I learned a lot of things buying a condo, and I figured that i'd share with you what I learned. I'm sure there's a lot of people out there who are still renting in Hoboken and often wonder, like I did, about buying. Here's a list of important mistakes and discoveries I made.
Square Footage: I walked into my current condo, and liked it right away. I read the paper they had out and it said "750 square feet". Cool. I looked at about 8 other places and, sure, I guess it was that size. When I did the math, and figured out the price per square foot, I figured that the price was fair.
I was about to sign the contract and found out that my condo was actually 635 square feet! I could have walked away from the contract. I had 24 hours to think it over, and at the end of the day what I learned is two things:
1. When looking over a condo and pricing it, confirm the square footage with the seller.
2. Don't get hung up on square footage.
There's big factors that square footage can play. New construction vs pre-war. Location. Parking. Amenities. Can the square footage of pre-war 635 square foot bedroom on 12th and Adams be compared to a 635 square foot new construction on 1st and Garden that has parking and a gym?
Learn from me, buy where you want to live not the square footage.
Taxes: Wow, what a tax break. I always heard from my friends and family about the "tax umbrella" that a home provides. I didn't know how much this was? Was it $1,000? $2,000? $10,000 a year? This also depends on many factors, like your income, the mortgage and the taxes you pay, but for me - WOW. I recognize that each year my tax break will decrease, but I would have to work about 8 months bartending every Saturday night at Mikie's to earn that kind of money.
When you think that home ownership is so much more expensive than renting, you have to knock down your monthly costs on that tax break.
Check the financials of the building: If you bought a condo, like me, make sure you find out how the condo association is spending & saving your money. I didn't check this, but I was very relieved to find out that my condo association was firmly in the black. I was told by other realtors that lots of people don't check this and then are on the hook for various repairs and emergencies by the condo association.
Get a firm date from contractors in writing & don't pay upfront: I used a contractor that my realtor knew, Sammy, and he did a very nice job - but man oh man, I was way too nice with him. Sammy would tell me stories about why he was delaying and I would be cool with it, and figured that the good karma would hopefully come back to me. Nope. Sammy just would come in once a week, do a little bit, and then go to his next job. He had a million excuses.
All contractors do this, and what I would suggest is to get into writing a timetable for their work, along with payments when each job is completed. So if your entire job cost $5,000, then make five $1,000 payments, each with a specific job completed and understanding that the contractor would not get paid until each milestone was reached. I did three payments with Sammy, but paid him when we were nearing completion...and what was supposed to be a 6 week job from April didn't get finished until August.
Find ways to save: My place had wall mounted PTAC air conditioning units. I called various HVAC places and was quoted $2500-1300 to buy & replace my existing unit. I looked online and found I could buy them myself for $500. $2,000 for labor? They were just going to swap one out and slap another one in.
I was lucky that my brother in law was electronically savvy - and if you ask around I bet you have a family member or friend who can help here. I bought the AC myself, installed it and I won't say it was easy, but for $2,000 dollars saved? That's huge. Also I found out that it was also a tax break because buying a new A/C unit is something that my accountant was able to deduct this year.
Just remember that if you are careful, you can find ways to save.
You can't time the market: For years I was bearish on the housing market. I fully understood that the market explosion from 2001 could not sustain itself. In past years, such an explosion would last a few years before going back to reasonable levels. It kept going. Kept expanding. In 2003 I sat on the sidelines and scoffed at the prices I was seeing - and could have bought but waited. Then 2004, 2005, 2006 passed and I was shocked to watch those condos which were $250,000 turn into $400,000 on paper.
In 2001 I remember I looked at a 1 bedroom (it faced another building and didn't have much sunlight) selling for $183,000 that was on 10th and Washington (near the Elk's Club). I laughed at it. $183,000 for THAT? No, thank you, i'll rent.
A perfect example is what's going on with the market right now. I was part of the "Doom & Gloom" people expecting an implosion of the market. It's certainly possible. There's plenty of stories out there about foreclosures & job losses.
But did you know that the word "disaster" and "opportunity" are the same word in Chinese?
Ok, not really, maybe I watch too much of The Simpsons...
Sure, the market is falling - which gives the buyer more leverage. Where's the bottom? Who knows? You could be like me, sitting on the sideline and expecting it to keep falling and a year later maybe the morgage rates go up.
What was now a 1 bedroom for $300,000 at 6% over 30 years is $1,799 a month becomes $300,000 at 7% is $1,995 a month. Or even if prices drop and the rates go up, you still can get zapped.
$300,000 at 6% is $1799.
$270,403 at 7% is $1799.
Sure, you saved $30,000! Yippie! Or did you save 30,000? If you look closer at the loan, and the interest rate - you actually will pay nearly the same cumulative amount (interest + principal) over the life of the loan.
Just remember, rates are at historic lows. You have a bargaining chip of fear with some sellers (like those that overextended themselves, those that lost jobs, those that NEED to move). I don't think the housing market, at the moment, is in a panic. My friend Chris just signed a contract for a condo on 5th and Madison last week.
When I bought, my logic was:
1. The mortgage rates are at a great rate (I got 5.875% over 30 years with no points).
2. The price was something I could afford.
3. The location & amenities were perfect.
4. I'm not planning to move for at least 5 years, if not longer.
If you are someone who is renting now, it can behoove you to wait a few more months, but you are always rolling the dice with those mortgage rates.
I mean if the housing market crashes and people think they are going to buy things dirt cheap, I have a strong feeling that we are all going to be out of jobs at that point and will have bigger fish to fry than worrying about buying a condo.
If you don't overextend yourself, and make a rational purchase that fits your lifestyle. In the past, in my previous misgivings about buying - I was always concerned about finding that PERFECT time to buy.
There isn't one.
You can have all sorts of pundits who i'm sure are going to decry that this is the 2nd Great Depression and have all sorts of counter-arguements to what I say. You mention real estate at a party and you may as well decided to talk about Catholics vs Protestants at an Irish Pub.
The perfect time to buy, to me, is when you have:
1. A good mortgage rate, and enough of a downpayment to avoid PMI.
2. A stable job.
3. A house you can afford without overextending yourself.
4. If the economy doesn't look like it's going to go into a major recession (right now, its a 50/50 chance at the moment).
5. And you don't plan to leave before, say, 4 years.
That's about it.
I wish I knew this in 2001.