Melissa Miller wrote:
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Melissa,
Part of the answer isn't financial - it depends on how set your plans
are right now. To me buying property immediately after graduation is
early unless you're fairly confident about your job, your overall career
plans and where you want to live. The property reduces your flexibility
and a lot of recent grads don't want to commit to that. It could get in
the way of grad school for example, if that's in the plans. Or travel,
or who knows what.

At the very least it diverts cash. These are the years when you're most
rewarded for maximizing savings, especially tax-advantaged retirement
savings - as boring as that sounds. You stated in your post that you're
coming out of a $400/month kind of lifestyle and my advice is, consider
escalating that only gradually, and shoveling the money into savings. At
$55k you can do a $3k Roth IRA contribution and if you have a 401k plan
and it allows it, $12k per year towards that. This is a wonderful
get-rich-quick scheme because these early years matter the most - the
dollars have the longest to sit. You've probably seen the comparison of
the grad who saves for five years and retires well, and the one who
starts at 35 and never catches up. You'll have so much more flexibility
if you're "ahead" on retirement savings and have a decent stash of
accessible savings.

To me the home purchase is a different scenario especially because it'll
eat up all the cash you have. Now real estate is also an investment of
sorts, but for most people it's just housing. As an investment real
estate is demanding; your $150,000 investment parks $30,000 in cash (to
avoid PMI, which is a good idea), eats $7,500 or so in transaction costs
and requires regular feeding - let's call it $1200 per month. A renter
might reduce that but you take on the risk of losing one and dealing
with the cash flow. And how long will you want a roommate, really? That
can get old fast, especially when it's your house. Or if you're OK with
a roommate you can probably save yourself $750 per month in cash and
just rent.

As for timing...as you know many people (myself) included, see much of
the US market in a bubble at the moment. At the very least it doesn't
look like a cheap time to buy. The $150k house you're considering, what
was it worth two years ago, five years ago, ten years ago? There are a
lot of areas where prices just spiked since '99 and there's no reason to
believe that's the new trend.

Anecdotally: I've known a few people who bought early, and it's gone
both ways. For some, it netted some good money from an eventual sale,
for others it was a costly ball & chain. I recall one woman who
frequently talked about "owning property in Florida" but the reality was
- she'd bought high and a market dip had wiped out the little equity she
had. It was cash-flow-neutral more or less but she didn't own it so much
as administer the mortgage. And the trips back to deal with tenant
issues were a pain in the neck (she hadn't planned on change of
location, but couldn't sell when it happened).

As for the ARM vs. fixed question, as you can see "opinions vary." ARMs
of course makes sense for a shorter-term stay but be sure to consider
your worst case scenarios and whether you could afford them. As I said
real estate requires regular feeding and with an ARM you don't know how
big the portions will need to be.

Last point - you said "university" not "college," is this outside of the
US? In the sense of housing market, tax code, etc - answers vary!

-Tad

"Melissa Miller" <mmiller[at]no--emails--please.com> wrote:


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It probably depends on where you live. For example, in Dallas, Texas, the
resale market for condos is very weak and always has been. The single family
home is the thing here. In tighter markets, condos do better.

A house is more work than a condo -- lawns, landscapes, repairs, etc.

To maximize your return, you're usually better off buying a smaller house in a
good location rather than a larger house in a bad location. One possible
exception is a run down property in a neighborhood ripe for gentrification, but
that has its own risks.

If you are good with wallpaper and paint, houses that need redecorating are much
better deals than really clean properties. People can't seem to see past the
green shag carpets and flocked wallpaper. Be sure it is just redecorating and
not something more serious.

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I would go fixed rate. If rates go up (really, really likely), you're covered.
If they go down (I'd be shocked), you can refinance.

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Take a look at the relationship between buying and renting similar properties.
Also take a look at historical appreciation rates in your area.

I generally think buying vs. renting is more a life style choice than anything.
Do you really want to fix (or find someone to fix) water heaters, appliances,
whatever? The first law of houses is that there is always something broken.
If you enjoy having your own place, like keeping it nice, it's worth the two or
three weekends per month to keep it from falling down around your ears.

If you'd rather have the time, rent.

-- Dougt

"Melissa Miller" <mmiller[at]no--emails--please.com> wrote in message news:<8wlwc.48721$eY2.38674[at]attbi_s02> ...
- quote -

Melissa-

I think the idea that you have someone who will pay "rent" answers a
question about the investment. It's always easier to gain an asset
(house) using someone else's money.

I own a townhouse with my wife and it's a pain to sell and make a
profit. I would suggest a small single family home or offer low on
townhomes/condos. If you would consider turning condo into a rental
property in 5 years, then a condo looks like a better investment.

I'd go fixed if you would consider renting unit out. I'd go ARM if
you are considering selling it anytime in next 7 years. Ask about
different ARMS and balloon mortgages and tell bank what you plan to
do- most banks have 100's of mortgage plans to choose from.

Jim

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Here's why:

Because the homeowner plans to live in the house for a long time and he'd
prefer to shift the risk of rising rates to the lender? Especially given
that fixed rates (despite having gone up sharply lately) are still at the
low end of the range for the past decade? Can you say "reversion to the
mean?" I thought you could.

OF COURSE the mortage broker recommends the adjustable rate mortage. Given
that rates are near historic lows, he's betting they'll go up and that the
homeowner will be forced to come back to him in the future to refinance in
order to stop the bleeding. Why earn one commission when you can earn two?

Everybody talks about what a "great investment" it is to buy your own
home. But what people forget is that the conventional wisdom is premised
on putting 20 percent down and getting a fixed rate mortage to protect
against interest rate risk. The mortagage brokers out there don't care
about your financial future. They only care about *their* financial
future. Caveat emptor.

I'm an mortgage broker and I also say the ARM is better, much better. My
most popular ARM is now well under 5% per annum and my customers are saving
tons of money. Why pay 6.5 when you can pay 4.6% ?

G

"Melissa Miller" <mmiller[at]no--emails--please.com> wrote in message
news:8wlwc.48721$eY2.38674[at]attbi_s02...
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======================================= MODERATOR'S COMMENT:
Please trim the post to which you respond.

Melissa Miller <mmiller[at]no--emails--please.com> wrote:


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Houses don't appreciate, land does. Go with the condo to reduce your
financial risk.

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Get an ARM, if rates go up pay off the loan early. You're buying the
condo to reduce your living expenses, not make a profit.

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Put it off, interest rates won't go up that much.

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Is the roomate willing to go $750/month plus half of the utility bill?

--
Ron

I'm 23 and graduated from university last year and landed a stable job
making $55,000. I'm currently in a very cheap but temporary living
situation that must end within the next 8 months. At that time I'll have
between $30,000 - $33,000 cash. My current plan is to put 20% down on a
($150,000) condo/townhouse. I will have a reliable roommate who, barring
losing their job will pay half the mortgage the entire time I'm there (take
this as a given, for the sake of argument). My only debt is about $13K [at]
2.8% ($150/mo) in student loans.



My goal is to profit the most while living in the place I buy, regardless of
whether that requires buying a ratty old hole, or a nice little house. I
have a couple questions:



1. Given that the value of a house appreciates more than a condo or
townhouse, should I put down less than 20% and buy a small house instead
(maybe $200,000 - $210,000)? I know this requires a piggy-back or paying
PMI, which my original intent was to avoid.



2. Should I get an ARM or a fixed rate loan? I can't see myself selling in
less than 5 years, but I would do 5 if it was profitable. Certainly going
over 5 a little is a possibility. What's a good timeframe to pull a profit?
I would rather not be in my first condo in 15 or 30 years. I recognize
rates will go up though, and fixed is a nice insurance of sorts.



3. A bank offered me a 12-month lock-in on an interest rate. They would
lock in 1% greater than the current market rate, then when I'm ready to
close, they would give me the lesser of the locked or market rate. Should I
accept this deal? I haven't investigated enough to know if their market
rates are competitive, or if I get penalized for backing out of the deal.



4. Should I buy now?? I can put $15,000 down, but won't have a roommate
for another 6 months. As I said, my current living situation is very cheap
($400/mo for room/utils/food), and quite comfortable. I'm very concerned
about interest rates though.



5. Should I put off buying? If I thought I'd make more money renting, I'd
do that. Obviously I could invest the $30,000 instead, but that most likely
wouldn't even cover rent. The roomate would still pay half. The only
argument for doing this seems to be if there was a housing bubble about to
collapse.



Thank you very much for your input.



Melissa