Author Topic: starting off right  (Read 4697 times)

mowgil

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starting off right
« on: May 28, 2013, 11:21:44 PM »
I am a new college graduate with a 70K a year job (before taxes). I live in the seattle area. My net worth is near 0, but I am looking to begin rapidly building that. My initial budget was about 24K for the year. This is dominated by rent/utilities expenses (12K). This is to live in walking distance from my place of work downtown. I am currently reevaluating spending so much in rent and other expenses, with the intent to bring my budget closer to the 19-20K range. That said, despite my net worth being near zero, I have a financial backer who has offered to assist me in the purchase of a first home, if he agrees with the valuation of the home. Although I initially planned to save up and aim for purchasing a home 3 years down the road, I want to seriously consider the pros and cons of looking to buy now, even if it means increasing my housing costs. (since it would be building home equity, as opposed to just being a monthly rent expense).

I am hesitant to be so leveraged, but on the other hand, I like the idea of owning instead of paying someone else to rent a house.

Thanks for the thoughts and advice!

Joel

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Re: starting off right
« Reply #1 on: May 28, 2013, 11:48:52 PM »
I would not buy a house without 20% down. You are so fresh to working, what happens if you get an amazing job offer at a different company after 2 years? Do you legitimately plan to work at this same company in this location for at least 5 years? If not, I would not buy.

chc4444

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Re: starting off right
« Reply #2 on: May 29, 2013, 01:25:37 PM »
The only way that I would buy a house in your situation is to get a house that you could use as a rental if you moved away or found a house in a better location later. So that this first house purchase is really an investment purchase in that it will eventually earn you rental income. I agree that you should put at lease 20% down. The trick right now is that the interest rates are still good and they will probably be higher in 2-3 years. The real sweet deal would be if you could find a place that you could rent out partly now (like a duplex) but that might be hard to find. Spent a lot of time looking. I looked at hundreds and hundreds of houses before I found the house we now live in on 4 acres of waterfront an hour from Seattle that I'm proud to say is fully paid for. Claudia

Rebecca Stapler

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Re: starting off right
« Reply #3 on: May 29, 2013, 01:54:40 PM »
I'm skeptical that it would be a good idea because of this mysterious financial backer. Is it a parent? A lover? What do they expect in return? What would be the legal status of the property -- joint tenants? Tenants in Common? Speaking from my own home state, which is not WA, so IDK what the tenancy rules are there, I wouldn't want to mix any relationship other than marriage with home ownership. Disagreements can be really problematic.

lhamo

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Re: starting off right
« Reply #4 on: May 30, 2013, 04:58:51 AM »
I wouldn't buy now if I were in your position.  The housing market in Seattle (as in many other cities) typically tightens up a lot in the spring/summer as there is a rush of people trying to get into new houses before school starts in the fall.  Worst possible time to buy.  I would start looking in October/November.  Smaller number of buyers and people who put their houses on the market then usually have a pretty serious reason for doing so (job loss or transfer, divorce, etc.). 

Get your feet under you at work.  If you can find a cheaper place to move to, that might be worth considering, but being able to walk to work is a biggie in terms of keeping overall costs low, so consider the tradeoffs carefully.  Do you have zipcar or something similar near you?  Might be worth joining that so you can make weekly or bi-weekly trips to Costco or the ID to stock up on groceries.  Or if you have friends with cars maybe you can share a ride.  Focus on keeping your overall expenses down and building up savings. 

I would also be wary about buying a house with money from someone else, unless you have a very clearly spelled out legal agreement that governs the contract.

cerberusss

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Re: starting off right
« Reply #5 on: May 30, 2013, 05:35:50 AM »
I like the idea of owning instead of paying someone else to rent a house.

That could be a very costly preference. I don't think you see both sides of the coin. J.L. Collins has written about it on his blog (and has been referenced on other subjects by MMM), please read these:
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
http://jlcollinsnh.com/2013/03/20/roots-v-wings-considering-home-ownership/
http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

People view rent as "throwing away money", but owning a house can be very pricey. That's because from your monthly payments, only a very small portion goes towards the principal. You could increase that portion, but then again that could go towards an investment. Without the risks of home ownership.


nktokyo

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Re: starting off right
« Reply #6 on: May 30, 2013, 07:10:26 AM »
The only reason I would say buy a house is if you buy a rental property. That way if when you move on to bigger and better things you can keep it as an asset working for you.

Even then, I would suggest you wait a couple of years, save 50K or so and see how you feel about life then.
« Last Edit: May 30, 2013, 07:16:56 AM by nktokyo »

Sweet Betsy

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Re: starting off right
« Reply #7 on: May 30, 2013, 07:14:26 AM »
Don't do it!  Having been in a partnership before we learned the hard way that they are so not worth it. It has the potential to ruin your relationship if things go wrong and yes, they can and do go wrong.

I wouldn't tie myself down to a house at your age anyway...

mowgil

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Re: starting off right
« Reply #8 on: June 02, 2013, 11:04:32 PM »
Thanks for the replies. My financial support is a relative who has owned several rental properties, and the exact terms of how he would support the purchase are flexible. In addition i have a housemate who I expect to continue living with and splitting rent.