Seattle

[PandorasBox]

My boyfriend has rented in the same building for 5 years in downtown Seattle near the Cinerama.   A new building is going up and blocking all his light & valley view.

He has deemed it is time to move.  He is trying to decide if he should just get a new rental somewhere else (upping his base to reflect market/desirability) or pay about $500 more on top of his new budget for a rental and buy.  (in 5 yrs that dif is about $18k)

I know the economy will pick up eventually.

He has/had a good job, excellent credit, already has his letter of credit on a FHA loan. (he would need to open accounts to get more current active credit and take the 90 day credit hit to qualify by about AUG for a Conventional Loan)

However there are very few FHA qualified buildings in his price range, let alone that have the features he desires.

He wants LIGHT, OPEN, and a view of something ie not a wall or someones window. In the $200k-300k range.

Is it better to wait it out and qualify to go conventional and buy at end of summer, find a FHA or just continue to rent?

If in a few years he may want to move and rent out the unit- the price point is about $500 above the market and unlikely to recover that difference.

I have bought houses and know the in's and out's of that- I can't advise on condos in this market.

If he hangs on to it for 10 years he might come out  ahead.  But 5yrs or less it's a wash or a loss in my opinion.

Am I missing something, or is there something else we should be considering besides... it will be a tax break, and a POSSIBLE investment/lottery ticket.  And that now is probably the only time he could afford to walk in the door of something he likes and can afford.  When prices go back up he will have to lower expectations and he barely likes what he can afford now.

Advice or suggestions of where to gather information?

[MichaelDefoe]

Hey there,

There are always pros and cons of buying.  Anyone who definitely says one is better than the other doesn't take everything into account.

A good read is here: http://www.iwillteachyoutoberich.com/buying-a-house/.

You said it yourself, you could save $500 a month if you continue to rent over buy.  If you plan on staying around for another decade, go ahead and buy.  Put a lot down, and after ten years and the current buying market - you should come out ahead.  On the other hand, if you put that $500 towards something volatile, like the stock market, you could come out way ahead (Investing $10,000 in Dow Industrial Average just three years ago would be worth $20,000 right now, whereas my current living situation has devalued $60,000 the last three years).

The other option is to convince him his standards are too strict for that price range, especially in Seattle city limits.  Open them up a bit and you might be able to find a good compromise.

[PandorasBox]

Believe me I have OPENED the standards a lot.

He works downtown (always has)

Likes the instant access to the bus and zip cars.

He has the Amazon Fresh delivery life style.

He doesn't go out and DO much, but wants it available so he can eat out late after work.  Or decide to go do a meetup or art class.  So he does take advantage of the culture in Downtown (not bar culture).

He runs late in the morning so having to bus 20 or 30 minutes and wait some time for one- 20 + means it's about abou 45m to 1hr leaving the house if he gets too far out of downtown.  He is a 15 minutes out the door and at his desk kind of guy.

He wants to find a 1 bedroom with a nook for a big office desk and lots of light.  An effeciency kitchen vs a gormet one, and a bedroom big enough to have a kingsized bed and plenty of room to walk around it.  *he has a queen he just likes space in his sleeping area.

His budget is not unrealistic, and he is willing to wait to find it.

I finally saw some condos that reminded us of the 1980's Miami Vice look and he suddenly got interested and that surprised me.  I was thinking more NY Loft style.   Who knew

At least we are starting to narrow it down.

Thank you for your reply.

[willb]

You didn't say what the down-payment situation is, but if abandoning the FHA route is only a matter of getting more cash I'd suggest waiting it out. Even if it means living in the same apartment with no view for a few extra months.

In the meantime, by all means continue to tour sites, both FHA and conventional. If it works and is a great fit you are in luck. If not, you've become a better shopper. Current inventory is abnormally low even for winter, you are not viewing a 'normal' market right now. The best options available may look sad, sorry, and overpriced by the time summer rolls around. 

He's in luck in the sense that condos have fared quite poorly since the bubble. Compared with inner city single-family houses, I'd estimate you'll deal with better selection and market conditions. I don't think the price/wish-list is totally unrealistic, although sounds like you may have to wait for a gem to show up in the market. 

Also, be wary of the HOA's if you aren't already. These can tack on $500+ per month in expenses and lead to Byzantine power struggles with your neighbors. 

[willb]

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PandorasBox wrote:

Am I missing something, or is there something else we should be considering besides... it will be a tax break, and a POSSIBLE investment/lottery ticket.  And that now is probably the only time he could afford to walk in the door of something he likes and can afford.  When prices go back up he will have to lower expectations and he barely likes what he can afford now. 

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Also, try to avoid any sense of urgency you may have. The tax break is negligable and anything you find won't be a lottery ticket. Prices aren't going up. Even if they do, the level of increase in the next two years will not block you out of the market. 

[AdamMorrow]

Hi -

You mentioned your boyfriend has a good job and excellent credit. Are you positive he wouldn't be able to qualify now for a conventional loan instead of 90 days from now? This might be worth pursuing further. In my experience, when one person says something can't be done, another can often find a way.

As someone previously mentioned, HOA dues are the wild card in the mix as well. Not sure if you were calculating the 5 year cost factor of $500 per month to include an estimate of HOA dues. Power struggles within HOA are notorious, which can also increase expenses.

When buying a condo, investigate whether there are any pending or future assessments or other upcoming HOA expenses outside of the standard dues. As a requirement for the transfer of a condominium, the HOA must provide a Resale Certificate, which will allow the buyer to see all of the documents regarding the HOA's financial data, meeting minutes, and other important information. Carefully review these documents to find out if there are any building defects, lawsuits, disputes, liens, assessments, etc...

If your boyfriend upgrades to a nicer rental and pays $500 more than what he is paying in rent now, I'm not sure buying a comparable condo is going to end up costing the equivalent $500 (depending on whether this figure includes HOA dues). The main factor is going to be how good of a deal you can get on the condo.  Also, interest rates are ridiculously low right now. I think they will be higher in the months to come.

REO and short sale condos can be a really good investment, but proceed with caution. On REOs for example, many banks require a buyer to sign the bank's Machiavellian contracts and will not agree to use the MLS contracts agents use. Be careful. In some cases, the language and clauses in these bank contracts are so one sided and carry so much risk I have counseled clients to walk away, if not run, especially when the bank will not work with the buyer regarding the language in its contract.

A couple of examples - 

1. The bank's contract stated it would have the "discretion" to decide whether or not it would keep the buyer's earnest money following the buyer's inspection should the buyer decide they didn't want to purchase after the inspection.

2. Other similar clauses regarding condition of title where the bank's contract allowed it to keep the buyer's earnest money based on the bank's determination of whether the condition of title was a material problem or not.

When confronting issues like bank contracts, this does not mean a buyer should walk away without trying to modify the contractual language. I have heard many agents say the listing agent told them the bank would not allow the contract to be modified so their clients just signed it anyway or walked away without trying. For agents, if you are aware of significant risks like the two mentioned above when you review a bank contract and your clients want to sign it anyway after you have discussed the risks, document your conversation.

More important, what a bank says is not always set in stone. I have modified language in bank contracts I did not like on behalf of clients. In turn, the bank accepted the changes and the deal went forward. With respect to agents, it is a little more challenging when it comes to tackling some bank contracts because agents are not allowed to modify contracts and insert legal language as it is considered to be the unauthorized practice of law. The solution for an agent in this situation is to contact an attorney to talk about the language and draft the appropriate language that will protect the buyer, if necessary.   

Sounds like both of you are being cautious going forward and using due diligence, which is great. Good luck!     

[PandorasBox]

Thank you for the replies.

We did get it worked out.  He does qualify for conventional now.   It was a lack of current credit, but the lender made adjustments for a 777 credit score.

I myself have worked with this mortgage broker/lender  5 times.  She is awesome and on top of it.

Now we need to figure out what he really wants, so we can start narrowing it down.

After just buying my most recent house this time last year, I am well aware of the winter leftovers that are out there.

Also that spring will bring more listings and buyers and the cycle will begin.

Since there is no urgency for him to move, we can wait for that perfect mix of "the one" that has some sort of resell features and meets his needs.

I have told him repeatedly it is like a lotto ticket- that MOST don't win.  He can only increase his odds by buying low and staying put in A GOOD UNIT.  And picking when to sell and the right price for it go go quickly.

The prices I discussed INCLUDE the HOA fees averaged at $400.   He pays low rent now and he would increase his moving price to go to a nicer place to pay $1500-$2000.  The price at the top of his payment scale including HOA is $2500.00.

That is for about a $250,000 condo + Fee.   He qualify for $400 but the sever lifestyle change and sacrifices at that price are just not worth it.  The "I MUST OWN, or am going to fail if I don't" is not a gene he has like some of us tried and true repeat home buyers.

My advice to him was to sit down with a financial adviser and see if he can make the $1000- $500 difference a month work for him towards retirement and just go rent a condo in one of the buildings he has been looking at, or better.

I'm on the fence when I did a pro/con chart.  Everything I came up with was exactly offset, when you don't and the personal desires- just the "facts" about dealing with associations, price, resale-ability, flexibility and such.  So he is now tasked to the WHY THE DO YOU WANT TO BUY- what would you get out of it over renting.  The only answer I have heard without him doing that list was "the possibility of it being a good investment."  He knows it is not guaranteed by any means.

I did appreciate the additional information on the condo association and lawsuits.  I was already aware of that and that after you offer you get that packet.  My broker who I worked with informed of us all that earlier- (thakfully)

Since I have found and bought houses on my own before red fin was around- and used conventional agents and loved it- I am looking forward to trying the redfin experience this time.  As I always do that searching- pre screening the area- drive bys and then use the agent for a look see and offer.   I only went into 5 houses with an agent last time when I moved from Tacoma to Shoreline.  It was a doosey of a deal and I sure needed her.  But I hadn't wasted her time when I had been scouting and learning the market 3 months before I was able to buy.  That way when the one popped up - I knew to jump.  It only becomes urgent when it's the one- not the one that will do.

Now what I need is an agent who CRAWLS the Downtown Seattle/Queen Anne/Capital Hill/South Lake Union area- to KNOW about those "problem" HOA's so we don't have to go through getting our hopes up and getting emotionally attached to a bad building.  Too bad they don't offer an HOA score on the site too  

There are some listed on the area- but none seem to specifically do that area- just as a cross over and most of their sales are outside of that area.  Downtown agents please?

[White_Lotus]

I certainly hope Spring brings more listings as I'm currently looking for a home. My agent told me that in the old days, spring would bring many sellers into the market. However, we are not in the old days anymore. Housing prices have really dropped in South King County (Federal Way). Majority of listings are either bank owned or foreclosure. The people moving now are because they have to, not because they want to.

Because the value of houses have dropped so much, people who want to move, cannot because it would force a short sale situation. I have a friend in such a situation. I think this spring may not bring many sellers to market, although they may be a few. It's that reason that I've put in a bid for a house that isn't perfect but will do.

[Venturion]

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willb wrote:

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PandorasBox wrote:

Am I missing something, or is there something else we should be considering besides... it will be a tax break, and a POSSIBLE investment/lottery ticket.  And that now is probably the only time he could afford to walk in the door of something he likes and can afford.  When prices go back up he will have to lower expectations and he barely likes what he can afford now. 

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Also, try to avoid any sense of urgency you may have. The tax break is negligable and anything you find won't be a lottery ticket. Prices aren't going up. Even if they do, the level of increase in the next two years will not block you out of the market. 

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I doubt there is any tax break. With the lifestyle you mention (asset-lite), he probably doesn't itemize and takes the standard deduction.  For a lower price point property, the mortgage interest expense might not even push him over the standard deduction.

I don't like when bankers do things to help you qualify.  That means run... even if it's just a situation of unseasoned credit history.  I'm old fashioned - 20% down + some certainty you will be in the same 'hood 5 years from now.  Otherwise he's going to have severe sticker shock with all the new maintenance and upgrade expenses as well as when he goes to sell.  He doesn't sound like the landlord-type either and a condo is hard to economically hand over to a 6-10% fee management company.

[Clasen_Advisors]

Even at an interest rate of 4.2%, an FHA purchase of 500k would be about a $1,000 higher annual deduction than the standard deduction.  Real estate always has and always will appreciate at a steady rate.  If it goes to high, it snaps back.  

It's almost always taken 3-5 years to break even if you sell a place you bought.  The good news is you have a good chance at having lived there for free if the market does a little better than suck.  And its starting to again. Juxtaposed to having rent going down the drain, I'd rather live for free and be able to paint a room lime green any day.