My Wins and Losses From Buying a Condo at 24

I’ve mentioned before that I’ve always wanted to become financially independent (FI). I may not have known the term “FI,” but it’s always been my goal. With that in mind, I was focused on making effective financial decisions. At the top of my list: becoming a homeowner.  I heard that renting meant “throwing money away” (in reality this is not always true) and I never wanted to do that. Here’s the story tallying up my wins and losses from buying a condo at 24.

Winning Personal Finance View
The view from my former neighborhood

The Set Up

Let’s step back a bit. I was 22 years old and a recent college graduate. I was about to start my first “real job” at a large and reputable company located in New York City. The first obvious step would be to find myself a nice pad in the city, right? Doesn’t every cool young professional need to live in Manhattan? Rent for a small one bedroom was $3K a month. To afford it, I’d need to split a tiny apartment with a roommate or two or maybe three.

This plan sounded meh, to me. I had a little different idea.

Live Rent Free – [Big Win]

I decided to live rent free. My parents were generous enough to let me move back in after college. They lived a “commutable” distance from my future office.

I paid them a small amount to cover the extra house costs of me living there. No rent. No utilities. No cable. You get the point. Life was inexpensive. To be clear, I’m very thankful for the support they provided. Not everybody has this option.

How I Saved for a Down Payment – [Win]

Free rent allowed me to save like crazy. And it worked! I contributed enough to my 401(k) to earn a company match. I maxed out my Roth IRA also.

I chose Roth IRA over a deductible option because I had the expectation that I was going to be rich one day. When I was 22, I figured I’d be in a higher tax bracket in retirement than I was in at the time so I went the Roth route. The verdict is still out on if I was right.

I put the rest of my savings in equity mutual funds to grow in a taxable brokerage account. There were no tax benefits to this account but I’d have access to my money for a down payment. Reflecting back, having my savings in equities may have been a little too risky. I was planning to use the money for a down payment before long after all.

Year 1 – [Big Win]

Living with my parents was pretty good the first year. My job ended up requiring significant travel, so for half of my time midweek I was on the road. My girlfriend was still in school, so I spent many weekends road tripping to visit her. It would have been terrible to pay big money for rent to sleep in the city for only 10-15 nights each month.

I used my 90-minute commute to read whatever I could get my hands on. That reading including many personal finance publications, which shaped my life. I may not be writing this blog without them. But I still hated the commute back then. Today, it’s much more pleasant to have unlimited content – and no big books to carry – at our fingertips while commuting.

Year 2 – [Smaller Win]

Back to the story: year one I banked big money. Year two my girlfriend graduated from college and she, too, found a prestigious job in the city. So we started looking for our new studio in the city, right? Wrong!

We both stayed home with our respective parents for another year. Our parents lived close to each other so it was easy for us to hang out. Going out in the city with friends was a bit of a pain but we made it work.

The living arrangements became more of a burden the second year. When I had to commute, it was a grind spending three hours a day on the bus. I was no longer traveling back to college, so our social life centered around Manhattan.

Not only were we commuting during the week, but also doing the same on weekends. It was worth it at the time for the cost savings, but eventually, I wanted something more.

The Condo Purchase – [Win]

After two years home, I was ready to move out. I’d saved up more than enough for a 10% down payment. At this point, I’d read “The Automatic Millionaire.” I knew David Bach’s theory about how homeowners have a distinct advantage to wealth.

I decided on an urban area just outside of NYC and started shopping for a home.

Winning Personal Finance Apartment
This place is bigger and nicer than my condo

Finding a home we liked in an expensive area and small budget was not easy. The condo I found was being sold by the owner with no realtors involved. I made an offer. It got rejected. I came up by $15k and the second offer was accepted!

Reviewing the Paperwork – [Win]

The seller turned over the legal documents for the condo. I read each carefully and I  noticed that the square footage was overstated in the listing. For real estate that is expensive on a per square foot basis. These measurements matter!

Since the place was smaller than the listing, I canceled the sales contract. I then negotiated with the seller for price $10k lower. The closing went smoothly and I became a homeowner soon after my 24th birthday.

Timing – [Loss]

I bought the condo in the summer of 2007. I may have been ready to buy, but the market didn’t exactly cooperate with me. About a year after my purchase, the housing bubble burst! There is a saying that you can’t time the market. Well, I certainly did not time it well.

Lesson: Don’t buy at the top of a bubble.

Hudson County Residential Sales Data
Source Data: http://www.state.nj.us/treasury/taxation/lpt/class2avgsales.shtml

Picking a Two Bedroom – [Win]

My goal was to buy a small two bedroom condo to stay in budget. Why a two bedroom? House hacking!  House hacking is when you rent out a part of your house to somebody else. It helps cover your mortgage and keeps your expenses lower.

Even the least expensive place in town was stretching my budget. If I could share the housing costs, it would give me a better opportunity to save for other goals.

My House Hack – [Ultimate Win]

I invited my girlfriend along when shopping for the condo. She was planning to spend another year living with her parents. Still, we wanted to make sure she liked the place I bought. Our plan was for her to move in the following year. After weeks of searching, we found a place and had our offer accepted.

Somewhere in the process, I got awfully lucky! My girlfriend fell in love with the place and decided to move in right away! (No my exclamation points are not sarcastic!) Move over random people on Craigslist! I pulled off the best house hack ever! And best yet, this girlfriend finally married me a few years later!

Buying Before Knowing Needs – [Loss]

One thing I’d like to point out is that in hindsight, buying this condo did not work out perfectly. In fact, I listed it as one of my regrettable decisions.

I was very focused on the financial aspect of this decision but there is more to life than money. The mistake I made was that this was a home not a business transaction. I wish I focused more on how I wanted to live in the long term.

If I had, I would have realized that renting for a year or two was not going to destroy my chances of achieving FI. Doing so would have allowed us to better understand our desires for a home.

Winning Personal Finance Condo

The condo I bought was – dare I say – tiny. Yes it had two bedrooms but it was under 550 square feet with no storage outside of the unit. We were able to make it work but after three years of “living tiny,” both of us wanted more space. Unfortunately, due to the drop in the market, we were not ready to sell and stuck it out.

Lesson: If you are going to buy a home make sure you would be comfortable staying there for the long haul. The benefits of buying could be offset by transaction costs if you sell shortly after you buy.

Avoiding PMI – [Win]

To buy the condo, I made a 10% down payment. Lucky enough, I was able to find a first-time home owner program through a bank. The program allowed me to avoid paying private mortgage insurance (PMI). They also gave me a competitive interest rate. Avoiding this insurance “tax” was key for me, since paying it has no benefit for the home owner.

The Joy’s of Homeownership – [Loss]

One night out, I received a phone call from the fire department. There was an “alarm” going off in my home. They were standing at the door about to break it down and said they’d give me five minutes to get back.

The apartment was flooded! My water heater “exploded.” The alarm was a water alarm that would alert us if it ever leaked. Unfortunately, we were not home when it went off and it did not leak, it gushed.

I dried off the floor and it looked like there was no lasting damage to my unit. Unfortunately, I soon met an angry neighbor who lived below me. All the water damage ended up being in her apartment. Gravity flows down after all.

I spent hours on the phone with my homeowner’s insurance company. I learned that the damage to her apartment was not my responsibility. I felt terrible and considered paying her deductible for her.

Then I realized something. Every unit in my building had been renovated at the same time. They all had the same water heater. If I was not liable and paid for her damages, would somebody pay for mine if I had the same problem in the future? It was a tough call, but I pointed her to her insurance company and did not pay anything out of pocket.

It gets better. My worst fear came true a few months later. The apartment above me had a leak of its own. This time, I bore the brunt of the damage. We lost just about everything in our second bedroom. A computer and desk were the bigger items. We also needed to rebuild the sheet rock and paint. With a freshly painted room and less stuff we decided it was finally time to move.

Lessons:

1) Talk to your insurance company before ever paying someone out of pocket.

2) If you think there may be a problem with your neighbors’ homes, tell them about it!

3) Replace water heaters when they reach the end of their useful life. Don’t wait until they cause damage!

Being a Landlord – [Loss]

After five years, we had enough of “tiny living” and moved into a one bedroom luxury apartment. It was 50% larger than our current two bedroom.

Winning Personal Finance Luxury Condo

We spoke to a few realtors to get sales and rental estimates to figure out what to do with the condo. We concluded that renting out our “investment property” was the way to go. It would, in theory maximize our return on capital.

We did so for two years with two different tenants. Neither lasted more than a year in our tiny house. I’m not exactly a handy person so when things broke, it was a huge pain. Especially while working a full-time job.

If I was making a large profit while renting out the unit, I may have a different perspective. As it was, I was just covering my mortgage with rent. It wasn’t worth it.

The Sale – [Tie]

To reduce stress and pad our down payment fund for a future home, we decided it was time to sell in 2014.

Based on the Average Sales Price chart above, I should have taken a loss. The average real estate sales in my county decreased between the year I purchased and the year I sold.

My sales price ended up being the same amount I paid for the unit. Had I waited one more year, I may have been able to actually eak out a little profit. My timing seems to always be terrible but at least I got rid of the headache without a loss and moved on.

My Wins and Losses From Buying A condo at 24The Outcome – [Win]

We lived in this condo for five years. It was tiny and far from ideal but we made it work and look back on our time there fondly.

From a financial perspective, this condo was a stretch to afford by myself on my 24-year-old salary. Sharing the costs with my wife meant it was no longer a stretch and put both of us in a good financial place.

Our careers (and incomes) progressed nicely after moving in. Our housing costs actually went down after refinancing. Looking at it this way, the condo was the fuel to fire our future financial goals. We were able to live well AND save for the future.

Did you buy a home at a young age? How did you pull it off? When you look back, do you think it was the right call?

25 thoughts on “My Wins and Losses From Buying a Condo at 24”

  1. Wow – sounds like home ownership has been quite the experience for you! I’ve been too transient so far to buy my own place, but I’ll definitely keep in mind that it won’t be all sunshine and roses. The exploding water heater sounds like a nightmare!

    1. The water heater was a pain. The anxiety from being underwater on my mortgage after the housing collapse was a bit of a nightmare.

      Neither stopped me from buying a house a few years later though.

  2. I would say that your house hack ultimate win trumps everything! Owning a home is expensive… taxes, HOA fees (if applicable), and upkeep. Things can add up. But it sounds like you came out ahead in the end. Thanks for sharing your story!

  3. ” I heard that renting meant “throwing money away” (in reality this is not always true)…”

    I’m happy to see others also believe that renting does not always mean wasting money. Your circumstances of a potential first roommate were also very similar to mine in NYC the first year I worked in the city. It’s crazy how much housing in NYC can cost (although still cheap compared to other cities in the world). We spent over $300k renting in NYC over 8 years. We would have considered buying a place if we knew we’d be there for 8 years, but we had no idea. Related: https://www.balanceddividends.com/10-years-lost-renting-remorselessness/

    Overall, great post; the detail and flow worked nicely, and I say you still got a lot of big wins. Despite the water heater (I’m sure that was quite exciting getting a call like that from the fire department), the lessons learned you gained and shared here are very helpful. Avoiding PMI is another plus and, especially, your roommate outcome!

    Thanks for sharing, Jason.

    1. Seeing the firemen in full gear outside my door was a nervous moment.

      Buy vs. rent is all about value and your unique circumstances. Imagine rent is $100 a month vs. buying a $300K home. I know I’d prefer to rent then. Another example is if you are not planning to stay long. The fees associated with buying and selling a home are expensive. You usually don’t want to buy for short time periods.

  4. Hi Jason, you scored quite a few wins here for a decision that you seem to regret! I think that the worst part is in your Joys of Homeownership section. Even for someone who is handy, you sometimes want to take a break – but if you own it, it rules your time.

    1. I call it WPF for a reason!

      Nobody has ever mistaken me for a handyman. When you become a homeowner you kinda have to be. I figured out how to change a toilet take once!

      If there were no financial implications, I’d rent every time. Who need the stress of dealing with stuff breaking!

  5. You live and you learn! This is a great writeup of your experience, seems like you got a lot out of it.

    Your 90 minute commute sounds a bit grueling, but I do envy the productivity you can have with a long commute. I live very close to work and don’t have time to use my commute productively. I end up getting a bit more sleep, but I don’t have as much time as I would like for reading and thinking!

    1. Thanks Prosperly. The commute was a drag back then before smart phones. These days, with blog posts and podcasts my commute of an hour seems short.

  6. Great post. I do not think that buying a home is a clear path to wealth. I think for some it may be a good choice based on what you are wanting out of life. I think mobility when you are young is a big win and that it truly is a lottery as to timing on purchasing and selling. Many things can force someone to move but that does not mean it will be the right time to buy or sell a home. I am currently a home owner in Denver and got lucky to catch a wave nothing more then that.

    1. There is certainly value in flexibility. It’s hard to quantify but it’s there. Imagine you get offered a great job out of state. Having to sell your house may prevent you from taking the opportunity.

  7. You’ve certainly had a number of ups and downs, Jason, but sounds like you got some education. Real estate can be even more fickle than the market and just as hard to time. Mr. Groovy and I have been fortunate.

    But do you know what I see as the biggest win for you? That your girlfriend became your wife. Aside from her being a lovely person (as I have no doubts, even though I don’t know her) — if you had decided to go separate ways after jointly purchasing property, that could have been a big mess, and not just in a monetary sense.

    1. The wife is always the biggest win. To be clear, the property was in my name even when we moved in together. This way if she ever wised up and realized she could do better, it would not be so messy.

  8. I’m impressed with your wise financial choices and your willingness to give land-lording a try to make your condo purchase have a better outcome (letting housing prices recover before selling). I feel for you overall on your timing, but hey, you came out of it with a lot of knowledge and with a wonderful wife. Life is good! 🙂

    1. Life certenly is good. All we can do is make the best decision available at the time and hope it works out. Some will be wins, others won’t. If you think things through, I’m sure you will come out ahead.

  9. I came across your blog on Reddit. Great to see another interesting personal finance blog.

    We bought our first home (condo) at the age of 27, not as young as you, but I would say it’s a good experience and good investment. We sold it after owning it for 5 years. That condo purchase was the start of our real estate investment, and now we are heavily invested in the real estate market.

    Though you outlined each stage as “win” or “loss”. I’m wondering have you considered all the costs associated with home ownership? And do you still have a “win” after considering all those costs?

    I’ve done a thorough analysis on our condo purchase strictly from a financial perspective, and to be honest the return on investment is not that great, but we still enjoyed owning rather than renting, it gives us a sense of security. If you are interested, here’s my detailed analysis on the ROI of our first condo purchase:
    https://taoofinvestment.com/what-is-the-return-on-my-real-estate-investment/

    Do you still own a home now or do you rent? What’s your take on owning vs renting?

  10. Cool story…I didn’t know you were in the NYC metro area. I live out in Queens. That’s great you were able to save a good amount of money living with your parents. When my wife and I got married we looked into buying a co-op and there was that $8000 tax credit incentive as well but ended up renting. We finally bought a co-op a few years ago but might outgrow it at some point with the 2 kids. I think there has been a decent amount of appreciation which is good and bad. The bad is that if we want a bigger place…those prices have gone up as well. Housing in the NYC metro area is nuts. Part of me considers going back to renting but the appreciation of owning is tough to give up on too. We’ll see what happens…

    1. The appreciation in the markets has probably been higher than in real estate lately.

      Nice to hear of another blogger in the city.

      That $8K tax credit seems sweet. With the new tax bill, lowering your property tax may be a winning strategy.

  11. Owning a home and learning. Charge it to your experience. I was going to ask you about homeowners insurance until I get to the latter part of your post.
    It also reminded me of the time when I purchased our first home. It was a single family ranch home about 15 minutes west of Chicago. We had some roofing issues about 5 months after the purchased. The roof started leaking down to the kitchen ceiling down to the walls. My wife was getting hysterical and started talking about selling the house. ha ha hah. Well, it turned out that the homeowner’s insurance covered the repairs but we still ended up paying the $500 deductible. Ouch!
    Hey, a year later realized I do have some handyman skills and was able to add another room/office in the basement by myself. We stayed in that house for almost eight years.

    1. Learning handyman skills is so helpful and one of my weaknesses. A $500 out of pocket outlay for a big problem does not seem too bad. It’s much better than paying for thousands of dollars of damage.

  12. Your story is very similar to our own. We bought at the height of the market, investing in a condo/townhome and then it tanked within 1-2 years after the purchase. We did similar things above and boy did it set us back A LOT. We’re finally on better footing, but I always think back if we would’ve waited to buy a few more years where we’d have ended up living, how much we would’ve saved, and how much better off we’d be by now!

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