The Lesser of Two Evils?

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.

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6 thoughts on “The Lesser of Two Evils?

  1. How about commuting? You could move closer to the sticks and maybe get something more affordable…

    (Nothing like throwing a wrench into the works)

  2. Dude, no matter what you decide to do, you’re doing the right thing anyway. I know you’ve heard this a million times over, but… you’re throwing your money away when you rent. Anything you buy is better off, but don’t be house rich, and pocket poor.

  3. I also think you should consider moving a bit farther out to see if you can get something nice for less $$.

    If that fails or is impractical, I would recommend the condo, as it sounds as though it would be more affordable overall and allow you to save more $$ for a better place later on with, hopefully, minimal financial loss.

    Of course, I am still stunned at the fact that freakin’ townhouses cost $240,000!!!! A townhouse?? Where you share a wall/walls with another family? Christ, what is this world coming to!?!

    If you do go the townhouse route, however, and need to buy furniture, consider IKEA. I know it’s disposable furniture, but I was able to refurnish my entire living room for around $1500, so a whole townhouse could probably be done there for $3-5 thousand tops and still look very nice.

    Best of luck with whatever decision you make!

    Catherine :-)

  4. Gary, to throw my 2 cents out.
    I bought my Condo back in 2000. I paid 93K for it then. One just like it in the building next to me paid 179K for it a few weeks ago…

    Now mine is only 2 Bed 1 bath, but the second Bedroom fits a bed and all my computer stuff. The place fits 2 adults reasonable. It’s more than enough room for Christine and myself but could we use more, sure, who couldnt, but for what I pay in Rent I would have to live in a mouse hole around these parts.
    Living near Old Town Alexandria has it’s advantages…

    Self Mutilating? All depends on when you bought it and where it is.

    Take the Condo, put some equity in it and then move out and hope to make a profit.

  5. Rent=mortgage in my last post. The line should read, for what I pay in Mortgage I would have to rent a Mouse Hole around these parts.

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