Climbing the Property Ladder

Amanda Asks: When is the 'right time' to move from a condo to a house? is it always smart to move "up" once your "foot is in the door" of the real estate market?

Good question, and I have encountered questions like this many times.

But, before I answer this question about when it is wise to move from a condo to a house, I will answer a question I have run into more than once, and that is whether it is a good idea to buy a condo at all.

I understand that in many urban markets, unless you have a huge downpayment and a great job, your options are 1.) condo or 2.) rent for the rest of your life. A condo, for many is the only way to stop renting and get into the real estate market (I address the pros and cons of buying vs. renting here).

However, if you find yourself with a downpayment and you can make the monthly payments (the interest rate time bomb is explained in part here) I would still caution against buying a condo.

Yes, yes, I know, condos are so nice. You don't have to mow the grass or shovel the walks and usually, they are nice and in a good location..... but, (and it's a big one) you are getting into an investment (as well as, I would argue, a huge liability) that you do not control. If the group of owners decides to replace the roofing, or the city finds problems with the HVAC system, the condo board will pay out a lot of money to fix the problem.... so far so good, that is what your monthly condo payments are for.

But, what if two (or three) problems arise around the same time? If the reserve fund runs out (and it happens more than you might think), you will be given a letter demanding thousands (often tens of thousands) of dollars from you in the next month to pay for the repairs or upgrade. This is called a Cash Call, and they can be horribly painful.

Now, if you owned your own home and you had, say, a roofing problem, you could ask a cousin, neighbor or friend to help you, buy the shingles and a few pizzas and reroof your house in a day for a quarter of the price you would have paid the condo association.

Even if you have to hire a contractor to do it for you, you could shop around for a better price and (here is the big one) you could choose to do (or not do) the repairs when you want (ie, when you can afford it).

Instead of buying a condo, let me suggest another option that is cheaper, offers more privacy and lets you grow your equity more quickly.

Now......I know that this is not a popular option, but this is a money blog and not a "how to look good in front of your friends and family" or "how to live in a really nice place right now" blog.

Here I go......Mobile homes...used ones

Yes, I said it.

Mobile homes often cost way less than a condo, you fully control the living unit (although you pay a monthly lot rental) and you would live in your own space.

Detractors would say that you would lose all that lot rental each month, but my response is that people paying mortgages lose much more in interest payments.

If you doubt my advice, set your personal feelings about living in a trailer park aside for the 5 minutes it would take you to crunch the numbers.
After you see that it makes sense and you still want to live in a condo, then fine, but at least you will acknowledge that living in a condo is a personal and not a financially driven choice.

Living in a mobile home is not for everyone, but it was a good start for my family and it is for millions of others.

Now, onto the question about climbing the property ladder:

When to sell one place and move into another is a very complex choice. It can be affected by the size of your family, your income, your lifestyle choices and the property values in your area. However, I will say this, I believe that most North Americans try to move up into better living spaces too early and too often. People decide that they "can't" live in their current space any longer and "need" something bigger, nicer, etc. (I imagine that they are comparing their current home with the one their parents live in, and they want one like that now instead of saving up for it like their parents did)

With interest rates being as low as they are, I imagine that there are many people who are looking at their current mortgage payments and realizing that they could live in a larger house for the same payment as they are currently paying.

While this may be true, interest rates are not going to stay low forever and you could be getting yourself into trouble if you get a larger mortgage when the rates are at all time lows.

The average North American pays twice as much of their income in mortgage payments each month as people did 50 years ago. We have become accustomed to being "house poor", but finding yourself in a tight cash flow situation (and one that you know will last for many years) has a way at eating away at your quality of life in a pretty serious way.

Here is my advice; if you can move from your current place to a home where you would rather live, and you can afford it now and in the future (even if interest rates rise dramatically), and it is a personal choice you wish to make, then go ahead, but I would suggest that before you do so, crunch the numbers to see if you really can afford it.

One last thought. I have found that for most big ticket purchases for which we make monthly payments, the recurring sting of payments lasts much longer than the new car smell.