Should I Buy a Beach Front Condo Follow Up

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An Amazing View - Too Bad This is Out of the Budget

An Amazing View – Too Bad This is Out of the Budget

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.

View from a Living Room... Yes Please!

View from a Living Room… Yes Please!

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.

beach condo 1HOA Fees and Debt

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!

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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. Hi Lance, I’m excited that I’ve found your site just in time to give you MHO on your condo-buying decision :-). Lots of interesting thoughts here. I especially like the one about doing the gut-check. It seems like you’re doing really well for your age, especially on retirement savings. And, you could always rent out the condo too if you chose later to buy a house. I guess, along with the gut check, I’d look at total time it would take you to be debt free. Also, have a back up plan for an unexpected job loss/change, baby, or whatever. If you look at all of the possible problems that could make you wish you wouldn’t have gotten the condo, and still have a safe way to navigate around them, I’d go for it. As an aside, we too were bummed about the 49ers loss. We weren’t really rooting for anyone, but after the first half, we just had to root for the underdogs. Although they didn’t win, it was indeed a fabulous comeback!

  2. I think if it is something that you really want and that you feel you can afford then go for it! You only live once and no one likes living with regret.

  3. I like sleeping on it but I’m not sure you need a full 30 days. Regardless, I do like the idea of checking out what you can buy in-town versus on the beach, and then compare the two different options. At the end of the day, I’d buy the condo….I’d love to live on the beach!

    • I’d love to live on the beach too :) The question is it worth hassle of living in a condo. Not parking at your front door, elevator rides to the 20th floor (and stairs if the power ever goes out), living in a smaller space for your money… lots of downsides to get that beautiful view :)

  4. I think my gut feeling now says that you want to do this regardless. :) I have a feeling that’s where you are headed. I still like the idea of waiting just a bit, but I didn’t know rates fluctuate so quickly so it’s hard for me to say. :)

  5. I really think you should look into the rental market a bit more and talk to other small landlords in the area. Renting a property is a lot of work & can be very stressful.

    • I bet it is a lot of work but if we decided it isn’t for us we can always sell the place. I might lose a few thousand dollars but it wouldn’t be the end of the world.

  6. I think the sleeping on it option is a great way to handle this, though I am not sure it’ll take you the full 30 days. I think saving 20% towards retirement is awesome! On a side note, I really thought the 49er’s were going to come back and win. That power outage took a lot of the wind out of the Ravens sails. If it were not for that, I think the Ravens would’ve completely blown it wide open.

  7. eemusings says:

    I think what you’re really looking at is as much a lifestyle choice as anything. Sure, it’s a financial decision, but if you go with the beach condo, you’re committing to a very different path as opposed to, you know, moving to a different suburb or whatever. Good luck with the decision!

    • This is exactly what we came down to the other night when we were talking about it. Is this the lifestyle we want and is it worth that amazing view… decisions decisions!

  8. Fred@Foxy Finance says:

    Condo’s are not the best investment but life is short and if you think it will increase your happiness and not damage you financially then go ahead buy it!

  9. Be careful, a decision bt committee can be very dangerous. If your total payment including HOA, property taxes etc is less than one third of your income it is a personal decision.

  10. Lance, I’D GO FOR IT! We just got back from a bed and breakfast on the water (for my birthday) and right now I’m in love with the idea of living on the water. So I’d be all in. Lowering retirement contributions is how I’d get there. Yes, saving for retirement is important. But if I was living on the water, wouldn’t everyday kind of be like I actually am living the retired lifestyle?? :)

  11. Mary Rhodes says:

    I would definitely get one if I could! I take happiness before money anytime if I could!

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