Buy Your Own Apartment

A friend of mine used his first year analyst bonus for a down payment on an apartment. I like the idea of paying a monthly mortgage payment to build equity in an apartment / condominium instead of rent if I can keep it around what I currently pay.

I am wondering if anyone on this forum has made a similar move and what the general thought is on the idea.

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Comments (19)

Jan 17, 2022 - 6:18pm
2rigged2fail, what's your opinion? Comment below:

yes I bought recently. will be renting two of the rooms to friends as a housing arbitrage. there will be replies to this question, as it comes up at least once a week, to say you'd be purchasing a huge illiquid asset and that it anchors you to one location - but I have a different view - that there is always a market to rent the property out, using other peoples labour to pay off your leverage, and you get the capital appreciation/preservation. 

the rental income from my property will cover the mortgage and bills... I'd love someone to tell me I'd be better off paying £1.5-£2k a month towards someone else's mortgage, while additionally paying bills, using the landlords shitty old furniture, living in a smaller sq ft'age apt that is falling to bits. I'll be living in one of the worlds most expensive cities for "free", having my mortgage paid off, and saving large % of income.

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Jan 17, 2022 - 6:21pm
kellycriterion, what's your opinion? Comment below:

I agree wholeheartedly, although some caution is needed to keep it comparable. Assuming you could sublet, you could have those people sublet from you in the place you leased and maybe get it to a negative price too, and you don't have to get tied down with the asset. Something to think about, and I just wanted to make it more comparable.

Jan 17, 2022 - 6:36pm
Fjsjrjdns, what's your opinion? Comment below:

Gonna be hilarious when you're hit with a $15k bill for water damage because of a leak in the walls or some other random item that constantly comes up in ownership, and your insurance doesn't cover it. Not saying buying is bad, but your arrogance is showing and the math isn't nearly as simple as you make it out to be.

Jan 21, 2022 - 5:37pm
2rigged2fail, what's your opinion? Comment below:

Oh a bit of jealousy coming from the 'VP in IB' who can't afford his own house? Green envy ripping out of this housing noob. 

Firstly, perhaps the glaringly obvious Union Jack in my display picture, would indicate I am not in the US and therefor do not pay dollars. Secondly, I already flooded the place on my first night, its a new build and the housing developer paid for it. Thirdly, I have insurance that covers water damage. Fourth, what do you know about housing economics in the UK ? Do you know about the government incentives and schemes we have here, please do share your knowledge since the "MatH isn't That SImPle" ? 

Why don't we bet $1000 on the "math" being that simple? 

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Jan 20, 2022 - 7:38am
CompBanker, what's your opinion? Comment below:

I own a property that I bought and lived in for a few years and now rent out. A few thoughts based on my experience:

- Owning your own home is a different mentality, similar to when you first get granted carry / ownership in a PE fund. You suddenly start to care a lot more about the neighborhood (which new businesses are going in nearby, any crime, homelessness, etc.). It is a new lens with which to view living.

- You can start buying furniture that fits both your style and the specific space in your home. Assuming you don't have plans to leave, you can mount the 60" TV on the wall just where you want it, buy the right size rugs, your favorite style couch, etc. - You can do this while renting, but when you own, you don't need to worry about the furniture not being suitable for the next location.

- As you get older, owning a home is a positive signal to send when dating. It's not just a sign of wealth, but it is a signal that a person 'has their life together.' Women seem to value it.

- Depending on the area, owning can allow you to live in a much nicer place for significantly less monthly expense. 

In terms of the numbers, there are a lot of factors that aren't addressed by the poster above that should be considered:

- There are a significant amount of transactional costs when buying or selling a home. I paid something like $20k in fees to buy my place and I anticipate another $50k+ when I sell, depending on broker fees and the like. This obviously cuts into your profits and are pretty much unavoidable.

- If you rent out the property, the income from renting is taxable, offset by interest (but not principle repayment or things such as HOA). This rental income is treated as ordinary income. So if you are in a high tax bracket, be prepared to take a slice out of your rental income at your marginal tax rate.

- Property taxes can be brutal. My property tax is equal to 25% of my gross rental income. My HOA takes out another 12.5%, which is not tax deductible. I haven't been hit with any assessments yet, but I know the day is coming. 

- Managing the property remotely can be a nightmare, particularly overseas! I've been very fortunate to have a friend that does it all for me for free, including finding the tenant. If I had to hire a 3rd party to do this, I would pretty much not make any money on rental income whatsoever once all taxes / expenses are covered. I am mostly reliant on capital appreciation in order to make a good return on the investment at this point.

I'm fortunate in that I own a condo in one of the newest and most expensive high rises in Boston, so there isn't much to do in terms of tenant complaints. The onsite maintenance team and staff handle 99% of things that come up. I can only imagine how difficult it would be if I had to do all this myself - particularly when working long hours or traveling.

I don't want to scare people away from buying homes, it can be fantastic, particularly if you live in it while renting spare rooms to friends such as what the OP does (although see recent post about the benefits of living alone). Just think people should be realistic that it isn't a no-brainer investment.

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Jan 20, 2022 - 9:40am
MonkeyNoise, what's your opinion? Comment below:

Agree with all parts of what you said besides the 'if you want to live someplace desirable it's cheaper to own than to rent'.

IMO it's the exact opposite, due to all the costs you mentioned. Also due to the fact that a lot of places you typically rent will be smaller than a loft you are more serious about purchasing, or a lot of those costs in say a apartment complex will be spread over more tenets. So if you want to live in a nicer area you can be priced out due to property taxes and the like, but be able to afford to rent there.

That said the caveat to the above is assuming where you rent and where you ultimately buy are different, as most people end up buying something somewhat nicer/larger.

Will say it's not as clear and dry as 'you are throwing money away renting!'. Renting provides flexibility, and can/should be cheaper. You also avoid getting hooked in on two massive expenses - repairs and home 'improvement' projects that are almost always negative ROI. If you invest aggressively and save money renting then a lot of time it makes more sense

Jan 20, 2022 - 10:07am
Pierogi Equities, what's your opinion? Comment below:

I don't know if I would necessarily say renting "should" be cheaper. It should fluctuate with market prices like everything else, but as you mention, renters don't usually take any of the capex/large maintenance costs. However, landlords can and will pass on certain costs to tenants through increased rent (higher property taxes, HOA rises), in addition to regular maintenance as a result of wear and tear due to their inhabiting of the property.

I get what you're saying though, renting is significantly more flexible and outside of aggressive approaches, something like the S&P 500 has returned more on average annually than real estate, but people are usually in it since it's not always correlated, because they like the asset, and because it's something physical to do/think about (the classic "it's tangible" response in CRE investment interviews).

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

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Jan 20, 2022 - 11:27am
CompBanker, what's your opinion? Comment below:

Sorry I was unclear in my initial post. I actually agree with you that it can go both ways, sometimes it is cheaper to rent, other times to buy. That's what I meant by "depending on the area, owning can allow …"

Also, to clarify, I meant the net monthly expense, excluding things like the principle repayment on a mortgage which is basically you paying yourself in a way. I like to compare the interest portion of the mortgage, the HOA, and the property taxes to the rental price. I know this doesn't include major repairs nor property value appreciation, but it is how I personally like to compare the rent vs buy decision.

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Jan 20, 2022 - 9:55am
Pierogi Equities, what's your opinion? Comment below:

HOA fees are tax deductible for fully leased properties held as an investment in the US at least:,you%20to%20deduct%20HOA%20fees.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Jan 20, 2022 - 11:19am
CompBanker, what's your opinion? Comment below:

Interesting. I may need to have a word with my tax preparers. I always give them the HOA number, but I didn't think they were taking a deduction.  Thanks Pierogi.

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Jan 20, 2022 - 1:56pm
IcedxTaro, what's your opinion? Comment below:

Solid information.  I am actually looking at purchasing a condo (average prices are starting at 400k) in Southern California.  

Mind if I ask what was your experience like dealing with HOA who knew you had renters?  

Jan 21, 2022 - 6:46am
CompBanker, what's your opinion? Comment below:

Not sure my experience would be applicable to your situation. My condo is in a building with hundreds of units and a good percentage of them get rented out each year. I just introduced them to the building manager who took care of everything - a full orientation to the building, set them up with accounts to request maintenance, literally everything. That part of it was incredibly easy.

Note the building doesn't allow condos to be used for AirBNB, only long term rentals.

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Jan 21, 2022 - 8:29am
CompBanker, what's your opinion? Comment below:

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