I’m looking around, trying to buy a place. Even though loan interest rates are currently going up, the real estate market in Northern Virginia is still pretty hot, which means that asking prices are still pretty high. I can’t afford a “single family home”, so I’m down to townhouses and condos. A three-level, 16-foot-wide townhouse—which my agent tells me is the smallest allowable size you can get for “fee simple”—is running $240k+, approaching my preapproval cap.
What to do now? Do I finance a $240k+ townhouse, or drop $130k+ on a condo?
Townhouse: It’ll be bigger, but I don’t have a lot of stuff. I guess the trend is that when you get a place, and you don’t have enough stuff, you end up buying more stuff to fill the empty space, so the “purchase price” of the townhouse could end up being significantly more than what I’d finance. It’ll cost more in general and per month. Given the tax break, and resulting withholdings adjustment, I’ll be able to swing it on the current salary… but that may not allow me to fund my IRA account to make up for the cash I pull out for the downpayment. Then again, the downpayment I can throw over the wall is fixed, so it’ll constitute a lower percentage of the purchase price, and I’ll end up having to eat points or get two loans to avoid that Private Mortgage Insurance (PMI) crap. The appraised value of a townhouse in this area will not go down, so I’ll probably be cool if/when I decide to sell it. Then again, the appraisal value will likely be less than the asking price, and that’ll only add to my closing costs, therefore cutting into my liquid cash earmarked primarily for the downpayment.
Condo: It’ll be smaller, but that’s fine. I’ve been bouncing around with one bedroom and nominal “entertainment area” furniture for eight years. Dinette set? Psh… not fuckin’ likely. The tax break will still be there, albeit not so much of a break, but my monthly payment will be way less than what I pay in rent right now. It’ll allow me to break the rent/no equity cycle, while also providing an opportunity to re-fund the IRA, hoard cash in savings (or maybe additional investments?) so I can start setting shit up, like a real downpayment that doesn’t cut into my “salad years” cash, for when I get a real life via marriage, terminal illness or whatever. But, the appraisal price isn’t likely to increase, and if a certain percent of condos in the building are “for rent” properties, FHA won’t give loans to buyers. So, it might be really hard to sell later at anything but a loss. Sure, that risk is mitigated by my not pissing away $15k in rent per year, but I may also have to face the reality of managing and maintaining a perpetual rental property.
What would you do? Given the pros and cons of both options… I’m at a loss.