Tag Archives: mortgage

Why Purchasing a Co-op Isn’t For Everyone

23 Sep

I have been looking at real estate for the past year. I know my neighborhood, considering I have been living here my entire life, and I know what I like. I know more than anything I would like a house. But, my husband and I cannot afford that. We live in one of the most expensive cities in the world and purchasing a home right now is not an option. In fact, where we live, it may never be an option. This is something I have reluctantly come to terms with at this point in my life.

I have always read pieces, blogs, message boards—you name it, I’ve probably read it—written by people who tell you to never purchase a co-op. It kind of makes me chuckle, because they make it sound like you always have an option. My own father tells me I should buy a house when it’s obvious we cannot afford one. Theoretically, it may be better for you, since you can do what you want to your own home but it’s not always the most practical choice.

Right now my husband and I are in contract to purchase a co-op. And without reservation, I can honestly say I will never purchase a co-op again. I have now become a naysayer!

Why Did I Look At Co-ops In the First Place?

In certain parts of the States, I am sure you will find people who have never even heard of a co-op. The idea that you are not actually owning something and in fact, just own shares of a corporation, would probably completely bewilder people. The fact that you must abide by and answer to a group of people who decide how you should live (also known as the cooperative board) may seem outrageous to people.

For us, it’s just a fact of life. Co-ops are ubiquitous where we live. The buildings in my neighborhood (that look like apartment buildings, yes) are almost entirely co-ops—not condos. There is a certain precedent for this. And they will continue to exist primarily because this is a launching pad or a way of life for some people. Co-ops are the only thing that my husband and I could reasonably afford. In fact, the mortgage and the maintenance will be lower than our rent.

What Has Changed My Mind

I knew that I would be charged fees for everything—but I had to start keeping a log.

Sure, you have to pay the bank. Closing costs. Fees for this. Fees for that. My eyes glaze over just thinking about it.

And yes, you have to pay the lawyer. Good times.

And then, lest you forget, the management company. We have to pay them for the application ($400), we have to pay them for one other thing that I already forgot about ($250) and we have to pay them separately to fill out one page—ONE PAGE—$150. They give you a list (yes, a list) of things they want from you—as intrusive as a physical examination from a doctor—that paint your financial history. Tax returns. Pay stubs. W-2s. You need a million references. Not enough, you say? Well it’s a good thing you have to make seven copies of every document so the board can have enough copies to go around and know your entire life story.

Everything takes so long and everything is such a huge hurdle. After we submit everything, we need to also have an interview with a board, where they will decide whether or not we are worthy.

And really, this is more than a month away. After all is said and done, the board can reject us. That’s right—after paying the fees, after paying the lawyer, after putting 10% of the purchase price into escrow, the board can simply say no for whatever reason they feel like.

Only the Strong Survive

Purchasing a co-op is a very long, drawn-out process that is definitely not for everyone. I say that I would never do it again but I guess I would if I had no other option. But if I did have an option, I would never do it again. Sometimes I look at my husband and tell him I regret doing this. I’m not sure if I really regret it or if I am just complaining because things are getting so tough with the co-op. But I think I will be happy once all is said and done and we finally move into our new home.

Have you ever though twice about purchasing a property? Do co-ops exist in your area?

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Thankful—Because We Didn’t Purchase Something

29 Jul

My husband and I have been looking for our “dream home” for a few months now. To be honest, I have been scouting homes for over a year but we have been seriously looking at homes for the past two months.

I put dream home in quotes because my dream home is not here. Nope. I cannot afford a house here so our “dream home” has really been limited to co-ops and, if we were lucky, a cheap condo. We were pre-approved and one of the first co-ops we saw—well, we loved it. It was a two-bedroom co-op that needed some work here or there but overall, it was nice. It had a terrace, which I was practically dying for and the only catch was that there was no washer/dryer unit on-site. It was at the top of our price range and we both really liked it. But after consulting with a plumber, we decided it was not worth it at all and we sadly let go of our “dream home.”

I would say that a few weeks after that, my perception completely changed. And I am glad we did not pursue that co-op!

Our current rent is probably right on average for what we would pay in our neighborhood. I started thinking to myself, “If I don’t plan on living here forever and these are not places that I absolutely love, why do I intend on paying more every month to live there?” Our rent is somewhere between 26-27% of our net income, which is actually a pretty good number considering a recent article I read talked about how much rent eats up the budget of those who live in my city.

So I thought up a new plan which is as follows:

  1. We began looking at one bedroom places instead of more expensive, two-bedroom places. We also stopped looking at expensive one-bedroom units. This not only saves us money on the down payment and mortgage but it also saves us money on the maintenance.
  2. I decided that our cut-off was now going to be $220,000 instead of the $350,000 we had started at and had been pre-approved for, since we can, in actuality, make those payments every month. I also decided to focus on places where the maintenance was on the lower-end of the scale, which for us is $600 or less.

I am incredibly interested in a place we looked at the other day. It’s listed for $199,000 and the maintenance is $473.55. I am hoping to get that price down by at least $10,000, though I’m not sure yet how negotiable the seller is since he is also willing to rent it out at the same price that I pay for rent now, which is $1,300/month. Doing a little big of math, I figured:

  • Purchasing the property for $190,000 would allow me to put down 25% or $47,500. The mortgage would be $670.09 at a rate of 3.875% (co-ops do not get rates as good as houses.) With the maintenance at $473.55, my total payment every month would be $1143.64, saving me more than $200 every month in rent. At least 50% of the maintenance every month is tax deductible, as well as the mortgage interest.
  • Purchasing the property for $190,000 would allow me to put down 30% or $57,000. The mortgage would be $625.42 at a rate of 3.875%. With the maintenance at $473.55, my total payment every month would be $1098.97, and everything else mentioned above also applies here obviously.

My thinking, for now, is that inevitably, I will get the money back that I used as a down payment when I sell the property in the future. In the meanwhile, I can pay for a mortgage and maintenance that is not only less than my rent but that will provide me with $2500-$3000 per year in tax deductions. In the meanwhile, I can save more money toward something else. Most housing did not experience any depreciation in my neighborhood so that is not of any concern to me.

So overall, this house hunting experience, which has left me largely frustrated, has also allowed me to reevaluate what I really want and what I am willing to settle for at this time. I think that going with a smarter decision, even if we don’t like it as much, will work out better for us in the end.

And really, I should thank the realtor from the first property—she was so obnoxious that she completely turned us off from the property all together!

The Emotional Cost of Purchasing a Home – Part Two

24 Jun

I began by detailing the emotional costs of purchasing a home here.

3. Getting Your Hopes Up – The very first co-op that we saw has continued to be our favorite co-op. It’s not the nicest place in the world but it was almost everything we wanted—except there was no washer/dryer on-site.

We were repeatedly told how we could put a w/d in the basement. We were completely fine with this until we brought a plumber and he told us it wasn’t as easy as everyone made it sound and that it would cost thousands of dollars. Without a w/d, there was no reason to pursue the place any further. But in the back of our minds, we are constantly thinking that something will work out along the way and somehow we will get this place.

4. Seeing Tons of Places – The obsession begins to grow as soon as you know you’re looking for a place. I find myself on Trulia every day, checking to see if something, anything, has been added. Every weekend we are checking for open houses and attending them if they are within our price range. We call to make appointments to see listings. You begin to see place after place as almost the same. It starts to get emotionally draining looking for something—perhaps something you just can’t quite find. When you find yourself on Trulia everyday, you find yourself lamenting over the fact that homes you really love are just slightly out of your reach and you feel as though you’ll never get what you want.

5. Heart vs. Logic – Realtors know that purchasing a home is a very emotional decision for most people. They know people will tend to walk into a place and have a visceral reaction of either love or hate. For me, turning off this “heart” button and turning on the “logic” button is a necessary evil. I don’t want to be blinded by the beauty of a unit only to know in a couple of years I might not be able to sell it at all or that I might lose money on the deal.  When I walk into a place, my mind goes into, “Can I fix this? Can I remodel this? Can this go here? Can this go there? Can I make money off of this?” For my husband, he did not think this way when we first started to look at homes but now I think he has started to see the benefit of thinking that way.

Have you ever purchased a home only to find it was an incredibly emotional experience?

To Buy or Not to Buy – Our First Home

11 Jun

I am currently in the midst of freaking out and incessantly thinking about the possibility of purchasing a home.

I thought I had most of the figures down until I found myself on this link: Is It Better to Buy or Rent? According to the numbers that I put in, it would be better for us to rent for the time being, which makes me sad in a way.

Purchasing our first home is an incredibly scary thing for us. We have been saving up money for a few years now and we finally have enough to put 20% down on certain properties. In our area, a major city, we cannot afford anything but co-ops and the occasional condo. I have a feeling that when I ask for a cashier’s check of nearly $70,000 to put down as a down payment, I might throw up. Really.

Part of me feels conflicted because I want a place of my own. Part of me feels conflicted because a co-op is not my dream home. My dream home has space, a backyard and a pool. My dream home is not what I could only describe as “having that apartment feel.” By space, I don’t mean a huge house—I just mean something we could grow into together.

My husband and I have been pretty set on purchasing a two-bedroom co-op. Right now we rent a one-bedroom apartment for $1300.00/month. We actually live in a pretty nice building but it has a lot of things I don’t like such as:

  • The only thing the kitchen has going for it is the space—it’s actually a big kitchen for most apartments I have seen in the area and has a lot of cabinet space. The kitchen has an ugly laminate floor that is not only coming up in certain areas but is put on in such an incredibly lazy way that the second half of the kitchen “tiles” do not line up with the first half. The backboard is crooked and not even against the wall. There are holes/spaces near the floor.
  • The bathroom is disgusting. Both the pipes in the sink and tub seem to ALWAYS be clogged. For whatever reason the ventilation is awful and we always have mold growing. The stuff is coming up off of the tub floor.
  • Last year we had an awful storm and water started to leak through the brick. The building had to be repointed and the super said after it was finished, he would come in and paint over where the water leaked through and left yellow stains. Never happened. We have a live-in super and considering he had to do this on every floor for multiple sections of the building I find it hard to “forget.”
  • Awkward things like a door to the living room, a super dark hallway, small foyer that ends up being a haphazard desk area
  • Roaches!

At the same time there are things I do like:

  • Rooms are a nice size
  • Daytime doorman
  • Building, overall, is nice and has laundry downstairs; close to train
  • Rent is okay for us

WHAT WE WANTED FOR OUR HOME

  • Wanted a two-bedroom or a one-bedroom large enough to perhaps alter into a second room
  • Wanted a private outdoor space such as a terrace
  • Lower maintenance costs
  • Washer/dryer on-site

THE CONDO

There has only been one condo for sale that we could remotely afford. Crunching some numbers, paying the mortgage plus the maintenance would actually cost us either slightly less or slightly more than what we pay now. The taxes were relatively low and given the fact we could claim our mortgage interest, I think it would work out to our benefits.

PROS

  • Cheaper for us
  • Had a terrace
  • Had a W/D in the unit
  • Had a small storage space in the basement
  • Had a parking spot—extremely, extremely rare

CONS

  • My guy absolutely hated it
  • Definitely need a little work
  • Smaller than the place we’re in now

SUMMATION

I guess I have a little more vision but I saw some potential in there to really fix up some things and turn a profit on it. I liked the fact that we could rent it out in the future, unlike most co-ops, and I think we could actually turn a profit on the place either renting or selling. However, as much as I am willing to make an offer, my man is not and I’m not going to force him into something he doesn’t like even though I have really tried to sell it to him.

THE CO-OP

The very first co-op we saw is the one we keep coming back to. It’s approximately 280 square feet larger than the condo (880 square feet) and has two bedrooms.

PROS

  • Sick of living in big buildings and this is a very small co-operative unit that looks like a row of houses
  • Two bedrooms
  • Open feel
  • Terrace
  • Very low maintenance that is 50% tax deductible—the maintenance rate is unheard of in our area
  • Separate/private entrance
  • Private storage area in the basement
  • Doesn’t need a lot of work—mostly cosmetic stuff that we could live with for now

CONS

  • Kitchen is kind of small
  • Bedrooms are kind of small
  • Currently no W/D on site—we have to see if they’ll let us put one in the basement—additional expense
  • Eventually would like to add a dishwasher—another additional expense
  • Parking in that area is worse than where we are now and there might be three spots somewhere but they are wait list and I doubt we’re anywhere near the top
  • Would cost us more than our current rent
  • Cannot sublease in the future

SUMMATION

We are actually working on bidding for this place. We are going to bid quite a bit less than the asking. We’re still in the process of figuring out our loan stuff (trying to get a better rate) and obtaining a lawyer.

Although the money maintenance and mortgage would be more than our rent right now, our rent would eventually increase again. Additionally, the mortgage interest and half of the maintenance are tax deductible, so I think this will almost allow us to break even.

NOT FOR THE WEAK

Buying a house is emotionally draining. It really is. And as much as I try to stay logical about it, I still find it to be such an emotionally wrapped up decision. As much as I can make an argument for the condo, will we be happy in a place we don’t particularly like? I need my home to be a place I enjoy being in—not somewhere I want to run from.