What would you do? First time home buyer in ATX

Question

I've been renting in Austin, Texas for the last year because I can't really afford to buy here. My current rent is about $1,350 and I found a condo listed at 215k, which I think I could get at 200k. That would put my monthly payments at about $1,300; however, the HOA fees are an additional $300/month. I think I could cut other expenses and be fine making the monthly payments. My dilemma is: my mentor always suggests never buying a condo because you don't own the land and can't control the rules/laws, etc - my thinking is that it would be smarter to buy something instead of throwing away $1,350/month renting and I can't afford a single family in the area. I would get an FHA loan and only put 3% down, I'm also a realtor so I would get the 3% commission. I would likely move out in a year, so I ran the lease comps and they are between 1200-1500 as it's pretty close to downtown Austin. They also allow short term rentals with a minimum of 30 day stay. I also think rent prices will only keep going up in Austin/this area close to downtown. Would you go for it or would you keep saving until you could afford a single family in surrounding areas like Leander/Round Rock/Cedar Park? Thank you for any input!

Ryan Kelly · Answer

@Jessica Price you need to HOUSE HACK!! Find a two or three-bedroom home or condo and then rent out the other bedrooms to friends/roommates. This will greatly reduce or potentially eliminate your living expenses. Your goal with your first investment, especially a primary residence, doesn't have to be positive cash flow. The first goals are to reduce your living expenses AND start the journey to building equity. Right now, you are on the hook for 100% of the rent and you are getting no equity in return. Imagine if you had a $1700 mortgage, but you had two roommates kicking in $650/room. You'd be getting $1,300 a month back and now your living expenses are only $400. This is just an example, but an important one. You need to focus on reducing your living expenses first and building equity, THEN you can take the next steps to become a real estate investor. Take action in 2023!

Robin Simon · Answer

This should be really down to your personal preferences above everything else if you can stomach living so far out in places like Leander or Round Rock vs. if you want to be much closer towards the city downtown.  Also, while the HOA might seem high at $300, if that covers a lot of maintenance and upkeep that could actually be a pretty good deal (speaking as someone who has recently bought a small SFR in east Austin that has a big list of upkeep)

Leah Trevino · Answer

I appreciate all knowledgeable information and guidance that has been shared. I was researching new methods for investment costs reduction and serendipitously stumbled onto this thread.@Jessica Price I am not an expert or highly experienced investor like some of these helpful individuals. However, your current situation is very similar to my own while navigating through the first time homebuyer process.

Hopefully, I can provide some incite based solely on my personal experience.

I purchased my Austin, TX property in December of 2009, in the wake of the recession. The the ever occurring rental increases had me thinking just like you stated. “Any investment has to be better than throwing rent money away.” The initial idea/plan was to locate a SFR starter investment property and then move on after a couple years. However, FHA occupancy regulations derailed this option. The property I eventually closed on had an initial PITI that was quite a bit over my last rental apartment. Like many first time home buyers, my finances were limited being only a few years out of college and green in my professional career.

What else is a girl to do but House Hack it! (Although that terms was not in yet born then). I took the owner occupied RBTR approach in a condominium.

The rental income reduced my PITI+HOA contribution to around $350. I continued to RBTR with both friend and “stranger” hack-ees for several years with some periods vacancy by my choice.

A few major end results from RBTR Method:

*Established savings fund for home repairs and other unexpected expenses

*Shaved off 8 years of my loan term with extra payments to principal balance and a refinancing

*Updated/Remodeled about 70% of entire interior, both floors

*Yes, my property has had a substantial appreciation since purchase (a bit more than double)

Granted, my hacking end game was to decrease my cost of living expenses whilst my equity sprouted and grew. Therefore, for my purpose and circumstances, the RBTR Method in an owner occupied condominium was a success.

I do agree with the the others that a condo purchase is not the most expedient or efficient approach for most. Especially those who are working towards establishing a multitude of investment properties and utilizing rental earnings as a sole source of personal income.

Yes, also agree that HOA fees have some definite negatives, but can also contribute to some positives depending on what the fees cover for that particular community.

I also agree with several historical truths about condominium investments that do not occur with SFRs.

Condominium living typically appeals to young business professionals or retirees and not families with children. Therefore, the potential buying pool is limited during resale.

Though I have had a significant increase in property value, it is to the not to extent of SFR in surrounding neighborhoods and in Austin proper overall.

There are a myriad of other considerations regarding both property purchasing and tenant options: Far too many to attempt to properly address in this forum. Feel free to shoot me a DM if you have additional questions.

I hope this was somewhat helpful!

Eliott Elias · Answer

I don’t like condos as an investment, they barely appreciate and the HOA fees will drain you. It would make sense if you lived in it.

Jessica Price · Answer

This was a great answer and I agree with you. Thank you!

V.G Jason · Answer

If you're going to live in it as a primary, and for term-- sure, buy the condo. If you're buying it as an investment, I would hesitate. HOA fees suck, they change and can that STR rule can be overruled, they hardly appreciate and are the quickest to fall in a downturn. You should be asking yourself why it's priced that way, given where it is. But if you like it, for yourself, by all means go for it if you can comfortably afford it.

Guy Gimenez · Answer

In a softening market, condos are typically the first to go down in price and the last to go back up in price. And you're not accounting for any special assessments from the HOA that could put you in a hole if the HOA is under-funded / under-insured.

Jessica Price · Answer

Helpful indeed, thank you for sharing your experiences! :)

Simon W. · Answer

you said you are a realtor, are you the broker or the agent? If agent, you're not going to get the 3%, unless you made a deal to get 100% commission from your broker which 90% of the times that is not the case.

What would you do? First time home buyer in ATX

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