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 ūüôā

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 ūüôā

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!

Might as well rent forever.

renter problems

If you didn’t already know, Girl Ninja and I live in an ADU (additional dwelling unit), also known as a mother-in-law apartment. Two summers ago, our Landlord built a huge, I mean HUGE, house. He decided, during the last part of the building phase, to throw on an ADU on the upper back portion of the house. Check out where we live….


Do you see how massive his house is? I mean look at the size of the house to the left…haha.

Our landlord is obviously doing well for himself. He paid cash for this place and by collecting rent from us ($1,175/month, all utilities¬†included) he is able to live free and clear. That’s right, our payments cover his property tax, utilities, homeowners insurance, and cable/internet.

Could you imagine living with out a house related payment?! 

As I was pulling in to our driveway yesterday, he was out in the front yard. We started chatting and he asked how our house-hunting process was going. I let him know that Girl Ninja and I hadn’t even gone and looked at a place in the last 6 weeks due to the Bubble market in Seattle. What’s more, Girl Ninja decided to teach another year at her school (5 minutes away from our pad, 30 minutes away from where we would want to buy). I told him not to worry about us moving out any time soon unless one of three things happens:

  1. Housing inventory picks up dramatically.
  2. We get pregnant.
  3. He raises rent prices on us.

I read horror stories all the time about rising rent prices and how it can¬†devastate a person’s budget. One day you are scraping by with a $1,200/month rent payment, and the next day you’re told that rent is jumping up to $1,500. That would seriously suck.

Girl Ninja and I frequently talk about what we would do if our landlord tried to raise rent on us. We’ve decided if that day ever comes, we would start looking for another place.

Fortunately, it doesn’t sound like that will need to happen any time soon.¬†As I shared point three above with our landlord, he immediately cut me off and said “Dude, are you kidding me? I will not raise rent on you guys as long as you’re my tenants.”

That made my heart happy. I laughed and asked him when we could change our month-to-month lease to a ten-year contract. You know I gotta try to lock in that agreement, haha.

I’m not quiet about my extreme fondness of renting. Knowing that for as long as we are here, our rent will never increase, just makes renting that much more amazing. And it makes buying a house even less attractive than it already is.¬†#ImRentingForLife

Have you ever dealt with a rent increase? 

p.s. Here’s a picture tour of our tiny little abode ūüėČ

We’re engaged, should we buy a house now?

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John Doe writes in…

Ninja! I read your blog everyday, it’s awesome! I recommend it to everyone I talk to… My fianc√© and I have been together for 6 years and recently became engaged. We have lived together the last 3 years. We are really interested in buying a house. We are getting married in September. Should we wait until we are married to buy a house? Why?

We are both 24 years old. No credit card debt, 2 car payments that will be paid off within 4 months, and I have student loans I am punching. We live in a small Texas town so housing prices are a little different then what you have in Seattle.

Let me know what you think.


Don’t do it!!!!!

How’s that for telling you what I think? Haha! I guess I should preface this post with the reminder that I love me some Jesus. As a result, I do my best to follow his teachings. Back in October 2009, I wrote a post titled “Leave me alone, I don‚Äôt want to live with my girlfriend.

Marriage to me is a pretty big deal. I didn’t want to play the part until I was actually married. That means, even though Girl Ninja and I dated for 4.5 years, we never had sex, slept in the same bed together, went on trips together, etc previous to getting hitched. This also means, I didn’t think it was appropriate for us to start combining our finances until we were legally a family. Her money was her money, and my money was mine, until legally we became one family unit.

Okay, so those are my personal convictions and since I was asked for my opinion I thought I would share them. That said, I don’t live under a rock, and I realize people don’t necessarily value my values. Regardless of my personal moral convictions, I would recommend you hold off buying a home. Here’s why…

  1. The possibility exists that the wedding day never comes. It’s probably a small chance, like not-even-1%, but it’s still a possibility. Until you’ve said “I do.” nothing is official. You’ve waited all this time, another seven months isn’t going to kill you. No one wants to own a home with an ex-fiance.
  2. I don’t foresee house prices or interest rates changing dramatically by fall. Sure prices could go up a bit, or interest rates my raise half a percent or so, but I don’t think there is going to be a huge change. I’m far more concerned about the layout, condition, location of our future house than I am about a 3.5% vs 4% interest rate.
  3. You live in Texas, and as you mentioned, it’s a different market than Seattle. I remember being on business in Houston seeing some AWESOME homes for sale for like $120,000. It boggled my mind. My understanding is the market it also a little more stable than Seattle (not as many ups and downs). If a house bumps up from $120,000 to $126,000 (a 5% spike) in the next year, that will have a negligible effect on your monthly payment.
  4. You still have other debt. Granted it doesn’t sound like it’s an overwhelming amount. But if you wait to buy a house AFTER you’ve paid off your cars (and/or student loans), you should qualify for a larger mortgage. Maybe this would afford you the opportunity to buy a better house in a better neighborhood? I plan on skipping over the “starter home” neighborhoods and buying something we could be happy with for the long-term. Real estate transactions are expensive, so the less of them you have, the more equity you get to keep.
  5. Why do you want to buy a house now so badly? Is there something I’m missing that makes buying today a better decision than buying tomorrow? Try and keep emotions out of the house hunting experience. Wait on a great property. You should be comfortable buying a house two years from now if that’s how long it takes to find a place that meets your standards. I’ve been saving our down payment fund for five years now, it’s been a very slow, methodical, and intentional process.

As I always say when I throw out my two cents, I’m just one person, with one opinion. You have to do what you think is best for you.

Let’s see what some other PDITFers have to say. Would you buy a house with your significant other prior to tying the knot? Why or why not?

F*** You!!!

As I drove through the city I grew up in yesterday, I couldn’t help but laugh when I drove by this neighborhood…

vacant lot

You see that white house kinda near the center? There’s an interesting story about that house.

According to Zillow it was built in 1961. You see the roads surrounding that house? You notice how there are multiple cul-de-sacs with no houses around them? It looks like a developer is going to be building a good 100+ houses in that community huh?

Not so much. Those roads were actually put in around 2004. A developer bought all that vacant land you see and had plans to build a starter home community. There was only one problem. The developer couldn’t convince the person that owned the white house in the center to sell their property.

After a bunch unsuccessful negotiation attempts, the builder quickly realized it was a lost cause. They would just build all of their new homes around the 1960’s abode.

That was, until something interesting happened.

The homeowner took a stand. They bought a couple of cans of spray paint and wrote the words “F*** You” in big bold letters along each side of the house. It was a big, offensive, eyesore.

The developer, obviously angry, went to the city hoping they would force the resident to remove the profanity. The city, however, refused to involve themselves, citing “free speech” rights.

So here we are eight years later. The builder had to walk away from the land, realizing he would never be able to sell homes in the area.

I mean, how would you list these homes? “Three bed, two bath charmer with wonderful views of the olympic mountains and the words”F*** You” from the living room and master suite”.

Live Girls

The lots are vacant and will probably stay that way for the forseeable future.

You can’t help but feel bad for the builder. He lost his business because of this one pesky homeowner. But I also feel bad for the resident. His amazing view of the Olympic Mountains were threatened and he didn’t want his home to be smack dab in the middle of suburbia. Turns out something similar happened in Utah.

A Riverton, UT resident was forced by the city to reduce his roofline by 18 inches after his neighbor complained about a height violation. This violation cost the resident 10’s of thousands of dollars to correct. So what did the homeowner do? He got revenge. He had new “air-vents” installed on the side of his house that faced the complaining neighbors abode. Check it out

middle finger

Seems crazy, but I can totally understand where these frustrated homeowners are coming from.

Would you go to extreme measures if your view, privacy, or safety was at stake?

Another bubble

house bubble

You know how I keep saying Seattle real estate is crazy right now? Well, an 1,110sqft home (with 800sqft unfinished basement) went on the market yesterday for $275,000. I called my agent to schedule a viewing for this morning. Turns out, I wont be able to see the house. It received 10 offers in about four hours and they aren’t accepting any more. My agent guesstimates the house is going to sell for no less than $350,000 as a result of the competition.

Now obviously the house is under-priced (it’s part of an estate sale). I knew that it was going to sell for above asking. Heck, I even ran the numbers on the property assuming we paid $30,000 above asking. The math looked good. But at $350,000 it’s not so appealing. Buyers in Seattle are like piranas right now. Snapping up anything and everything that comes up on the market.

It doesn’t make any sense to me.

The housing market is up over 15% since last year. I get that interest rates are at all time lows, but a 15% YOY growth is not sustainable. Especially not when interest rates are being artificially kept low by the fed. Interest rates will have to begin creeping up, and when they do, I suspect property values will creep down.

Seattle is in another real estate bubble.

A crappy house shouldn’t receive 15 offers in two days and sell for thousands above market value. You’re suppose to buy low and sell high people, not the other way around.

Inventory in Seattle has never been this low (1.6 months). That tells me we are in a sellers market. When it comes to making the largest financial decision of our lives, we’d like to have a healthy selection to pick from. That’s not the case right now and it sucks.

I’m skeptical that we will be able to buy anything in our target area. If a decent house is listed for a reasonable price, it’s going to get dozens of offers, within a few days, and probably sell for more than it’s worth. I’m not willing to play that game. Our current living situation is flexible; we can move out next week or next year. Once inventory reaches more normal levels (like 4 months), and¬†quantitative¬†easing is a thing of the past, I’ll have a better idea of how much a Seattle house is actually worth.

How’s real estate in your neck of the woods? Anyone else feeling like we are experiencing a mini-bubble?

Too conservative for my own good.

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I was chatting with a close friend a few days ago¬†about the housing market. Big surprise right? We know what the median household income is in Seattle ($66,000), and we also know the median sales price of a home in Seattle right now is $380,000. What we don’t know is how the crap people can afford a $380,000 house on a $66,000 annual income! There are only a few logical conclusions…

1. They inherited the property

2. They received a financial windfall

3. They are house poor. 

4. They are risk takers.

If they inherited the property, or received a financial windfall, good for them.

If they are house poor, I can’t say I’m jealous of them. Nothing about living paycheck to paycheck appeals to me. I would never want to be in a position where I have to sacrifice traveling, eating out, or skiing just so I can make a mortgage payment. No thank you.

But what about the people who are just willing to take a risk. Debt has a pretty bad rap. Heck, I even named my blog Punch Debt In The Face because I think it’s so dumb. But reality is, debt can be a powerful tool for building wealth; like when one takes out a line of credit to start a business, or when someone finances a rental property.

Sure it’s risky. If the business fails, or the real estate market crumbles, you could lose everything. But how bad is that really? It’s not like you have to worry about going to jail. Maybe you get sent to collections and settle your debt for less than you owe, maybe you walk away from your house and get foreclosed on. Maybe you have to consider filing bankruptcy. While none of these things are particularly enjoyable, they are solutions.

Maybe I’m too conservative for my own good?

I mean, if we bought a $500,000 house¬†last year, we’d have about 15% equity in the thing based on recent market appreciation. That’s a $75,000 gain in 12 months!!!

What did I do? Oh that’s right. I decided to keep saving money so we could easily afford a 20% down payment on a house priced $150,000 under what we are qualified to borrow. At last check, my savings account earned a paltry 0.75%.¬†

Do you see what I’m saying friends? It seems to me that the risk/reward comparison of using debt to leverage one’s financial position often favors reward. Think about it.

We buy a $500,000 house and sell it a year later for a $50,000 profit (after commissions). Or we buy a $500,000 house, watch the markets tank, and walk away from the property and let the bank deal with it (Washington is a non-recourse state). The system is set up to protect one against their own stupid decisions, so much so, that these stupid decisions are no longer necessarily stupid.

Interest rates are low, and house prices are still lower than pre-bubble days. Why not use the depressed market, and government bailouts (quantitative easing), as an opportunity to make some extra dough?

Oh that’s right, because I’m a wuss.

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Being conservative might not make me rich, but I guess it beats the possibility of being poor?