Last week I asked what you, my readers, thought about me purchasing a beach front condo and delaying paying off my girlfriend’s student loans by a couple years. There was a lot of great feedback that I addressed in the comments but I wanted to address a lot of them more publicly in a post.
I want to share some crazy ideas I came up with to save enough money for a down payment in a quick time period. Make sure to let me know what you think about those.
So let’s start with the down payment ideas then move to addressing the great things to consider from last week’s post.
Crazy Ideas to Come Up With a Down Payment – QUICK!
The first and most obvious way we’d come up with a portion of the down payment quickly is re-characterizing the money I’ve saved to help pay off my girlfriend’s loans to down payment money. It is in cash and isn’t applied toward the loans so while this is very easy to do I’ve had to struggle with if it is the right decision or not. More on that in the follow ups to comments below.
Temporarily Reduce Retirement Savings
Another way I thought of to come up with the down payment quickly is to reduce my retirement contributions. I know I’m going to get a lot of crap for this, but I currently contribute close to 20% of my gross income in Roth retirement vehicles. That means 20% of my income before taxes comes out of my after tax money every paycheck so in reality, I’m contributing way over 20% of my take home pay every pay check just for retirement!
I’m really glad I’m contributing so much toward my retirement, don’t get me wrong. However, now that I have a specific goal I wondered whether or not putting my retirement savings on hold for a few months would be the end of the world. I would still take complete advantage of employer matching in my 401(k) by switching to contributing just 4% (the matching limit) in a regular 401(k) rather than my current contribution percentage to my Roth 401(k).
After we buy the townhouse I’d switch my contributions right back to where they were prior to the down payment savings sprint. I think a lot of people fear that once I switch the the lower percentage I’d never get back up to my previous contribution percentage but there is NO WAY I’d let that happen.
I have been thinking about this strategy over the weekend and I’m not very likely to implement it but I just wanted to put it out there because it is an option I’m considering. However, now I’m much, much less likely to pull the trigger on it.
Raid My Emergency Fund or Current Retirement Savings
I am putting this here because it is very important. I WOULD NEVER DO THIS! People who consider this are asking for trouble. A condo is not a necessity by any stretch when I live in a perfectly good townhouse. An emergency fund is essential to have after you purchase a house. You never know what unexpected item might pop up.
I would never raid my retirement savings either. It would be incredibly irresponsible for me to do this and it won’t ever happen. Just my thoughts on those two issues.
Great Insights from the Comments Last Week
There were a lot of great questions and insights in last week’s comments so I wanted to highlight them and answer them here for everyone to see. On to the insights and my responses!
A few people thought I was referring to buying a vacation home. I am not. I currently live in the city where we are considering buying a condo and we would live in the condo all year long. The townhouse that we would be renting out would be just a few short miles away (if even that far) and we could manage it quite easily ourselves if we choose to go that route and rent it out.
Our Financial Mindset
Some thought we’d be changing our financial mindset since we seemed so set on getting rid of my girlfriend’s student loans. The main reason we were so focused on her student loans is we don’t have any other financial goals right now.
Before we had set the goal we had planned on having them paid off within a few years but nothing as aggressive as the end of 2013. Now that we’re looking into purchasing a condo we would have another financial goal. We’d still aggressively pay her loans off if we buy a condo, it just won’t be by the end of 2013.
A lot of people also mentioned HOA fees. There are definitely HOA fees and they include different things in different buildings. Most include basic cable, insurance on the structure of the building (but not the inside of the unit) parking and many amenities. They range from $300/mo to over $1,000/mo. We’d stick to condos in the lower end of the range.
We also know that HOA fees can rise if the community isn’t managed well. Many of the communities we’re looking at have been around for 20 to almost 40 years. This allows us to look at the HOA history to see how well they have been managed, whether there have been many assessments, etc.
We’d include the HOA in what we considered our mortgage payment and it would not exceed an amount that is reasonable and comfortable for us. In fact, all of our debt (the student loans, townhouse and condo) along with insurance, taxes and HOA fees would be less than the standard bank required percentages. Once the townhouse is rented out it’d be even lower.
Wait… Do a Gut Check
A few commenters mentioned I should do a gut check and sit on it for a month or more before making a decision. This is a great way to gauge how we’re feeling and to see if it is just excitement or something serious we want to do.
We were also warned to not rush into it because what we think will happen in the future with condo prices or interest rates. I think this is great advice and something we need to consider. We need to make sure we’re not rushing just because we think it will be out of reach in a couple months because the prices or interest rates would have to significantly change for this to happen.
Finally, we decided to check out our other options before making a decision. You can get a whole awesome house for that much in town rather than at the beach and I think it makes sense to see both sides first. We aren’t rushing into a condo immediately. We’re taking our time and making an educated decision.
What are your thoughts about the situation now? Do you still think we should avoid it or do you think we should go for it?
P.S. Yes I know the 49ers lost. I just finished watching the game and am massively bummed. That’s what happens when you play horrible first half though. The Quest for Six continues next year!