Owning a Home Archives

I have an affordable house, but I still want to sell my house. Just how affordable is my house? Well it’s full disclosure time.

My monthly payment is $918.25 a month. This includes:

  • the mortgage payment,
  • the insurance, and
  • the taxes for my home.

My itemize tax benefit is $1493.25 a year. $1493.25 / 12 = $124.43 a month

Making my “net payment,” $918.25 – $124.43 = $793.82 a month.

I also get approximately $175 a month of equity per payment.

Making my “net payment,” $793.82 – $175 = $618.82 a month.

And finally, I work at home for my full time career and I can reclaim my City of Cincinnati tax (2.1%), which should work out to almost $900 a year, or $75 a month.

Making my “net payment,” $618.82  – $75  = $543.82 a month, for a 3 bedroom / 2.5 bathroom, double car garage, island kitchen, fenced in yard house in one of the better school districts in Ohio (rated 1,068 in the national, 42nd in state as of May 5th, 2012). If I was to rent this house, it would approximately $1200 or $1300 a month.

Yet, I still want to sell my house.

Why in the world would I want to sell my house when I am paying literally less than half what it would cost? Some reasons why.

  • Walk-ability of my home is zero. Completely car dependent, I hate it.
  • Yard-work is an unpaid labor of love for your house
  • Maintenance isn’t free (think roof, windows, ac, furnace, etc.)
  • Updating your home isn’t free (“I want hardwood”)
  • Things break (the thermostat isn’t working, washer isn’t spinning, etc.)
  • The commute downtown is a bit much, and I find myself avoiding things in downtown Cincinnati because of the traveling time.
  • I am “done” rehabbing this house, and feel it is time to move on to the next project.
  • I have a couple of neighborhoods closer to the city that are absolutely 100% calling me, whether it be renting or owning when I get there.
  • Who doesn’t like flexibility? Owning a home can make you feel trapped.
  • Because of such a good payment, I can be very picky on my selling price.
  • I should walk with a solid $25,000 – $30,000 in cash from the sale of my house.
  • My neighbor just sold her house for an amazing price, which makes a “comp” for my house to sell.
  • Interest rates rebounding could result in very painful losses within the housing market in the long-term.

The decision to consider selling my house isn’t a “spur of the moment decision,” and I am certain I will end up over-thinking it further in the near future. That being said, I plan on meeting with a broker most likely by the end of 2012 or early 2013 to figure out my exact options and potential payouts.

I think the ultimately reason I am leaving though, is I don’t see myself in this house 5 years from now and I feel it is time to “reset.” The amount of equity I build each year is not enough to justify staying another 1-5 years (would be about $11k in 5 years).

Have a story about your home purchase? Share it in the comments.

Buyers Market Real Estate 2012Thinking of buying a house in 2012? It is still a buyers market, and time to be aggressive with pricing.

The seeds have been planted that the housing market is finally showing signs of a recovery, but don’t let it fool you. It is still a “Buyer’s Market,” and if you realtor doesn’t agree, you need to find another realtor.

Despite a constant stream of media influence saying the housing market is finally okay, there are some major reasons the housing market is looking bad for 2012 and onwards. I can do nothing but laugh while reading NAR (National Association of Realtors) reports and Homebuilder opinions in the news. I equate it to asking an apple orchard owner who has put 20 years of his life into his apple orchard, if his apples taste good enough to buy. The conflict of interest is oozing out of the constant “good news.”

Being a homeowner, I hope that America is buying into the fact the housing market has at least bottomed. I however have many concerns about the future. The biggest concerns I have are inflation and interest rates.

If your house appreciates 1.9% in a year and inflation is 3.0%, you have lost 1.1% of your homes value in a year.

If interest rates go up from 3.67% (30 year) to say 5.67%, buying power drastically decreases. The only way the future buyer (who finance at the new rate of 6.5%) can get the same payment as you, is if they pay drastically less for your house. The general rule is a 1% increase in interest rates equates to about a 10% purchasing power loss.

  • $100000 @ 3%, 30 year = $421.60 a month
  • $88250 @ 4%, 30 year = $421.32 a month

That means your $200k house would have to cost $176,500 (-$23,500) for the same payment with a 1% increase in rates. Your $200k house also would have to cost roughly $157,500 (-$42,500) for the same payment with a 2% increase. Noting that a two percent increase historically isn’t much at all.

Crazy to think your $200k house could be worth roughly $42,500 less with rates going roughly from 3.7% to 5.7%. Now of course if interest rates are increasing, you have to hope that the economy is improving to mitigate your loss. Regardless you have any idea how many years of payments it would take to recover $42,500? About 9 or 10 years. Live there a decade and have no equity to show at all.

Buying a Home in 2012 has more potential long-term risk than reward. It is very unlikely that we will return to the pre-housing growth levels, but it is possible that inflation and interest rates will drain your equity out of your real estate (directly and indirectly). So when you are thinking about buying a home, it is time to lowball. If another person comes along and outbids you, let them have it. Try not to get emotionally attached to a particular home, it can be costly.

If you are buying a house in 2012, lowball, lowball, and lowball. Eventually you will hit that person who needs out. The housing market is full of risk in 2012, and don’t let some temporary bias news and spring/summer housing numbers blind you to the fact that it is 100% a “Buyer’s Market.”

What Age to Buy a House, Am I too Young?

Too Young to Own a HomeWhat age is too young to own a house? This is a very difficult question to answer, but a couple of major questions should be considered before buying a house at a young age.

How much money do you have?
Houses are expensive to maintain, but they also have the potential to become a liability if the housing market trends downwards. Do you have the ability to absorb a 10-15% loss on your home’s value, or are you prepared to be stuck in that home until you recover that 10-15% loss plus an additional 6% in realtor fees? Noting that on a 4% 30 year loan, it will take you roughly 8 years to recover 16%, to break-even.

Imagine how many young people with virtually nothing to their names purchased in 2006 and 2007 and are now 10%, 15%, 20%, or 30% under on the mortgage. When you are young with a low amount of liquid assets, taking a hit can be life altering.

How much is being mobile worth to you?
How secure is your job? Do you think you will want to be at your job for the foreseeable future? If there is uncertainty of your job, there most certainly is added uncertainty for owning real estate. Is there a chance that there will be a more lucrative opportunity for you elsewhere?

How is your relationship with your boyfriend/girlfriend/wife/husband?
Your relationship needs to be solid before investing in real estate. Real estate typically is one more problem to deal with in a break-up and/or divorce. Your housing needs may abruptly. Make sure you are on the same page or be prepared to live with the outcome.

Will your “starter home” last at least 5 years with the option to go 10+years?
I personally view 5 years as a break-even indicator. If you can’t make it 5 years, then you are probably going to take a hit when it comes time to sell. Be certain that the home or real estate option you are considering will meet your needs long enough to be viable.

What tax benefit would I get from owning a home?
Be sure you understand the actual net tax benefit, often it is over-estimated how much a house actually saves you in a given year.

How much work does the home need?
The more work a house needs, the more liquid assets you need to have or you need to be prepare to live with those issues.

Why Not to Buy a Condo

Why Not to Buy a CondoA condo seems like the perfect deal. In fact in most parts of the country, owning a condo can be cheaper than renting, but before you throw your lawn mower out for “worry free living,” here are some reasons Why Not to Buy a Condo:

HoA Fees Increase
Every month you will be charged HomeOwner Association fees, that you have virtually no control over. Depending on your HoA agreement, these fees cover things like water, electric, trash, landscaping, foundation, roofing, management, tennis courts, pools, gates and entry ways, and much more. The scary part however, is who controls these fees is usually a small group of people who engage in a HoA board. This board can decide how to spend your existing HoA Fees and how much to increase or decrease future fees. Your HoA agreement can have a maximum amount the board can increase per year, but over time it adds up.

Imagine you buy a $160k condo and are paying $150 a month for HoA fees. The fees covers water, landscaping, and a pool. This might seem reasonable now, but don’t be surprised if the following year the fees look at like more $160 or $165 a month. Go down 10 years down the line, your fees might be somewhere in the neighborhood of $244 a month (5% increase per year).  Now imagine going to sell that condo, the HoA fees are higher and therefore the monthly payment to the buyer of your now older condo would be higher. The higher prices can of course be counteracted by a lower selling price.

That’s right, your monthly fees go up while your condo’s value falls. Talk about double whammy. Want proof of this? Take a look at older condos (10-15 years) where the HoA fees are almost equal to the price of the actual mortgage portion of the payment.

Special Assessments

Did you know that many condo’s HoA boards can assess “special assessments” for needed repairs? Perhaps your building needs a new roof, the money has to come from somewhere. It is possible that the HoA fee has this built-in, but this is not always the case.

Lack of Freedom
Want to paint your front door? You might not be allowed to. You want to stain your deck? Well your HoA board might have some issues with that as well. HoAs have the ability to limit what you can and cannot do with your property.

Lack of Mobility
Condo’s can be incredibly hard to get your money back out of when it does come time to move. Used condo’s tend to be a hard sell. In fact, I have at times thought about the condo life, but I know that would lowball if I was going to buy a condo. “You don’t like my offer? Well there are 88 more identical units with 8 more for sale.”
The question also needs to be asked “How much is it worth for me to be mobile for job opportunities.”

Foreclosure Hits Condos Hardest
Besides values dropping, condo owners have to worry about HoA fees not being paid, and maintenance being neglected. Think about it this way, you are kind of counting on your neighbors to pay.

Selling Restrictions
Watch out if you do find a buyer for your condo, because there are restrictions on what type of financing they can receive if the condos are delinquent of HoA fees or if a certain percentage of condos are not “owner occupied.” It may leave the opportunity open to a limited audience of buyers, who most likely will want a better price.

Final thoughts:
Owning a condo can be a a good fit for many, but just be aware of what you are getting yourself into.

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