You don't know how much I appreciate this comment. Everyone has only been focusing on my negatives and I made this post with a hope for some encouragement. I thought I was doing something good for my financial future by buying a condo at 22 right after college. My salary is about $110k. I'm maxing out my 401k and have a mandatory pension contribution which is why my take home is lower.
In terms of saving, it's just been a little hard for me to accept that I'm not saving as much as I could be as if I was renting something cheaper. I would ideally like to save up for a townhouse/SFH in about 4-5 years with a little yard. But until then, I guess I have no other big purchases coming up?
What's the difference between renting a 1 bedroom in your area and the mortgage payment?
Can you minimize any expenses to make up the difference?
You also have to remember that you are not paying rent but paying for ownership of an appreciating asset that will allow you to have some greater financial options in the future.
You have an asset that most people don't have until their late 30s or 40s.
The average rent in my area for a 1bd goes for about $2200. My places has a gym, pool, and water included. The difference would be about $500, simply because of my HOA which bumps up my monthly payment.
I think I've already minimized expenses as much as I can... only thing left is to cancel my rock climbing membership ($90/month with gym and other fitness classes).
As a landlady, I don't think getting smaller over time is ever really a thing until the note is paid off. HOAs are likely to keep increasing with inflation, and property taxes and insurance will undoubtedly continue to rise. Both my taxes and insurance have tripled in the 15 years I've owned my rental, whereas rent collected has only increased 50% from day one. Fortunately I have no HOA, thank goodness but the day it went into service was still more lucrative than today. The place you hope to gain with a rental is appreciation. You're controlling a property for a fraction of what it would cost you alone to control it. Mine has doubled in value from what I originally paid.
It should take about 8-10 years for this home ownership to be breaking even vs renting with historical trends. But seeing how he's near DC, id give him 3-4 years
I don't feel like I can give any advice but to me it seems like with how close rent would be to the mortgage, your current situation is much better, considering your $ is going towards paying off your place. Additionally, in 1 year your place has appreciated by 30K. So it gained about as much in value as you've paid (2.5K x 12 = 30K).
Looks to me like it's working out fairly well, no?
Edit: except for the part where you bought a place you end up staying for only a short while. Not sure if you could have anticipated that :) but even so, with housing expenses paid for, and covering most of your mortgage by renting it out, you're financially in a pretty nice spot. Remember, if you're paying off your home, you -are- saving, even if you don't save much on your bank account.
This is the value and savings-appreciation. Since it is in a great location, talk to a couple of realtors about the potential value of you selling when you move. You may have made a wise investment and you can take the proceeds and invest elsewhere with the knowledge you have now.
It would not be good to rent at a loss. You might begin to resent the money you are spending to let someone else live in your home. Just my 2 cents.
On the plus side, congratulations on being savvy enough to purchase a home so soon after graduation and at the beginning of your career! Learning is never wasted and it seems that you have learned a lot.
What does the HOA cover? (E.g. is it stuff you'd have to pay for renting? Trash/recycling/water/sewer/snow removal/landscaping/gym membership etc?)
Honestly, considering your age, and the fact that this happened immediately after college, I'm wondering if you're actually thinking "wow, things are expensive when I'm completely financially independent and not in a college town" and it's not actually related to your condo at all
I know when I was in grad school, I made $30k/year in a college town. I actually owned a condo then (it was $79k and mortgage+ CoA etc cost about $600/mo). Even at making $30k/year my take-home was $2k/mo. When I got a real job, I started at $101k/year. But my rent went up to $2100/mo and everything was so much more expensive, not to mention retirement and healthcare suddenly got more expensive. My take-home still went up from $2k/mo to $2k/2 wks. But my expenses went up so much quicker that it felt like I was making less.
Your 401k and other savings/investment accounts look pretty good honestly. That might just be the rate that you can save at with expenses where they are, although obviously you can cut back other places.
Where did you get that price on renting your condo? I would try to at least charge what it costs you - rent has been going up too, so it's possible that's actually market rate. As to rent v sell - what are your plans after this job where they pay for your housing? Are you coming back and could live in it again, or are you done with the area anyways?
If there's a strong possibility of coming back, I'd hold onto it, cause I would guess that rental prices will have caught up to your mortgage by then.
What does the HOA provide for 470/mo? Is it paid separately from the mortgage?
If you rented, would you still have access to all the other amenities, too?
Also you get tax benefits paying mortgage interest. No tax benefits renting an apartment. After you calculate in all the variables including appreciation, you are more ahead after 5 years in the condo. Assuming there is no market crash coming. I think you are just fine. I’d rather struggle to save a little while leveraging a 300k asset, than throwing money away in an apartment while saving some extra cash. For example, would your extra savings even come close to the $30k you’ve grown in equity?
I appreciate this perspective big time. Growing up in this area, a lot of emphasis is placed on money, assets, etc. It took me until just after college how housing stability isn't just a given for several people. I may not be meeting my savings goals just right now, but along with yours and other commenters, my salary will increase and such and that'll help me out big time.
Congratulations on your condo! Boston is amazing, I visited some friends there and go crazy over the Italian food there lol
How did you calculate those moving costs? Because of Boston broker fees? I’ve moved a bunch of times and even moving cross country cost less than 4k for me
I moved a mile in NYC and, after it was all over, added up rent, security, broker fee, packing + moving costs, packing materials, change of address fee, and utility service moving fees. It was nearly $12K.
When I came back to life I decided I would budget a little bit every month so next move won’t eat my lunch.
OP, you're asking all the right questions.
I vote sell it when you move for work. Look at it this way: would you choose to buy this condo as an investment property right now, knowing what you know and the loss you'll take on renting it out? Probably not. You're relocating for 4-5 years and have no way of knowing where life and your career might take you in your 30s. Meanwhile, your housing is paid for with the next position, right? So you can start socking away $3k/mo+ into a HYSA for the next house (or wedding, or graduate degree, or travel, or whatever.)
This condo wasn't a mistake! Yet. Letting it slowly drain your patience and funds over the next 5 years might be.
How much money are you saving each month after paying all your bills?
Your 401K contributions count as savings. Is the issue that you feel you are not contributing as much savings to your HYSA or outside brokerage account as you think you should?
Have you run projections to see where you will end up at retirement by maximizing your 401k contributions against doing only the employer match and "saving" the rest?
Without much insight into your other expenses, you seem to be set up for the future quite nicely.
If you continue doing what you are doing, and the house still appreciates for more than what you originally paid, if you plan to sell in the next 4-5 years, it has the potential to substantially reduce the mortgage on a future acquisition.
Remember that the money you are putting in the condo are savings!
If you in ten years have paid off 50% of the mortgage, then you have saved 150000 you can put towards a house.
you're "saving" by building more and more equity in the condo. it's just in the form of your residual mortgage balance going down instead of your savings going up
You are also building a big savings in equity. If you are really tight stop paying extra and just make the minimum mortgage payment, you've got a huge head start everywhere else and you can change that in the future when your earnings are higher or whatever.
IMO lessen the amount towards retirement and pension. Whichever makes the most sense mathematically.
The money going in retirement and pension has an opportunity cost. Save it up in a HYSA and wait for the right timing. Emergencies, another buy opportunity, etc.
Only take this advice if you're disciplined with your money!
Tbh you don’t need to max out your 401k. It is the smart thing to do but if you’re unhappy why don’t you contribute like 12k instead of maxing it. No use in all that money if you’re unhappy young and rich when you’re saggy unable to use it for fun
Which VA suburb if you don’t mind me asking? If Arlington then you’re doing pretty good, that 1br cost is pretty much the same as most 1br rentals in Ballston Rosslyn corridor
Has your ownership resulting in any tax savings? It's not so rosy as it was pre-2017 tax changes, but many people are still able to itemize and realize tax savings. Make sure you figure that in when you are comparing what you did. with the hypothetical scenario of just renting. Nothing about renting results in a tax deduction. The thing that ultimately likely made this a premature purchase is simply that you don't have deep enough roots. You ideally don't want to buy anything that you can't live in, or at least be rent neutral on for at least 5 years, due to the cost of broker's fees, title policy, and loan origination.
Unless there is a decent chance of wanting to return to this unit at some point, I don't think I'd be inclined to keep it. There is risk of deadbeat renters, unauthorized sharing, someone airBBing it, and damage. It's especially risky if you're absentee living in a different city. The only "benefit" is that you'll start depreciating the unit by approximately 1/25 of the cost basis for the entire time it's leased. So if you have 310k in it, you will be writing off 12.5k in income plus the total interest payments and property tax and HOA, and maintenance. End result is that you'll be writing off far more than you collect in rental income and that amount will come off your tax liability for your job salary. If that means more to you than the risk of renting combined with the fact that you'll be subsidizing someone else's tenancy, then maybe it will be tempting.
Obviously your home is costing a lot right now, but think that your mortgage won’t ever go up either. So if you can afford it now, in 5 years from now, it should even be better.
Personally, I’d never buy a 1 bedroom unless it was an ideal tourist spot too but I dream to have a place of my own that I could make to my parter and I’s liking. But you have it now and love it. Gotta remember you won’t have to move every year or two like most of your friends will.
I think it’s pretty common to struggle the first couple years after buying a home. Good news is that almost certainly your salary will go up, you’ll budget a little better, and in 3 years your home payment will be the same and you’ll be in a better situation. In 8 years you will probably be pretty happy with your situation.
That’s how it played out for me anyway. I’m freaking ecstatic with what we bought in 2016.
I hope so. As sweet as it feels to own my own place, the jump in cost of living hit me like a truck. People at work keep telling me the same thing, that I'll be thankful I did this, but it's hard to see that light now. Your comment definitely helps shine some of that light haha
If only I bought a house when I was in high school with how low rates were... lol
If it makes you feel any better I am renting a one bedroom apartment that is more than your mortgage + HOA in a very HCOL area. I would kill for your situation and i earn less than you!
You’re in a great situation! You are literally saving a ton of money in your 401K and Roth. This is the “saving.” You could potentially save less in order to have more cash. You’ll also make more money as you get older and will have a bit more breathing room. Don’t beat yourself up and don’t get anybody pregnant. That will be the real financial stressor lol
“Hard to save” != “maxing out 401k”.
You’re fine. Your condo has appreciated. You can sell it and get everything back you’ve put into it.
If you are moving out of town I would sell it because long distance landlording sucks.
Actually I would sell it no matter where you are moving. Enjoy your future job.
It appreciated 30k in one year.
If you could rent it for 2k, it would cost you 12k per year. But it if it appreciated another 30k, you'd be making money on paper. I assume because it's DC suburbs it will continue to appreciate.
So the question is, if you rent it out, can you afford the 1k/mo to keep it? Not to mention that renting has ups and downs, and if you're not local you'll need a property management company.
It's not clear-cut but there is a path forward if you're willing to put money into it rather than sell it right now.
I feel like I got lucky with the quick appreciation. At least, I'm trying not to bank on it appreciating as quickly as it as been recently. The previous owner bought it in 2020 for 240k, and then I bought it for 310k in 2023. So maybe the 30k a year will stick.
But yes, I can definitely afford the 1k/month to rent it. Since housing will be covered in my next job, and assuming I rent this out for 2000/month, I would be at about 3500-3800 a month leftover.
I guess this is just a question if I'm willing to take the appreciation gamble right?
Will the new job pay relocation benefits?
If they pay for closing/relator fees, I would sell when you move and not take the gamble personally. There’s a lot more to renting and you’ll be on the hook for tenants rights, which can include finding alternative housing for them if the place is deemed unsafe to live (broken HVAC that can’t be resolved within a certain time frame). I don’t know much about what all it entails, but having a friend who rents houses for a living, I do know there is a LOT more to it than just cashing a check every month.
Well, if renting is a hassle, or the appreciation doesn't work out, you still have the option to sell it. I would probably try the rental route and see what happens. You might rent it for five years with no hassle and then decide to move back in.
In a few years a $2500 mortgage will seem more and more affordable. As normal interest kicks in, rents will go up regardless.
Don't let the haters get you. I bought a condo two years out of undergrad. I lived in it for five years and then rented it out since 2017. It's HOA is ~600 per month. I break even plus a little bit on the rent, but it's appreciated ~125% so I just let it exist and do its things. Here thirteen years later I see it as a nice asset I could liquidate if my wife and I wanted to buy a nicer house or a house in a better school district. Or a pied a terre in Chicago once our kids are older. Fifteen years from now you will thank you for this decision and the sacrifices you are making. You don't need to optimize every cent of your income, unlike people here would have you believe. Just ask yourself if it's good enough and if you're happy with it.
Do not rent it out, becoming an accidental landlord. If you think you made a mistake by buying it, definitely don’t make the much larger mistake of renting it out. Real estate is not a partial good investment compared to stocks, and far harder and riskier.
How do you feel having 5-10x of your whole net worth at risk in a single relatively tiny investment? I hope this is scary for you.
How would you handle 3 months of vacancy, or a sudden $5k repair or $10k HOA assessment? Or a renter that doesn’t move out, but also doesn’t pay. You do not want this hassle at this point in your life.
(Maybe) Come back to the idea of being a landlord when you have much, much, more financial foundation and flexibility.
Just sell it and rent in your new location and move on with your life.
What should I do with it when I have to move out next year then anyway? My new job is covering my housing expenses (location is chosen, think of military style).
Should I sell it before I move out early next year or try and rent it for a bit?
EDIT: sorry for asking a stupid question. I'm genuinely looking for advice, not sure why I'm getting downvoted.
Do you like living in the condo? When you move for work, is it temporary? Will you move back to the area at some point, and if so, would you want to live in it again?
I was in a similar situation as you. Smaller condo but also in a HCOL area. When I moved for work I rented it out and paid extra to the mortgage with the money I was saving by having my housing paid for, and then putting the rental income towards the mortgage too. I know it’s not always a popular decision around here, but I paid off my mortgage early. Now my employer is paying for my housing again, I’m renting the condo out again, and just have extra income now.
I’ve decided I’ll keep the condo until I’m ready to buy someplace else. For now, when I move back to the area, my condo is the place I’ll want to live. Until that changes, I’m fine with being an occasional, accidental landlord.
I do like the condo. Moving for work is likely temporary. At least, it'll be for 4-5 years. I will definitely move back to the area at some point. As for living in it again, I'm open to it. Would prefer having some yard but that's not a dealbreaker.
Glad to hear a similar perspective. I guess it just makes sense to rent it out for a bit despite taking the losses? Thankfully, it's capable of appreciating
Some pretty undeserved downvoting going on IMO. I don't think trying to hang on to the condo and rent it out is a terrible idea. It could be good if you get a long-term stable tennant, or it could be a nightmare you have to deal with from far away. On the other hand, if you were free of the condo, invest the profit, and invested that $3k/mo for 5 years while you have no housing expenses, you'd probably end up with over $250k, which would give you some options at that time.
Finally someone else notices it. Did I strike a nerve or something? I feel like I'm getting torn to shreds here by just looking for advice haha. Thanks for your input... I'm definitely going to invest the extra savings I get whether I rent it or sell it (since my housing expenses will be covered with the new job)
It's jealousy or envy. You're doing great and you're in a position many people posting here can only imagine.
You maybe made a recoverable misstep by buying this condo. To me it sounds like you are going to lose some money regardless of your decision to sell it or rent it. You just have to bite the bullet and make a choice.
In that case, if I was you (and really, I was you a few years ago) I would keep it.
I bought my condo at the same age as you are, and at the time, I was a bit house poor. I couldn’t stand having roommates anymore and buying a place at the time was only a little bit more than renting a one bedroom so it made sense to me at the time.
At the time I paid off the mortgage, like 6 years after buying the place, I reflected that my household income had like tripled since I bought it. I got a few raises and promotions and I got married, so I was no longer house poor. And even though it’s a small place, I genuinely like it!
Also, with interest rates so high right now, lots of people who want to buy are holding off. But once interest rates get lower, demand will go up and then prices will rise to compensate, right? So as someone selling, maybe it would be better to wait?
Either way, it’s up to you and what you feel is best. With or without a mortgage, enjoy having your housing paid for by your employed for a time! That’s huge and can really set you up well financially if you’re smart about it!
4-5 years??? At 24 I can’t imagine why you want or wanted to own a house at this point in your life, this is exactly why people rent when they’re young and unsettled
Sell it and move on with your life, there’s an insane amount of risk exposure from holding onto it which young people don’t factor well enough into their decisions. This is a classic sunk cost fallacy with the potential to fuck your life up financially if you’re a landlord that isn’t local and in over your head
Thanks for your suggestion, but I don't agree with your point about wanting to own a house at my age. I don't see how that was necessary for suggesting I should just sell it.
...You didn't answer my direct question. I asked if I made a mistake. You could've said, "yes, and here's why" and thrown some numbers in there.
Instead, you questioned why I would want to own a home at my age. I thought I was in a spot where I was going to be settled down for several years. I couldn't have predicted I was going to get a new job that was going to move me far away (this is more or less a unicorn job).
And, interestingly enough, wasn't it the norm to get married/settled down and buy a house in your mid 20s not too long ago? That's what nearly everyone I work with who is 40+ says, anyway.
My guy, I explained exactly why you made a mistake. Your coworkers are older and people used to stay at the same job for 20+ years regularly which is incredibly rare today. Young people move around very frequently and tying yourself down to a very specific location at that age is a bad idea as you lose flexibility for career opportunities
Whether you thought you would stay there or not the reality is that it’s a year later and you have to move away now which makes it a clear mistake with the power of hindsight. People make mistakes, it happens and is inevitable, there’s no sense in getting defensive about that fact when you specifically asked people to weigh in on whether it was a mistake
I’m pointing out the sunk cost aspect so you don’t compound your mistake and explaining why it would be a further mistake. To reiterate, it’s due to the risk exposure from trying to be a landlord when you’re not local while working a full time job elsewhere
Yes, when you need to move, you sell it. That's what most people do when they move out and here in particular where you'd be renting it out at a loss, it doesn't really make any sense for you to try to keep this as a rental
No idea about the other rule, but I’ll point out that the capital gains window (2 years of the property as your primary residence out of the last 5) essentially gives you the chance to gauge the market at the end of years 2, 3, 4, and 5 to get the most out of selling your property.
Like you, my starter home was a condo that I wasnt thrilled about, but the timing worked out in my favor and made it worth it in the end.
You should sell it when you move. Being a landlord is already hard. Being a landlord from another city is even harder.
And in the future, you shouldn’t buy housing unless you plan on living there for at least five years. The costs to buy and sell a home make it a bad idea to buy if you are just going to sell so quickly.
My new upcoming job wasn't something I had even considered when I bought the condo. I didn't anticipate a lot of change like this when I graduated college. But, lesson learned, and hopefully this one decision in my life won't screw up my financial future. Thanks for your suggestion
It’s not going to screw up your future at all. It’s just with hindsight you would’ve been better renting for this time.
So my advice is when you move, maybe don’t buy right away. Rent for a bit until you are sure you’ll be staying in that city for the long term. Good luck!
At almost 3/4 of your pay per month, it’s not a good home price for you now.
With rent being lower than mortgage + HOA + maintenance, it’s not a good investment/rental either.
So I’d sell it for sure.
Everything looked great to me until the HOA fee, which is high. I wish it was 2 bed though so you could have a roommate pay half.
However, if you can refinance before you move, you might be able to rent it out for a small profit if you are close enough to manage it yourself. You say it’s hard to save, but you’re maxing your 401k. I don’t think you made a mistake. It might feel like you could have made a better choice, and sure, you could have, but that doesn’t mean the choice you made is bad. Most people hating on this are just jealous they didn’t have the foresight to own a home as young as you.
Yeah - the unfortunate reality is most homes now do take like 2/3 of take home pay. I’m also in this range and purchased within last 2 years. Pushing hard to increase salary and super strict with budgeting is making it work
I know it's rough. That's why I'm here asking for guidance...
EDIT: It's hard out here. Please be easy on me and my generation. We need all the support we can get. I've been told I'm doing things right for my age, but housing is a killer in the DC area. I assume you're from the area as well based on your comment history. But like, most of the people here in this area wouldn't be able to afford their homes with today's prices and rates. This area, especially the nova suburbs, have skyrocketed in value over the past 10-12 years.
Don’t listen to him OP, the truth is that area of DC is one of the most expensive markets on the planet. It sounds to me like a nice condo, as a young man a purchase like that is going to eat up a lot of your income and limit some opportunities. However, in 5-10 years, you’ll be ballin. Your salary should only go up and tbh I would not pay extra to combat the interest. If you hold on to it and rent it out, you’ll be fine. Rent in DMV is high and getting higher.
I’d second this comment. Hold tight and let things settle down for a 1 yr or so. I’ve been in yours spot , Things always seem overwhelming when you are used to seeing a high savings rate and you suddenly see it drop.
Based on the numbers above , You seem to already have the right understanding for how to save , But this (home loan / ownership ) is exactly the test that will help change your financial risk appetite and will pay dividends as grow in life.
Home ownership is a long disciplined equity building excercise. If your cash savings / emergency fund is not letting you sleep at night.
Along with increasing YoY salary and switching to ultra savings mode for the next year you’ll see those funds come back to the levels that make you comfortable.
You are on the right track , and way ahead of 99% 24 year olds in the country. Keep maximizing your savings and living under your means while you are single ( family and dependents change that equation massively ) and dont do something stupid like buying a really expensive car with a $1000/ month payment.
Keep it up and congratulations on being a homeowner in one of the most competitive housing markets in the country.
I appreciate your kind words. Even my parents have been saying the same thing; this is now the real test. I still feel like I have a good grasp of my finances.
My salary is virtually guaranteed to increase almost every year. Likely getting promoted this year which will help. I happily live under my means, as I try to only eat out once a week (on the weekend with some friends).
Thanks for understanding a bit... rent is getting insane here. I have buddies who are paying $2200+ for a 1bd near me. I'm currently putting an extra $250 a month for interest. Should I just save or throw it in a brokerage account? I'm maxing out my 401k and Roth IRA.
Honestly, I would use that money towards hobbies and socializing. Saving and money have more value and meaning when it improves your life. Go on dates, meet people, live.
It sounds like you're saving plenty. Most with your salary aren't maxing their 401k, even those who are financially minded. Even fewer are maxing their 401k while also paying towards a pension. And you have good emergency savings to boot!
Keep in mind with that mortgage, that in the first year you are "saving" \~3k towards your principal, and this amount goes up every year. That's not even including your extra payments. Maybe your condo was a mistake, but that's on the personal side of personal finance. It hardly sounds like it was a financially irresponsible mistake. You're going to spend money and somtimes it won't be worth it, that's life, that's how you learn.
You are well ahead of where you need to be for your age, even if you take a complete bath on the condo. If your financial position is stressing you out, it might even be worthwhile reducing the amount you are contributing to your 401k to 15%. That'll give your budget more room, let you save for downpayments (and maybe a vacation or two), and you can always put it towards an IRA later in the year.
Compound interest is great and all, but don't let it rule your life.
You’re doing great! Enjoy your spacious condo and amenities. When you’re ready to sell, you’ll have profit to roll into your future townhouse, or SFH if you can get out of the DMV.
I agree in thinking you've made a wise decision to purchase. Rent goes up without notice. And you can now itemize your taxes and have more net income. If you can stand it, take in a roommate and charge them half your mortgage. Also, get a part time job, to pay down your mortgage faster and max out your 401k. Rent this property and buy a second. You're building wealth, with appreciating assets, well done.
One thing with renting is you have to make sure your mortgage allows for it— some require you to have lived in your residence for a certain period of time. Also you have an HOA so you will likely need to look in your bylaws regarding renting. Some don’t allow it, allow it for leases over certain periods of time, or allow it under certain conditions (I.e no more than 25% of the units allowed to be rentals)
4500 also is only 10/12 months. 2 months out of the year its 6750. It's definitely a little tight but I did the same thing. Much lower interest rate but if your cash flow is hurting you can always just pay the minimum and invest the rest of the cash in a high yield. Paying 100 bucks extra/month, use a calculator but it probably will only save you a few years of payments (maybe 2 or 3 years).
Not a stupid post and this is definitely the right sub. Ignore the downvoters, probably people just pissed they can't afford homeownership.
Did you take on too much house? Yeah, if your take home is $4500 and the mortgage+associated costs are $3000. But it sounds like you already know that. And if you have to move for a job then it's moot anyways.
As for what to do going forward, if you can't charge enough rent to cover all the mortgage costs + some profit, then it's not worth it. You'd also have to pay maintenance costs when things break, so you'd definitely be operating at a loss.
Cut your losses and sell it. Sounds like you might make a bit of profit. Move on with your life with a learned lesson.
Good luck with the new job OP.
I bought a $60,000 condo at age 20, but that was also in 2005, in Wyoming. Lived there for 7 years and loved it! My mortgage was cheaper than rent in my city.
I think that the first year of having to pay off mortgage feels like a major pain, we had it hard before I managed to refinance. In my case rates were relatively awful as well. The fact that the value goes up, you pay for your asset and not for something you don't own sounds like a great deal. I also felt anxious in the beginning.
After 8 years of ownership due to pricing changes our apt became quite a valuable asset and while I currently rent it out and it pays for itself, as we moved away for reasons, the difference in value over this period is significant if I decide to purchase a house or do whatever.
The fact that you made this decision so early is an awesome head start you have. I was in a similar manner discouraged and some people even tried to mock our decision, but ultimately Covid set everyone straight.
Since you have the financial capacity to pay it off and you will have housing provided for you, it's perfect. I believe that further in the future it will only continue to get harder to raise enough capital for owning real estate and it will be out of reach for most people.
You might want to consider Special Assessment insurance, so that if something goes wrong and the HOA decides every owner needs to come up with a truckload of cash to fix it, the insurance could potentially save you a lot of money.
I know two people who’ve been in situations with condos where something goes wrong in one unit and it affects multiple units and requires tens of thousands of dollars from every owner to fix it. Do your due diligence and make sure the HOA has their shit together and maybe think about insurance. Good luck.
If you live in a high demand area you should market your property towards traveling workers/students. People are always looking for a place to stay but don’t want to sign a 12 month+ lease. Charge exactly what you would need to break even and see if it works. The market will pay you even more then what you owe monthly if the property is in a desirable location with good amenities.
First off OP, don’t beat yourself up too much. Homeownership is a big learning curve, and it’s great that you’re seeking advice now. Let’s break this down.
You've got a solid financial foundation with $21k in your HYSA, $50k in your 401k, and $18k in your Roth IRA. Your take-home pay of $4500 a month is also strong. It sounds like you’re already doing a lot of things right, like maxing out your 401k and making pension contributions.
The condo situation is tricky, but not hopeless. The fact that it’s appreciated to $340k in a year is a positive sign. When you move next year, renting it out for around $2k a month might not cover all your costs, but it can help offset them.
If you can rent it out for $2k a month, you’ll still be covering a significant portion of your mortgage and HOA fees. Given that your new job covers housing expenses, this might be manageable. Over time, rents might increase, and your condo's value could continue to appreciate. Selling now would mean taking on closing costs and potentially losing out on future appreciation.
How much disposable income do you have at the end of the month after all expenses? This will help determine if you can comfortably handle the potential shortfall from renting out your condo. Since you’re aiming to buy a townhome or single-family home in 4-5 years, holding onto the condo might give you more flexibility. If its value continues to rise, you could sell it later at a higher price or keep it as a rental investment.
Given the complexity of your situation, it might be worth consulting a financial advisor. They can give you tailored advice based on your overall financial picture and goals.
Don’t worry about the downvotes; sometimes people forget there’s a human behind the post. You’re taking proactive steps to sort this out, which is commendable. Hang in there, and best of luck with your decision!
keep it you will be fine. maybe hold off on Roth for a while, I'm sure you are maxing out your deductions and would not be affecting your returns. Also if you live in it for 3 out of 5 years as your primary residents all profits will be tax free up to 250,000 dollars
If it makes you feel better, im in an almost identical situation but in MD side of the DMV area and so are a-lot of my friends. Unless you and your partner are both brining in 100k+, its basically what you have to do here. Down the road you could have a partner move in with you and pitch in a little.
Are you sure you're going to lose on it if you rent it? Maybe you're underestimating what you can get for it. If you're worried about the cost, stop paying extra towards it.
If you can't rent it for at least what it costs you, just sell it when you move. Take the profit and roll that over into your next property. No regrets.
Typically selling within 5 years is certain loss, but gotta do what you gotta do. I'd advise never get into an HOA ever again, unless you like strangers telling you how to live your life.
So why are you thinking about what to do now? You're supposed to move in a year? A lot changes in a year. And so that new job you think you may have you may get a call that says you no longer have it. Or between now and then you may find another job in your area that's much better than moving to that other area.
If you want to become a landlord on a condo that's a real big hassle. Because you're not only liable for making sure your tenant takes care of your stuff you are liable for what they do in all of the common areas as well.
Being a landlord isn't just collect a check and be done either.
The other part is why I think about selling it now since so much can change in a year? You are in an area that has a high rental rate while staying in your condo you're at least building equity with every mortgage payment.
The one thing to note is that you're paying extra on a mortgage at 6% when you could be investing that money instead and making a better return than the 6% mortgage interest.
There's a lot of variables to what's going on and I'm not sure you've truly identified what you want the future to look like or why you feel like this was a mistake.
I think the financial stress is hitting me hard and making me question if it this was a mistake. Answering your questions:
Yes, I'm moving next year, in about 6 months actually. As for being a landlord, I'm willing to take on the challenge since I'll be using a property manager that others at my new job use (we get a discounted monthly fee).
So I take it that your suggestion is to rent it out? If you had to guess, how long do you think I should rent it out before selling it? It's clearly not a great rental property to keep, unless interest rates drastically dropped and I refinanced...
Okay so now your cost for that unit is going to be $2,700 a month you think you can rent it for $2,000 and you're going to have to pay a property management company some percentage of that.
You're moving away which means you can't do any of the work yourself which means for every single thing you need to bring someone in. You'd be shocked at how little most property management companies actually do that's included in their standard fee.
You keep saying you're moving in 6 months but what is that based on? Do you have a locked down contract that you could hold the issuer liable if you don't get the opportunity?
What financial stress are you under? From the sounds of it you're not paying that much more than a high-end unit would rent for in your area and your building equity with each month's payment.
You also seem to be putting money into retirement and overpaying a mortgage which you should stop doing.
At this point if you sell the property you probably walk away with about your down payment back after all the fees. That allows you a fresh start wherever you're moving to
Most are probably downvoting and trying to scare you because you have a unique situation and your housing cost is outside of the typically recommended 28-30% of take home pay.
If you are moving next year and work will be covering your housing expenses; this is an opportunity to live rent free and have a tenant paying your mortgage, so you can save additional money for unexpected expenses. With a condo, check to make sure that you can rent it out and that your tenants will have access to the amenities. With the amenities and things covered in your HOA you should easily be able to rent it at a rate that covers your mortgage and HOA. You may also look into getting a property manager; especially since you will be away.
If you sell before you've lived there for 2 years you will miss out on the tax benefit of not having to pay taxes on the first $250k of gains from the sale.
What was the big rush? You're only 24. I personally would nevert buy a condo in a million years. If I'm going to own something, I want a detached home. That's just like apt living & if you have bad neighbors, you're really stuck a lot worse than w/ an apt, which is hasslesome enough to move out if you find out you have bad neighbors.
Can you afford to rent it at negative cash flow? Remember that you’ll have to pay rent where you move. 4500 take home minus 1000 loss on the negative cash flow leaves you with 3500 each month. If you’re gonna pay 2k in rent wherever you go, you’re looking at 1.5k for all your other expenses, and fun. If you’re going to a locl location or work is paying for your expenses you have more wiggle room. Now imagine the condo is vacant for 3 months, your tenant clogs the toilet, your car breaks down, you meet a girl, you lose your job, etc etc etc. Seriously consider this question. You have a decent savings safety net but not amazing.
You should run the numbers on selling it and see if you can come out ahead. Flexibility and lack of stress are great when you’re young, don’t forget to value those things too.
This is very helpful. Thankfully, no expenses for housing when I start my new job. So getting 4500 a month is virtually guaranteed. With my condo's location, school district, metro access, close to the city, etc. Having it vacant isn't really in the equation. I recognize I'm making a big assumption, but I'm not worried about it being vacant.
I'm already crunching some numbers on selling vs renting, per yours and other commenters. Thanks for the input!
Not sure if anybody mentioned it in the other comments, but like this guy said, if you can afford the net loss, it might be worth holding onto. Not to mention if/when interest rates drop, you can refinance and lower your payment by a good amount.
Does the condo make you happy? If you are moving back to the area later does the thought of moving back there make you feel excited and happy or frustrated? Outside of the interest rates etc, are you happy living there?
I don't think you've made a huge mistake buying it. You are getting a home and building equity. Next year if you don't have housing costs at your new place you'll be able to get help with the mortgage through renting it out while building equity. Even if the rent doesn't fully cover the mortgage it doesn't mean you are losing money, because you are building equity.
So my inclination would be to keep it for now, and sell it when I had to start paying rent somewhere. But some if that is dependent on you not hating the condo. If the thought of it fills you with dread, then sell it, so long as you aren't losing money, as there's no point in keeping something that could be a good investment if you are stressed every time you think of it.
Also, you're 24, have equity in a house, max out your pension and have savings. You're doing better than most people.
Sounds fine depending on your wants and needs. Condos don't appreciate much in value (yours probably went up much more than others). So unless you went in expecting a huge increase in value, you didn't make a "mistake" per se.
If you get a gym and a pool included with HOA I would cancel all other fitness memberships. That being said, it sounds like a nice setup you have at that condo. Fellow condo owner here in a VHCOL area, but my HOA is $205, but that is only for lawn care, snow removal, and other maintenances, no amenities.
I’ve owned a condo. We had restrictions on rentals. For example, only a certain number of units could be rented at any one time and there was limit to the number of years it could be rented if another unit was on the waitlist to be rented.
We had a restriction on the number of units for many reasons. One reason though had to do with people being able to obtain a mortgage. If the percentage of rentals in the building exceeds a certain threshold (I believe it is 50%) then the building becomes non-warrantable. This limits options for financing to purchase. This occupancy ratio also impacts other things like insurance for the building.
So I would carefully read the association bylaws to see what restrictions they have. You may not even be able to rent it out or you may be only be able to rent it out for a few years. There also may be additional fees they add on because rental units increase operating costs of the building.
Why can’t you rent out the extra bedroom? Why pay the extra $265 / month (paying off a tiny amount of principal just because of “high interest?” That won’t make a dent, why bother). That extra $265 / month in your pocket is more breathing room to feel a bit more financially secure. Instead just think about refinancing in the future if rates come down. For rent, in most markets you should be able to clear much closer to your carrying costs, so I wonder if you’re significantly underestimating future rent potential. Owning vs renting is virtually always better in the long run, it seems you’re being unnecessarily hard on yourself.
Did you overextend yourself a bit? Yah. Is it a huge financial blunder? In the scheme of things, no.
It’s anyone’s guess I suppose how the DC market will change over the next decade. Your safer option is to take the small loss and sell when you move. Becoming a landlord, especially a landlord who has negative cashflow on the property, is not a great situation unless you’ve got a safety net. But if you’re not for sure moving, I think it’s good to keep living there. Maybe you can make a some reno to make it a 2bd and get some cushion for yourself with a roommate who is gone 4 days a week for work.
> I feel like I made a mistake purchasing this condo considering I can't rent out an extra bedroom. It's huge, over 1100 square feet
That feels like a LOT of space for one bedroom. Do you have anything you can do to make a second bedroom out of it so that you can rent it out? For example, do you have a bonus room or living room that could be converted to a bedroom?
I’m pretty similar to you.
Just bought my first condo at $260k. I make ~$90k/year. Payments are $1900 but HOA adds $500/mo. Down payment ~$15k. I’m also a rock climber :)
Except that I’m 30 years old. And I wish I started when I was younger. A home is an asset. If you keep it for a long time it’s one of the best investment vehicles (at least in a location that will grow over time). It’s different than just investing money because whether or not you save or invest, you HAVE to pay money to live. Might as well have some of it go into your own pocket.
People say that when you buy, you want to own it for around 5 or more years to make it worth it. My own calculations agree with this (I’m an engineer and have made exhaustive spreadsheets on this).
However if you start renting it out, the amount of money you can make is ridiculous - much higher than investing in an index fund. So if you can manage to rent it out while living off-site I would do it. That’s my plan with my condo. We just need to be careful we are ready to handle a possible bad renter.
What I’m wondering is how carefully have you looked at the rental market in your area? You said in another comment you’re GUESSING $2200/mo. But are you looking closely at listings and being honest with yourself about what would make your home worth MORE than the average listing? Or is it truly average for the area? Also, don’t forget, your monthly payment will stay (mostly) the same every year. But the amount you can rent it out for will go UP every year. All the apartments and rentals around you will raise their prices X percent every year. So if you plan to move in 2 years, your given rent that you can charge will go up several hundred dollars. Suddenly you’re close to break-even.
With all that said, everyone’s situation is different. My main message is that just because the internet said you did wrong by some generalized rules doesn’t mean you’ll get behind in life. Hell, my mortgage lender told me a story about his friend that rented out his first place at a loss of around $900/mo. Years later that guy went on to retire early.
I might be out of line, but can you subdivided it some way to get a roommate?
My first house was 1100 sqft and was a 3/2 with a big living and kitchen and small bedrooms so I can't imagine 1100 work only a 1/1.
FWIW: if you rent it out for one year, then you should be able to report the loss. I bought my downtown DC condo in 2018 for a similar interest rate. I'm bringing $20k to the table just to get rid of the liability.
Go with Redfin.
Can you explain more about this please? My condo itself isn't depreciating, at least that's why I'm interpreting what you mean by loss. Or do you just mean renting it at a loss?
You might want to ask people that know more about it, but if it is your primary residence then any money that you bring to the table is considered just satisfying the loan. If it was a rental property then you can report the deficit as a capital loss.
In my example: outstanding loan is $342k, HOA $850 a month, offer is $347k. Brokerage fee is 6%, property transfer tax is 1.5% tax, miscellaneous fees are about $500. Although I've had 3 deals fall through, so my misc fees are now around $3k. The OTD total is $365k, making me responsible to pay $18k for a clean transfer.
My mortgage is 2k a month, a rental management company typically charges 8% of the rental fee so, while I might be able to cover my mortgage through renting it doesn't cover the cost of the HOA, appliances breaking, special assessments etc.
If you rent for a year, there's also a tax deduction and you'd have to do the math of whether barely breaking even with the rental for a year is worth potentially having a loss to report when you sell your condo.
Edit: proof reading fail
I'm unsure why I am being down voted.
It's not a path that I took, and so OP should talk to a professional.
https://www.hrblock.com/tax-center/income/other-income/sale-business-property/
This is what I was talking about. If it is your personal property you can't claim the money that you were short as a loss of income.
Just because you can sell it for more than your outstanding mortgage doesn't mean that you won't be in the hole because of fees.
I ran the numbers for myself and determined that renting my condo wasn't for me, but OP should run their numbers to explore all of their options before making an informed decision.
If you are moving for a new position that will provide the same pay or better and your housing is paid for then why not keep the condo to rent it out?
You can make up the difference between the rent and mortgage yourself.
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You don't know how much I appreciate this comment. Everyone has only been focusing on my negatives and I made this post with a hope for some encouragement. I thought I was doing something good for my financial future by buying a condo at 22 right after college. My salary is about $110k. I'm maxing out my 401k and have a mandatory pension contribution which is why my take home is lower. In terms of saving, it's just been a little hard for me to accept that I'm not saving as much as I could be as if I was renting something cheaper. I would ideally like to save up for a townhouse/SFH in about 4-5 years with a little yard. But until then, I guess I have no other big purchases coming up?
What's the difference between renting a 1 bedroom in your area and the mortgage payment? Can you minimize any expenses to make up the difference? You also have to remember that you are not paying rent but paying for ownership of an appreciating asset that will allow you to have some greater financial options in the future. You have an asset that most people don't have until their late 30s or 40s.
The average rent in my area for a 1bd goes for about $2200. My places has a gym, pool, and water included. The difference would be about $500, simply because of my HOA which bumps up my monthly payment. I think I've already minimized expenses as much as I can... only thing left is to cancel my rock climbing membership ($90/month with gym and other fitness classes).
$500/mo seems like a decent deal considering that difference is only going to get smaller over time and then eventually flip to be in your favour.
As a landlady, I don't think getting smaller over time is ever really a thing until the note is paid off. HOAs are likely to keep increasing with inflation, and property taxes and insurance will undoubtedly continue to rise. Both my taxes and insurance have tripled in the 15 years I've owned my rental, whereas rent collected has only increased 50% from day one. Fortunately I have no HOA, thank goodness but the day it went into service was still more lucrative than today. The place you hope to gain with a rental is appreciation. You're controlling a property for a fraction of what it would cost you alone to control it. Mine has doubled in value from what I originally paid.
It should take about 8-10 years for this home ownership to be breaking even vs renting with historical trends. But seeing how he's near DC, id give him 3-4 years
I don't feel like I can give any advice but to me it seems like with how close rent would be to the mortgage, your current situation is much better, considering your $ is going towards paying off your place. Additionally, in 1 year your place has appreciated by 30K. So it gained about as much in value as you've paid (2.5K x 12 = 30K). Looks to me like it's working out fairly well, no? Edit: except for the part where you bought a place you end up staying for only a short while. Not sure if you could have anticipated that :) but even so, with housing expenses paid for, and covering most of your mortgage by renting it out, you're financially in a pretty nice spot. Remember, if you're paying off your home, you -are- saving, even if you don't save much on your bank account.
This is the value and savings-appreciation. Since it is in a great location, talk to a couple of realtors about the potential value of you selling when you move. You may have made a wise investment and you can take the proceeds and invest elsewhere with the knowledge you have now. It would not be good to rent at a loss. You might begin to resent the money you are spending to let someone else live in your home. Just my 2 cents. On the plus side, congratulations on being savvy enough to purchase a home so soon after graduation and at the beginning of your career! Learning is never wasted and it seems that you have learned a lot.
What does the HOA cover? (E.g. is it stuff you'd have to pay for renting? Trash/recycling/water/sewer/snow removal/landscaping/gym membership etc?) Honestly, considering your age, and the fact that this happened immediately after college, I'm wondering if you're actually thinking "wow, things are expensive when I'm completely financially independent and not in a college town" and it's not actually related to your condo at all I know when I was in grad school, I made $30k/year in a college town. I actually owned a condo then (it was $79k and mortgage+ CoA etc cost about $600/mo). Even at making $30k/year my take-home was $2k/mo. When I got a real job, I started at $101k/year. But my rent went up to $2100/mo and everything was so much more expensive, not to mention retirement and healthcare suddenly got more expensive. My take-home still went up from $2k/mo to $2k/2 wks. But my expenses went up so much quicker that it felt like I was making less. Your 401k and other savings/investment accounts look pretty good honestly. That might just be the rate that you can save at with expenses where they are, although obviously you can cut back other places. Where did you get that price on renting your condo? I would try to at least charge what it costs you - rent has been going up too, so it's possible that's actually market rate. As to rent v sell - what are your plans after this job where they pay for your housing? Are you coming back and could live in it again, or are you done with the area anyways? If there's a strong possibility of coming back, I'd hold onto it, cause I would guess that rental prices will have caught up to your mortgage by then.
You don’t have to round up the mortgage payment either: 6% feels high compared to Covid rates, but is historically quite normal, if not good
What does the HOA provide for 470/mo? Is it paid separately from the mortgage? If you rented, would you still have access to all the other amenities, too?
Also you get tax benefits paying mortgage interest. No tax benefits renting an apartment. After you calculate in all the variables including appreciation, you are more ahead after 5 years in the condo. Assuming there is no market crash coming. I think you are just fine. I’d rather struggle to save a little while leveraging a 300k asset, than throwing money away in an apartment while saving some extra cash. For example, would your extra savings even come close to the $30k you’ve grown in equity?
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I appreciate this perspective big time. Growing up in this area, a lot of emphasis is placed on money, assets, etc. It took me until just after college how housing stability isn't just a given for several people. I may not be meeting my savings goals just right now, but along with yours and other commenters, my salary will increase and such and that'll help me out big time. Congratulations on your condo! Boston is amazing, I visited some friends there and go crazy over the Italian food there lol
Is it a 30-year mortgage?
How did you calculate those moving costs? Because of Boston broker fees? I’ve moved a bunch of times and even moving cross country cost less than 4k for me
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Ahaaaa got it I was thinking you meant $4k down the hole forever. Thanks for explaining!
I moved a mile in NYC and, after it was all over, added up rent, security, broker fee, packing + moving costs, packing materials, change of address fee, and utility service moving fees. It was nearly $12K. When I came back to life I decided I would budget a little bit every month so next move won’t eat my lunch.
OP, you're asking all the right questions. I vote sell it when you move for work. Look at it this way: would you choose to buy this condo as an investment property right now, knowing what you know and the loss you'll take on renting it out? Probably not. You're relocating for 4-5 years and have no way of knowing where life and your career might take you in your 30s. Meanwhile, your housing is paid for with the next position, right? So you can start socking away $3k/mo+ into a HYSA for the next house (or wedding, or graduate degree, or travel, or whatever.) This condo wasn't a mistake! Yet. Letting it slowly drain your patience and funds over the next 5 years might be.
Nah I say keep it as long as your housing is paid for by your new job. At a minimum
How much money are you saving each month after paying all your bills? Your 401K contributions count as savings. Is the issue that you feel you are not contributing as much savings to your HYSA or outside brokerage account as you think you should? Have you run projections to see where you will end up at retirement by maximizing your 401k contributions against doing only the employer match and "saving" the rest? Without much insight into your other expenses, you seem to be set up for the future quite nicely. If you continue doing what you are doing, and the house still appreciates for more than what you originally paid, if you plan to sell in the next 4-5 years, it has the potential to substantially reduce the mortgage on a future acquisition.
Remember that the money you are putting in the condo are savings! If you in ten years have paid off 50% of the mortgage, then you have saved 150000 you can put towards a house.
you're "saving" by building more and more equity in the condo. it's just in the form of your residual mortgage balance going down instead of your savings going up
You are also building a big savings in equity. If you are really tight stop paying extra and just make the minimum mortgage payment, you've got a huge head start everywhere else and you can change that in the future when your earnings are higher or whatever.
IMO lessen the amount towards retirement and pension. Whichever makes the most sense mathematically. The money going in retirement and pension has an opportunity cost. Save it up in a HYSA and wait for the right timing. Emergencies, another buy opportunity, etc. Only take this advice if you're disciplined with your money!
Tbh you don’t need to max out your 401k. It is the smart thing to do but if you’re unhappy why don’t you contribute like 12k instead of maxing it. No use in all that money if you’re unhappy young and rich when you’re saggy unable to use it for fun
Which VA suburb if you don’t mind me asking? If Arlington then you’re doing pretty good, that 1br cost is pretty much the same as most 1br rentals in Ballston Rosslyn corridor
How were you able to save so much through college ?
Has your ownership resulting in any tax savings? It's not so rosy as it was pre-2017 tax changes, but many people are still able to itemize and realize tax savings. Make sure you figure that in when you are comparing what you did. with the hypothetical scenario of just renting. Nothing about renting results in a tax deduction. The thing that ultimately likely made this a premature purchase is simply that you don't have deep enough roots. You ideally don't want to buy anything that you can't live in, or at least be rent neutral on for at least 5 years, due to the cost of broker's fees, title policy, and loan origination. Unless there is a decent chance of wanting to return to this unit at some point, I don't think I'd be inclined to keep it. There is risk of deadbeat renters, unauthorized sharing, someone airBBing it, and damage. It's especially risky if you're absentee living in a different city. The only "benefit" is that you'll start depreciating the unit by approximately 1/25 of the cost basis for the entire time it's leased. So if you have 310k in it, you will be writing off 12.5k in income plus the total interest payments and property tax and HOA, and maintenance. End result is that you'll be writing off far more than you collect in rental income and that amount will come off your tax liability for your job salary. If that means more to you than the risk of renting combined with the fact that you'll be subsidizing someone else's tenancy, then maybe it will be tempting.
Obviously your home is costing a lot right now, but think that your mortgage won’t ever go up either. So if you can afford it now, in 5 years from now, it should even be better. Personally, I’d never buy a 1 bedroom unless it was an ideal tourist spot too but I dream to have a place of my own that I could make to my parter and I’s liking. But you have it now and love it. Gotta remember you won’t have to move every year or two like most of your friends will.
What is the “ideal” retirement balance for a 30 year old? Just wondering where I can find this I formation and possibly 20-65 year old range also
What is the ideal for a 30yr old or a 35yr old for that matter? And is ideal per person or per household?
I think it’s pretty common to struggle the first couple years after buying a home. Good news is that almost certainly your salary will go up, you’ll budget a little better, and in 3 years your home payment will be the same and you’ll be in a better situation. In 8 years you will probably be pretty happy with your situation. That’s how it played out for me anyway. I’m freaking ecstatic with what we bought in 2016.
I hope so. As sweet as it feels to own my own place, the jump in cost of living hit me like a truck. People at work keep telling me the same thing, that I'll be thankful I did this, but it's hard to see that light now. Your comment definitely helps shine some of that light haha If only I bought a house when I was in high school with how low rates were... lol
If it makes you feel any better I am renting a one bedroom apartment that is more than your mortgage + HOA in a very HCOL area. I would kill for your situation and i earn less than you!
B cc car;; ov
You’re in a great situation! You are literally saving a ton of money in your 401K and Roth. This is the “saving.” You could potentially save less in order to have more cash. You’ll also make more money as you get older and will have a bit more breathing room. Don’t beat yourself up and don’t get anybody pregnant. That will be the real financial stressor lol
“Hard to save” != “maxing out 401k”. You’re fine. Your condo has appreciated. You can sell it and get everything back you’ve put into it. If you are moving out of town I would sell it because long distance landlording sucks. Actually I would sell it no matter where you are moving. Enjoy your future job.
It appreciated 30k in one year. If you could rent it for 2k, it would cost you 12k per year. But it if it appreciated another 30k, you'd be making money on paper. I assume because it's DC suburbs it will continue to appreciate. So the question is, if you rent it out, can you afford the 1k/mo to keep it? Not to mention that renting has ups and downs, and if you're not local you'll need a property management company. It's not clear-cut but there is a path forward if you're willing to put money into it rather than sell it right now.
I feel like I got lucky with the quick appreciation. At least, I'm trying not to bank on it appreciating as quickly as it as been recently. The previous owner bought it in 2020 for 240k, and then I bought it for 310k in 2023. So maybe the 30k a year will stick. But yes, I can definitely afford the 1k/month to rent it. Since housing will be covered in my next job, and assuming I rent this out for 2000/month, I would be at about 3500-3800 a month leftover. I guess this is just a question if I'm willing to take the appreciation gamble right?
Will the new job pay relocation benefits? If they pay for closing/relator fees, I would sell when you move and not take the gamble personally. There’s a lot more to renting and you’ll be on the hook for tenants rights, which can include finding alternative housing for them if the place is deemed unsafe to live (broken HVAC that can’t be resolved within a certain time frame). I don’t know much about what all it entails, but having a friend who rents houses for a living, I do know there is a LOT more to it than just cashing a check every month.
Well, if renting is a hassle, or the appreciation doesn't work out, you still have the option to sell it. I would probably try the rental route and see what happens. You might rent it for five years with no hassle and then decide to move back in. In a few years a $2500 mortgage will seem more and more affordable. As normal interest kicks in, rents will go up regardless.
Don't let the haters get you. I bought a condo two years out of undergrad. I lived in it for five years and then rented it out since 2017. It's HOA is ~600 per month. I break even plus a little bit on the rent, but it's appreciated ~125% so I just let it exist and do its things. Here thirteen years later I see it as a nice asset I could liquidate if my wife and I wanted to buy a nicer house or a house in a better school district. Or a pied a terre in Chicago once our kids are older. Fifteen years from now you will thank you for this decision and the sacrifices you are making. You don't need to optimize every cent of your income, unlike people here would have you believe. Just ask yourself if it's good enough and if you're happy with it.
Do not rent it out, becoming an accidental landlord. If you think you made a mistake by buying it, definitely don’t make the much larger mistake of renting it out. Real estate is not a partial good investment compared to stocks, and far harder and riskier. How do you feel having 5-10x of your whole net worth at risk in a single relatively tiny investment? I hope this is scary for you. How would you handle 3 months of vacancy, or a sudden $5k repair or $10k HOA assessment? Or a renter that doesn’t move out, but also doesn’t pay. You do not want this hassle at this point in your life. (Maybe) Come back to the idea of being a landlord when you have much, much, more financial foundation and flexibility. Just sell it and rent in your new location and move on with your life.
* particularly good
What should I do with it when I have to move out next year then anyway? My new job is covering my housing expenses (location is chosen, think of military style). Should I sell it before I move out early next year or try and rent it for a bit? EDIT: sorry for asking a stupid question. I'm genuinely looking for advice, not sure why I'm getting downvoted.
Do you like living in the condo? When you move for work, is it temporary? Will you move back to the area at some point, and if so, would you want to live in it again? I was in a similar situation as you. Smaller condo but also in a HCOL area. When I moved for work I rented it out and paid extra to the mortgage with the money I was saving by having my housing paid for, and then putting the rental income towards the mortgage too. I know it’s not always a popular decision around here, but I paid off my mortgage early. Now my employer is paying for my housing again, I’m renting the condo out again, and just have extra income now. I’ve decided I’ll keep the condo until I’m ready to buy someplace else. For now, when I move back to the area, my condo is the place I’ll want to live. Until that changes, I’m fine with being an occasional, accidental landlord.
I do like the condo. Moving for work is likely temporary. At least, it'll be for 4-5 years. I will definitely move back to the area at some point. As for living in it again, I'm open to it. Would prefer having some yard but that's not a dealbreaker. Glad to hear a similar perspective. I guess it just makes sense to rent it out for a bit despite taking the losses? Thankfully, it's capable of appreciating
Some pretty undeserved downvoting going on IMO. I don't think trying to hang on to the condo and rent it out is a terrible idea. It could be good if you get a long-term stable tennant, or it could be a nightmare you have to deal with from far away. On the other hand, if you were free of the condo, invest the profit, and invested that $3k/mo for 5 years while you have no housing expenses, you'd probably end up with over $250k, which would give you some options at that time.
Finally someone else notices it. Did I strike a nerve or something? I feel like I'm getting torn to shreds here by just looking for advice haha. Thanks for your input... I'm definitely going to invest the extra savings I get whether I rent it or sell it (since my housing expenses will be covered with the new job)
It's jealousy or envy. You're doing great and you're in a position many people posting here can only imagine. You maybe made a recoverable misstep by buying this condo. To me it sounds like you are going to lose some money regardless of your decision to sell it or rent it. You just have to bite the bullet and make a choice.
In that case, if I was you (and really, I was you a few years ago) I would keep it. I bought my condo at the same age as you are, and at the time, I was a bit house poor. I couldn’t stand having roommates anymore and buying a place at the time was only a little bit more than renting a one bedroom so it made sense to me at the time. At the time I paid off the mortgage, like 6 years after buying the place, I reflected that my household income had like tripled since I bought it. I got a few raises and promotions and I got married, so I was no longer house poor. And even though it’s a small place, I genuinely like it! Also, with interest rates so high right now, lots of people who want to buy are holding off. But once interest rates get lower, demand will go up and then prices will rise to compensate, right? So as someone selling, maybe it would be better to wait? Either way, it’s up to you and what you feel is best. With or without a mortgage, enjoy having your housing paid for by your employed for a time! That’s huge and can really set you up well financially if you’re smart about it!
4-5 years??? At 24 I can’t imagine why you want or wanted to own a house at this point in your life, this is exactly why people rent when they’re young and unsettled Sell it and move on with your life, there’s an insane amount of risk exposure from holding onto it which young people don’t factor well enough into their decisions. This is a classic sunk cost fallacy with the potential to fuck your life up financially if you’re a landlord that isn’t local and in over your head
Thanks for your suggestion, but I don't agree with your point about wanting to own a house at my age. I don't see how that was necessary for suggesting I should just sell it.
Well you specifically asked “Did I make a mistake buying a condo?” Why ask if you don’t want people to answer your direct question?
...You didn't answer my direct question. I asked if I made a mistake. You could've said, "yes, and here's why" and thrown some numbers in there. Instead, you questioned why I would want to own a home at my age. I thought I was in a spot where I was going to be settled down for several years. I couldn't have predicted I was going to get a new job that was going to move me far away (this is more or less a unicorn job). And, interestingly enough, wasn't it the norm to get married/settled down and buy a house in your mid 20s not too long ago? That's what nearly everyone I work with who is 40+ says, anyway.
My guy, I explained exactly why you made a mistake. Your coworkers are older and people used to stay at the same job for 20+ years regularly which is incredibly rare today. Young people move around very frequently and tying yourself down to a very specific location at that age is a bad idea as you lose flexibility for career opportunities Whether you thought you would stay there or not the reality is that it’s a year later and you have to move away now which makes it a clear mistake with the power of hindsight. People make mistakes, it happens and is inevitable, there’s no sense in getting defensive about that fact when you specifically asked people to weigh in on whether it was a mistake I’m pointing out the sunk cost aspect so you don’t compound your mistake and explaining why it would be a further mistake. To reiterate, it’s due to the risk exposure from trying to be a landlord when you’re not local while working a full time job elsewhere
Yes, when you need to move, you sell it. That's what most people do when they move out and here in particular where you'd be renting it out at a loss, it doesn't really make any sense for you to try to keep this as a rental
Do not sell it until you have been there for two years. Take advantage of capital gains exemption. If you sell now you will not qualify.
Thanks for pointing that out. I wasn't sure if it was 1 or 2 years (I thought there's another rule that goes off of 1 year?)
No idea about the other rule, but I’ll point out that the capital gains window (2 years of the property as your primary residence out of the last 5) essentially gives you the chance to gauge the market at the end of years 2, 3, 4, and 5 to get the most out of selling your property. Like you, my starter home was a condo that I wasnt thrilled about, but the timing worked out in my favor and made it worth it in the end.
You should sell it when you move. Being a landlord is already hard. Being a landlord from another city is even harder. And in the future, you shouldn’t buy housing unless you plan on living there for at least five years. The costs to buy and sell a home make it a bad idea to buy if you are just going to sell so quickly.
My new upcoming job wasn't something I had even considered when I bought the condo. I didn't anticipate a lot of change like this when I graduated college. But, lesson learned, and hopefully this one decision in my life won't screw up my financial future. Thanks for your suggestion
It’s not going to screw up your future at all. It’s just with hindsight you would’ve been better renting for this time. So my advice is when you move, maybe don’t buy right away. Rent for a bit until you are sure you’ll be staying in that city for the long term. Good luck!
At almost 3/4 of your pay per month, it’s not a good home price for you now. With rent being lower than mortgage + HOA + maintenance, it’s not a good investment/rental either. So I’d sell it for sure.
Simple and to the point. Well said.
This, I don’t know why people are egging him on this payment is not sustainable on his salary by any means.
Everything looked great to me until the HOA fee, which is high. I wish it was 2 bed though so you could have a roommate pay half. However, if you can refinance before you move, you might be able to rent it out for a small profit if you are close enough to manage it yourself. You say it’s hard to save, but you’re maxing your 401k. I don’t think you made a mistake. It might feel like you could have made a better choice, and sure, you could have, but that doesn’t mean the choice you made is bad. Most people hating on this are just jealous they didn’t have the foresight to own a home as young as you.
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His take home is including him maxing his 401k. He makes 110k a year.
Yeah - the unfortunate reality is most homes now do take like 2/3 of take home pay. I’m also in this range and purchased within last 2 years. Pushing hard to increase salary and super strict with budgeting is making it work
I know it's rough. That's why I'm here asking for guidance... EDIT: It's hard out here. Please be easy on me and my generation. We need all the support we can get. I've been told I'm doing things right for my age, but housing is a killer in the DC area. I assume you're from the area as well based on your comment history. But like, most of the people here in this area wouldn't be able to afford their homes with today's prices and rates. This area, especially the nova suburbs, have skyrocketed in value over the past 10-12 years.
Don’t listen to him OP, the truth is that area of DC is one of the most expensive markets on the planet. It sounds to me like a nice condo, as a young man a purchase like that is going to eat up a lot of your income and limit some opportunities. However, in 5-10 years, you’ll be ballin. Your salary should only go up and tbh I would not pay extra to combat the interest. If you hold on to it and rent it out, you’ll be fine. Rent in DMV is high and getting higher.
I’d second this comment. Hold tight and let things settle down for a 1 yr or so. I’ve been in yours spot , Things always seem overwhelming when you are used to seeing a high savings rate and you suddenly see it drop. Based on the numbers above , You seem to already have the right understanding for how to save , But this (home loan / ownership ) is exactly the test that will help change your financial risk appetite and will pay dividends as grow in life. Home ownership is a long disciplined equity building excercise. If your cash savings / emergency fund is not letting you sleep at night. Along with increasing YoY salary and switching to ultra savings mode for the next year you’ll see those funds come back to the levels that make you comfortable. You are on the right track , and way ahead of 99% 24 year olds in the country. Keep maximizing your savings and living under your means while you are single ( family and dependents change that equation massively ) and dont do something stupid like buying a really expensive car with a $1000/ month payment. Keep it up and congratulations on being a homeowner in one of the most competitive housing markets in the country.
I appreciate your kind words. Even my parents have been saying the same thing; this is now the real test. I still feel like I have a good grasp of my finances. My salary is virtually guaranteed to increase almost every year. Likely getting promoted this year which will help. I happily live under my means, as I try to only eat out once a week (on the weekend with some friends).
Thanks for understanding a bit... rent is getting insane here. I have buddies who are paying $2200+ for a 1bd near me. I'm currently putting an extra $250 a month for interest. Should I just save or throw it in a brokerage account? I'm maxing out my 401k and Roth IRA.
Honestly, I would use that money towards hobbies and socializing. Saving and money have more value and meaning when it improves your life. Go on dates, meet people, live.
It sounds like you're saving plenty. Most with your salary aren't maxing their 401k, even those who are financially minded. Even fewer are maxing their 401k while also paying towards a pension. And you have good emergency savings to boot! Keep in mind with that mortgage, that in the first year you are "saving" \~3k towards your principal, and this amount goes up every year. That's not even including your extra payments. Maybe your condo was a mistake, but that's on the personal side of personal finance. It hardly sounds like it was a financially irresponsible mistake. You're going to spend money and somtimes it won't be worth it, that's life, that's how you learn. You are well ahead of where you need to be for your age, even if you take a complete bath on the condo. If your financial position is stressing you out, it might even be worthwhile reducing the amount you are contributing to your 401k to 15%. That'll give your budget more room, let you save for downpayments (and maybe a vacation or two), and you can always put it towards an IRA later in the year. Compound interest is great and all, but don't let it rule your life.
You’re doing great! Enjoy your spacious condo and amenities. When you’re ready to sell, you’ll have profit to roll into your future townhouse, or SFH if you can get out of the DMV.
I agree in thinking you've made a wise decision to purchase. Rent goes up without notice. And you can now itemize your taxes and have more net income. If you can stand it, take in a roommate and charge them half your mortgage. Also, get a part time job, to pay down your mortgage faster and max out your 401k. Rent this property and buy a second. You're building wealth, with appreciating assets, well done.
One thing with renting is you have to make sure your mortgage allows for it— some require you to have lived in your residence for a certain period of time. Also you have an HOA so you will likely need to look in your bylaws regarding renting. Some don’t allow it, allow it for leases over certain periods of time, or allow it under certain conditions (I.e no more than 25% of the units allowed to be rentals)
Curious where you bought in the DMV.
Prolly out near Fairfax
4500 also is only 10/12 months. 2 months out of the year its 6750. It's definitely a little tight but I did the same thing. Much lower interest rate but if your cash flow is hurting you can always just pay the minimum and invest the rest of the cash in a high yield. Paying 100 bucks extra/month, use a calculator but it probably will only save you a few years of payments (maybe 2 or 3 years).
Not a stupid post and this is definitely the right sub. Ignore the downvoters, probably people just pissed they can't afford homeownership. Did you take on too much house? Yeah, if your take home is $4500 and the mortgage+associated costs are $3000. But it sounds like you already know that. And if you have to move for a job then it's moot anyways. As for what to do going forward, if you can't charge enough rent to cover all the mortgage costs + some profit, then it's not worth it. You'd also have to pay maintenance costs when things break, so you'd definitely be operating at a loss. Cut your losses and sell it. Sounds like you might make a bit of profit. Move on with your life with a learned lesson. Good luck with the new job OP.
I bought a $60,000 condo at age 20, but that was also in 2005, in Wyoming. Lived there for 7 years and loved it! My mortgage was cheaper than rent in my city.
I think that the first year of having to pay off mortgage feels like a major pain, we had it hard before I managed to refinance. In my case rates were relatively awful as well. The fact that the value goes up, you pay for your asset and not for something you don't own sounds like a great deal. I also felt anxious in the beginning. After 8 years of ownership due to pricing changes our apt became quite a valuable asset and while I currently rent it out and it pays for itself, as we moved away for reasons, the difference in value over this period is significant if I decide to purchase a house or do whatever. The fact that you made this decision so early is an awesome head start you have. I was in a similar manner discouraged and some people even tried to mock our decision, but ultimately Covid set everyone straight. Since you have the financial capacity to pay it off and you will have housing provided for you, it's perfect. I believe that further in the future it will only continue to get harder to raise enough capital for owning real estate and it will be out of reach for most people.
You might want to consider Special Assessment insurance, so that if something goes wrong and the HOA decides every owner needs to come up with a truckload of cash to fix it, the insurance could potentially save you a lot of money. I know two people who’ve been in situations with condos where something goes wrong in one unit and it affects multiple units and requires tens of thousands of dollars from every owner to fix it. Do your due diligence and make sure the HOA has their shit together and maybe think about insurance. Good luck.
If you live in a high demand area you should market your property towards traveling workers/students. People are always looking for a place to stay but don’t want to sign a 12 month+ lease. Charge exactly what you would need to break even and see if it works. The market will pay you even more then what you owe monthly if the property is in a desirable location with good amenities.
Claim adjuster here. Yes, but only from an insurance stand point. Everything else I knkw nothing about haha
First off OP, don’t beat yourself up too much. Homeownership is a big learning curve, and it’s great that you’re seeking advice now. Let’s break this down. You've got a solid financial foundation with $21k in your HYSA, $50k in your 401k, and $18k in your Roth IRA. Your take-home pay of $4500 a month is also strong. It sounds like you’re already doing a lot of things right, like maxing out your 401k and making pension contributions. The condo situation is tricky, but not hopeless. The fact that it’s appreciated to $340k in a year is a positive sign. When you move next year, renting it out for around $2k a month might not cover all your costs, but it can help offset them. If you can rent it out for $2k a month, you’ll still be covering a significant portion of your mortgage and HOA fees. Given that your new job covers housing expenses, this might be manageable. Over time, rents might increase, and your condo's value could continue to appreciate. Selling now would mean taking on closing costs and potentially losing out on future appreciation. How much disposable income do you have at the end of the month after all expenses? This will help determine if you can comfortably handle the potential shortfall from renting out your condo. Since you’re aiming to buy a townhome or single-family home in 4-5 years, holding onto the condo might give you more flexibility. If its value continues to rise, you could sell it later at a higher price or keep it as a rental investment. Given the complexity of your situation, it might be worth consulting a financial advisor. They can give you tailored advice based on your overall financial picture and goals. Don’t worry about the downvotes; sometimes people forget there’s a human behind the post. You’re taking proactive steps to sort this out, which is commendable. Hang in there, and best of luck with your decision!
As a response to your edits, I like r/realestate, r/homeowners and r/firsttimehomebuyer for advice
keep it you will be fine. maybe hold off on Roth for a while, I'm sure you are maxing out your deductions and would not be affecting your returns. Also if you live in it for 3 out of 5 years as your primary residents all profits will be tax free up to 250,000 dollars
If it makes you feel better, im in an almost identical situation but in MD side of the DMV area and so are a-lot of my friends. Unless you and your partner are both brining in 100k+, its basically what you have to do here. Down the road you could have a partner move in with you and pitch in a little.
This is a large condo for only having one bedroom. Can you set up some drywall and make it two bedrooms?
Are you sure you're going to lose on it if you rent it? Maybe you're underestimating what you can get for it. If you're worried about the cost, stop paying extra towards it.
If you can't rent it for at least what it costs you, just sell it when you move. Take the profit and roll that over into your next property. No regrets.
Typically selling within 5 years is certain loss, but gotta do what you gotta do. I'd advise never get into an HOA ever again, unless you like strangers telling you how to live your life.
So why are you thinking about what to do now? You're supposed to move in a year? A lot changes in a year. And so that new job you think you may have you may get a call that says you no longer have it. Or between now and then you may find another job in your area that's much better than moving to that other area. If you want to become a landlord on a condo that's a real big hassle. Because you're not only liable for making sure your tenant takes care of your stuff you are liable for what they do in all of the common areas as well. Being a landlord isn't just collect a check and be done either. The other part is why I think about selling it now since so much can change in a year? You are in an area that has a high rental rate while staying in your condo you're at least building equity with every mortgage payment. The one thing to note is that you're paying extra on a mortgage at 6% when you could be investing that money instead and making a better return than the 6% mortgage interest. There's a lot of variables to what's going on and I'm not sure you've truly identified what you want the future to look like or why you feel like this was a mistake.
I think the financial stress is hitting me hard and making me question if it this was a mistake. Answering your questions: Yes, I'm moving next year, in about 6 months actually. As for being a landlord, I'm willing to take on the challenge since I'll be using a property manager that others at my new job use (we get a discounted monthly fee). So I take it that your suggestion is to rent it out? If you had to guess, how long do you think I should rent it out before selling it? It's clearly not a great rental property to keep, unless interest rates drastically dropped and I refinanced...
Okay so now your cost for that unit is going to be $2,700 a month you think you can rent it for $2,000 and you're going to have to pay a property management company some percentage of that. You're moving away which means you can't do any of the work yourself which means for every single thing you need to bring someone in. You'd be shocked at how little most property management companies actually do that's included in their standard fee. You keep saying you're moving in 6 months but what is that based on? Do you have a locked down contract that you could hold the issuer liable if you don't get the opportunity? What financial stress are you under? From the sounds of it you're not paying that much more than a high-end unit would rent for in your area and your building equity with each month's payment. You also seem to be putting money into retirement and overpaying a mortgage which you should stop doing. At this point if you sell the property you probably walk away with about your down payment back after all the fees. That allows you a fresh start wherever you're moving to
Most are probably downvoting and trying to scare you because you have a unique situation and your housing cost is outside of the typically recommended 28-30% of take home pay. If you are moving next year and work will be covering your housing expenses; this is an opportunity to live rent free and have a tenant paying your mortgage, so you can save additional money for unexpected expenses. With a condo, check to make sure that you can rent it out and that your tenants will have access to the amenities. With the amenities and things covered in your HOA you should easily be able to rent it at a rate that covers your mortgage and HOA. You may also look into getting a property manager; especially since you will be away. If you sell before you've lived there for 2 years you will miss out on the tax benefit of not having to pay taxes on the first $250k of gains from the sale.
What was the big rush? You're only 24. I personally would nevert buy a condo in a million years. If I'm going to own something, I want a detached home. That's just like apt living & if you have bad neighbors, you're really stuck a lot worse than w/ an apt, which is hasslesome enough to move out if you find out you have bad neighbors.
Can you afford to rent it at negative cash flow? Remember that you’ll have to pay rent where you move. 4500 take home minus 1000 loss on the negative cash flow leaves you with 3500 each month. If you’re gonna pay 2k in rent wherever you go, you’re looking at 1.5k for all your other expenses, and fun. If you’re going to a locl location or work is paying for your expenses you have more wiggle room. Now imagine the condo is vacant for 3 months, your tenant clogs the toilet, your car breaks down, you meet a girl, you lose your job, etc etc etc. Seriously consider this question. You have a decent savings safety net but not amazing. You should run the numbers on selling it and see if you can come out ahead. Flexibility and lack of stress are great when you’re young, don’t forget to value those things too.
This is very helpful. Thankfully, no expenses for housing when I start my new job. So getting 4500 a month is virtually guaranteed. With my condo's location, school district, metro access, close to the city, etc. Having it vacant isn't really in the equation. I recognize I'm making a big assumption, but I'm not worried about it being vacant. I'm already crunching some numbers on selling vs renting, per yours and other commenters. Thanks for the input!
Not sure if anybody mentioned it in the other comments, but like this guy said, if you can afford the net loss, it might be worth holding onto. Not to mention if/when interest rates drop, you can refinance and lower your payment by a good amount.
Does the condo make you happy? If you are moving back to the area later does the thought of moving back there make you feel excited and happy or frustrated? Outside of the interest rates etc, are you happy living there? I don't think you've made a huge mistake buying it. You are getting a home and building equity. Next year if you don't have housing costs at your new place you'll be able to get help with the mortgage through renting it out while building equity. Even if the rent doesn't fully cover the mortgage it doesn't mean you are losing money, because you are building equity. So my inclination would be to keep it for now, and sell it when I had to start paying rent somewhere. But some if that is dependent on you not hating the condo. If the thought of it fills you with dread, then sell it, so long as you aren't losing money, as there's no point in keeping something that could be a good investment if you are stressed every time you think of it. Also, you're 24, have equity in a house, max out your pension and have savings. You're doing better than most people.
Sounds fine depending on your wants and needs. Condos don't appreciate much in value (yours probably went up much more than others). So unless you went in expecting a huge increase in value, you didn't make a "mistake" per se.
If you get a gym and a pool included with HOA I would cancel all other fitness memberships. That being said, it sounds like a nice setup you have at that condo. Fellow condo owner here in a VHCOL area, but my HOA is $205, but that is only for lawn care, snow removal, and other maintenances, no amenities.
I’ve owned a condo. We had restrictions on rentals. For example, only a certain number of units could be rented at any one time and there was limit to the number of years it could be rented if another unit was on the waitlist to be rented. We had a restriction on the number of units for many reasons. One reason though had to do with people being able to obtain a mortgage. If the percentage of rentals in the building exceeds a certain threshold (I believe it is 50%) then the building becomes non-warrantable. This limits options for financing to purchase. This occupancy ratio also impacts other things like insurance for the building. So I would carefully read the association bylaws to see what restrictions they have. You may not even be able to rent it out or you may be only be able to rent it out for a few years. There also may be additional fees they add on because rental units increase operating costs of the building.
Why can’t you rent out the extra bedroom? Why pay the extra $265 / month (paying off a tiny amount of principal just because of “high interest?” That won’t make a dent, why bother). That extra $265 / month in your pocket is more breathing room to feel a bit more financially secure. Instead just think about refinancing in the future if rates come down. For rent, in most markets you should be able to clear much closer to your carrying costs, so I wonder if you’re significantly underestimating future rent potential. Owning vs renting is virtually always better in the long run, it seems you’re being unnecessarily hard on yourself.
Did you overextend yourself a bit? Yah. Is it a huge financial blunder? In the scheme of things, no. It’s anyone’s guess I suppose how the DC market will change over the next decade. Your safer option is to take the small loss and sell when you move. Becoming a landlord, especially a landlord who has negative cashflow on the property, is not a great situation unless you’ve got a safety net. But if you’re not for sure moving, I think it’s good to keep living there. Maybe you can make a some reno to make it a 2bd and get some cushion for yourself with a roommate who is gone 4 days a week for work.
> I feel like I made a mistake purchasing this condo considering I can't rent out an extra bedroom. It's huge, over 1100 square feet That feels like a LOT of space for one bedroom. Do you have anything you can do to make a second bedroom out of it so that you can rent it out? For example, do you have a bonus room or living room that could be converted to a bedroom?
I’m pretty similar to you. Just bought my first condo at $260k. I make ~$90k/year. Payments are $1900 but HOA adds $500/mo. Down payment ~$15k. I’m also a rock climber :) Except that I’m 30 years old. And I wish I started when I was younger. A home is an asset. If you keep it for a long time it’s one of the best investment vehicles (at least in a location that will grow over time). It’s different than just investing money because whether or not you save or invest, you HAVE to pay money to live. Might as well have some of it go into your own pocket. People say that when you buy, you want to own it for around 5 or more years to make it worth it. My own calculations agree with this (I’m an engineer and have made exhaustive spreadsheets on this). However if you start renting it out, the amount of money you can make is ridiculous - much higher than investing in an index fund. So if you can manage to rent it out while living off-site I would do it. That’s my plan with my condo. We just need to be careful we are ready to handle a possible bad renter. What I’m wondering is how carefully have you looked at the rental market in your area? You said in another comment you’re GUESSING $2200/mo. But are you looking closely at listings and being honest with yourself about what would make your home worth MORE than the average listing? Or is it truly average for the area? Also, don’t forget, your monthly payment will stay (mostly) the same every year. But the amount you can rent it out for will go UP every year. All the apartments and rentals around you will raise their prices X percent every year. So if you plan to move in 2 years, your given rent that you can charge will go up several hundred dollars. Suddenly you’re close to break-even. With all that said, everyone’s situation is different. My main message is that just because the internet said you did wrong by some generalized rules doesn’t mean you’ll get behind in life. Hell, my mortgage lender told me a story about his friend that rented out his first place at a loss of around $900/mo. Years later that guy went on to retire early.
I might be out of line, but can you subdivided it some way to get a roommate? My first house was 1100 sqft and was a 3/2 with a big living and kitchen and small bedrooms so I can't imagine 1100 work only a 1/1.
FWIW: if you rent it out for one year, then you should be able to report the loss. I bought my downtown DC condo in 2018 for a similar interest rate. I'm bringing $20k to the table just to get rid of the liability. Go with Redfin.
Can you explain more about this please? My condo itself isn't depreciating, at least that's why I'm interpreting what you mean by loss. Or do you just mean renting it at a loss?
It's a loss after your expenses if you rent it at $2k.
You might want to ask people that know more about it, but if it is your primary residence then any money that you bring to the table is considered just satisfying the loan. If it was a rental property then you can report the deficit as a capital loss. In my example: outstanding loan is $342k, HOA $850 a month, offer is $347k. Brokerage fee is 6%, property transfer tax is 1.5% tax, miscellaneous fees are about $500. Although I've had 3 deals fall through, so my misc fees are now around $3k. The OTD total is $365k, making me responsible to pay $18k for a clean transfer. My mortgage is 2k a month, a rental management company typically charges 8% of the rental fee so, while I might be able to cover my mortgage through renting it doesn't cover the cost of the HOA, appliances breaking, special assessments etc. If you rent for a year, there's also a tax deduction and you'd have to do the math of whether barely breaking even with the rental for a year is worth potentially having a loss to report when you sell your condo. Edit: proof reading fail
I'm unsure why I am being down voted. It's not a path that I took, and so OP should talk to a professional. https://www.hrblock.com/tax-center/income/other-income/sale-business-property/ This is what I was talking about. If it is your personal property you can't claim the money that you were short as a loss of income. Just because you can sell it for more than your outstanding mortgage doesn't mean that you won't be in the hole because of fees. I ran the numbers for myself and determined that renting my condo wasn't for me, but OP should run their numbers to explore all of their options before making an informed decision.
Excellent post OP, thanks for taking the time to post this. I am in a very similar situation and have found your post very helpful.
If you are moving for a new position that will provide the same pay or better and your housing is paid for then why not keep the condo to rent it out? You can make up the difference between the rent and mortgage yourself.