Author Topic: First Time Home Buyer Looking For Advice  (Read 1006 times)

Penn42

  • Bristles
  • ***
  • Posts: 267
First Time Home Buyer Looking For Advice
« on: December 15, 2018, 06:46:16 AM »
I previously posted about potentially buying a piece of property and I decided against it.  The land was very expensive upon a little further digging.  Now I've been casually keeping an eye out for a home.  Here is all my details, all the numbers are my portion of expenses, does not include SO's expenses.

Current situation:


Age - 27
Income - Appr. $3800/m and rising.  My realized income is much lower because that figure includes 401(k) contributions.
Rent - $250/m in a prime location.  We live above SO's parents who are uninterested in renting the apartment out except to family.  The price is well below market rate for the location and size.
Debt - debt free
Saving's Rate - 73%
NW - 49k

Considerations for future home/future home purchase:

  • Interested in homes in a relatively small area of town due to bike accessibility.
  • Do not want or need a large home or large lot.  I'm not interested in the higher amount of upkeep either would require.
  • SO still has significant student loan debt.  Looking for someplace reasonable so she can still throw large money at it
  • I've got about 13k in liquid assets I could put toward a down payment.  I'm reasonably certain my parents would float me money to cover the rest if I asked.
  • I'm handy and while not exactly looking for a fixer upper, am interested in someplace I could build significant sweat equity in
  • I'm not sure where this falls, but prices seem to hover around $200/sq. ft. here. 

Based on those criteria there are not many options available.  However, 2 days ago the first viable option that meets all criteria popped up.  Potentially buying a home seems much more real now. 

Viable option details

  • 848 square feet w/ a small detached garage/shop
  • 3050 square foot lot
  • only two blocks away from where I currently live (i.e. the perfect location)
  • estimated 15 year mortgage at 4.27% is $1079/m
  • It's 93 years old and needs major updating, but it is fully functional and considering it's age looks to be in fine condition
  • listed for 150k - $177/sq. ft.
  • This is a high property tax area.  Last year's property taxes were $1650 according to Zillow

I'd like to buy a home such as this because I'll likely be living here for quite a while and my current situation will not last forever (there will be younger members of the family whose turn it will be to rent this place).  My current residence is also a little bit of a shithole, excuse my french.  I've done quite a bit to improve it, but it's structurally unsound and since it's not my place I'm not getting too major with any of my repairs.

A place such as the Viable Option is well within my budget.  If Zillow's guess is correct I'd be paying $500/m which is only double my current housing costs.  Double sounds bad, but $250 is very low.  I also like projects and would enjoy a slow one-room-at-a-time sort of remodel while we inhabit it. 

OTOH it seems it could potentially be prudent to wait for the housing market to cool before looking to buy.  Housing around here seems especially high.  It would also be nice to have the entire down payment saved up by myself.  Regardless, I'm actually going to make some calls about this thing and I'm kinda freaking out about it.  Calling is a much more concrete action than just looking at an ad on Zillow. 

I made this to flesh out my own thoughts as much as ask for advice.  Part of me likes the simplicity of not owning a home, but there's a myriad of other things I'd like about owning one.  If anyone has any words of wisdom as I pursue this potentially major life change I'm all ears. 

« Last Edit: December 15, 2018, 06:53:16 AM by Penn42 »

waltworks

  • Magnum Stache
  • ******
  • Posts: 3389
Re: First Time Home Buyer Looking For Advice
« Reply #1 on: December 15, 2018, 08:33:58 AM »
What is it going to cost you, all in? You left out insurance, maintenance, utilities (or do you pay those where you live now?) etc. My WAG is $1600-1700 a month when all is said and done. So 7 times your current expenses.

Really, unless there's another family member champing at the bit to live in the attic, I'd stay where you are and keep saving/paying off debt.

-W

Penn42

  • Bristles
  • ***
  • Posts: 267
Re: First Time Home Buyer Looking For Advice
« Reply #2 on: December 15, 2018, 09:12:12 AM »
The $1070/m figure includes an estimated insurance cost.  We currently pay all utilities except garbage. I figure utilities would be close to a wash due to electricity savings if this new place has even a shred of insulation.  The heated areas are comparable in size and a heat retaining equivalent to my current apartment would be a cardboard box.

I would be buying this with the intention of dumping some money into it to not only make it nicer to live in for myself, but also to build equity faster.  I'd expect to have around 10-15k left after maxing out my IRA and 401k that I could use for such purposes.  Any maintenance that comes up as separate from a renovation project would get baked into there somewhere.  Having not seen this place up close (and having never owned a home before) I'm not sure what a reasonable budget for maintenance would be.  All maintenance will be performed by me.

I've been putting my excess savings in a brokerage account (vtsax) this year, which I'm prefecture happy to continue doing.  The area where I would ideally like to live is really quite small and it's only getting trendier.  Breweries, restaurants, and other various hangouts are popping up nearby like crazy. 

That leads me to feel a little more pressure than perhaps I should.  I'm trying to be careful not to rush into anything, though.  I've been thinking about this often the past year and a little more seriously the past six months as I've gained a little more job security and increased income to a point where I could still max my retirement accounts and purchase a home.  Nonetheless, it's a big step I've never taken and gives me a little trepidation knowing my 73% would take a hit, even though the correct purchase could still potentially be a prudent financial decision in the long run.


waltworks

  • Magnum Stache
  • ******
  • Posts: 3389
Re: First Time Home Buyer Looking For Advice
« Reply #3 on: December 15, 2018, 09:21:00 AM »
On a small 90 year old house I'd estimate $200 a month in maintenance, assuming everything is in good shape now. But it's hard to say for sure, and it'll vary a ton by climate/region.

-W

Penn42

  • Bristles
  • ***
  • Posts: 267
Re: First Time Home Buyer Looking For Advice
« Reply #4 on: December 15, 2018, 09:32:58 AM »
I'm in the PNW, so relatively mild year round compared to New England or something. 

That number does not seem unreasonable to me.  Would you expect that number to drop once renovations are finished or is it more closely tied to the structure itself being 90 years old?  I'm fully capable right now of completely upgrading all the mechanical issues it may have, which would be some of the first things on my list.  It's the interior finish stuff I have less experience in, though I know I'm fully capable of strengthening my skills in those areas. 

Assuming the electrical/plumbing/HVAC has been upgraded and exterior finish, interior finish and the roof has been fixed/renovated would you expict that maintenance number to drop?

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11206
  • Age: 61
  • Location: NorCal
Re: First Time Home Buyer Looking For Advice
« Reply #5 on: December 15, 2018, 09:53:50 AM »
We own five homes. One to live in, one we're completely rehabbing to sell, and three are rentals. Frankly, I stopped reading carefully after I saw your rent is $250/month. In my experienced opinion, you should stay put until you hit FIRE. With crazy low rent, and high savings rate, it will happen fast. Then start looking for a house to buy, if you wish, but not now.

You might get a different answer over at Bigger Pockets. After all, this is a FIRE blog.

Penn42

  • Bristles
  • ***
  • Posts: 267
Re: First Time Home Buyer Looking For Advice
« Reply #6 on: December 15, 2018, 11:07:31 AM »
We own five homes. One to live in, one we're completely rehabbing to sell, and three are rentals. Frankly, I stopped reading carefully after I saw your rent is $250/month. In my experienced opinion, you should stay put until you hit FIRE. With crazy low rent, and high savings rate, it will happen fast. Then start looking for a house to buy, if you wish, but not now.

You might get a different answer over at Bigger Pockets. After all, this is a FIRE blog.

I hear you.  My fire horizon is probably in the 10-13 years range as it is right now.  And that isn't including any attempt to guess what my heath insurance would be like at that time.  By the time I'm 40 I expect to be FI except for health insurance. 

I hazard the 10-13 years period because the $250/m isn't a permanent deal.  I could likely hunker down here for the next 7 years and get damn close to FI, but then I would just lose my FI once it was time to move.  It would be a kind of lame duck FI because I don't think I could rent a garbage can to sleep in for that little. 

Ultimately, I know giving up this situation earlier than I have to might cost me money, but regardless I don't think I'll ever be able to hit the 7 year time frame a 75% savings rate suggests due to the aforementioned reasons.

Any rebuttals?  I'm not trying to talk past everything you are saying, just trying to reason out the slightly finer details, but I could very well be missing something.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3389
Re: First Time Home Buyer Looking For Advice
« Reply #7 on: December 15, 2018, 11:14:45 AM »
7 years of saving *at least* $1000 a month, compounded from investing it, is quite a bit of money. Call it $100k to be very conservative.

Now, life isn't about being FIRE as soon as you possibly can. It sounds like you can afford the house, so if it'll make you happy, go for it. But it will cost you money in the long run to abandon your essentially free housing.

-W

Penn42

  • Bristles
  • ***
  • Posts: 267
Re: First Time Home Buyer Looking For Advice
« Reply #8 on: December 15, 2018, 12:59:39 PM »
7 years of saving *at least* $1000 a month, compounded from investing it, is quite a bit of money. Call it $100k to be very conservative.

Now, life isn't about being FIRE as soon as you possibly can. It sounds like you can afford the house, so if it'll make you happy, go for it. But it will cost you money in the long run to abandon your essentially free housing.

-W

Point taken.  Prudent might have been the wrong word earlier.  I'm at least certain I could break even on the place after some elbow grease and as the neighborhood continues its upward spiral.  That's not the most best thing ever though. 

Jon Bon

  • Pencil Stache
  • ****
  • Posts: 934
  • Location: Midwest
Re: First Time Home Buyer Looking For Advice
« Reply #9 on: December 15, 2018, 02:21:06 PM »
I think a good middle ground would be stay put until the SO loans are paid off?

The market can cool off and you can bank that cheap rent for a while longer.

Also 800 sqft is small, throw in a kid and a dog and you will be bursting at the seams. Sure its doable, but it is not fun. My first house was 1000sqft, it worked for us as DINKS but not sure it would be fun for us now.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11206
  • Age: 61
  • Location: NorCal
Re: First Time Home Buyer Looking For Advice
« Reply #10 on: December 15, 2018, 05:22:18 PM »
Guaranteed a 93 year old house is a ticking time bomb. It's going to cost you a lot more time and money than you think. If it's on MLS and you're not shy, you can PM me the address and I'll have DH take a peek at it. That man can read a house like a book.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11206
  • Age: 61
  • Location: NorCal
Re: First Time Home Buyer Looking For Advice
« Reply #11 on: December 16, 2018, 07:14:37 PM »
Response PM sent.

Penn42

  • Bristles
  • ***
  • Posts: 267
Re: First Time Home Buyer Looking For Advice
« Reply #12 on: December 17, 2018, 05:18:30 PM »
I've exchanged several messages with @Dicey via PM and they gave me some good things to think about.  While that conversation was going on I attempted to get in contact with two of the RE agents Zillow recommended so I could get a walk of the place.  This was on Sat and Sunday and both agents were not very communicative. 

This morning I called the number on the sign in the front yard and found out that there are already 5 written offers on the place.  It went up last Wednesday afternoon and they're not going to take any more offers after noon tomorrow.  So that pretty much puts the ixnay on it for me.  That's ok. 

I think the last question I have that will be relevant in this thread is: how long is a pre-qualified loan good for?  It seems that if I do decide to buy someplace in the future I will have to have the funds available more or less immediately.