Author Topic: How much is experience worth?  (Read 5742 times)

aaronfix

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How much is experience worth?
« on: January 16, 2014, 08:51:54 AM »
There is plenty of good advice about buying a house on this blog and forum with some useful back-of-the-envelope calculations. I'm thinking about buying one, and I can bust out a spreadsheet and do the cost-benefit, but what I'm having trouble figuring out is the value later in life of having owned a house when I'm young and single. Owning a house would force me to learn how to do a lot of things I'd like to do (home repair and re-modeling type things, dealing with contractors, renting rooms out and eventually the entire thing when I move and turn it into a rental).

I'm 30 with over $200,000 in savings, living in Boston and saving over $100,000/year (haven't sat down figured out exactly how much) while spending around $25,000/year. I'm interested in the dollars and cents of whether this would be a good financial decision, but I also think it might be worth a lot as a life decision that will give me valuable experience. Any Mustachians out there that have bought a house and wished they hadn't, or wish they had done so earlier? Any Mustachians out there that have bought a house and rented rooms out to friends (this is what I'd be doing)? Any thoughts on the value of these experiences would be much appreciated.

Aaron
« Last Edit: January 16, 2014, 09:05:48 AM by aaronfix »

Greg

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Re: How much is experience worth?
« Reply #1 on: January 16, 2014, 08:55:45 AM »
Good questions.  I wish I had owned a home earlier for two reasons, one is all the rent I paid without anything to show for it before owning my own home, and two the skills I honed and refined building my own home.  Designing and building is what I do, so I would think I would have branched out on my own earlier if I had been a homeowner at a younger age.  Somehow being a renter put me in the work-for-someone-else mindset.

Cheddar Stacker

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Re: How much is experience worth?
« Reply #2 on: January 16, 2014, 09:18:37 AM »
We bought our first home a year after college. Good decision in the end, but we made a few mistakes that maybe you can learn from.

We didn't get a buying agent (which doesn't cost you anything, seller pays the commission), so we simply called the agent listed on the sign, and he brokered both sides of the deal. This is an inherent conflict in my mind as he just wants to get the deal done to get paid. We likely overpaid a bit due to not having a true agent on our side.

We also thought, well an extra $5K on the purchase price only adds $10/month to the mortgage. Big mistake, because on the back end you have less profit/equity when you sell. Buy as low as you possibly can.

We bought our second house too soon because we thought it would be a good time to "upgrade" (3bd/2ba instead of 2bd/1ba). We bought in a slight dip in the market in our area (early 2007) but if we'd waited a few more years we not only would have built a much bigger stache due to the smaller mortgage, but also would've benefited from the 2008 crash.

No regrets, just lessons learned. Good luck, and it sounds like you've amassed a nice stash and are doing quite well, so I'm sure you'll hit a home run with it.


frugally

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Re: How much is experience worth?
« Reply #3 on: January 16, 2014, 12:22:35 PM »
We didn't get a buying agent (which doesn't cost you anything, seller pays the commission), so we simply called the agent listed on the sign, and he brokered both sides of the deal. This is an inherent conflict in my mind as he just wants to get the deal done to get paid. We likely overpaid a bit due to not having a true agent on our side.

I second getting a buying agent.  At the time I estimated we saved $6500 because of having one.  Negotiating repairs after the home inspection is a lot easier with an agent on your side.

slugsworth

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Re: How much is experience worth?
« Reply #4 on: January 16, 2014, 01:03:31 PM »
Regarding the original posters question, I bought my place about 5 years ago at about 30y/o. . .it worked for me, but having a house, especially in an expensive market, ties you down.  You can't take a job opportunity in another city as easily, you can't move your stuff to a storage unit and travel for a few months, and you have a lot of net-worth locked up.  Additionally, selling has a high transaction cost, in my area I would say 2.5% + realtors at 6% for a total of ~8.5%. That being said, for me, it was a good decision, I bought at the troth in the market, fixed up the place and got a lot of equity while getting a place to live for less than rent.

My house was a gut renovation and I did a lot of renovation myself, but still had to hire contractors to do a lot of things and materials alone are expensive. I had helped on a lot of home improvements growing up, but doing it myself was a learning experience.

I don't rent out rooms on any sort of regular basis as it is a 2bdrm, I work from home, and like some privacy.

I would really ask yourself if you plan on being in that house for a long period of time. It sounds like you have been in your high wage job for ~2 years, do you think you will want to move to another city or another side of the city or need a major break from your job in the near term?

Also, for what it is worth, I would disagree that a buyers agent doesn't cost you anything. . .if I was a seller and was able to not pay the 3% to a buyers agent, I would discount the price. I have no idea what your house will cost, but let's say $300k as I think that is inexpensive in Boston - your buyers agent would cost you $9k which is a lot of negotiation to pay for. . . and a RE attorney would charge a lot less. If you were to use a buyers agent, I would suggest Redfin at least you get a rebate from them on this exorbitant fee.

Oh, there are others that could speak to this with more authority, but if you plan on doing a major renovation and later plan on renting it out - you should keep careful track of your capital account so you can track for capital gains and depreciation later down the road.

Cheddar Stacker

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Re: How much is experience worth?
« Reply #5 on: January 16, 2014, 01:38:35 PM »
Regarding the original posters question, I bought my place about 5 years ago at about 30y/o. . .it worked for me, but having a house, especially in an expensive market, ties you down.  You can't take a job opportunity in another city as easily, you can't move your stuff to a storage unit and travel for a few months, and you have a lot of net-worth locked up.  Additionally, selling has a high transaction cost, in my area I would say 2.5% + realtors at 6% for a total of ~8.5%. That being said, for me, it was a good decision, I bought at the troth in the market, fixed up the place and got a lot of equity while getting a place to live for less than rent.

My house was a gut renovation and I did a lot of renovation myself, but still had to hire contractors to do a lot of things and materials alone are expensive. I had helped on a lot of home improvements growing up, but doing it myself was a learning experience.

I don't rent out rooms on any sort of regular basis as it is a 2bdrm, I work from home, and like some privacy.

I would really ask yourself if you plan on being in that house for a long period of time. It sounds like you have been in your high wage job for ~2 years, do you think you will want to move to another city or another side of the city or need a major break from your job in the near term?

Also, for what it is worth, I would disagree that a buyers agent doesn't cost you anything. . .if I was a seller and was able to not pay the 3% to a buyers agent, I would discount the price. I have no idea what your house will cost, but let's say $300k as I think that is inexpensive in Boston - your buyers agent would cost you $9k which is a lot of negotiation to pay for. . . and a RE attorney would charge a lot less. If you were to use a buyers agent, I would suggest Redfin at least you get a rebate from them on this exorbitant fee.

Oh, there are others that could speak to this with more authority, but if you plan on doing a major renovation and later plan on renting it out - you should keep careful track of your capital account so you can track for capital gains and depreciation later down the road.

A lot of good points here. Since I commented on the using a buyers agent, I'll add a few items to what I said based on slugsworth's points.

In my experience (which is limited and doesn't mean it's the same everywhere), if a seller has contracted with a selling agent, he has agreed to pay a commission to the agent. The fee can vary, and it's negotiable. On the sale of my first house I knew the agent well and he gave me what I think is a great deal at 4.7%. This was split 2% selling agent, and 2.7% buying agent. If there was no buying agent, the selling agent kept the full 4.7%. This agent also used to be a home builder, and he mentioned even when buying in a new development it was smart to have a buying agent. Obviously he's promoting his own profession, so I take it with a grain of salt, but his point was the developer is paying a commission to the salesman in office, and he will split the fee with a buying agent who is acting on behalf of the buyer.

I completely agree that if I were selling a house and could avoid paying a commission for a buyers agent I would, and I would likely be willing to offer a much better sale price since I would still come out ahead. If you can find a house that's not yet listed, or that's for sale by owner, or that was just taken off the market recently, you might be better off getting a RE attorney to broker a deal and charge a flat fee. This could save you money on the sale price, and the buyer would likely prefer it as well.

Thegoblinchief

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Re: How much is experience worth?
« Reply #6 on: January 16, 2014, 02:56:51 PM »
Bought my house in '06. Didn't think that my area was inflated, but boy were we wrong. Paid $122,500 for it gladly at the time, since it was the first house we found in our price range that didn't have major structural flaws or other deal-breakers. It's been a good house for us, but it's only worth at most $75,000. House right next to us has sat on the market six months for $10K more, and it is almost double our sq footage.

Do your research. Try to find a good deal. It's a lot easier to DIY fix-upper when single than later with a spouse, and especially with kids. A good buyer's agent will help. When I bought, buyer's agents were still relatively new concept and I'd heard stories about sellers refusing to pay commission.

Make SURE you want to stay there for 5 years or more. Any shorter time period, unless you're fixing and flipping, and it will be a bad investment. But then again, homes are a terrible investment:

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

Cheddar Stacker

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Re: How much is experience worth?
« Reply #7 on: January 16, 2014, 03:07:18 PM »
Bought my house in '06. Didn't think that my area was inflated, but boy were we wrong. Paid $122,500 for it gladly at the time, since it was the first house we found in our price range that didn't have major structural flaws or other deal-breakers. It's been a good house for us, but it's only worth at most $75,000. House right next to us has sat on the market six months for $10K more, and it is almost double our sq footage.

Do your research. Try to find a good deal. It's a lot easier to DIY fix-upper when single than later with a spouse, and especially with kids. A good buyer's agent will help. When I bought, buyer's agents were still relatively new concept and I'd heard stories about sellers refusing to pay commission.

Make SURE you want to stay there for 5 years or more. Any shorter time period, unless you're fixing and flipping, and it will be a bad investment. But then again, homes are a terrible investment:

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

Thanks for posting the link. I was thinking of that exact post, but I had no idea where I read it.

Once I found MMM I ate it up quick and spit it out ready for more. I've read 100% of most of the blogs he linked to on his site, so sometimes I get confused on which one had which post.

aaronfix

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Re: How much is experience worth?
« Reply #8 on: January 17, 2014, 08:06:08 AM »
Thanks, all. There is some good advice here. And I'm pretty aware that a house isn't the best investment from a purely financial and risk/reward perspective (unless you are a particularly savvy buyer and seller, or you put a lot of work into it yourself), but there are other important things to consider like 1) what you learn through the experience of owning, repairing and fixing up a house, 2) over $1,000/month in rent from roommates, 3) tax benefits if you're going to live in it, 4) the freedom to do things like put a drumset in the basement and make a bunch of noise on it in the middle of the day. These are the reasons I am considering it, and #1 is the piece that I'm really not sure how much value to attach to it.

SunshineGirl

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Re: How much is experience worth?
« Reply #9 on: January 17, 2014, 08:18:08 AM »
I'm sure you could find people who need help fixing up their houses if that's the sort of experience you want, or volunteer for Habitat for Humanity.

I'm trying to think what I'd do in your situation, and it's hard because I'm coming from the perspective of 16 years' more experience in life than you, so what I would have done at your age vs. what I would do now aren't the same, I don't think. I believe I would buy if I was your age and in your position. At my age, though, (mid-forties) I see what you make and what you spend and think, Shit, you could have a million in investments in not too long a time - certainly by the age of forty, but most likely far before that, at which point you'd be FI, given what you spend.

For whatever reason, actually for many reasons, people get the property first and try to build the stache later, but you've got a clean slate right now, and my vote would be for keeping your flexibility and options open. I'd actually buy a little fix-up cottage in NH or Maine instead, if you're into getting out of the city at regular intervals.

But really, you'd be wise to keep doing what you're doing! 

Daleth

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Re: How much is experience worth?
« Reply #10 on: January 17, 2014, 09:48:57 AM »
having a house, especially in an expensive market, ties you down.  You can't take a job opportunity in another city as easily, you can't move your stuff to a storage unit and travel for a few months, and you have a lot of net-worth locked up. 

You can do all those things if you're willing to rent your house out to someone while you're traveling (or if you're moving, to rent it while you see if you really like the new city and want to stay there). If that seems like a huge hassle, look into hiring a management company to do all that for you. I never quite buy it when people say renting leaves them free to travel on a whim, because you can't move out of your rental, store your stuff and travel for a few months until your lease ends, or you will get whacked with at least a partial lost deposit, whatever it takes the landlord to cover the rent until she's able to find a new tenant.

Also, for what it is worth, I would disagree that a buyers agent doesn't cost you anything. . .if I was a seller and was able to not pay the 3% to a buyers agent, I would discount the price.

You probably can't discount the price. I mean, you can discount the asking price, but you can't do a thing about how much commission the agent gets--you're going to lose that 6% no matter how you price the house. Check your contract with your listing agent: it almost certainly says the listing agent gets 6% (or something close to that figure). If the buyer has a buyer's agent, then the two agents split that 50-50, getting 3% each. The only way a buyer is likely to save money by not using a buyer's agent is if the seller also doesn't have a seller's agent--i.e. it's for sale by owner. But the problem with that is twofold: (1) FSBO houses are much rarer and harder to find, and (2) people who sell that way instead of using an agent often have no clue about the market and overprice their house.

AlmostIndependent

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Re: How much is experience worth?
« Reply #11 on: January 17, 2014, 10:15:28 PM »
You probably can't discount the price.

You absolutely can. You just write it into your offer. State that you will represent yourself in the transaction and that you are discounting your price by 3% (or whatever) and the seller will not have to pay a commission. You can get a property lawyer to draw up all the paperwork for $500 or so, unless you're experiences this is probably necessary to make sure all the legal hurdles are cleared.

http://www.wikihow.com/Buy-a-House-Without-a-Realtor

This is a pretty decent step by step.

Daleth

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Re: How much is experience worth?
« Reply #12 on: January 18, 2014, 05:03:33 PM »
You probably can't discount the price.

You absolutely can. You just write it into your offer. State that you will represent yourself in the transaction and that you are discounting your price by 3% (or whatever) and the seller will not have to pay a commission. You can get a property lawyer to draw up all the paperwork for $500 or so, unless you're experiences this is probably necessary to make sure all the legal hurdles are cleared.

Your offer can't negate the contract that the seller already signed with their seller's agent. If it says the seller's agent gets 6%, then the seller's agent gets 6%, unless the seller likes your offer enough to convince the agent to change their original deal--which, unless you're dealing with an extremely senior realtor who has the authority to make such decisions, will require not only convincing the agent personally but also convincing the company the agent works for.

AlmostIndependent

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Re: How much is experience worth?
« Reply #13 on: January 18, 2014, 08:38:44 PM »
You probably can't discount the price.

You absolutely can. You just write it into your offer. State that you will represent yourself in the transaction and that you are discounting your price by 3% (or whatever) and the seller will not have to pay a commission. You can get a property lawyer to draw up all the paperwork for $500 or so, unless you're experiences this is probably necessary to make sure all the legal hurdles are cleared.

Your offer can't negate the contract that the seller already signed with their seller's agent. If it says the seller's agent gets 6%, then the seller's agent gets 6%, unless the seller likes your offer enough to convince the agent to change their original deal--which, unless you're dealing with an extremely senior realtor who has the authority to make such decisions, will require not only convincing the agent personally but also convincing the company the agent works for.

When a realtor lists a house the commission is negotiated upfront,  typically 3% to the selling realtor, 3% to the buying realtor. The commission to each realtor is listed on the MLS listing. If you are a realtor, or are in with someone who is, you can see all this information right off the bat.

The selling agent can (if their client agrees) become a neutral party and broker a deal between buyer and seller and then collect both commissions. If a buyer comes along unrepresented and wishes to remain so they can absolutely ask for a reduced price in lieu of the fact that there is then no buyers agent to collect that portion of the commission.

I've purchased 6 pieces of real estate, I can tell you from experience that this is absolutely possible and, if you're comfortable on your own in a real estate transaction, no big deal.

Daleth

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Re: How much is experience worth?
« Reply #14 on: January 19, 2014, 07:50:16 PM »
You probably can't discount the price.

You absolutely can. You just write it into your offer. State that you will represent yourself in the transaction and that you are discounting your price by 3% (or whatever) and the seller will not have to pay a commission. You can get a property lawyer to draw up all the paperwork for $500 or so, unless you're experiences this is probably necessary to make sure all the legal hurdles are cleared.

Your offer can't negate the contract that the seller already signed with their seller's agent. If it says the seller's agent gets 6%, then the seller's agent gets 6%, unless the seller likes your offer enough to convince the agent to change their original deal--which, unless you're dealing with an extremely senior realtor who has the authority to make such decisions, will require not only convincing the agent personally but also convincing the company the agent works for.

When a realtor lists a house the commission is negotiated upfront,  typically 3% to the selling realtor, 3% to the buying realtor. The commission to each realtor is listed on the MLS listing. If you are a realtor, or are in with someone who is, you can see all this information right off the bat.

The selling agent can (if their client agrees) become a neutral party and broker a deal between buyer and seller and then collect both commissions. If a buyer comes along unrepresented and wishes to remain so they can absolutely ask for a reduced price in lieu of the fact that there is then no buyers agent to collect that portion of the commission.

I've purchased 6 pieces of real estate, I can tell you from experience that this is absolutely possible and, if you're comfortable on your own in a real estate transaction, no big deal.

This must be a state-by-state thing. Every contract I've seen in my state is 6% commission to the seller's agent, to be split with the buyer's agent if any. Also, bear in mind that on lower-cost properties the commission may be higher; some realtors won't represent sellers unless they're going to get a minimum $X commission, so if 6% of the asking price is less than $X, then the contract will say something along the lines of "6% or $X, whichever is greater."

AccidentalMiser

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Re: How much is experience worth?
« Reply #15 on: January 20, 2014, 07:10:55 PM »
I'm having trouble figuring out is the value later in life of having owned a house when I'm young and single.

We bought our first house when we were 21, much for the same reasons.  What it taught me was that I wish I had rented until my life was stable.  As Thegoblinchief said, unless you are SURE you are going to stay there for five years, I would strongly advise against buying a house.  Every house I have bought has been a money pit.  Most of the renters I've had have been pains in the neck (including one of my own children.)

I don't want to throw cold water on your dreams, but I would advise a lot of careful planning and soul searching before making such a commitment.