Reflections on Condo Ownership: 6 Years In

Rightsizing your space for your needs is so important. We have worried we didn’t have quite enough off and on. Without plans to have children, however, a large two bedroom apartment is really a great size. It’s forced us to change our packrat mindsets and get rid of stuff we don’t need, which is great.

In 2017, this condo cost just shy of $15,000 in housing expenses (mortgage interest but not principal, condo fees including special assessments, property taxes, condo insurance, electricity, and repairs). Despite minimal income from me in 2017, our housing expenses are still quite low compared to our income for the year. That’s the pro side of buying a reasonably priced place when your income is lower. We are currently budgeting about $2,000/month for our 10 year mortgage payment, condo fees, property taxes, and condo insurance, which includes a parking spot, in-unit laundry and a storage unit and sees about $800/month going to principal of the mortgage payment. For a similar rental apartment nearby, we would pay at least $3,000/month before even getting a parking spot. Purchasing this condo when I did was an incredible financial decision and has substantially influenced the wealth that we now have.

Although we didn’t meet my original five year payoff plan, we have made substantial progress on the mortgage over the years. The balance has dropped by $30,715.48 since I last made an extra payment in December 2014. We have now paid off 60.7% of the original mortgage. We refinanced to a 10 year amortization, which means we have at most 10 years left on this mortgage. We have a new plan to pay it off within 5 years from now and should see the balance drop to five figures sometime in early 2019. We also have enough in cash to pay off the current mortgage balance due to our cash holding preferences.

When you’re buying a condo, you read through so many documents. You get access to condo association meeting minutes for the last while, budgets, and nest egg (this is not the technical term, but the technical term seems to vary regionally) information. You do due diligence then. You have to keep doing that due diligence even after you’ve bought. Every year, you should get a budget, updated fee schedule, and nest egg information. You need to ask questions.

People complain about condo fees being “high”. Take a look at what your condo fees cover. Condo associations do need to pay for items that you don’t have to pay for when you own a house, such as filing a tax return and other fees, licenses and permits related to being a non-profit association, management fees, ridiculous costs of photocopying and postage, regular studies on the building’s nest egg, elevators, fire systems, and a phone line for the callbox. Never buy a house with an elevator – they’re expensive as all hell. The condo budget also covers building insurance (why our condo owners policy is so cheap), water, sewer, garbage, cable TV, cleaning of the common areas, outdoor landscaping, roof maintenance, plenty of plumbing, electrical, and repairs of many structures including windows. Those fees aren’t a waste of money, though they surely feel high when it’s one single chunk coming out each month instead of small dribbles.

I remember when I was looking at condos, everyone talked about how special assessments are bad, without much discussion of why they are bad or how they happen. In my experience, they happen when the people running the board don’t plan for the future, but also, when unexpected events arise. Our condo building is now older and needs a fair amount of work done in the next several years. The board in the past had chosen to never save money for future maintenance issues and to only raise money from homeowners each year for the maintenance that they planned to do that year. That turns into a problem when you need to replace the elevator, windows, roof, decks,and siding all at the same time, to the tune of a five figure amount per homeowner (about $25,000 at the maximum).

Thanks to some turnover, this year, the board in our building chose to raise our monthly condo fees by a bit more than 50% to start saving money for the future. They also did a small special assessment (< $1,000 for our portion), though presumably a larger one will be coming in 2019 or 2020 as we still have a low five figure amount to pay according to the last nest egg analysis.

The money part is a smaller portion of the issue to us – coming up with a low five figure sum to pay the special assessment when we've been spending so little on housing the last several years isn't a huge deal. The more frustrating part to us is realizing how much maintenance has been deferred (roof, elevator, windows, siding, as well as ongoing pipe issues – basically all of the major projects), how out of the loop homeowners not on the board have been kept, how little control we have over the general maintenance level of the building, and how much random power the board thinks they have. I spent 2017 on the Board, which increased our knowledge of what was going on, bringing with it, the stress of how chaotic the board was and how no one on the board really agreed with each other other than that all maintenance should be future owners' problems and not current owners' problems. The Board has, on multiple occasions, done work that affected our unit without notifying us or shown up at our door without notice to do work, both of which are against the actual policies the building has.

Well, that future is now. The maintenance is the current owners' problems because it needs to be taken care of.

All of this led us to open houses of small-ish single family homes. You can't, however, find a single family house as centrally located as we are. And then instead of being frustrated with the condo board not doing the maintenance, we would need to take care of it all. A house is a substantial lifestyle change from our current situation. A house that meets all of the requirements we laid out would end up moving us to a new neighborhood, increasing commutes, not necessarily come with a garage, be further from lovely walking trails, and its purchase price would be somewhat more than what we estimate we could sell the condo for at the moment. All to avoid being in a condo association. Is that worth it?

So in the end, which compromises do we want to make about our housing situation?

For now, we concluded that we should work on improving our cash position over the next few years to get ourselves in a position that we could buy without selling stocks, if we wanted to. The financial plan that I drew shows that we could save a 20-30% down payment on our ideal house's price over the next two years, depending on how much we choose to invest and how much income I add to the pot. Our current idea is to invest 1/3 of our available money for savings and save the other 2/3 for a house, which we can adjust depending on how we are feeling as the plan goes along. We'll also likely stick to our new five year mortgage payoff plan as a hedge of staying, it has a small impact on our overall cash flow, and we would roll any condo equity into a house.

Would I have still bought this place if I went back in time? Probably. I would have done more research into state law on condos though and more due diligence each year.

Readers, how have you decided to move in the past?

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Reflections on Homeownership: 4.5 Years In

 

Life was so busy this summer that I forgot to write my annual reflections on homeownership post, so here I am at 4.5 years in instead. I cannot believe that I am coming up on my five year anniversary of buying this wonderful condo come this spring! This fall marks 5 years since I started looking for a piece of real estate to buy.

There have been many discussions lately over the fact that in today’s hot real estate markets, you need to decide pretty quickly whether you are committed to spending several hundred thousand dollars on a particular piece of real estate. Yet, every week it seems we discover something new and fascinating about this condo in which we live.

Lately, one question has been “How much did I really think through this neighborhood selection?” Within a mile radius, we have what I thought was pretty much everything one needed: a post office, courier services, multiple grocery stores, a library, a drug store or two, a hair salon, barber shop(s), a gas station, park(s), and multiple restaurants. Yet, whenever we want to go to a restaurant, our first choices are never the local ones, which results in Uber’ing to another neighborhood. There is no takeout in the area that I like. (Is that a good thing or a bad thing? Probably not so bad for the wallet.) Our friend in the nearest proximity is a full mile away. It is pretty easy to get downtown and it’s easy for friends to park near us if they drive to visit. The commute to my job at the time was pretty good, as it is to my husband’s job, but my commute to campus is a bit inconvenient, as was my commute to my last job.

We finally finished the furniture tetris game I mentioned last time we talked about my ideas on homeownership. We now have furniture that we both love and that we chose together. We repainted many rooms. We’ve decorated together. It really solidly feels like our place. It is wonderful. Our home brings us joy again.

A realtor told me that they would list this condo of mine for ~45% more than what I paid for it. Two more years or so and that would run up against the $250,000 single capital gains exemption for home value increases, though we may not need to worry about that as we got married and that increases the exemption to a ludicrous $500,000. (I’m unsure what exactly the requirements are to qualify for the married exemption over the single one, however.)

In 2016, this condo cost a whopping $14,000 in housing expenses (mortgage interest, HOA dues, property taxes, condo insurance, electricity, repairs, interest lost from having the equity locked up, and tax savings).

I was pretty conservative in my calculations when I bought this place, which has now put my husband and I in the situation where our housing costs (including the full required mortgage payment of which only the interest is included in the $14,000 figure) are around 6% of our combined gross income in 2016. If you take out the principal portion of the regular payment, it’s even lower.

Perhaps I skipped the 4 year post back in the summer because we were super busy going to open houses every weekend. We were frustrated with our furniture tetris and unsure that we would ever figure it out, so we became convinced that we might need a larger place. This condo has two bedrooms and is relatively spacious in the lower 1000 sqft range, but we were not utilizing the space particularly well. With our then-existing furnishings, there wasn’t enough room for each of us to feel like we had personal space to pursue our home-based hobbies. The increasing market ranges mean that we would need to spend about 40-50% more than the value of this condo to get a three bedroom townhouse. We developed the mantra “Is this cheaper than moving?” (which is pretty much true for everything when your alternative is to spend several hundred thousand dollars) and we started trying new hypotheses. We hired an interior designer to help us refurnish the living room, who came up with ideas that we never would have. It was expensive, yes, but it sure was cheaper than moving. The designer asked us early in the process “How long do you plan on staying here?” and our answer was “So long as we stay in this city and don’t have children, quite possibly decades.”

Homeownership means that our lives revolve around our central home, rather than our home moving as our lives shift.

Can I pay my mortgage off in 2015?

I’m going to be a bit slow in setting my 2015 goals with some job stuff out in the air. Last year, I set a goal to pay off my mortgage by the end of 2015. I’ve also doubted this plan occasionally. Now that we’re a year in on that plan, how am I doing?

After making my November mortgage payment, the balance is sitting at $147,700. I will make no additional payments until I start a new job so my mortgage balance will sit at $147,000 after the regular December mortgage payment is made. That post from last November calculated that I would need to have a balance of $91,284.28 at the end of this year in order to pay the mortgage off at the end of 2015.

I still think it’s possible. Or so my spreadsheets say. I’ve been following a more irregular repayment plan the last few months than I was. My income in 2014 turned out to be a bit under my optimistic projections. I will likely end up with an unpaid break between jobs. I still don’t have an accurate picture of my 2015 savings plan. But I’m still optimistic that I can pay off my mortgage in 2015, based on my current income predictions.

My plan all along has been to empty my savings account and possibly other non-retirement investments in order to pay off the mortgage entirely. My calculations show that with the mortgage paid off, I’ll be able to save $4,500/month after maxing out my 401(k). All of my past “emergencies” have cost under that amount: my car getting broken into, needing to move on short notice, and non-emergencies such as last-minute trips. Plus, any medical issues should be covered my Health Savings Account funds. Future emergencies could include replacing any number of the 10+ year old appliances in my condo, but unless they all break at once, $4,500 should suffice to replace the dead one(s). That means that emptying my emergency fund to pay off the mortgage isn’t that scary, especially considering that I will be saving just over 2 months’ expenses each month with the mortgage gone.

I’m still going to make my 2015 Roth IRA contribution at the beginning of the year and max out my 401(k) for the year, especially since it’s looking like the mortgage will be paid off very cautiously in December if it is paid off in 2015. I’ll hold off on making my 2016 Roth IRA contribution though until the mortgage is paid off in full.

Here’s to ending 2015 with no mortgage!

Reflections on Home Ownership: 2 Years In

Woo! I have lived in my condo for over two years now. In some ways, it feels like it has been far longer (my mom was convinced I’ve been here three years). And you know what that means? The next time I request one of my credit reports, I only have to list this address :)

If I sold my condo today for the exact same amount I bought it for 2 years ago, I would have spent about $9,019.23 more than I would have renting over the same time period. If the market has truly gone up by as much as it looks like it has by the sale prices around me, buying would be cheaper than renting today by $76,284.27. Buying should be cheaper than renting at my purchase price by the end of 2014.

The mortgage balance at the end of June sat at $152,167.66. It was at $187,552.40 at the end of December, so I have paid down $35,384.74 in the last six months, for a total of $133,832.34 in the 24 months that I have owned my condo, while still maxing out my 401(k), Roth IRA, maintaining my $20,000 emergency fund, and occasionally adding to my taxable investments. I now have 57.5% in equity (assuming purchase price) and have paid off 46.8% of the original mortgage balance. If I didn’t make any more pre-payments, I would have just under 15 years left on the mortgage, which is pretty good considering that it was a 30 year mortgage 1.5 years ago.

What interesting things have I bought for my condo in the last six months?

  • ~$2,500 on the closet organizer install and painting. These have been absolutely wonderful and my only regret is that I didn’t do it right away after moving in! Spending $2,500 on it then seemed a lot harder to fathom than it did this year.
  • ~$110 on replacing the two programmable thermostats in the condo. We will see in December whether this reduced the electricity from heating at all, but the new thermostats are definitely far nicer to use and they do seem to detect the room temperature better. I’ve also been considering installing another heating vent in the master bedroom as it gets chilly on the end of the room without one in the winter. That would probably cost $500.
  • ~$140 on a new container, a second perennial and then some annuals.
  • ~$100 on replacing all of the lights in the kitchen, hallway, second bedroom, and some of the lights in the master bathroom with LEDs. If all of my light bulb electricity is in the second tier and each of these lights is on for an average of 3 hours per day, it would take 382 day to break even or slightly over a year, shaving $7-26 off each bimonthly electricity bill.

I got a bit frustrated with how much my property taxes and HOA dues went up this year ($700 from last year), but then I realized that if I was still renting, my rent would be up probably $300/month from last year, so I’m quite happy with where things are sitting at the moment.

Things haven’t been super exciting on the mortgage front these last six months. The mortgage is almost half gone though, which is pretty exciting! Some days, the chart below astonishes me at just how much of the mortgage I’ve paid off in two years. $133,832.34 is $66,916.17 per 12 months or $5,576.35 per month on average, which is a lot of money!

June 2014 Mortgage Balance

$430,000

I’ve been using Mint, not for budgeting, but to make logging into all of my bank accounts easier. I recently told it to use Zillow to calculate the value of my condo. That shot my net worth up to…

$430,000

(a bit of rounding here)

It really does feel like I’ve “won the game”, not that I can stop working forever, but I have quite a bit of financial freedom now. I’m 25/26 and the sum value of all my assets is over $400,000 and my income is in the high $100,000 range? I also think that Zillow is low by about $50,000 in how much my condo is worth, which would put my full net worth somewhere around $480,000 or about 11 years of current expenses. I’m going to continue counting only the purchase price of my condo in my net worth spreadsheet until I sell it, but it’s still kind of cool to see these numbers.

Also? I saw just under $1,000 in dividends across my investment accounts this quarter. (Note: I do re-invest dividends, so I just find this an interesting metric to watch increase.)

This is probably related to why I haven’t posted much lately – everything is just chugging along and not much out of the ordinary is happening. I’m not really discovering much new in relation to my finances lately either. I will have a post up at some point reflecting on two years of homeownership though!

Reflections on Home Ownership: 18 Months In

As we speak, I am coordinating the installation of improving the closet storage space in my master bedroom. Hello home ownership! I’m so excited for this improvement as I’m utilizing very little of the existing closet space, which has been frustrating me lately. You’ll see the cost of that update in the December/January net worth updates and the 2 Year home ownership check-in.

If I sold my condo today for the exact same amount I bought it for 1.5 years ago, I would have spent about $13,301.33 more than I would have renting over the same time period. If the market has truly gone up by as much as it looks like it has by the sale prices around me, buying would be cheaper than renting today by $32,808.67. Buying should be cheaper than renting at my purchase price by the end of 2014.

The mortgage balance at the end of December sat at $187,552.40. It was at $229,752.70 at the end of June, so I have paid down $42,200.30 in the last six months, for a total of $98,447.60 in the 18 months that I have owned my condo, while still maxing out my 401(k), Health Savings Account, Roth IRA, maintaining my $20,000 emergency fund, and occasionally adding to my taxable investments. I now have 47.5% in equity and have paid off 34.4% of the original mortgage balance. The mortgage is currently projected to be paid off by June 1st, 2016 with no intervention from my savings account.

Now let’s compare the charts to where the mortgage was six months ago!

With my December 1st payment, I paid barely over $400 in interest and will pay about $390 with the January 1st payment. I paid $480 in interest with my June 1st payment.

Mortgage Payment Interest Versus Principal Mortgage Payment Interest Versus Principal Dec 2013

 

I’ve paid so much of the mortgage down that I’m now tracking towards a 3.5 year payoff rather than the original 5 year plan. I’m about $26,000 ahead of the 5 year payoff target for the end of 2013, and about $7,000 behind the 3.5 year payoff target.

Mortgage Paydown Versus Five Year Track Mortgage Paydown Versus 3.5 Year Track Dec 2013

 

I’m projecting that with my next update at the end of June, the mortgage balance will be sitting at around $145,284.12 or another $42,268.28 gone!

Reflections on Home Ownership: 12 Months In

6 month post

I’m having a really hard time distinguishing between home ownership and this being the place I live in now. Do I love this place because it’s my favorite of all the places I’ve ever lived in or do I love it because I own it? Maybe it’s a little bit of both. I’ve changed some of the little things that I don’t love about the place, learned to live with the others, and will change more as time goes on. I may not be the home decor fiend like many other home owners are, but I’ve definitely made this place my own.

I’ve been watching the real estate market around my place and I think that I could sell it for enough to make buying make more sense than renting already, one year in. Isn’t that crazy? If I could sell my place for the exact amount I bought it for, buying would be cheaper by the end of 2014, so another year and a half.

Now that it’s been a year, I want to take a look at the math on renting versus buying so far.

  • Over the course of the last 12 months, I’ve paid out $14,096.17 in mortgage interest, HOA dues, property taxes, condo insurance premiums, electricity bills, repairs, and improvements. I also saw credits to the tune of $227.52 when I refinanced my mortgage loan back at the end of 2012 and saved $906.81 on my federal income taxes due to itemizing thanks to paying the mortgage interest, among other things. I’ve lost out on $879.14 in interest by buying the condo and pre-paying the mortgage instead of leaving my entire amount of equity in an Ally savings account earning 0.84%. So, one year in, I’ve paid out $13,840.42 to own and live in my condo.
  • If I had continued living in my previous apartment, I estimate that I would have paid out $22,618.27 in rent, parking fees, building utilities (water, sewer, gas, trash), renter’s insurance, and electricity, which is $8,777.85 more than I’ve paid out to own and live in my condo over the last year. At that rate, it would take me slightly over 3 years with these numbers to recoup the transaction costs of selling the place.
  • Assuming I could sell my place for exactly what I paid for it, I would be out $13,921.98 if I sold it today. I expect staying here to break even (assuming no change in sale price) by February 2015. If the market has truly gone up as much as it looks like it has by the sale prices around me, buying would be cheaper than buying today by $23,846.65.
  • The mortgage balance at the end of June sat at $229,752.70. It was originally at $286,000.00 when I bought the place last June. I’ve paid down $56,247.30 (19.7%) of the mortgage balance over that year while still maxing out my 401(k), Health Savings Account, Roth IRA, maintaining my $20,000 emergency fund, and occasionally adding to my taxable investments. That means that, at this time, I am pretty much on track to pay off the mortgage in five years from origination. I also now have about 35.7% in equity and will be pretty close to 50% in equity by the end of 2013.

Now for some charts! Note that these were accurate as of posting and assume only the normal payment for the rest of the year (August 1st payment and on), which is unlikely to happen :)

I am paying SO much less interest than when I first started out last year, especially since the refinance. My first payment was $708.07 in interest. The first payment with the refinance was $527.60 of interest. I’m estimating to pay less than $400 in interest by the January 1st, 2014 payment. It’s been really fun to watch the interest go down each month and the principal portion of the payment go up.

Mortgage Payment Interest Versus Principal

I feel like this chart doesn’t really do justice to the fact that I have paid down over $56,000 of the mortgage in just 12 months. Or very close to $60,000 if you count the pre-payment I sent in with my July 1st regular payment. That is a pretty decent chunk to pay down in just one year. This chart shows how I’m doing against the 5 year payoff balance for each month. As you can see, I’ve paid off enough as of today that I am ahead of schedule through September 1st. With the lump I plan to send in later this month, I should be ahead of schedule through January 1st, 2014.

Mortgage Paydown Versus Five Year Track

Today, I’m glad I bought. I love this place so much and it’s turned out to make a good deal of financial sense so far. Paying down the mortgage is pretty addicting too.