Am I Crazy? Not Taking the Optimal Financial Path May Be the Right Decision

Condo at Panama City Beach, FLI’m going to start of by telling you that we haven’t made any decisions yet. This is your chance to read through my thoughts and either save me from my craziness or tell me that I’m not as crazy as I think I might be.

Either way, let me know what you think in the comments so I at least know if I’m crazy or not!

As a personal finance blogger I often pressure myself to make the best financial decisions possible so I can be a good role model to you all, my readers. It probably wouldn’t hurt that the best financial decisions would hopefully put me in a great financial position down the road.

However, at times I feel like I need to do something I want rather than what makes the most sense financially. Below is what has been occupying my thoughts all week.

CondosWe Want to Buy a Beachfront Condo

I know, I know! We just bought our townhouse on a whim a year and a half ago. What am I thinking by wanting to buy a beachfront condo so soon?!

Don’t we still have my girlfriend’s student loans to pay off? I’m not making this easy on myself but I’m going to answer all of these questions one at a time.

I’m going to go over the fun stuff first though. We think we can afford a 2 bedroom beachfront condo on the Gulf of Mexico! This wasn’t even an option when we bought our townhouse because my girlfriend and I thought we’d be living in two different cities and potentially would have to carry the cost of two houses.

We first started looking at condos back when I visited my parents and we were in college. We never thought we’d live in this city but it was something fun to do while we were visiting.

Condo prices had started to head down from the housing crash but were nowhere near bottom. At that point there was no way we’d ever be able to afford a beachfront condo that was big enough to live in for any significant time period. Ever since then we haven’t even considered it.

Last weekend we were taking my dog for a walk and saw the condos and thought about how it’d be awesome to live in one. The condos are beachfront on the white sugar sand beaches of the Florida panhandle and have amazing views. Some have more square footage than our townhouse and they’re all one level floor plans so we’d get more use out of the space.

We decided to look on the local MLS website and found out that there were a few condos that would be within a reasonable housing budget so we kept investigating. We emailed our trusty real estate agent and are going to look at a few this weekend!

Now is your chance to stop me before I go completely crazy!

Addressing the Concerns – We Just Recently Bought a Townhouse

When we bought the townhouse we knew it wasn’t going to be our forever home. We thought it’d make a great first home and the low mortgage payment would allow us to save a ton of money to pay toward my girlfriend’s student loans.

My girlfriend has saved a ton of money in her budget from the extremely low cost of living in the townhouse and has put this toward her student loans. I have similarly saved a large amount to pay toward her student loans once we get married, but for now I still have this money in cash. More on that later…

Another great benefit of the low cost of carrying the townhouse is its rental potential. We could easily rent out our townhouse for a significant amount more than the costs to keep it.

If we decide to buy and live in a condo on the beach we’ll rent the townhouse out and save any money above the mortgage payment toward maintenance and repairs for the townhouse. It should sustain itself with no extra money from us.

What About My Girlfriend’s Student Loans?

My girlfriend is making great progress on her student loans all by herself so far. Our last Debt Pay Off Update from January mentioned that my girlfriend has paid off over $20,000 of student loans all by herself in just a year in a half since graduating.

The update also mentioned I have saved over $30,000 to help her pay off her loans after we get married. This money, along with our future savings in 2013 would enable us to pay off these loans by the end of 2013 assuming everything goes according to plan.

But what if we decided to pay the student loans off over a longer period of time?…

Our Plan to Buy a Beachfront Condo

In order to buy a beach front condo we’d want to have a 20% down payment. If we follow our current plan of paying of my girlfriend’s student loans by the end of the year we wouldn’t have a suitable down payment until late 2014 at the earliest. A more likely scenario would put us in a beachfront condo in 2015 or 2016. 

Our credible fear is that the condo market is coming back quickly right now. Once prices start taking off there is no way we’d be able to afford a condo we could live in because they’d be priced out of our modest housing budget.

The other factor that allows us to consider purchasing a beachfront condo is the rock bottom mortgage rates that I’ll likely never see again in my lifetime (or at least for the next 20-40 years). Mortgage rates have started to come off of their ALL TIME LOWS (that’s right, never have mortgage rates been lower than they were in the last year).

If mortgage rates rise more than a percent or two, the increased interest costs and the higher priced condo market will push our dream out of reach forever.

Why I Think I’m Not Crazy… Yet…

Paying down my girlfriend’s student debt as fast as possible is a great goal. The key to this whole plan is the fact that we’re still planning to pay my girlfriend’s student loan debt off aggressively after we purchase and move into the beachfront condo. If we go through with it that is…

Buying the condo would not stretch our housing budget to crazy levels. It’d still be well below the average housing costs most American’s live with today. It’d also be significantly below the percentages of gross and net income suggested by many personal finance experts.

Back to the student loans… according to our calculations, we’ll be able to pay her student loans off by the end of 2014 if things go perfectly according to plan. If things don’t go quite as planned it might take until 2015. Either way I still think that is pretty amazing.

How many people can say they’ve paid off $80,000 of student loan debt within 4 years of graduating from college? I’d venture to say not many.

If you think what I’ve said today is crazy… wait until I share what I’ve been thinking about on Monday! Make sure to come back and check it out. I’ll also have an update of how we’re feeling after we’ve looked at the condos.

Florida SunsetNow Is Your Chance to Save Me

Save me if you think I’m crazy! Encourage me if you think I’m thinking straight. I want YOUR opinion. Tell me what you think of my crazy plan in the comments below. I do value your opinion, but don’t be mad if I don’t end up taking the majority’s advice :)!

**P.S.** Just to clarify, the pictures are not condos we are looking at. We could never afford those… unless we won the lottery! Which we don’t play.

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. I’ll reserve crazy-or-not judgement for now…

    A clarifying question: Since you’re looking at condos and not, like, a house, what proportion of the monthly cost is the HOA fees (or anything non-mortgage, non-taxes, non-insurance) and is it likely that the fees will rise with the return of the housing market? Is there any chance that fees are just as likely as interest rates to price you out of the beachfront condo in a few years?

    • I second Emily’s question. Condo fees can be pretty darned high, and they are something that you generally have no control over.

      Also, if you’re looking at buying in a building that has a fair share of foreclosures, I would want to look long and hard at the associations reserves as there’s a good chance many accounts were in arrears. I had a friend whose condo association went bankrupt in 2007 (beginning of the crash…) and from what I gathered there were pretty significant implications for those that owned in the building.

    • HOA fees vary on the complex but we’d make sure HOA/insurance/taxes/mortgage are all affordable and the HOA is in good shape. HOA fees probably wouldn’t go up with the market but would go up as maintenance/etc costs more. The HOA fees in some communities have been pretty stable, others not so much. We’d make sure we got our research done first. All good concerns though :)

  2. I can’t say, man. What if you want to vacation somwhere other than where this condo is? Other than that question, I can’t say, man! If it works for you two and it makes you two happy, then by golly, do it! If you’re not sure and worried, etc, then F it!

  3. You are going to do what you want to do, and that is the beauty of living in a mostly free society. However, aren’t most of her loans over 6.8%? Personally I would delay satisfaction until the high interest loans are gone. If the loans were in the 2% neighborhood I would probably feel a bit different. There is also a good chance the Fed is going to keep rates low for the next several years and unemployment will continue to be fairly high. So you might not miss out at all.

    • Thanks for the input Brian. Her loans are from 4.75% to 8% although the 8% one is getting closer to gone every day :) If interest rates stay low it definitely wouldn’t be an issue but if they go up 2% on a 30 year mortgage that’d be more hurtful than delaying paying off the student loans by only a year or two I believe.

    • One factor to keep in mind — her student loan interest is tax deductible. That may play a factor in your decision, as her loans aren’t as “expensive” in terms of what you pay each year when the interest paid deduction is factored in.

  4. I have heard plenty of rental horror stories. If you’re going to be a landlord, plan this out well. Decide if you want to handle everything yourself or use a company. Plan not only the costs of this but also the stress, especially if you will not be close-by to keep an eye on the place.

    • The townhouse would be only a couple miles from the condo so we could check in whenever needed. We’d screen like crazy (as far as the law allows) to make sure we get a good tenant.

  5. I was going to say not to do it because of where it’s located and hurricane concerns, but knowing that you live there really makes it a moot point. If you can swing it then I say go for it. I would probably not do it, but that’s not to say that you’re crazy. On a side note, paying off that amount of student loan debt is seriously awesome!

  6. Well, having no experience as a homeowner I can only go on gut feeling looking at this from an outsider’s perspective…and for me that would be no. BUT, that’s just me. Can you sit on it for a month then see where YOUR gut is? Just posting this on here with doubts and questions makes me think that now isn’t the right time??

    • It is definitely something we’re thinking long and hard about before we make a decision. Overall though we really do want to live in the condo, we just never thought we could afford it.

  7. I personally don’t like the idea. I see a lot of rationale and reasoning in your post to justify a potentially questionable decision. Nothing you’re saying sounds like it’s going to put you in financial ruin, but it does seem a deviation from many of the financial principles which you’ve professed to follow or want to follow in the past. I think you’re also using the fact that you bought your townhome on a whim and it didn’t go so bad as justification to make another decision ‘on a whim’. Which is fine but as it’s written in every prospectus ever (paraphrasing): Past results are not an indicator or guarantee of future results. Also, have you thought about factors down the line. Do you plan on getting married? Having kids? If so is a beachfront condo a good place to raise a family or will you be here talking about having to sell in a few more years.

    Just some thoughts. Good luck either way.

    • Part of saying the townhome was on a whim was the fact that we weren’t looking to buy. We did make sure it was a sound financial decision before we bought it. I understand where you’re coming from though.

      We do plan on getting married… this year actually! Kids, we’ll have at least one, probably no more than 2. We have thought about it and see no problems raising a kid in the condo through at least elementary school.

      In regards to my principles, the only real reason we’re attacking the student loans so aggressively is because we have no other financial goals at the moment other than retirement so we had to focus our energy on something :)

  8. I don’t know if I have enough information to help. Normally, if the cost of owning (Payment, HOA, property taxes & insurance) does not exceed one third of your income, you should go for it. The fly in the ointment is the other debt. I hope this helps!

  9. I would go for it. You are doing great financially and life is meant to be enjoyed. If you are sure you would love it, then do it. Don’t rush the process because you think the market is picking up though. I owned in a very indebted community, but then learned that the first to benefit from a sale was the HOA (before the bank even) so the money owed in condo fees would always be cashed back. The bad thing is we were asked to cover the expenses in the meanwhile.

  10. You have clearly spent a lot of time thinking this through. We still had student loan debt when we bought our first home. You did say though, “Our credible fear is that the condo market is coming back quickly right now.” And as I read on it was clear you were worried about missing out on a once in a lifetime opportunity. How do you know a better opportunity won’t present itself in the future? It may not, but will that be the end of the world? I have made many silly money mistakes trying to read into the future because I was worried about something. I have learned never to make big decisions like this because I’m fearful. In my opinion, you guys need to work through that emotion a little bit before you finally decide. Good luck. I’ll be curious to find out what you decide.

  11. eemusings says:

    Initially I read this as a holiday home (a concept I’ve never really understood as I like to travel to new places each time). If you are serious about wanting to relocate, maybe it’s not as crazy as it sounds.

  12. If you can afford it and plan to use it a lot, go for it! Property is on an upswing.

  13. This is entirely your choice and decision and I don’t think that anybody will be able to talk you out of it if your heart is set on it. You have to do what is right for you and your partner. However, I do like the suggestion of one commenter above that mentioned that it wouldn’t hurt to sit on it for a month and mull it over – the prices aren’t likely to go up that much in a short period of time and it will give you a chance to give it a thought.

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