First Person: Why We Aren’t Buying an Investment Property

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With a son attending college in another state, I began to wonder whether buying a condo or townhome would make financial sense. Since he wanted to move out of the dorm and find his own apartment, I researched the cost of rent in his town on Zillow.com. With the lowest rent showing up at close to $700 a month, I figured it wouldn't be difficult to beat that cost by buying a condo. After all, the mortgage cost of the condo could be as little as $300 a month. However, after doing the research, I was surprised to find he would come out ahead by renting.

Coming up with a down payment

Because we would be buying the condo for my son, the bank said we'd have to put down 20 percent. We would be purchasing an investment property, from the bank's perspective, even if our son lived here. Although it wouldn't be impossible to come up with a 20 percent down payment, we would have to dip into our emergency savings. Also, if my son was purchasing the condo on his own, I could take $10,000 out of my Roth IRA. However, since it would be my investment property, I wouldn't be able to dip into my Roth IRA without penalty.

Figuring out the maintenance

In addition to paying taxes and homeowner's insurance on the condo, we'd also have to pay a $130 to $190 monthly maintenance fee. After adding in the maintenance costs, the investment property that would only cost $300 now could cost as much as $500 a month. Also, he would still be responsible to fix anything that broke.

Paying utility bills

Another cost that had to be factored into the decision was the cost of heat, electricity and other utilities. We found an apartment that included all utilities for $700. After researching the different ads for rentals in his area, I realized that utilities could cost anywhere from $100 to $300 a month. Now, our great condo that would cost $500 a month could cost $600 to $800 a month.

Figuring in the closing costs

Although some people say that renting is throwing money away, I no longer agree. If we purchased a condo, we'd have to pay $5,000 in closing costs that we'd never get back. We would also be paying interest on the mortgage. My son was able to find an apartment that offered a special for the summer. His rent will come out to $610 a month including utilities. If we purchased a condo, we'd be paying $600 to $800 in addition to the closing costs. If we decided to sell the condo in 5 years, we'd still be spending an additional $83 a month for five years on the closing costs.

Although I am happy to be a homeowner, I think there are some cases when renting beats owning. In the case of my son starting out, renting seems to be the better choice even with condo prices as low as $65,000 to $75,000. We had to figure out all the hidden costs before making a financial decision we would live to regret.

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