps to mitigate them. I'll report back in 4 years.