Committing to purchasing your first house

How to avoid signing your life over to a mortgage
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Lucky C
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Committing to purchasing your first house

Post by Lucky C » Wed Jan 04, 2017 8:41 pm

How can an ERE-type person pull the trigger on buying a house when so much is at stake and there are so many other options? It's more important than any other purchase and there are so many factors to consider that even after researching the market thoroughly for a couple of years it seems like there is still too much to learn!

Most people see a home they like and think something like OK this $1100/mo. mortgage is more appealing than my $900/mo. rent because I get to be a homeowner, and their decision is easy. Way different story, psychologically, when you're purchasing with cash and when the decision has a huge impact on your FI date and lifestyle in general. How can you spend such a small amount of time touring a house and then confidently say "yeah this ought to work fine for the next 10 or 20 years"?

Anyone have stories of how they knew their house was "the one" as soon as they looked at it? Or cautionary tales about falling in love with a house only to grow to hate it a few years later? I'm afraid of buyer's remorse!

James_0011
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Re: Committing to purchasing your first house

Post by James_0011 » Wed Jan 04, 2017 9:38 pm

Whats the point of even buying one?

George the original one
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Re: Committing to purchasing your first house

Post by George the original one » Wed Jan 04, 2017 9:39 pm

Stick to new(ish) construction if you don't know what you're looking at. Be suspicious of perfumed interiors hiding some smell indicating a problem. Look for water stains, particularly in attics & basements. Wood dust is a bad sign. Light leaking into what should be a dark basement is bad. Cold air coming in around baseboards or windows or doors is bad.

I've bought 3 fixer-uppers on my own and it has been worthwhile. Fortunately I learned what to look for from my mom while she shopped for homes as I grew up. She learned from her dad, who owned a small rental empire of small crappy Oregon sawmill homes in Portland, Seaside, & Nehalem after he retired here during WWII.

Understand what you require from a home: budget, location, noise, size, utilities, number of levels, yard, etc. Buy what best matches the criteria. Build what it lacks and repair what needs to be fixed.

***
So, the story of my current residence, the home we've retired to. I was always looking at rural properties and especially good deals were arising in 2011-2012. Wife enjoyed looking, too, when something was interesting. But we didn't really need a new residence, it was more just looking in case something was very tempting. One of the searches turned up 3 properties in December 2011... rejected one as too far away, thus maintaining it while we waited for impending early retirement seemed too difficult. Second property had a beautiful built-in sauna that would be a waste for us, so scratched that off the list.

The third property I recognized from my fishing trips, so location was perfect for me if it met spousal approval. Two large outbuildings should replace the function of my garagemahal workshop. Beds/baths were correct size/number though total floorspace was a bit smaller than we were used to. Lot size was an improvement (we'd be going from developer acre to 4+ acres). Lack of wired internet, woodstove heating, and 12 mile trip to groceries were minuses. 25-yr-old split level was a minus, but at least the home we'd be leaving was a split level, so we knew we could cope with it. Identified deferred maintenance that we'd budget for (siding, windows, French doors to replace slider, flooring, finishing downstairs, new woodstoves, new garage doors, new gutters/downspouts) and went for it. We had a surprise during siding/window upgrades when the end roof trusses proved to be rotting, so they were replaced and a new roof installed, so we should be good for the likely 25-30 year span of our residency. $181k purchase price + $44k repairs = $225k and now, 5 years after closing, Zillow suggests it is worth $330k.

Within a year after the initial purchase, I discovered that this location is probably one of the best in the state for a salmon/trout/steelhead fisherman like myself. Not only is there the stream in my backyard, but two more streams of equal merit are a mere 20-minute drive away. And within an hour are a half dozen more.

halfmoon
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Re: Committing to purchasing your first house

Post by halfmoon » Thu Jan 05, 2017 10:39 am

Lucky C wrote:Anyone have stories of how they knew their house was "the one" as soon as they looked at it? Or cautionary tales about falling in love with a house only to grow to hate it a few years later? I'm afraid of buyer's remorse!
Our house was a fixer only termites could love, so we feel occasional remorse that we didn't just burn it down and start fresh. :roll:

I think it's more important to love the location than the house, because houses can be modified to a degree unless they have irredeemably horrible floor plans. Don't be swayed too much by landscaping and interior finishes; you can change these. If you don't plan to live there forever, keep resale value in mind. I personally would never again buy a place that:

1. Isn't walkable and/or near public transportation.
2. Doesn't have good cell phone access and high-speed internet available.
3. Has useless square footage.
4. Is on a septic system.
5. Has only one bathroom, unless there's potential to add one. This is strictly for resale.

Good schools are important if you have kids, and they help with resale. However, they generally mean higher property taxes.
George the original one wrote:Stick to new(ish) construction if you don't know what you're looking at. Be suspicious of perfumed interiors hiding some smell indicating a problem. Look for water stains, particularly in attics & basements. Wood dust is a bad sign. Light leaking into what should be a dark basement is bad. Cold air coming in around baseboards or windows or doors is bad.
Excellent advice. Also, per James_0011, I would ask myself if buying is really better for you than renting. Home ownership isn't for everyone.

jacob
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Re: Committing to purchasing your first house

Post by jacob » Thu Jan 05, 2017 11:06 am

It's like investing. Unless you were fortunate enough to have handyman parents or some kind of trade skill, you'll learn as you go along.

The financial impact on buying can be small or even positive. I spent <15% of my NW on this house and in terms of running costs, it's 40% cheaper (including RE taxes, heat, water) than renting a cheap 1/1 apartment in Chicago. In terms of opportunity cost, if we treat the house after expenses as a long term bond that "pays roof", it's yielding 5.5% which is pretty good. Also, the house has almost doubled in zillow value and comparables are pretty up there too now. Given where RE prices are now, it's a wash, but in 2014, the investment case for owning over renting in this area was obvious.

How do you know that it's for you? You probably don't. That's another thing to learn. I figured I might enjoy fixing things up, gardening, etc. and then turn this into a cash-buying lifestyle business. Turns out I don't really enjoy renovation and mowing. However, learning this lesson with a house first would be much better than learning it after buying a decrepit homestead. I've also changed my opinion on condos after this experience.

The other question is that the living situation should match what you're doing in life. If you spend a lot of time "going out", starting a career, moving for opportunities, ... you might not want the added obligation of home maintenance or being anchored to a bunch of sticks or bricks. Conversely, if you work from home, you might appreciate being able to walk into your back yard (or harvest dinner there) instead of having to take the elevator 15 floors down and find the nearest park half a mile from your modern-concrete pigeonhole studio just to get outside.

Also not having to write a $1000 check to someone else every month is nice.---Somewhat countered by having to write a bigger one to the city twice a year.

In terms of finding the "best" house, it's really a question of using a satisficing function rather than an optimizing. You're probably never going to get everything you want but after having seen enough houses (I think it was 10-15 in our case), you get a good idea of what you want and what you can have. Knowing what I know now, there was one house we looked at I would have preferred over this one but at the time there were a few things about that choice that scared me (a crack in the ceiling) which I now know isn't a big deal.

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Dragline
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Re: Committing to purchasing your first house

Post by Dragline » Thu Jan 05, 2017 11:24 am

I agree with jacob. There are both pluses and minuses to owning and if you don't have expectations that its a "magic pill", you won't be disappointed. But its not like you can't sell it later if you change your mind! Just don't overpay and plan to be in it for a number of years.

George the original one
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Re: Committing to purchasing your first house

Post by George the original one » Thu Jan 05, 2017 3:25 pm

scriptbunny wrote:Since you are buying cash and in Boston area, I might consider waiting until the next year or two of rate hikes hit. Rate hikes plus softening of the rental market seems to indicate the market might take a downturn soon.
Since you're paying cash, I'll second this advice. However, don't let it stop you from shopping (unless you've decided you really don't want to be an owner).

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cmonkey
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Re: Committing to purchasing your first house

Post by cmonkey » Fri Jan 06, 2017 8:11 am

+1 to jacob's post.

We have owned a home since 2011 and the only time we regret it is when we get feelings of wanting to live closer to family (ususally just holiday time). Otherwise we love it. It is quite possible to live cheaper in a house than in an apartment/other. Taxes/insurance are cheaper than rent and if you resist the urge to fix it up, minimal maintenance won't kill your budget. Live there long enough and you might have something more expensive, however.

It also depends on your personality. Are you a nester? Do you want quiet living quarters (no neighbors tromping around at night)? Can you resist the urge to keep up with the Joneses??


The most important thing we were looking for was <$100K with more than an acre of land that is in a decent area (no boonies). The house was secondary importance, but we got lucky and got a very livable house. Then we decided to fix it up.

Lucky C
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Re: Committing to purchasing your first house

Post by Lucky C » Fri Jan 06, 2017 6:12 pm

Thanks all, this is helpful!

We know we want a house, and have started looking at a few, but we aren't in a huge rush. I know we will be able to find one that meets our needs, not just for the house/land/location but at a price that meets my FI goal. We would prefer to get a house this year rather than postponing, for various reasons, and while I agree that prices may drop over the next few years, you can't really tell what's going to happen to prices in the next <1 year. We're looking outside of Boston Bubble territory so at least prices should be relatively stable. Even if we buy in a couple months and then prices fall say 10% over the next year, that would be equivalent to about 4 fewer months of work if only we had waited. That would cause a little buyer's remorse but I could live with that.

Our buyer's agent used to be a contractor and is really interested in seeing what work would need to be done, seeing if the house has good bones, and estimating costs of any work that would be needed. So we have that going for us and I think we won't get stuck with a money pit.

Since we're looking a lot farther away, we'd be signing up for long commutes and being farther from friends and family, in an area we are not very familiar with. That can be a pretty scary though. However the commute math makes sense financially since prices are so much lower than the Boston area and I don't have much time til FIRE. I can deal with a really long commute for about a year and a half. Hopefully FI doesn't get delayed much longer than that! Family members may be disappointed with us being over an hour away, but whatever, we will be able to visit whenever once we're FIRE.

I guess my real fear is about making a dumb decision, failing to consider all the pros and cons of a certain property, but I have DW and our realtor for checks and balances. I think we have pretty good odds of not regretting whatever we end up buying.

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