Need Suggestion on Whether to buy a condo or an SFH as First Home

Buying & Selling Real Estate
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Need Suggestion on Whether to buy a condo or an SFH as First Home

Patla Ash
Santa Clara, CA · Member since 2017 · 4 posts · 0 votes

Hi,

I am a newbie and have not purchased my home yet. I pay about $3000 in rent in south Bay. I need suggestion on whether to buy a condo for less than 700k or to buy an SFH as First Home(South Bay, Fremont)

I believe that home prices are at all time highs in Bay Area, but I do not know when the downturn would hit us and would like to be best prepared. Here are my options:

1. Buy an SFH for around 1 million USD, live in it and ride through the downturn(whenever that happens)

2. Buy a Condo for around 700k(if I can find one) and hope to buy another one in the downturn, while still keeping the first one

I believe that a Condo would probably go down much further in a downturn when compared to SFH. I feel like the prices will go down once the interests rates go back up to pre-recession rates, but I also feel that the home prices may not go down that much, due to inventory and sellers not wanting to sell. But, regardless I would like to be prepared for a 20% downturn.

I would like to hear your views and also learn something from you guys. Can someone also chime in on how the new tax bill would change things in Bay Area Real Estate at all.

Thanks in advance,

Ash

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  • Angus Yang
    Oakland, CA · Member since 2017 · 29 posts · 16 votes
    8y

    Curious as to how you can up with the 700k and 1 Mil numbers for buying a Condo/SFH.

    What areas are you looking at and how big are these homes? It seems like a huge price tag to be paying if it's just some place that you'd be living in. Spending that amount of money on your own residence is going to limit your options to invest later on too so it's something to consider.

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  • Patla Ash
    OP
    Santa Clara, CA · Member since 2017 · 4 posts · 0 votes
    8y

    Hi Angus,

    Thanks for the reply. For 700k and 1 mil, I probably can get a condo/SFH in the 1200 sft to 1500 sft in south bay and Fremont. One of the reasons I posted my questions here is, if I spend that much on my first home, then my future investments maybe limited to none, as you pointed out.

    As an alternative, I was thinking of finding something cheaper in San Ramon/Livermore and if there is a downturn, my losses(underwater) hopefully would be smaller and I probably can invest later on. If I buy something in SanRamon/Pleasanton/Dublin/Livermore, I probably would rent it out, rather than living in it. My biggest concern right now is my rent.

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  • Alex Deacon
    Investor · Pittsburgh, PA · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    @Patla Ash if its possible and you can find a duplex in your area then thats what I would buy first. It will help with your mortgage payment renting out 1/2 of your home and also get your feet wet to see if you like this business. It helps to spread out any risk by doing it this way plus being an owner occupied property you can buy it with mush less money down than if it were a straight up investment property.

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  • Cara Lonsdale
    Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    I don't know the Bay area market, so I can't speak to specific pricing or downturn. I can only speak to SFH Vs Condo.

    There are a few things to consider. First is price. If there is a narrow difference between the 2, then a SFH will be more in demand, and easier to rent/sell in most cases. And I agree with you that SFHs hold their value much better IN GENERAL than Condos, downturn or not.

    Next, does the community have an FHA cert? Your condo pricing there may be beyond FHA loan limits, so this could be irrelevant. However, if it DOES have an FHA cert, it is a good indicator that there are more owner occupied residents than investor owned units. This is important when it comes to financing as FHA and other 3.5% down payment programs are appealing to first time home buyers that can't quite come up with the minimum 5% down for a conventional. However, these programs aren't offered to communities that don't hold an FHA condo cert. You can look up whether a community has a condo cert on the HUD site.

    Lastly, what is the HOA fee? Is there a pad fee or any other fee too? How healthy is the community, and how often do they raise the HOA fee? This is important on two levels. First, you will need to know what the threshold for HOAs are in your area (how much are people willing to pay) to determine if the community you are looking at presents a selling detractor down the road. For instance, in AZ, it's about $200 per month. Unless there are other services included like AC, $200 is about all people here want to spend on an HOA. What that means is that communities with HOAs above $200 usually either sit longer on the market, or sell for less than they should for the type of property they are, or location they have. Again, that is an AZ example. I don't know what your thresholds are in the Bay area. Second, any HOA fee equates replaces a portion of a person's mortgage payment. So, you have to ask yourself. If someone added the $200 toward their mortgage payment, how much HOUSE could they buy? If the answer is better than the condo, then the SFH beat out the condo again.

    Hope that wasn't too confusing.  Best of Luck to You! 

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  • Justen Crews
    Investor · Henderson, NV · Member since 2015 · 7 posts · 2 votes
    8y

    First thing to factor is the [usually high] monthly fees to own a condo. compared to SFH, they usually have higher fees that [in my opinion] you're throwing away. This reason alone, I stay away from condos.

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  • Patla Ash
    OP
    Santa Clara, CA · Member since 2017 · 4 posts · 0 votes
    8y

    Thanks @Alex Deacon, I will look into duplexes too.

    Thanks @Cara Lonsdale for the insights on FHA cert and HOA fee, this definitely helps

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  • Patla Ash
    OP
    Santa Clara, CA · Member since 2017 · 4 posts · 0 votes
    8y

    Thanks @Justen Crews

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