I wrote about this a few times. To make you just a bit more nauseated I’m gonna write a little more about this recent condo purchase. The idea of making a purchase came to me when I started facing a hefty rent increase. I realize that Portland, just like any major growing city, could have absurd rent increases for decades to come.
I care less about the actual dollar amounts of the rent. I care more about the unpredictability of the monthly liability. Rent can be $1k/month or $2k/month. As long as it’s fairly predictable then I can create a budget based on it. But it it were to jump from $1k to $1.5k/month then I’m fucked.
I am trying as best as possible to have a defined baseline budget. By this I mean, I would like to control my minimum living expenses as much as possible. This is one of the ways I’ll know that I can break away from my j-o-b. I posted my average monthly income in this previous post.
A mortgage is a predictable expense that remains the same month after month for the duration of the loan. Rent is far more unstable. With a strong enough inflation, rents would go through the roof and my salary may not catch up for some time. Food expenses may go up as well but I can adjust my eating habits. Cell phone expenses may inflate but there are ways to communicate for nearly free . Health insurance may also go through the roof but that’s what medical tourism is there for.
The Condo Purchase
So… I am paying cash for this condo which I should be able to move into in a month or so. I needed to cash out a good chunk of my investments in order to pay for it. But after weighing the pro’s and con’s paying cash is the right decision.
I have about $180k invested in a private brokerage right now and I’m about to cash out most of it.
I have also written in the past why renting might be a better idea than making a purchase. For me, the $140k price tag is small enough that I can justify it. I see real estate prices going through the roof in the next few decades. I’m just making a prediction so it means nothing. Let’s see how much decision will play out in the next few years.
By making this cash purchase I will have only the following overhead:
- HOA dues ($160/mo)
- Property taxes ($112/mo)
- Repairs/Maintenance ($80/mo)
Homeowners Association Fees
HOA dues will be in the $160 range and they usually go up every year. On occasion there are ‘special assessments’ when major repairs/upgrades need to be done. These get added to the HOA either as a one-time lump sum or a monthly fee for a certain period of time.
HOA dues cannot be written off against taxes when the home is your primary residence. However, if I rent out the place in the future then I can deduct all relevant expenses from the rental income.
Property taxes are partially tax-deductible. It means that based on my marginal tax percentage rate I can deduct that percent from the total property taxes owed.
My prop taxes will be in the $2,000/yr range. I am in the 33% tax bracket so for federal income taxes I could deduct $660 from my taxes. My annual taxes would only be $1,340… technically.
Property Maintenance Costs
Homes need to be maintained, repaired and upgraded in order to keep their value. I am handy so the labor, being the most expensive, is covered. However, I would still need materials and tools from time to time. It is recommended that 1% of the home value be set aside every year for home repairs.
After this purchase I still have about $300,000 saved up in my retirement accounts. With no mortgage payments I expect to max these out as well as contribute to my private taxable brokerage account. I still have about $17k left in student loans which I should be able to pay off quickly.