Pros and cons of buying an apartment

[Aimless]

Wherever we choose to live, my ginger and I will probably have to buy an apartment if we want to live anywhere close to work and if we want to have a nice home in a nice place.

For a dual-income household with a lawyer and a doctor, getting a decent loan isn't likely to be the greatest obstacle, ditto for saving up for a down-payment and/or a deposit.

Those of you who're more experienced than I am: from a financial perspective, what would you say are the pros and cons of buying/owning an apartment vs. renting? Are there smarter things to do with that money? Your answers don't have to be applicable to my particular circumstances

[Flixy]

Con of an apartment - no garden (usually). Pro if you hate maintaining gardens, of course.

[Aimless]

Con of an apartment - no garden (usually). Pro if you hate maintaining gardens, of course.

Financially man

The ginger will likely turn the balcony into a garden anyway.

[Flixy]

Financially man

The ginger will likely turn the balcony into a garden anyway.

I have nothing to say about financials - I still live in a student house. Good luck either way. Though I would think renting makes changing places a lot easier - planning on kids any time soon?

[Ominous Gamer]

Apartments are easier to manage financially if its difficult to pull together emergency funds. If something breaks its the landlords problem.
I also think they allow for more diversity in your options; location, price, freedom, quality etc. At least in my area.

I rent, but I rent a house. With a full front and back yard. The landlord is halfway around the world and trusts me to do what I want with the house. We are looking to buy, but because of Brandy's job being largely off the books, its hard to secure the loans for the quality we can afford.

[wiggin]

Minx, it really depends on the specific price-to-rent ratios in your neighborhood. Generally, if they're very high, it's more worth it financially to rent.

However, there are a lot of ancillary concerns. Sometimes you can't easily rent the kind of home you want, and they're only available for sale (sometimes it's the opposite). The exact cutoff changes with mortgage rates and property tax rates, not to mention inflation. Also, you have to remember that as a homeowner you're on the hook for maintenance et al. On the other hand, buying a home is forced saving - if the excess money you'd save if you rented is wasted instead of saved, it often is better to buy.

You can get a sense of whether homes in your area are overpriced by looking at the aforementioned ratio. There are some calculators out there that give you a decent idea of when things start to pay off (IIRC the NYTimes had a decent one a few years back, I can look for it if you'd like). In general in the US you shouldn't buy a place unless you're staying there for at least ~5 years; closing costs, moving costs, et al really bite into any savings you might have from building up equity. Those costs might be lower in Sweden, though, so you really have to figure it out for yourself.

[Dreadnaught]

The above are good points.

Also, it's worth considering what your location/career plans may be in the next few years. Is there any chance you'll need/want to move somewhere else? If so, would this apartment financially tie you down in any way? EG, when I bought I made sure I bought in a building where I could rent (and it was desirable to rent) so that I wouldn't be stuck paying for something in case I had to move for work or want to move in with someone.

Beyond the ratio, also just think about the opportunity cost of the down payment: what might that money be worth to you when it's not in a house.

All of this is not to say you shouldn't. These are just questions worth asking, which I also asked and came to the conclusion I should buy (and I haven't regretted it a bit).

[Timbuk2]

Having rented dozens of apartments, owned three properties and sold two of 'em, my view is that you are far better off, financially, owning your own.

Lots of variables to consider, some of which wiggin and Dread have alluded to;
- How monthly rent compares to the monthly mortgage you'll be repaying in the town & area you're considering. In my experience (London), rent is usually slightly higher than equivalent mortgage repayments on a small (~10%) deposit.
- What are interest rates like in Swedistan? I'm guessing low at the moment. How stable are they in the longer term?
- What mortgage deals are available? Varable? Fixed? Tracker? 2, 3, 5 year deals?
- How willing are you to be tied down to the property? How certain are you that you won't be suddenly needing to relocate to another town? If that were to happen would you be able to rent it out easily enough to tenants?
- Do house prices generally rise in the long term where you're looking to buy?
- Are you a DIY buff? Do you have a a creative internal decorating urge? Would you like to invest a bit of your time/money in improving your own property?

What are your plans for this? Is this a temporary measure, to live for the next 3-5 years or so? Something to invest in, live in, perhaps improve, then sell on when your careers take off and use the profitssssss to buy a bigger place? Move up the ladder?

[Dreadnaught]

Soh...whuts the resolution up in dis?

[GGT]

I'd say a young professional couple (you're a DINKY!) would be wise to rent, and put any extra income in an account reserved for buying later. Your situation can change depending on finalizing degrees, getting jobs, making long-term plans. Unless your housing market is super healthy, unloading a purchase can be a real challenge and limit your choices - and mobility - down the road.

Forgot to mention, from a "financial" perspective....as a newly married couple...take the time to have those difficult conversations about money, co-mingling income, knowing if you're savers or spenders, who keeps the books or pays the bills, what investing means, attitudes toward money and all that entails.

That said, start saving first. Build a rainy-day fund and start your nest egg before getting into debt or buying a home.

[Aimless]

(the following post will be about money, please steer clear if you find this vulgar)

So, an update:

Yesterday we accepted a bid on our apartment and we have learned a few lessons. Our broker is the same person who sold the ginger the apartment many years ago and he was recommended to us by my father in law, which counts for a lot. However, this time I learned that not everyone is as sincere and as genuine as my father in law and that even nice brokers are pretty selfish. I was reminded of that old story from Freakonomics about how many brokers, when selling someone else's house, won't really care too much about getting the best possible price, as long as they get an okay price and screw everything else, because the marginal profits are pretty small for them even though they're v. important for the seller.

The ginger bought the apartment 7 years ago for ca $68K in 2008-dollars and we sold it for $188K (ca $171K in 2008-dollars). This is wonderfui. What's less wonderful is that we let ourselves be rushed into starting the bidding process and accepting a bid, and a week ago the broker tried to pressure us into accepting a bid of $166K.

When we started this, both the ginger and I were pretty clear on our wishes and needs and intentions. We knew that were in no hurry whatsoever to actually sell this place, that we wanted to wait until we also found the perfect place, and we def. wanted to wait until it was an excellent time to sell. The best time to sell an apartment like ours in this town is sometime in the summer or sometime early autumn around the time prospective uni students find out where they'll be studying or around the time some of their parents become desperate. The actual value of our apartment at these peak times could be $203K (anomalous but not so anomalous as to be ridiculous) or a fair bit over $191K. However, for reasons (and in ways) that I shan't detail here, we were pressured into accepting a bid. For us, the price difference and the timing could mean the difference between being mortgage free and mortgaged, the difference between getting a home that fits our needs perfectly and one that fits it far less well, and of course the difference between having a new place to move to and not having one to move to when we have to vacate our current home.

For the broker, it's a fraction of the extra commission of $490, and entails much more work, much more time and patience, and a little more risk, with little to gain in terms of prestige and reputation.

I am not displeased with the price, but I am extremely displeased about the situation as a whole, and it has been an expensive lesson in the importance of being prepared, informed and determined when dealing with third parties who do not necessarily have your own best interests as their top priority.

Other observations:

- this town or this entire country is absolutely fricking insane when it comes to the housing market, esp. for 1- and 2-room apartments near the uni campus and the hospital, and that anyone who tries to pretend that social classes don't exist in Sweden is definitely lying. The govt is expected to enact some changes to current legislation that will require people to amortize their loans at a significantly higher rate as well as requiring larger deposits, but these measures have not had an impact on the kinds of wealthy families that can and want to buy an apartment for their kids, nor should anyone expect such an impact. Interest rates are extremely low (hovering around 2% for these kinds of loans to these kinds of families) and these people have money to spend. I don't see the housing market in this town and others like it becoming any less insane in the next few years unless they abandon their current strategy and just make more rental apartments and that's not going to happen.

- It's easy to get carried away. We bid on a gorgeous 2-room apartment with a balcony the size of our current home and kept adjusting our ceiling all the time. I'm extremely sad that we didn't get it, because it was an amazing apartment at a perfect location where apartments are only rarely up for sale, but I am glad we stopped before we deviated from the plan too much.

- Buyer's/seller's remorse is kinda tough, need to work on this.

- I make good plans but I have difficulties staying on course. I always get back on course, but it's a close call at times.

- I love our home v much

- I love my wise wife very much.

[Hazir]

I think that you should consider before anything else is how much flexibility you can shoulder and then take the most flexible financing you can actually get. If I read your posts correctly you two have got a nice little cushion so should be able to choose. I also wouldn't worry too much about the exact selling price of your old flat; the same mechanism works for you when you're not selling but buying.

[Dreadnaught]

Are you locked into a contract? Can you break it?

I hadn't thought about this before, as I didn't realize that your home has some durable advantages. IE, what if you were a slumlord to university students and used that income to fund renting elsewhere? IE, if you already own a place in an area that is likely to remain hot, is it a good investment to hold on to it and just rent elsewhere?

[Aimless]

Yeah there's no backing out now but I feel a little less grumbly renting out to students can be a good idea at times, but the numbers weren't compelling enough to make up for the downsides and with today's ridiculously low interest rates and the location being what it is, renting an apartment like this is worse than taking on a loan to buy it (those who can't get a loan for one of these apartments can usually get pretty good student accommodation). Crazy I tell you.

[RandBlade]

Glad that you managed to make a decent profit on your old apartment and hope you can get a new one you like. I agree with the line above that on the thinking of if you buy or rent, think if you're going to live there for 5 years or more. If you're planning on staying somewhere for 5 years then its (as a rule of thumb) better to own it.

One risk of being a homeowner let alone a landlord is that you're liable for repairs. If you let out to students you could be lucky and get a decent bunch who treat your property with respect, great. But you could get some who trash the property and the security deposit doesn't even come close to the repairs needed. It'd be better I think to be in a position to let out a couple of properties to spread the risk.

We bought our house late in 2010 so coming up to 5 years and if we were to sell it today we'd get approximately what we spent on it, maybe a small loss. As we bought a new build there's a premium on those that needs to be overcome when you sell on. However our mortgage repayments actually comes to less than what it would take to rent this house and two-thirds of those repayments go on capital (a form of forced savings) rather than interest. I estimate that we've paid about £8000 in interest while we would have spent approximately £36000 in rent. Even accounting for legal costs and repairs that might have been the landlords responsibility (not many on a new build) we're still better off owning even without the price changing.

[wiggin]

Glad that you managed to make a decent profit on your old apartment and hope you can get a new one you like. I agree with the line above that on the thinking of if you buy or rent, think if you're going to live there for 5 years or more. If you're planning on staying somewhere for 5 years then its (as a rule of thumb) better to own it.

One risk of being a homeowner let alone a landlord is that you're liable for repairs. If you let out to students you could be lucky and get a decent bunch who treat your property with respect, great. But you could get some who trash the property and the security deposit doesn't even come close to the repairs needed. It'd be better I think to be in a position to let out a couple of properties to spread the risk.

We bought our house late in 2010 so coming up to 5 years and if we were to sell it today we'd get approximately what we spent on it, maybe a small loss. As we bought a new build there's a premium on those that needs to be overcome when you sell on. However our mortgage repayments actually comes to less than what it would take to rent this house and two-thirds of those repayments go on capital (a form of forced savings) rather than interest. I estimate that we've paid about £8000 in interest while we would have spent approximately £36000 in rent. Even accounting for legal costs and repairs that might have been the landlords responsibility (not many on a new build) we're still better off owning even without the price changing.

That 5 year rule of thumb is at best a very fuzzy one. NYTimes has a pretty good calculator that sorts out the actual time for it to pay off. Because of wildly varying price to rent ratios (and changes in things like property taxes with location), the break even can be as little as a year or two or as much as a decade or longer. Really depends.

[RandBlade]

As a rule of thumb, rules of thumb aren't exact.

[Timbuk2]

Just ensure you take out good landlord's insurance.

I rented out my apartment for ~18 months and the insurance gave huge peace of mind when I had trouble with one of my tenants, a young Polish couple with newborn. Problems paying their rent, which the insurance covered.

[RandBlade]

Fair enough, I'd be worried typically about the excess on claiming on insurance etc that it could be more hassle than its worth sometimes. But never really looked into it properly.

[GGT]

I'm gonna throw a wrench in this discussion by saying.....living in an "Apartment" should mean renting, not owning. If you really want to "own" a property, then get all the legal property Deeds and Titles.

If there's an HOA or Supervising Board legally dictating things, chances are you don't really "own" the property.

[Aimless]

You're correct, in Sweden most people don't own their apartments but rather own a share in a HOA that gives them them near-total control over an apartment but with restrictions. That's one reason why it's extremely important to make sure the HOA you buy in to is a well-managed not completely insane one. They tried launching another form of property a while back, one that would let people actually own their apartments for reals, but it never really took off and only a few hundred exist afaik. It's an appealing notion but since there are no such apartments available where we'd like to live our hands are pretty much tied. We don't want to live in a house, and we're not too keen on taking on a mortgage even though with Sweden's negative interest we'd probably get a rate of ca 1.7% on any mortgage we decide to take on atm.

[RandBlade]

I'm gonna throw a wrench in this discussion by saying.....living in an "Apartment" should mean renting, not owning. If you really want to "own" a property, then get all the legal property Deeds and Titles.

If there's an HOA or Supervising Board legally dictating things, chances are you don't really "own" the property.

That's remarkably black and white while typically there's more shades of grey. There's frequently restrictions on properties even if you own it, that doesn't mean that you no longer own it. EG as a condition of my property is we're tied into paying ~£100 a year service charge to a company that maintains the car parks, gardens etc on the estate. Does that mean that just because I can't unilaterally tear up that and refuse to abide by it that I don't own the property? Apartments may have more restrictions but they can still be owned. Our estate has blocks of apartments on it as well as houses and the apartments have a higher service charge on them, because there's more communal areas to manage with the apartment buildings.

[Khendraja'aro]

Indeed.

As another example, while my parents own both the house and the ground it stands on, that doesn't mean that they're allowed to do anything they want on it. If they wanted to do larger additions to the house they'd still need the authorization by the authorites for that.

[Aimless]

So it looks like we've bought an apartment: http://bostad.skandiamaklarna.se/til...IQP9QRA8C6D8QL

This whole business has been a significant departure from our original plans in many ways, thanks to our lack of experience and due to our broker whose reputation I will dedicate much of my energy towards undermining over the next decade.

Instead of making a profit of at least $12K we're now looking at a mortgage of ca $35K. Instead of paying $400/mo we'll be paying $700/mo plus interest (which we admittedly should be able to negotiate down to ca 1.7-1.8%). Compared to our second best option, there are some small disadvantages: Instead of having just over 10 mins' easy walk to work, I'm looking at just over 15 trickier mins (minor difference, but it adds up and also has some practical consequences). No grocery-store within comfortable walking distance. Better-designed apartment, but smaller balcony and less nice bathroom. Instead of having an excellent sports' center 1 min away, we have á meh one 20 mins away.

However, the TCO is likely to be lower than it would have been for our second-best option, it's a slightly better location for my wife, we'll have an extra room that we don't "need" but that I think we'll be able to put to good use, and, honestly, I really like the apartment.

We got it for just over the asking price, which was also what we believed it to be worth today "objectively" (and significantly lower than what we'd have been ready to pay for it). I raised by a tiny amount and fortune favoured us for once because the other prospective buyers couldn't get back to them in time. However, I was given a valuable lesson in what it can mean to have a broker who's looking out for you as a seller. Instead of getting to move in on April 20th, which is the date they used to get us to the negotiating table, we'll be moving in near the end of May/beginning of June even though we have to move out of our current apartment by the 30th of this month. We'll get a place to stay until June, but even that works out to their advantage, because it's their place and they get to save quite a bit of money by not having to pay for it during our stay. This is a lot better than what our situation was upon selling our apartment the broker did a very good job of protecting her client's interests.

I may sound a bitter (and I am, about some things), but I'm very happy with the apartment, all things considered We're v. excited and we already have wonderful plans

We hope we won't need to hire a broker again for the next decade or so, but, if/when that time comes, we'll try to do better. Get a much better idea of who they are and what their agencies are like. Let them compete against each other and also use them to get a better idea of what I can/should expect. Remember my rights and my advantages. Not let myself get lured into a difficult and unfavorable position. Stick with a plan if it's good. And be ready and willing walk away from any "deal" that sucks.

Anyway, it's been an exciting end to a very nice albeit stressful workweek. I can't believe we're moving soon eep

[Loki]

I don't quite understand where the extra $300 a month is coming from. What was the problem?

[Aimless]

Sorry, I was very unclear. It's a comparison to the apartments we would have been able to buy if we didn't have to move out by the end of this month. There's a fairly high turnover in that area but it's tied to a number of things that make them more widely available approx April - Aug and from late autumn into the beginning of winter. We're basically in the worst period of the entire year for apartments in that area. We were looking for a place to rent while waiting for one of those apartments but, as you may have heard, finding a place to rent is like impossible right now. I have been kicking myself repeatedly for dropping out of the queue for rentals when I moved in with the ginger, if I hadn't then this would have been a much more pleasant experience another lesson learned.

[Loki]

Didn't realize the situation was that bad. I have heard of realtors screwing people over if they sense that the people don't know what you're doing. Not a great long-term strategy for the realtors, but it takes an asshole to do something like this anyway.

[GGT]

Renting vs owning = many millions of confused people.

I'm trying to figure out how I can sell my house, pay taxes on the profit, and transition to another home without having another mortgage. Sad to say, but home loans/mortgages are the only schemes that can offset my income tax liabilities. It doesn't do much good when I'm trying to downsize, but the only tax benefit is an over-55 once and done deal.

On the other hand, if I use the Greek principles my sister married into, it's easy street.?

Sorry Minx, you're on your own.

[Hazir]

Doesn't it simply mean you bought an appartment that's worth more? Also, how got that superduper gym to be further away than the meh one with the walking distance to work only differing 5 minutes?

Finally, you don't have family and/or friends? I'm pretty certain that there are people who I could ask to help out for a couple of months if that meant I wouldn't get into a longterm obligation of almost double what I would get myself into with their help.

[Dreadnaught]

That place is a beautiful castle! When do you think that second room will be filled?

Also, you have to line up in Swederland to get an apartment?