Thursday Poll: Housing

Coming at you with another poll. These seem to be wildly popular and that makes me happy. It’s one less day I have to think about writing and one more day you all get to see how you fare against the masses. Since we’ve done debt and income, figured we could use this poll to explore housing. Likely, the biggest money suck you have.

Only got one rule before we get to it…

  • Factor in ALL of your monthly housing costs (PITI/rent, utilities, HOA’s, etc).

[poll id=”5″]

For extra credit, drop a comment reiterating what your ALL IN housing costs are, if you rent or own, what general geographic area you live in (obviously important for perspective), how many people covered under this payment, and what percent of your NET household income this gobbles up. I’ll go first…

  1. My all in housing costs: $1,175
  2. Renter
  3. Just outside of Seattle
  4. Just me and Girl Ninja
  5. 19.62% of our take home pay goes to housing

 You can see all previous polls here

The vehicle litmus test.

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Got a comment on my most recent blog post that I think speaks a lot of truth. Here’s that comment:

I don’t think many people buy (homes), expecting to move in less than 5 years. But it happens a lot, due to job changes, family changes, etc. […]

Exactly!!!! My hunch is that most prospective homebuyers buy their first place with the best of intentions. They imagine spending decades in their future abode, establishing roots, and engaging in their community.

But then life happens.

They have more kids than they originally thought they wanted, they get a job offer somewhere else, a loved one gets sick and needs constant care, or maybe they still love their house but hate their neighbors. The numbers say it all, most people in their 20’s and 30’s, who buy homes, don’t live in said homes long enough to realize much of a financial benefit. They kiss their profits goodbye when they eat the 10% sellers fees. They were nothing more than glorified renters who could paint their walls.

….awkward transition…

I’d like to introduce you to this simple little test I’ve created. I call it the Vehicle Litmus Test.

Unless you live in the heart of a major metropolitan area (San Fran, NYC), I’m going to assume you own a car. If you don’t, this whole post is pretty much a waste of your time. My bad.

Alright, let’s start the test. Ready? Begin…

How long have you owned your current car? And how long did you own your previous car?

/End Test

It seems about 99% of people who buy new, or even new-to-them, cars always say something like “Oh, I’m going to drive this car in to the ground. I’ll have it at least 10 years.”

You probably said, or thought, something similar. Didn’t you? DIDN’T YOU!!!!!

But did you actually follow through with that promise?

How you answer that question says a lot. You bought a car thinking you would drive it in to the ground, but then made a total 180 and justified a change for something more fuel-efficient, more modern, larger, smaller, newer, cheaper, faster.

I get it. Your priorities and desires changed. That is exactly why you should use the vehicle litmus test as a resource before you buy your first (or next) house.

Are you really going to stay in the house long enough to make buying worth it? You like to think you will, but does your track record say otherwise?

Drop a comment below with your answers to the litmus test, the responses should be interesting!

My answers to the vehicle litmus test…

Car 1: Bought my Scion tC in 2006 brand new. Seven years later, still love it and have no plans to sell.

Car 2: Our 2006 Honda Pilot purchased in 2012 with 70k miles on it. Bought with intentions to drive to 150,000 miles.

Previous car: Girl Ninja’s 2005 Corolla she bought in 2006. Sold after six years so we could buy the Pilot. An upgrade we fully recognize was unnecessary.

American Dream or American Scheme?

American Dream

Over 80 years ago, James Adams said “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”. This is known as the American Dream. Buying a home has also long been called the American Dream, probably because it gives one a great sense of accomplishment. After a lot of hard work, and intentional saving, one is able to purchase a little slice of American soil. A slice they can call home.

My, how things have changed.

My grandparents lived in one house for 30+ years, and they worked for the same company for 30+ years, but this lifestyle is now the exception, not the norm. The average length of home ownership now is about eight years.

It’s like we’ve been brainwashed by America circa 1940. We’re told The Dream is to own a home, so we buy one. But did you know that you are nearly 10% underwater the second you buy your home? No really you are. Check out this example…

  • Todd has been saving like a mad man and pays cash for a $300,000 house. He decides three months later to take a job in a new city. He no longer wants this home, so he puts it on the market for $300,000. He gets a full-asking price offer, but after Todd pays 3% commission to the buyer’s agent, 3% commission to the sellers agent, and another 3%-ish in fees Todd only has $270,000 in his pocket. He lost 30 grand even though he sold the house for exactly what he paid for it.

Do you get it?!

The numbers don’t lie, real estate is a pretty terrible investment. It barely beats inflation. But that pesky American Dream tricks you in to thinking the house you’re looking to buy is, for some reason, a steal of a deal. You tell yourself it’s under-market value or in an up-and-coming neighborhood, but you ignore the fact that you will probably sell it long before you realize any significant return-on-investment.

Look, I’m not anti-homeownership. Girl Ninja and I are still looking to buy our first place, but I can’t let us get caught up in the American Dream hype. It’s only when one buys a home, and lives in it long enough to either A) no longer have a house payment, or B) realize a substantial appreciation in value, that I think it makes financial sense to take the risk.

Time’s have changed kiddos, whether we choose to acknowledge that or not remains to be seen.

Pedophile free

Let’s play a game shall we. We’ll call it “Let’s see how many pedophiles live by me”. Sounds like a blast doesn’t it!?

Since I am an investigator by trade, I like to gather information on people and my surroundings. Sometimes this means going to a courthouse and pulling public records on people. Other times it means I just Google a person’s name and see what comes up.

As Girl Ninja and I continue to shape our idea of the type of place we want to buy, one thing is becoming evident; We want to live stupidly close to a public school, city park, or other public building.

Our current rental is half a block from an elementary school and we love it. While some might be annoyed by the sounds of little kids running around during the day, or moderate road traffic during pickup/drop-off hours, I view this as a small sacrifice for a much more significant benefit.

No sex offenders can live close to us. 

I mean, we need to really stop and consider where our future home is physically located. If we aren’t near a park or school, there is nothing keeping an offender from moving in right next door. Now I don’t know about you, but I imagine this would significantly diminish a property’s value.

How could it not????? 

I don’t care how cute a house is, if I pull up the offender list and see a bunch of dots around said cute house, I’m not writing an offer. Period. End of story. Now I get that some offenders shouldn’t probably be on the list for life (like 18 year  olds that were in a consensual relationship with a 16-year-old) and maybe some were actually rehabilitated during their jail time, but still, the offender-free zone is going on my list of nonnegotiables.

I’ll take an outdated kitchen or a foundation issue over a pedophile any day of the week. The first two issues can be fixed with time and money, there is nothing I can do about the person that moves in next door.

So, you ready to play the creepiest game of your life? Go to Family Watchdog and punch in your address. By default it will show a mapped view. Instead click on the “List” tab. This is where it will show you the distance between you and the closest offender. Mine is 2.5 miles away. How about you? Anyone else consider the sex-offender issue when you were house/apartment hunting? If not, you’re welcome 😉

 

Why you should buy a house in a bubble.

 

When I almost bought a rental property this weekend, a few readers chimed in saying “Ninja you are supposed to buy low and sell high. Right now you would be buying when the market is booming.” Comments like these are expected, especially when I’m always talking about Seattle Real Estate being in a bubble.

So why do I still check the local MLS listings every day, hoping there will be a place worth looking at? It’s simple really.

I’m not stupid shortsighted. 

If you’ve read any news about real estate over the last six months, it’s clear the market has picked up. Some cities like Phoenix and Las Vegas jumping up 20%+ in the last 12 months. What was a $300,000 house one year ago, now goes for $360,000 after getting multiple cash offers. Same story up here in the Pacific Northwest. Inventory is low, prices are high.

There is no denying 20% year-over-year real estate appreciation is unsustainable. Eventually things will cool off. Maybe to a more normal 3 to 6% YOY growth. Maybe things will go flat for a while. Or, who knows, prices could actually drop. Thinking about the recent boom on an emotional level causes some to shy away (myself included at times). They are waiting for a correction that may never come.

Yes, Seattle prices are up 16% in the last year, but they are still 20% below their 2006/2007 peaks.

What’s more, even if real estate is in a bubble right now, it’s a completely different bubble than the last one. In 2006 banks were handing out money like candy. People with no income and no assets were qualifying for $500,000 properties. The market took a dump on it itself when these unqualified homeowners could no longer keep up with their 5-year jumbo ARM payments.

Sure the market is in a frenzy right now, but banks learned their lesson (at least temporarily) and are exponentially more picky in who they lend to. If you don’t have great credit, a significant down payment, and a solid income history, you aren’t getting a loan. Unlike 2006, most of the people buying houses now can actually afford their monthly payments. (random fact: 1 in 4 houses in Seattle receives a full cash offer)

All this is great, but there is really only one reason why Girl Ninja and I are still open to the idea of buying a house in a boom.

We don’t give a crap about price. 

If we find a place we love, I don’t really care if it costs $350,000 or $400,000. All I care about is being able to comfortably afford the monthly payments. Sure, I could buy a house for $400k today, and three years from now it might be worth $375,000. But I’ve ALWAYS said, one shouldn’t buy real estate if they aren’t comfortable with the idea of owning the property for at least 10 years. I look at property values over the long haul, not the short-term. A $10,000 price difference today matters little when the house could be worth double 15 years from now. As long as rates are at all time lows, and prices are below their all-time highs, I say it’s still a good time to buy a house.

What say you?

Did we buy a rental property?

If you saw my post on Friday, you know that Girl Ninja and I were seriously considering going 50/50 on a rental property with my best friend from high school who married one of Girl Ninja’s best friends from high school. Today, I tell if we wrote up an offer, but not until I drag things out a little more 🙂

We viewed the property yesterday morning. It is due to list on Tuesday, so getting to see it pre-market was crucial. We completely expect it to go pending on the first day it lists for full (or above) asking price. Having the opportunity to write an offer, without having to compete with other interested parties, was a pivotal part of making the deal work.

The house appears to be in tip-top shape. It’s only a year old and the appliances, finishes, etc all still shine like they’re brand new. It was clear the owners took pride in their home. There were linoleum floors in the bathrooms and tile on the kitchen counter-tops. This bothered me because I would have preferred higher quality finishings, but at the same time, these are the perfect materials for rental wear-and-tear. The house shows really well and I could totally see a Microsoft employee (Microsoft is 20 minutes away) renting the house for his/her young family.

Okay, so now that you know we liked the place, it’s time to tell you if we wrote up an offer…

Drumroll please….

Nope. Here’s why:

If Girl Ninja and I co-bought this property, we wouldn’t be able to buy our own place for at least two years, since that is about how long banks need to verify stable rental income.

With any partnership there is risk. While I still believe that my friend and I would have been able to make this deal work, we know that everyone probably thinks the same thing. Neither of us could shake the potential issues that could arise when control is shared.

The time sensitive nature of the transaction. This was my biggest hesitation. I felt rushed. An offer had to be made last night in order to give the sellers enough time to respond before it goes to market on Tuesday. There were still a lot of questions I couldn’t yet answer, and while I believe the house is a good buy, I didn’t have enough time to really wrap my brain around all that encompasses being a landlord. Especially when that responsibility is shared with another person.

But ultimately, Girl Ninja and I did not go in on the house for one reason and one reason only. My friend decided to buy the house on his own. I’ve known this was a possibility for the last few days. He sees very little downside and a ton of upside potential. He can afford the risk and no longer has to worry about me dying divorcing, or forcing a sale. I went and viewed the house with him yesterday knowing he was probably going to be the only person writing an offer. It’s a little sad because I want our cash to be invested in something, but I know this is for the best. I’m super pumped for him and I hope his offer gets accepted.

Who knows, maybe Girl Ninja and I will rent from him once we have a kid or two 🙂

p.s. for those that care, here is the spreadsheet that lays out the numbers (click to make images larger)…

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I apparently have really crappy timing.

I called our agent the other morning to express interest in a house that  was newly listed (click here to see the listing). After a few back and forth emails, we decided we would look at it that evening (the same day it came on the market). A couple of hours later, my agent called to inform me we wouldn’t be looking at the house. Our appointment was for 5pm, but the listing agent had already received four cash offers, well above asking price, and had five more offers expected. What’s more, they were accepting one of these offers by 4pm, an hour before our appointment to see it.

I was frustrated. 

Not because I didn’t have a chance to even compete for the house – we probably wouldn’t have put in an offer – but because of the timing of our house hunting journey. Seriously annoying.

As I started thinking about it I just got more and more depressed. So depressed I compiled a list of other frustrating things that have happened during my, relatively short, 5-year PF journey:

I graduated college in 2007 with $28,000 of student loan debt. My sister, who graduated just a few years before me had a similar amount. But between her college graduation and mine, student loan interest rates nearly quadrupled.  Her $20,000+ student loan had a 2% interest rate, mine a 7% rate. There was nothing I could do about it. You can’t refinance student loans like you can a mortgage when rates drop. For no other reason than graduating in 2007, I had to pay four times as much interest as those who finished up just a couple of years before me. Did you know I actually considered NOT paying these loans off early, because part of my thinks when the student loan bubble bursts (which it surely will), student loans will get special treatments…possibly forgiven altogether. 

I graduated college in 2007. Wait. Didn’t I just say that? Yeah I did. I was fortunate to get a job right out of school, but many of my peers weren’t. I got my degree just in time to watch America take a dump on itself. I finally had an income and an ability to contribute to my retirement accounts. Too bad that virtually every dollar I invested during my first few years working, dropped in value. I get that investments will go up and down over time, but having my first exposure to Wall Street be during the Great Recession wasn’t exactly ideal.

I also decided to be a good Ninja and save up 20% for a down payment. Girl Ninja and I reached that threshold in January, right in time to kiss the buyers market goodbye. Inventory is at an all time low. House prices are up a stupid 18% year-over-year. And interest rates are ticking up. Had we just been irresponsible and bought a place last year (with only 10% down), we would have gotten waaaaaaayyyyy more bang for our buck.

We have a ton of money in a savings account. Why is this a bad thing you ask? Well, when I had just a few thousand in my high-yield savings account, I was earning 3% or more on my money. Now that we finally have a substantial amount of liquidity, my high-yield (can you even call it that anymore?) savings account pays a paltry 0.75% APY…FOUR TIMES LESS!!!! There’s nothing quite like having money in the bank, when the bank is arguably the worst place for it to be right now.

Ugh, I could keep going, but I can only wallow in my own self pity for so long. As frustrating as some of these circumstances can be, I gotta keep my head up and fight the good fight. Hindsight is always 20/20 and some of these things I really had no control over.  You can’t let an unfortunate thing, like a recession, totally rock your world and keep you from doing what you know is right.

I’d love to hear some of the frustrating things you’ve experienced during your financial journey. Share them below!