Boston’s real estate market is hot. It slowed down for a while during the Great Recession, but has been booming for the last two years or so. In Cambridge, you can’t buy a condo today without paying over asking and making an all-cash offer. I’m sure this is due to many factors, but in my opinion the presence of strong universities (Harvard and MIT aren’t going anywhere) and a booming job market (in part fueled by all the university-induced start-ups) make it a pretty safe bet for a stable investment in what is otherwise an extremely risky and low-return investment landscape.
This thinking only factored marginally into my decision to buy. Like a lot of people, I always assumed that buying a place was what responsible adults did. It is better to be “paying yourself” by paying back a mortgage than paying rent to a landlord each month, or so the old thinking goes. There are a lot of factors to consider when making the rent vs. buy determination, and I won’t get into that here, but suffice it to say that I did a thorough analysis and determined that buying was the right decision for me.
Timing is everything
I was lucky in that I decided to buy a condo in 2012, after the Great Recession was officially over, but before people went back to their boom-time spending ways. In 2012, there were a decent number of condos on the market in my desired location and price range. Most received multiple bids, usually over asking, but all-cash was not yet a given and there was still room for a person with a modest budget to compete.
The market was good in 2012, but I was 24, single, and didn’t exactly command an I-banker’s salary. I did have great credit and a sizeable down payment saved up (thanks to living with my parents for a while after college). Interest rates were at historical lows. I knew that I was responsible enough to handle the extra work that comes along with homeownership. But these things alone were not enough to make buying a condo on my own feasible. Two key factors allowed me to make my dream of owning a condo a reality.
Co-investors or: Parents save the day (again)
My parents are the best. Maybe I’ll tell you about that another time. But for now, all I’ll say is that my parents were willing to co-invest in my condo with me. I recognize that I am extremely lucky that my parents were in the financial position to do this, and that this advantage is not shared by everyone. For me, it made all the difference in financing my condo. I contributed 10% of the total cost to the down payment, and my parents matched that for a total 20% down payment.
In the long run, this will save me money in so many ways. By having a lower mortgage, I’ll pay less in interest over the life of the loan. By putting 20% down, I was able to avoid that pesky PMI. And, most importantly, I probably couldn’t have afforded the purchase at all without my parents’ investment. My parents will eventually benefit from this investment too, as they own a 10% stake in the property. When is sell, my parents will get 10% of the sale price, which shouldn’t be too bad given that Cambridge real estate has appreciated an average of 36% over the last five years.
After my parents contributed 10% to the purchase price of my condo, I still had to make the monthly mortgage payments work. I made sure that I could afford the whole payment on only my take home (after retirement contribution) salary, but it was tight, and there wouldn’t have been much room for the fun stuff. Luckily, I planned for this scenario and had an easy solution: rent out the second bedroom in my condo to a roommate.
I know that roommates are not for everyone, but they are for frugal people. Having a roommate is one of the best ways to reduce living expenses, and this is especially true as a condo owning “landlord.” Every dollar I got in rent was money directly in my pocket. It helped offset the mortgage payment and other expenses, allowing me to maintain my quality of life and saving rate while still owning my own home.
Do you own a home? What creative measures did you use to make home buying possible?