Thursday, September 08, 2005

To Buy or Not to Buy

Every year Seattle has this architectural tour called the Seattle Street of Dreams. The planning starts with the site selection following which a select list of builders and architects are invited to participate. Once finished, the "Street of Dreams" showcases 4 to 6 new homes built specifically for the event that exemplify the latest trends in building, interior design, landscaping, technology and architecture. Typically the entire street is blocked off and people drive to designated off-site parking spots from where they can catch a shuttle to the location. On site, the Street of Dreams provides restaurant and coffee bars and of course, the splendour of dream homes that can resemble anything from a French chateux to an English manor house to a futuristic high-tech home to a fairy tale castle. The event, along with showcasing some of the most exciting designs of the year and inspiring the imagination of the masses, also raises considerable amounts for the Children's Home Society and the Make A Wish Foundation.

Earlier this year I went to the Seattle Street of Dreams with a couple of friends. It was right after my resolution to cut cost on going out. As it so happened, partly through planning and partly through luck, I spent two consecutive weekends in the company of my best friends, laughing up a storm, discussing our romantic lives (or the lack thereof), and fantasizing about our dream homes, on less than $10-15 per outing. The first weekend was spent at the Bellevue Arts & Crafts Fair and the second at the Seattle Street of Dreams. What impressed me most about the homes were not their sizes but the decor inside.

Why do I bring it up now? I have looked through a lot of house/home/condo listings since my first post about buying a home. I have even been to see a few. And I have come to the conclusion that if it's a choice between sq footage and location & style, I choose location & style.

I know this decision will raise quite a few eyebrows. An 800 sq ft condo in the heart of downtown or a nice house with a 2 car garage and a yard a little farther away for the same price? I am sure more people will say the house but for me I just think the condo is a better choice. Less maintenance, fewer worries and easier access to amenities not to mention the view of the Sound. In fact, given the choice I will probably always choose to live in a smaller apartment close to amenities rather than in a scary big house in the suburbs. This has nothing to do with wanting what someone else has or keeping up with the Joneses but maybe it has something to do with being a single working girl big on style and short on time.

So, with all that into consideration, about halfway through August I decided to change my house search tactic and focus exclusively on downtown and nearby condos. And within the week found what I was looking for.

It's a preconstruction condo project walking distance from Pacific Place, Seattle's ruling shopping mall, close to Pike's Place Market (the place that inspired the management book and video series, Fish!) and various cafes, delis, newspaper stalls and restaurants, with an onsite fitness center with sauna and a spa, a welcome/concierge service, guest suites (I love this), business center with conference rooms (which should offset some of the maintenance cost on the condo owners hopefully) and a rooftop garden.

The view is also pretty nice, even if you are on one of the lower floors.

The price of this luxury? $399,000 for a 950 sq ft 1 bedroom with den which really isn't bad for downtown Seattle although a little more than I wanted to spend. If I decide to buy it I will put 20% down and my monthly mortgage payment will be $1679 + condo dues & property tax around $500 for a total monthly payment of $2,179. But that's only half the picture. I ran best case and worst case scenarios. Best case assumes a 7% appreciation per year and worst case assumes a 3% inflation-paced appreciation after an initial 20% drop in home value (to compensate for any exaggeration in current price)

I ran both scenarios for 30 yr, 20 yr, 10 yr, 5 yr and 3 yr periods, i.e. assuming I sell the house at the end of 30 yr, 20 yr, 10 yr ... In the sell price I factored in a 10% loss for worst case and market value (at 7%/year appreciation) for best case. The outcome? In the best case scenario, as long as I hold on to the condo for 3 yrs or more I am definitely better off buying than renting. In the worst case scenario, the break even point is somewhere between yr 5 and yr 10. That is up till yr n, where n is between 5 and 10, I am losing money on the buy option but after that I start gaining.

The catch? (Or two catches really)

1) Coming up with $2179/month in payments or $1756 after the tax break. My current rent is $950 so that'd be quite a jump. I will have to stop my ESPP contribution just to be able to make the payments and my saving rate will drop by 35-40% at the very least. Plus, if I sell in the next 3 years I stand to lose quite a bit.

2) The condo isn't actually ready for occupation until Feb 2007 and who knows what will happen to the housing market between now & then. (On the flip side, this could be a very good thing if prices keep rising + it has the added advantage that I don't actually have to start making mortgage payments until 2007)

I can pay $2179/month. Question is, does it make sense right now?

Continue reading: To Buy or Not to Buy - Part 2


At 9/09/2005 1:37 PM, Blogger Madame X said...

Wow. It sounds like a really nice place but it is expensive. And personally, I don't like the idea of having to commit to something before it's built.
Did you look at a lot of other condos in the area? I recently stayed near there at the Inn at the Market, I think it was called.

At 9/09/2005 11:46 PM, Blogger mmb said...

I did look at other condos in the area and they were mostly higher. Maybe I should just sit tight and wait for the bubble to burst. Oh yeah, I know the Inn at the Market. Near Pike's Place.

At 9/10/2005 1:54 PM, Blogger Money Turtle said...

The price you're paying isn't bad. I'm in Boston, so I'm used to seeing high prices. Preconstruction are usually priced low to begin with and will gradually increase during construction. Around here, people are selling their homes in the suburbs and purchasing condos in the city. Sounds like the same trend is occuring in Seattle. It eventually comes down to supply and demand. I wish I had a crystal ball to tell me when the market will correct.

At 9/12/2005 12:07 PM, Anonymous Anonymous said...

It is a really good price for downtoan Seattle

At 9/12/2005 12:30 PM, Blogger mmb said...

It is a good price. Similar condos nearby are going for 500k, even 750k. That's why I am considering it but in the near-term it will create some cashflow issues.


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