Author Topic: Potentially buying a house in HCOL with potential down turn ahead?  (Read 689 times)

chowdan

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I've always been of the mindset that you should rent the cheapest, most livable place you can find, bank the savings and invest it and you will be better off. That led into us buying a 42ft sailboat and have lived aboard for over a year now and love it still.

The COL aboard the boat is cheaper than an apartment, we are able to take weekend trips to areas around where we live, we have no complaints what so ever.

A grandparent in the family is getting to an age where discussion of them moving into an independent living apartment is on the horizon.  They own their house out right and my wife and I have started the discussion of - if they want to sell the house, let us know as we would be interested in taking on the project. They are of the mindset that if it ain't broke dont fix it. My wife and I look at the house as a potential great investment considering the location, and if we put some sweat equity into it and cash, we could have a very comfortable home that could be rented out.

The key thing that makes this something wed pursue in our view is that theyd be potentially willing be the bank and as such give us a very good rate (lower than current bank rates).

Now big question is, even though we could likely be buying below market rate, saving money by them not requiring down payment, and also having a low interest rate, are we in a giant bubble that could cause a drastic down turn in economy?

Now I dont suspect anyone can answer that, but I am curious to hear peoples opinion. My view being that we are in Seattle, more people will be migrating to the PNW from California as time goes on due to the sea level rising, more wild fires, more unwanted weather. Regardless of a down turn, i believe that the mass migration is just starting and will continue to occur over the next 30 years, and as such buying a house today in a semi-long term view is worth it as we will see drastic growth in value towards the end of the time period even though in the next 10 years I suspect we'll see a large down turn

MoneyMatrix

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Re: Potentially buying a house in HCOL with potential down turn ahead?
« Reply #1 on: December 02, 2019, 11:11:39 AM »
Think long term on this one.  Do you plan to have kids? If so, how are the schools in the area?
I know many people who didn't think of this prior to buying.
Is it close to your jobs?
Are you willing to live there through a downturn, and potentially owing more than the house is worth? (just something to think about how you feel). I've seen some unhappy people when they owed more than their house was worth, but if they liked the house and the area, schools, etc... they were ok and did well eventually.

Seattle has good potential long term, but has been going up for a while...

I'm very pro buy and hold, but you just have to choose a good area and house/neighborhood that suits you.
Another thing to consider is can you cover costs by renting it if your plans change?
That gives you a way to not sell in a down market if your have to move.

Just some thoughts to consider long term. I was very lucky and someone told me to look in an area with good schools before I bought and even thought about kids and I haven't been stuck like I've seen some people.

waltworks

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Re: Potentially buying a house in HCOL with potential down turn ahead?
« Reply #2 on: December 02, 2019, 11:38:52 AM »
Over 50+ year time horizons that's not predictable. The hottest housing markets in the USA were in the midwest 50+ years ago, and now it's the rust belt and you can buy houses in Detroit for... well, you can have them for free.

I'd analyze the deal as it stands now, and post a normal case study (see the sticky at the top of the forum). If it's a bad rental now, it might or might not be a good long term investment, but you're basically rolling the dice. If it's a good investment now, then go for it.

-W

chowdan

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Re: Potentially buying a house in HCOL with potential down turn ahead?
« Reply #3 on: December 02, 2019, 12:26:01 PM »
Thanks MM for the reply.

One of the reasons we like the house is because
A: Its close to the freeway, yet not ON the freeway and near a lovely forested greenstrip.
B: Its got good schools in the area(7-9 depending on the grade)
C: Location to work for us is great and not far for us to commute via public transit.
D: The house design we like but needs work

For us to think about owing the amount of money for a home like this kind of scares us, especially when we look at the house and see it hasn't been updated since the late 80's. The work requried to do minor renovations(new floors or cabinets) doesn't scare us, rather just the sheer of debt we would be taking on(we never had more than $20k worth of debt and that was paid off over a year). We live life without debt and are INCREDIBLY happy to not have it, but we understand taking on payments for a house is "better" debt than other types of debt.

That being said, I believe Seattle will remain to have long term potential, but the fact that we've had a great market for the last 8 or so years seems to be leading towards a time period where we will see a down period is what makes me nervous. That being said, we would likely own the home for the purpose of living in to fix up(over a year or so), then moving back aboard our sailboat and renting out the house for a number of years before moving back in to raise our family and settle down a bit. IF a down turn occurs, we would be more than happy to continue to live in the house until the market returns, and the benefit of this deal would be they wouldn't require us to have a down payment(as of right now with initial discussions), and that in turn means we can still be leveraged in the markets.

On a side note, some of the work that would be done by us would be to not modernize the house, rather fix the problem childs then go from there(new roof, new insulation, new windows).

@waltworks - That is a great point about 50-year horizon. Hopefully within the next year we can make this happen and if the markets stay the same.
« Last Edit: December 02, 2019, 12:29:24 PM by chowdan »

waltworks

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Re: Potentially buying a house in HCOL with potential down turn ahead?
« Reply #4 on: December 02, 2019, 12:37:49 PM »
Wait, do you want to live there, or do you want to rent it out?

Post some actual (estimates are fine) numbers.

-W

jpdx

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Re: Potentially buying a house in HCOL with potential down turn ahead?
« Reply #5 on: December 03, 2019, 12:41:53 AM »
...we are in Seattle, more people will be migrating to the PNW from California as time goes on ... the mass migration is just starting and will continue to occur over the next 30 years, and as such buying a house today in a semi-long term view is worth it.

I think this is a reasonable prediction. So long as the PNW offers a higher quality of life at a lower cost to California, the migration we're seeing now will continue.

A large Cascadia Subduction earthquake would certainly alter this trend. Then again, a large quake in SF or LA would accelerate it.
« Last Edit: December 03, 2019, 12:45:20 AM by jpdx »

mountainfamily

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Re: Potentially buying a house in HCOL with potential down turn ahead?
« Reply #6 on: December 05, 2019, 09:09:39 PM »
Sounds like you should go for it! We bought a fixer in a nice NE Seattle neighborhood and there have been ups and downs but overall I'm happy we did it. It was our first time going into debt, and it's a lot of debt. But we have a long-term plan and various ways to be resilient if there are challenges. You learn a lot by fixing up a home together, too! 

If you want to assuage any other doubts, you can check the city's earthquake hazard map. If you're in a liquefaction zone you may want to think twice about it.  http://seattlecitygis.maps.arcgis.com/apps/MapSeries/index.html?appid=0489a95dad4e42148dbef571076f9b5b

There is a really strong economy here, with many tech jobs paying very handsome salaries. (We're not among those earning such crazy high salaries but that's another story.) If you're OK with a 5, 7, or 10 year plan minimum, and you're getting a deal, and you want to live there and remodel it over time, stop trying to time the market and buy if you want to.

Chris Pascale

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Re: Potentially buying a house in HCOL with potential down turn ahead?
« Reply #7 on: December 05, 2019, 11:30:32 PM »
Your description of being near, but not on, the freeway is a huge plus IMO. I have a similar situation, and probably save 15 minutes compared to what many people think is the more desirable part of town. My taxes are also much lower.

How you made any headway on a decision one way or the other?

zinnie

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Are you interested in this house to live in it, or to rent it out? I'd make that decision and then run the numbers. If to live in, my dad's advice on houses was always to buy a place you really want to live in. That will give you the quality of life you want, a location that makes things convenient, etc. I know that's obvious advice but it's been helpful for me to not only think of it as a financial calculation. If to rent, run those numbers. Though I know in HCOL it can be hard to make a rental a good investment.

And ask yourself: if a house came on the market in this exact condition for the same price that wasn't owned by a relative, would you buy it? How much of your desire for this house is influenced by the fear of missing out on a good deal vs. actually wanting to purchase this place?

And on all of the calculations about appreciation and depreciation, desirability of area, etc: no one can predict the future. Sure, consider it, but you can spend forever on that and something completely unpredictable can happen. Having a huge chunk of your net worth tied up in a single house in a single location is the opposite of diversification. So, I would think about what make sense in terms of how much you want to spend on a mortgage now and in the near future. Will you be able to save as much as you want with this house, etc.? In my FIRE journey it's always been about getting my mortgage payment down as much as possible to increase my monthly savings rate. Your goals may be different of course.

Lmoot

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You said your hope is that they would be the bank. What if they pass? Who does their estate go to? Have you included possible heirs of the house (aunts uncles parents), and what do they think?

I think if you buy the house, just so that things arenít messy should they pass away while you still owe money, I would say get a separate mortgage.

norajean

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If you think the rental will cash flow well under a conventional mortgage, then go ahead and buy it. Can you get a great price as a family member?  Is it the best alternative in the area for this type of investment?