Recently I did some calculations and I discovered that if we stay in this same exact apartment, and rent does not go up (which is a really stupid assumption, considering how every single apartment we've ever lived in the rent always goes up after every lease ends, it's just too tricky to try to predict how much it'll go up here), we will be paying approximately $85,000 in rent in the next five years.

I estimated for five years because I don't know exactly how long it'll take to get my Ph.D. I should be done with coursework in 4 years, but then there's that whole getting-a-panel-together-so-I-can-defend-problem. I've heard of someone having to wait 18 months before he could defend because his panel just couldn't arrange a date where they all could meet at the same time. Also, the program has been in existence for five years at USC, and so far only one person is primed for graduation this Spring. Now, I don't mean only one person is graduating in the Spring, and it's kind of unusual or something. It's the first graduate from the program. Ever. So we're not entirely sure how long it'll take to graduate. But at least the grad students are productive. Lots of the inaugural students from the five years ago have published novels and books of poetry, so it is promising.

But back to the rent situation.

In light of this new information, I started to research buying condos or apartments or lofts in the immediate area. And believe me, we'd be getting out cheap paying $85,000 in rent.

Apparently in the immediate area, condos/lofts/apts are at least $500,000, but usually they're starting at $599,999. Needless to say, we could not afford that mortgage payment. In addition, after 5 years, paying $85,000 on that wouldn't really lower anything. Whereas if we bought something in the $300,000 range, we could actually afford that mortgage payment of about $1300-$1700 a month (depending on the downpayment) and paying $85,000 would actually make a dent.

However, buying a condo is more complicated that I anticipated. Apparently there's something called HOA (homeowners association) fees which can range anywhere from $100-$350 a month. To be fair, the ones that are $350 a month have included: water, gas, cable, insurance and property taxes. These fees generally go into the maintenance and upkeep of the buildings, which is a good thing.

Right now, we currently enjoy the amenities of our building: 24 hour concierge/security, secured building entry, 24 hour access to the pool and gym, and extremely convenient commute location for Brad and a 10 minute bus ride to campus for me. But luckily, a lot of these apartments for sale in the buildings have these features as well. It's just that the apartments end up being really expensive.

On top of a mortgage, and HOA fees, we'd also have to pay mortgage insurance which would be another $100+ a month. That would have to be paid until 20% of the mortgage had been paid, which from what I used to understand was a standard downpayment. But with the average price of a house in the U.S. at $218,000 I doubt most people save up $36,000 before they buy a home. Even so, by the time we'd be able to save up $60,000 we probably won't even be in the Los Angeles area anymore.

A few blocks away from major bus routes, the average price of condos drops dramatically to $299-$320,000, including the aforementioned amenities. But I don't know how safe those side streets are, since I haven't actually been down them myself. All I know is that when you leave the immediate downtown area, it gets kind of ghetto-y. And I really don't want to be buy an apartment in a ghetto.

So I don't know which is better: buy an apartment in a (perhaps) less than desireable location for (perhaps) $299,999 or stay in the building we know we love, feel safe in, and don't have to pay to upkeep? One could be seen as an investment, whereas the other is just, well, convenient. Plus, I think a lot can be said for 48-hour maintenance turnaround guarantee. I mean, if the toilet breaks, we don't have to fix it.

What would you do?

Labels: grad school, los angeles, real estate

( 3comments )

at December 30, 2005 8:08 PM  Alex_Knight said...

I think I would continue to rent. The money you save renting could be stashed away to make a better purchase after you get your PhD. Besides, if you need to move, you wouldn't have to worry about the problems of selling a home or apartment.

 

at December 30, 2005 11:04 PM  Lorie said...

I can understand the desire to put your money into an investment instead of just throwing it to landlords every month, but it doesn't sound like owning a home in L.A. is economically feasible. Besides the fees you've mentioned, I think where owning your own place really gets you is in the unexpected expenses. Sure, it's inconvenient if your toilet breaks and you have to fix it yourself, but what if your central air system or water heater goes out in a place you own? (Although I suppose I don't know exactly what the situation with that sort of thing would be like in a loft or apartment.) Then you've got to scramble to come up with the money to fix it when your budget is already tight to be able to make your mortgage payments.

 

at December 31, 2005 3:37 PM  Anonymous said...

Another option is to do a 80/20 loan. If the place appraises for 20% more than you're having to pay for it (which it might with the home economy on it's pattern) then you can get an 80% mortgage with a 20% home equity line of credit aka HELOC. (This is used for your down payment and closing costs.) Once your home gains enough equity you can refinance, paying off the HELOC. Just some advice. Call a local real estate office, they can explain to you your exact options in your area.