Q: My son is a graduate student and working for a retailer while in school. He wants to buy a high-rise condominium in Atlanta, Georgia. He’s going crazy with his 3 hour per day commute to his job.
Can you please let me know if this is a good time to buy? He is just 23 and I bought my first home at 46. What are the things we need to think about? Thanks. Ilyce’s radio show is the best.
A: Georgia was particularly hard hit by the Great Recession and real estate values came down quite a bit from their highs. Having said that, just because prices came down does not mean that your son will get a good deal on a specific unit in a specific building. Your son will have to do his homework before deciding whether this is a good time to buy a condominium (or a single family home) in his neighborhood of choice.
Let’s start with his decision to buy a piece of real estate. Your son needs to look at his current finances and future income prospects to decide whether he should buy or rent a home. As a graduate student who works, his income may be limited, but with prices down as much as 60 percent in some condo buildings in Atlanta, he might well be able to afford to buy. If he has been offered a full-time position once he graduates from school, he should think about how much he’ll earn then and whether there will be enough cash after he pays down any student loans he has to throw at a mortgage.
As he balances his income and debt, he then needs to decide how much money he has on a monthly basis for his housing expenses. Depending on the amount of debt he has, he might want to spend less on housing expenses in his early years to pay down his student loans at a faster rate. On the other hand, if he has little debt, he has more money available to pay towards monthly housing expenses.
Once your son understands where how much he can and should spend on his housing expenses, he can decide whether his budget should be spent renting or buying. In Atlanta, as in a few other markets around the country, it may be less expensive to own than rent right now.
But he should keep in mind that people that end up buying homes usually spend more money on their homes than people that rent. If he buys, he might decide to redecorate or make other improvements to the home. He will need to factor in these other expenses in his determination on how much he can and should afford in a home.
One last item to factor into his decision is how much cash he has saved up for a down payment for the home. The more he has saved, the better loan terms he might obtain.
The next big issue to tackle is where to buy the property. The old axiom in real estate is “location, location, location.” He will need to keep that in mind. It won’t do him much good to buy a condo in a building that appears to be expensive if there is a huge special assessment due to the many owners who have defaulted on their monthly payments.
There’s homework here, too, that needs to be done: Make sure the building and its finances are in good shape; that there are few, if any, foreclosures in the building; and that the building is in a good location with real estate in the general area improving.
As he looks to different condominium units or homes to look at, he can decide what type of home is right for him and how long he plans to live there. If this home is a one or two-year home, he may not make any money on the purchase. He might, in fact, lose money unless real estate values go up substantially.
He needs to remember, first and foremost, that he is buying a home to live in. Unless he has money to speculate with, he shouldn’t be buying a condominium solely for investment purposes.
In some neighborhoods, it’s cheaper to own a home than to rent. If your son finds that owning is cheaper than renting and he has done his homework and research into buying a condominium, we see no reason that he shouldn’t be able to buy now. While he is young, we don’t think that his age is a disadvantage in deciding to own a home. In fact, it could be the best financial move he’ll make in his life. Homeowners tend to accumulate wealth faster than renters.
We do, however, question whether it’s too early for him to buy a home if his purchase is for the very short term. If his employment may take him elsewhere when he graduates or is in a relationship that will require him to move within the next year or two, buying a home now may not be the best idea – unless he is fine with the idea of being a landlord.
His purchase today may result in a financial loss unless he’s picked a building that enjoys rapid appreciation over the next couple of years, or if there is a steady stream of tenants willing to pay good money to rent the property from him.