Author Topic: Looking for strategies for buying house for less money  (Read 1757 times)

MrStubble

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Looking for strategies for buying house for less money
« on: December 08, 2019, 02:57:16 PM »
I would like to hear how others have saved money on house purchases.

Things I've thought about: buying from wholesalers, foreclosures, short-sale (first house was a short sale), somehow getting better financing than what NavyFederal.com provides, find and connect with people in the area who are planning to sell and save on RE agent fees, using a discount agent.

Do you have experience executing any of these strategies? What haven't I considered? All are some work, but the savings could make it very well paying work.

I anticipate buying a SFH to occupy sometime in 2020, in a HCOL area (Northern VA, targeting 22192). The market is hot, and I don't see that changing much (between Gov and growing tech sector). SFH seem to average $400k in that zip code (and much higher farther north), but I plan to stay put for 20 years at least. This will be the second house I've purchased, and I learned electrical, plumping, some HVAC, and more from my previous residence (with sale proceeds ~$100k), so for things I wouldn't have time to fix I would at least know what is needed to fix them and can screen contractors accordingly.
« Last Edit: December 08, 2019, 03:13:57 PM by MrStubble »

Villanelle

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Re: Looking for strategies for buying house for less money
« Reply #1 on: December 08, 2019, 03:06:43 PM »
I would like to hear how others have saved money on house purchases.

Things I've thought about: buying from wholesalers, foreclosures, short-sale (first house was a short sale), somehow getting better financing than what NavyFederal.com provides, find and connect with people in the area who are planning to sell and save on RE agent fees, using a discount agent.

Do you have experience executing any of these strategies? What haven't I considered? All are some work, but the savings could make it very well paying work.

I anticipate buying a SFH to occupy sometime in 2019, in a HCOL area (Northern VA, targeting 22192). The market is hot, and I don't see that changing much (between Gov and growing tech sector). SFH seem to average $400k in that zip code (and much higher farther north), but I plan to stay put for 20 years at least. This will be the second house I've purchased, and I learned electrical, plumping, some HVAC, and more from my previous residence (with sale proceeds ~$100k), so for things I wouldn't have time to fix I would at least know what is needed to fix them and can screen contractors accordingly.

Since you mention Navy Fed, have you looked into VA loans, if you qualify?  I'm not sure if you are looking just to save money overall, or to have a lower down.  That would probably do the latter, but not at all the former, especially with the more strict inspection requirements that tend to prevent purchase of a fixer.

Also, even if you plan to stay for 20 years, it may well not be a financially smart move to buy.  (I say, "financially savvy" because I know there are other reasons people buy a home, even if it costs more in the long run.  So if this is more of a psychological/emotional decision, so be it.  If not, then don't assume that length of residency means that buying will always come out ahead.) 

Also, you said you'd occupy in 2019.  Do you mean 2020?  Does your living situation have flexibility so that you can stay in one place until you find a deal but aren't looked in, so you can move quickly?

Have you considered things like a duplex or something with a rental unit attached?  Costs more in the long run, but that can catapult you from a market where renting is a massively cheaper choice to a situation where you come out WAY ahead owning, as long as you don't mind being a landlord. 

Lastly, is there a reason you are limiting to Woodbridge?  If you are looking for a deal, keeping your options as open as possible makes sense.  It's unlikely you will save money moving closer to Alexandria, Arlington, the district, etc., but if price is your primary motivator, staying open so you can find a bargain in a larger area will likely work out better. 

MrStubble

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Re: Looking for strategies for buying house for less money
« Reply #2 on: December 08, 2019, 03:39:32 PM »
Since you mention Navy Fed, have you looked into VA loans, if you qualify?  I'm not sure if you are looking just to save money overall, or to have a lower down.  That would probably do the latter, but not at all the former, especially with the more strict inspection requirements that tend to prevent purchase of a fixer.

I would not qualify for a VA loan, although some of NavyFeds ARMs look very attractive. 0 down and no PMI for some of them.

Also, even if you plan to stay for 20 years, it may well not be a financially smart move to buy.  (I say, "financially savvy" because I know there are other reasons people buy a home, even if it costs more in the long run.  So if this is more of a psychological/emotional decision, so be it.  If not, then don't assume that length of residency means that buying will always come out ahead.) 

This was a question I asked myself as well, so I ran 4 scenarios in the attached spreadsheet (rent, buy with 5/1 ARM, buy with 30 yr fixed, buy with 15 yr fixed) where the difference is invested, and paid off in between 7 and 10 years. Rental (based on my current rental house) was dead last. Also, having a paid off home is currently part of my FIRE diversification plan to reduce how much income I need to draw from the market.


Also, you said you'd occupy in 2019.  Do you mean 2020?  Does your living situation have flexibility so that you can stay in one place until you find a deal but aren't looked in, so you can move quickly?

Updated year to 2020. My living situation is flexible, and I think the landlord would be more than happy to keep me indefinitely. Lease is up in May, but I decide how long the next lease is.

Have you considered things like a duplex or something with a rental unit attached?  Costs more in the long run, but that can catapult you from a market where renting is a massively cheaper choice to a situation where you come out WAY ahead owning, as long as you don't mind being a landlord. 

Duplex is the way to go from a cash flow perspective. Unfortunately zoning laws in Fairfax county and Prince William counties largely restrict converting houses into duplexes. Kitchens seem to be the sticking point, and an oven is what makes a kitchen a kitchen apparently. I suppose if given enough SQFT and supporting layout, a separate unit without an oven could be carved out. Again, it would depend on the house.

Lastly, is there a reason you are limiting to Woodbridge?  If you are looking for a deal, keeping your options as open as possible makes sense.  It's unlikely you will save money moving closer to Alexandria, Arlington, the district, etc., but if price is your primary motivator, staying open so you can find a bargain in a larger area will likely work out better. 

I'm targeting 22192, but I'm not limited to that zip code. It is my present zip code and works great for transportation into DC as well as 2 nearby locations I could likely work as well (30 min drive), decent schools, relatively low prices for the area, and a nice balance of neighborhood and nature. I think those factors would also help appreciation long term. There are 5 zip codes with strong potential in my mind that for a good price I would also jump on. Thank you for your suggestions!
« Last Edit: December 08, 2019, 03:44:44 PM by MrStubble »

Villanelle

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Re: Looking for strategies for buying house for less money
« Reply #3 on: December 08, 2019, 06:36:14 PM »
I didn't entirely follow your spreadsheet but are you accounting for  investing the significant difference early on between renting and costs of owning?  If your area is anything like a couple zip codes further north, rents can cost 50% or less than annual costs of owning.  So you'd be putting that difference into the market. 

MrStubble

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Re: Looking for strategies for buying house for less money
« Reply #4 on: December 08, 2019, 06:51:12 PM »
I didn't entirely follow your spreadsheet but are you accounting for  investing the significant difference early on between renting and costs of owning?  If your area is anything like a couple zip codes further north, rents can cost 50% or less than annual costs of owning.  So you'd be putting that difference into the market. 

The idea of the spreadsheet is to take a sum of income say $40,000 to pay for all housing expenses and then invest the difference, option with the greatest sum wins.

I think the reason rents are better deal further north is due to real estate being more expensive.

Villanelle

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Re: Looking for strategies for buying house for less money
« Reply #5 on: December 08, 2019, 07:46:32 PM »
I didn't entirely follow your spreadsheet but are you accounting for  investing the significant difference early on between renting and costs of owning?  If your area is anything like a couple zip codes further north, rents can cost 50% or less than annual costs of owning.  So you'd be putting that difference into the market. 

The idea of the spreadsheet is to take a sum of income say $40,000 to pay for all housing expenses and then invest the difference, option with the greatest sum wins.

I think the reason rents are better deal further north is due to real estate being more expensive.

But so too are rents.  Are they rents really comparatively less expensive, as a comparison to purchase price.  It's more expensive to buy, but it's also more expensive to rent.  It's the ratio between the two that matters. 

Since I can't quite follow your spreadsheet, I can't really comment further.  If you are 100% confident in your math and that you've captured everything though, then it sounds like you have your answer.  (And assuming you are correct that you truly will stay in this home for 20 years, and there is no need to account for costs to get the any equity out of the house at any point.)

Duke03

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Re: Looking for strategies for buying house for less money
« Reply #6 on: December 08, 2019, 08:25:47 PM »
I got $35k off my last new construction house build by going head to head with the builder and negotiating hard.  I had to by pass my realtor to get this done because imagine this she claimed the builder wouldn't negotiate and the price is the price.  I guess the extra $1000 in her commission was more important that saving me 35k.  One of the many reasons I hate realtors.....

Bloop Bloop

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Re: Looking for strategies for buying house for less money
« Reply #7 on: December 09, 2019, 12:17:40 AM »
I try to gauge which agents/vendors are particularly motivated sellers - I often offer a lowball offer first up and if I'm rebuffed I bid against myself with what I think is a reasonable offer; if the agent shows any interest in the lowball offer I know they are probably very keen on selling. You can also put in limited time offers to make sure the agent doesn't hold onto your offer and try to play off against another buyer.

I also sometimes ask a friend or my partner to make a similar offer to me and see how the agent responds to that.