Monday, September 29, 2008

Huge Debt

I had given up looking for a Condo in Berkeley, but while out on my bike I rode by a place that looks perfect. (Isn't that always the way it is?)

I took a tour on Sunday, and I'm almost ready to buy.

But it is scary. Do I really want to go that far into debt?

Would the eventual earthquake in Berkeley wipe out everything I own?

Shouldn't I be putting my money in the stock market instead? (It is down, you know. That is when you are supposed to buy.)

Up till now, I've always chosen freedom over commitment. Without a mortgage hanging over my head, I am free to quit my job and join the circus any time I want.
Rent on my cheap apartment costs far less than I make each month. The extra money goes into savings and earns interest and I can grab some any time I want to go on vacation or buy a car or take time off from work.

The condo would give me a garage to store big stuff in, like the kayak I've long wanted. It is much closer to BART. It is across the street from a park, on a bicycle-friendly street. It has a much nicer kitchen. It is much nicer looking in general. I wouldn't be as ashamed to show people my place.

If I get a mortgage, I'll need to keep a job for a long time. I would be responsible for repairs. (Full disclosure: I'd probably just let the place fall apart.) Would it become a money pit?

The biggest question is, will I procrastinate so long that I won't even have the chance to make a choice?

Will I be relieved that I no longer have to make a choice?

What should I do?


Anonymous said...

You need:
- a link to the listing, so we can provide more informed advice
- one of peter's little "take a poll" apps in your post so you can graph the responses.

Anonymous said...

Yay for you!


Do the due diligence on the condo. How is the building organized? What type of funds do they have in reserve for repairs, etc. Get some books on real estate and make sure you know what the condo purchase entails. What are the neighbors like? Can you attend a meeting of the condo association before you decide? Get some information on the builder. Do they have a good reputation? Have any of their former customers sued them?

Real estate is supposedly cheap right now. This is probably a great time to buy in Berkeley.

If you eventually decide you don't want to live in the condo, can you rent it out? What kind of rent can get for it? Will it cover your payment and expenses? (Note however that taxes on rentals work differently than your primary residence ... for example, you can deduct a percentage of the value as depreciation every tax year.) Does the condo association allow renting? If not, I would pass.

If you are seriously considering purchasing real estate, you should look at different properties and get a well-recommended real estate agent to help you.

You should also consider the tax advantages in your budgeting.

I bought a house in Bham a couple of years ago. It was in a desirable neighborhood close to the fun parts of the city. I had no trouble finding a tenant when I moved out. My take-home lesson from that was: Buy a house where people with a good income want to live.

Anonymous said...


one of the things I like about owning is personally improving the place by choosing how to re-configure/improve it. A lot of changes are "equity" changes, so you don't feel as bad about pouring money into it. Without question you live in a MUCH nicer place when you own than when you rent.

Investment-wise home ownership is one way to build to an eventual retirement, but I think that other investments will do better. Long-term owning a house goes up at about the rate of earnings (2-4% a year), and you can't get your earnings back until you sell anyway (at least on your first house). But if you can get a short-enough loan (15 yr especially) the long-term prognosis is you will be worth a lot more owning than renting.

I think you will dig it. The first reason matters a lot more to me than the second.

-your former office mate, DB

Wayne said...

Ahhhh, running away and joining the circus... I've spent most of my life wanting to do that. Running away has always had it's appeal. I lived in SF for about 5-6 years before I bought a toaster (and I fucking love toast!!) because I didn't want a lot of STUFF in case I wanted to pick up and leave. My point is that just because you buy a toaster doesn't mean you can't sell it and still have your freedom. That's what Craigslist is for. If you bought the condo and ended up hating it, hating the pressure of ownership, or felt too confined you could always wait a few years and sell it. Hell you might even make your money back in a few years. I say go for it.

- Wayne

Anonymous said...

The only way to use your freedom is to abandon some of it. If you never choose you never lose your freedom. So, dammit, run away and join the circus.

Just kidding. There seems to be a darn good chance that the economy will go bad. Folks with "leverage" lose their investments when something untoward happens like losing their job and not being able to find another. So make sure you put a lot down and can make several months payments if you suddenly need to find a new job.

The most important thing is to find a place where you want to live. If you do, use your current freedom to make that choice. Then stop worrying about it and glory in your freedom to make the next choice. There are always more choices.


Francis Norton said...

Run Away!

Ed said...

There are always more choices.

But I don't want any more choices!

I didn't want a lot of STUFF in case I wanted to pick up and leave

Me, too. I hate owning physical objects. Whenever I see something I want to buy, I think about how hard it would be to get rid of it later.

Run Away!

That is the best advice yet. It takes into account my laziness about home repairs, my fear of making choices, and my hatred of change. However, I am not energetic enough to run. Can I glide away on my bike instead?