Buying a house / condo by 30!!

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Buying a house / condo by 30!!

Justin W
Renter · Jersey City, NJ · Member since 2008 · 8 posts · 0 votes

So I'm 25 now, and I have a very serious girlfriend who, in the next year or two, may become my fiancee, and I want to make sure that we're both taken care of. My income is about $35.5K per year. (She makes about 42K per year, but she's in a lot of debt and a lot of her disposable income goes towards paying that off - she should be done paying off her debt in 3-4 years). It's just as well though, since I want to take care of this myself.

So I'm lucky enough to have a generous grandmother who scrimped and saved for 88 years and gave me (and all of my cousins and siblings!) $10K to invest on a house / condo. She also said that she might be able to help a bit more when it comes time to buy. She left this intentionally vague, both for me to be flexible, and also so some of her more greed-headed grandchildren don't go nuts.

Anyway, I'm trying to figure out how to make this money grow so I can buy a condo in my city (Jersey City) - there's a lot of redevelopment happening in my parts of town (Downtown, Journal Square, Newport Pavonia) and a lot of bad neighborhoods as well (Greenville, Westside, The Heights). I'm not really interested in becoming a landlord, nor am I interested in making a fortune - I just want to take care of myself and my future family.

You can get some really fantastic two bedroom condos for between $300K and $500K and when you go above that you can get something really quite posh. I know this is probably astoundingly overpriced to most of you, but that's the NYC metro area, and it's the market I'm in.

Right now I've got that $10K in a CD and it'll mature at the beginning of August for an extra $250 (big friggin whoop). I know I can be doing better with this money. I've got pretty good credit I think (the most I ever did was miss a credit card payment once, and occasionally overdrew on my checking account when I was in college). I'm thinking that a mutual fund might be a good idea? I'm open to any and all suggestions at this point.

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  • Clint S.
    Real Estate Coach · Thornton, CO · Member since 2008 · 55 posts · 3 votes
    18y

    You can own a condo right now if you get creative and try to find a "Subject To" deal or Land Contract. Basically you get title to a property without the risk of getting a mortgage - you typically pay a down payment and just match the mortgage payment of the current owner that wants OUT NOW!

    It is so much harder these days to get a loan without putting 5-10% down so you will have to save more to get 30K or so to put down.

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  • Justin W
    OP
    Renter · Jersey City, NJ · Member since 2008 · 8 posts · 0 votes
    18y

    30K! Yikes. Can you direct me to somewhere I can read about Subject To and Land Contract deals?

    If I don't have a mortgage, what do my payments look like?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Use the search function to find discussions on subject to deals. It comes up pretty frequently.

    You do have a mortgage with subject to, just not in your name. You buy the property "subject to" the existing mortgage. You then take over the payments on the existing mortgage. But the old mortgage stays in the sellers name.

    You have to find the right deal to make it work. Most sellers aren't going to want to do it. So, you have to find someone who really wants to sell. But, you also don't want a mortgage that's 110% of the real value of the property, which is pretty common these days. And you don't one that has a nasty ARM adjustment coming up.

    Lease option (aka rent to own) is another way to get a property with less money out of pocket.

    Wendy Patton has a couple of books on these topics.

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  • Justin W
    OP
    Renter · Jersey City, NJ · Member since 2008 · 8 posts · 0 votes
    18y

    Interesting. I'll have to hit up the search function. Stuff around here is inflated, but not by as much as a lot of other places - property, space, and land here is still very valuable.

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  • Justin W
    OP
    Renter · Jersey City, NJ · Member since 2008 · 8 posts · 0 votes
    18y

    I did a little reading on Land Contract - it seems like a TERRIBLE idea! Seems like I have little more rights than a renter, and that situation is exactly what I'm trying to get out of!

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    18y

    You can occassionally still find first time owner occupant mortgages. Call a couple of your local banks and make appointments to talk to their loan officer. Ask them what products they have available that might work for you. It's their job to sell loans, so they won't mind talking to you.

    They can also give you a ballpark figure so you have some idea about how much you can borrow and what price range you can look at and actually have a real chance to purchase.

    You might be able to find a condo developer who is offering a financing package on a new conversion; especially if it isn't selling as quickly as they hoped.

    You are probably going to have to start with a much smaller and not so luxurious condo. You live there for a couple of years and build up your equity and your credit score. Then it is a lot easier to move up to a nicer unit because you have your equity to use as a down payment.

    I don't recommend a subject to for a first time home buyer with little real estate experience. Investors buying subject to are doing quick deals and don't hold the house for all that long. There is too much risk for you if you buy it for a long term place to live.

    Think hard about marrying this girlfriend. If her debt is student loans or medical, that's OK. But if it is a lot of debt due to self-indulgent consumerism, be aware it is very difficult to live with a wife who lives to spend.

    Also, pay attention. She promises to pay off her debt, but promises are worth nothing. Wait and see if she actually does it. Spenders are just like drunks and gamblers. They are full of promises to reform, and at the same time, they have every intention of continuong on just as they have in the past.

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  • Justin W
    OP
    Renter · Jersey City, NJ · Member since 2008 · 8 posts · 0 votes
    18y

    There are a lot of condos around here that haven't sold as well as the developers had hoped - to the point where they're actually switching them to being rental properties. Grove Pointe, right next to my current apartment, is a great example of that.

    I'm okay with living in a place that's not so luxurious - to be blunt, I've lived in some real hellholes in my day and put up with it. I can deal. I'm not looking to live high on the hog - just have a place to keep my stuff, cook food sometimes, and have a party or two.

    As for my girlfriend - her debt is about 10K of credit card debt. She's in a debt management program and dropping over $300 per month on paying it back and she should be done in a few years. Her spending habits suck, but she's slowly getting better. And the way I see it, she pays for her indulgences (shoes, food, clothes) and I pay for mine (DJ gear, electronic gadgets, computers). I hear what you're saying though. I don't think spending is a "crackhead" level problem for her, but it's definitely something to think about.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    I have to agree with the advice to avoid creative financing when you're buying your first house. However, owner financing may be an option. Lots of people are struggling to sell houses now, and may be more flexible. I bought my first, over 20 years ago and when I was under 30 with owner financing and a minimal down payment. It was late 80's in Houston, and the market was every bit as bad as it is now.

    If there are condo projects that are selling slow, the developer may well have good deals. It's hard to get bank financing on condos if one person owns too many, so developers often have to do their own financing, at least at first. But be sure the HOA is well funded and stable. A little searching will reveal some HOA horror stories. Personally, I'd never own a property governed by an HOA.

    Keep the spending in check. The number one thing you can do to have a good life is to spend less than you make. Get a decent reserve fund built up, and pay cash for big expenses. Don't use credit cards. Period. Take it from someone who struggles with this, still. Take a year of no indulgences at all and get rid of the debt now. Don't eat out. No bars. No new clothes or shoes or electronic gadgets until the debt is gone. Put as much as you absolutely can toward knocking off the debt, then have a good time with a month's payment once its killed.

    Save at least 10% of your gross pay. Some sort of Roth account is ideal, since you'll never end up paying any taxes on the gains. If you can earn 10% over the long term, the $7,750 the two of you can save this year will be worth something like A THIRD OF A MILLION when you're 65. Now, that money won't be worth what the dollars are worth today, but it will sure be a bigger deal than the pile of clothes, electronics, and restaurant food you would buy with it this year.

    Think like that when you spend. Instead of $100 you're putting on the card, its $186 once you pay it off at the minimum payment. Or $4,500 if you invest it for 40 years.

    Owning property is more expensive than you think. The PITI monthly payment is just the tip of the iceberg. A condo will have HOA expenses. Maintenance issue will come up. The fridge will need replaced. The furnace will break. Etc., etc., etc.

    Read "The Richest Man in Babylon".

    Sorry, wondered off into Dad's lecture mode there. But some things to consider.

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  • Justin W
    OP
    Renter · Jersey City, NJ · Member since 2008 · 8 posts · 0 votes
    18y

    Just FYI - I have NO accumulated debt - no medical, student, or credit card. My girlfriend is the one who's a bit saddled. I live entirely within my means, though I don't save (one of my big flaws). I pay off all my credit cards (most of which is auto-pay bills and such) in full every month.

    But that's all good advice. What's an HOA?

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Home Owners Association. In a condo project, there is almost always some sort of legal entity that manages the building. Exactly what they do depends on their bylaws. Typically they would at least maintain the building and common areas. But could do much more than that. There will be monthly HOA dues, which are mandatory and lien able. Meaning if you don't pay they can put a lien on your property and can foreclose. The dues can be quite large, maybe several hundred bucks vs. a PITI payment of $1000.

    An HOA should have a large enough reserve fund to handle anything major. If not, a major problem could turn into a large assessment. That's really no different than owning your own home. If your roof gets badly damaged in a storm, you may have a large, unexpected expense. But, if the HOA has low dues vs. similar projects and has a low reserve fund, the owners are being set up for major future expenses.

    HOAs often control who can live in a building. They may restrict the percentage of rentals, even to 0%. They may have the ability to interview and reject new owners.

    HOAs almost always exist for condos, and may exist for groups for houses. I've seen one situation what a group of six 12 unit apartment buildings had an HOA for the owners of the individual buildings.

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  • Justin W
    OP
    Renter · Jersey City, NJ · Member since 2008 · 8 posts · 0 votes
    18y

    Ah okay gotcha. I've heard some real horror stories about HOAs (though the people who told me these stories didn't call them that). Part of me wants to buy my own place and rehab it and not worry about that stuff.

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    18y

    A house is usually the best purchase, if you can afford one.

    If you buy a condo to live in yourself, look for a building that does not permit tenants. It will be in better shape and hold it's value a lot better.

    That means you will have to sell when you move out and not keep it as a rental, but it will be easier to sell and bring better money. In the meantime, you don't have to live with a bunch of other people's tenants.

    When you have no control over the tenants, and you have them all around you, each one with a different absentee landlord, it will be just like living in a badly managed apartment building.

    Owner occupants take a lot better care of their units and helps to keep the value of the building up.

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