Where $500K gets you.. blah

Over the weekend I went house-hunting with my parents (one of our favorite family outings – fun, free, and educational)!

We saw two places, and I realized here’s what $500K can buy in my little slice of Southern California:

• A townhouse ($495,000): The 3-bedroom, 2-bath, 3-car garage townhouse was new (built in 2007) and on a nice street, but we can already tell construction wasn’t  up to par. The stone floor in the kitchen has already show several cracks, and the floor isn’t level.
• Single-family home ($500,000): The house had an irregular layout, with a couple of room extensions/additions. It was old. (So old, in fact, that the real estate flyer didn’t say what year it was built). It would take a lot of money to make the house comfortable. It was also a neighborhood eyesore.

I felt somewhat discouraged after looking at those places. Half-a-million apparently gets you…  the above examples.

Good thing I won’t be planning to buy for several years – that will give me a chance to, ah, recalibrate my real estate expectations.

Read Full Post »

Tick tock tick tock, my clock is ticking…

No, not that clock!

I’m talking about my Real Estate Clock and my Puppy Clock.

Here are all the reasons why I should NOT buy a place and why I should NOT have a puppy:

1. I may very well move for school in the next 2-3 years.

2. I don’t have a down payment saved up.

3. I have no time to spend with a brand-new puppy.

4. I live in an apartment that doesn’t allow dogs.

5. I must achieve more financially stability before I become a homeowner and a dog owner.

An honest assessment of my personal situation tells me that it’ll be another 6+ years  before I can buy a place and a puppy.

….

But it doesn’t change the fact that I yearn for a little townhouse and a fur ball of love to call my own.

What clocks have you got going?

Read Full Post »

Buying, eventually

Even though I fully intend on owning a home -free & clear- by the time I retire, it’s becoming increasingly clear that home ownership in the next 3-5 years isn’t necessarily compatible with my future goals/plans. Unless the housing market drops 20% and I can suddenly buy condos for under $250,000, that is.

I ran an analysis on New York Time’s Rent or Buy calculator:

Assumptions:

–> Monthly Rent: $1,100 (that’s actually almost $350+ more than what I’m paying now. But I can get a one bedroom apartment for $1,100 in the area where I want to buy, whereas right now I have a roommate).
–> Home Price: $300,000 (If I buy, I’ll probably buy a one-bedroom apartment. If I buy a 2-bed/2-bath, the price will probably be around $450,000+ in a good area).
–> Down Payment: 15%, or $45,000
–> Mortgage Rate: 6.25%
–> Annual Property Tax: 2.25% to account for HOA fees.
–> Annual home appreciation: 5%. That seems like a reasonable assumption.. no?
–> Annual rent increase: 7% (a little on the high side).

Under these assumptions, buying is better than rent after 10 years. Is that.. good? I was looking for more of the 7-8 year range. If I buy a 2 bedroom ($450,000) and still put down 15%, buying will be better than renting after 20 years. That’s practically a kid.

The reasons why it wouldn’t make sense for me to buy would be: I want to travel. I might go back to graduate school. I want to preserve liquidity at this point in my life. Even though I love my area and it’s close to my parents, I don’t know if I want the commitment of home ownership right now. I don’t want to become house poor.

From an opportunity cost perspective, home ownership probably would not be the right move for me, given the assumptions listed above. There’s really no rush, right? I’m only 23. Even if I wait 10 years to buy, I’ll still ONLY be 33… which, at that point, 30s will be the new 20s.

I am still concentrating on building a cash (is king) reserve for short-to-medium term goals in my money market fund. Buying in 2 years (when the real estate market is supposed to “bottom out”) may be a good investment if prices heat up again, but I’m of the view that a primary home is not an “investment” – certainly not in the way that a well-diversified portfolio or rental property is.

Read Full Post »

Living vicariously

I have set up my newly-updated Save-O-Meters (see right sidebar). Retirement savings now rest at around $11,400 (breaking the five-figure barrier… it’s like the 4-minute mile!). Emergency saving is at $5,600. Down payment is currently ZERO (which is ironic because this blog is supposed to document my journey toward home ownership… well, I never said the journey will be quick & easy).

My parents might be looking to buy a condo. I went to see a place with them – it’s pretty nice: detached condo, recent construction, gated entry, close to main streets, 3 bedrooms, 3 bathrooms, a tiny plot of land in the back where they can plant an herb garden, and a large 2-car garage with storage space. It’s listed for around $650,000, but has been on the market for a while. Mom said they might be able to negotiate it down to $610,000. That’s probably on the high end of their budget, but we’ll see how it goes.

Read Full Post »

Why California?

Californian properties are expensive, especially for a new grad.

So, I could buy a beautiful house or condo in some other parts of the country, but my decision to buy a residential property will be more than just a hard-headed calculation of where I’d get “more bang for my buck.”

I grew up in California. My friends and family are here. It’s my state. There are things I’d rather do without… (ahem!) the traffic, the high cost of living, the pollution in some areas. But other things, I love. The culture, the museums, the weather, the FOOD.

Read Full Post »

Down payment woes

I want to buy.

A house that is.

Okay, not really a house. A townhouse. Or a condo.

Something (relatively) affordable. Emphasis on relatively.

A 15% down payment on a $500,000 condo is $75,000. That is NOT a small chunk of cash. It’s time for me to build up some relatively liquid, non-emergency funds.

I estimate…. a five-year horizon? I’m crossing my fingers that the housing market will have settled down and have truly become a BUYER’s market.

One can always hope. 😉

Read Full Post »

My first apartment

The post below was posted at Free Money Finance. Thanks to FMF for letting me guest post.

After finding a job and graduating college, I have experienced another rite of passage: hunting for my first apartment.

Some things I’ve learned from my search:

1. Define my negotiables and non-negotiables. In other words, separate the “needs” from the “wants.” I detest commuting, so first priority was to find a place close to the office. Everything else was secondary. So that meant that the 2 bedroom with hardwood floors & indoor pool 10 miles away was never in the running.

2. Set aside a sum of money for the security deposit, application fee, broker’s fee, etc. I didn’t use a broker, but the application fees ($25-$35 a piece) can really add up. Apply to 3 apartments and it’s almost $100. Having cash equal to 2 month’s rent ensures that I wouldn’t lose out on an apartment because I couldn’t afford the holding deposit.

3. Send certified mail with signature receipt. If I’m sending $2,000 in money order to a landlord I’ve met once, I DON’T want the money to get lost.

4. Find good roommate(s). Living with a roommate allows me to 1. lower my rent, and 2. have someone to talk to when I get home from work. I lucked out that my good friend and I will be renting together – we are both responsible and credit-worthy. Having a roommate that I can depend on to pay her share of the rent and be friends with is a huge plus.

5. Have a basic agreement to prevent hurt feelings and misunderstandings. My roommate and I are both fairly low-key. We’ve agreed to not have cable or housekeeping service. The apartment doesn’t have AC, and it doesn’t get that cold until the middle of winter, so I don’t foresee a lot of arguments over electricity or gas usage (’cause, honestly, who’d want to fight over 2 degrees over the thermostat?). The only “want” we want is high-speed DSL.

Housing around my work area is quite expensive, but so far the process has been fairly painless because of both luck and preparation.

Read Full Post »

Thinking out loud about buying real estate

Remember how I talked about owning a home as one of my medium-term goals? I always assumed I wouldn’t be purchasing a home until I finish graduate school (around 28-30) and know where I’d like to stay put for a while. But now I’m thinking, depending on how things work out, maybe I can buy sooner than that.

My parents have a little experience buying residential properties and renting them out (to ensure cash flow during their retirement years). If I can get together a down payment in the next 3 or 4 years, maybe I can purchase a starter condo, rent it out, and they will help me manage it. I’d probably want to hold on to my condo for at least several years. This is all just thinking-out-loud, but that might be a possibility.

Read Full Post »

The price of warmth

Even at midnight the air is warm. I walked outside with a cotton turtleneck and an unzipped hoodie and felt fine. I love warm nights. And days. Basically, 65+ degree weather and I are really, really GOOD friends. Another reason why I am doomed to never move out of my expensive-as-heck town.

For people who are living in warm areas (namely California), how much do you think the weather is worth? How much do warm nights add to your quality of life? How much are you willing to pay for the privilege of wearing shorts and flip-flops in February? Some things in life has to be about more than the money, or else no one in their right mind would pay $600,000 for a 1920 2-bedroom house (it’s true, my parents are looking), when they can get a mansion in some other parts of the country.

My dream is to retire in San Diego, in one-story, 2-bedroom cottage with a library, a pebble’s throw from the beach, where the climate is a constant, perfect 70 degrees. I will have a kitchen nook where I can eat breakfast (totally healthy Californian fare which will enable me to live to 158… 😉 ), a guest room for my friends to come visit, and a library with built-in bookshelves. And a bay window with an ocean view. Better start saving, right?

At least it’s cheaper than buying in Manhattan.

Read Full Post »