Real Estate Archives

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.

Cheap Vinyl Window ReplacementAs Whether you want to admit it or not, windows on a house are a commodity. As time goes on, you will “use up” your windows. The windows in my house are construction grade windows that were original to the house 24 years ago. The seals on the windows are still good, but they look terrible and are not very sound proof or energy efficient. So I started researching vinyl window replacement, and honestly it’s a pretty strange world.

There are a few ways to approach window replacement, but ultimately if you want to do it the cheapest, you are probably going to have to buy the windows yourself and install them yourself. The alternative to this of course is to call a professional company, and most likely they will send a sales representative (usually who works off commission) to come to talk with you on pricing. The situation feels entirely like a used car sales situation, but with more gimmicks. “Buy Two Get One Free,” “Free TVs,” and “50% off if they can showcase your house.” But the gimmicks don’t just stop there. Kevlar brackets, wool-fiber transition seals, bulletproof glass material vent latches, foam filled windows, and low e filter. What they don’t tell you is that the glass they use is most likely identical to that of windows found in the stock windows at Home Depots or Lowes. Truth be told, there are only a handful of window glass makers, and most of them distribute to local window sellers to be cut.

Is there a difference between their frames and Home Depots? Almost certainly. The biggest difference overall probably is the  finishing features, the trim of the window. As for the gimmicks like Kevlar brackets, I’m not sold it really is that big of a difference. But rest assured that most window salesman will tell you that their window is better and any competitor will improperly install their inferior windows if you choose them. Also all sales representatives will say “they custom make your windows.” But rest assured that is exactly what Home Depot will do for you as well.

I ordered a custom made window from Home Depot today. An American Standard 39.25 by 57.625inch  single hung, argon filled, low e, energy star rated, replacement vinyl window with the grid in the glass. The cost: $169.57 before discounts. Cost after discounts: $153.49. Now I am certain that if I talked to a windows representative, they would tell me this window is trash and that it will fail, but you know what? I intend on finding out first hand. I’ve put my money where my mouth is, and I’m ready to see first hand if these windows are similar quality.

The sad part of the world of windows is the lack of reliable information. If you get online and do searches for brands, you will get completely bias reviews for literally any product line. Even installers of certain types of windows will bash the other high priced name brand windows. Ultimately I want to try the self-install method and see how it goes. The main reason is the window salesman are just too shady for me to deal with. They don’t break down pricing very well, they offer phony promotions, and you never feel that you truly have an understanding why their window is better than another window. They also will never sell their windows directly to you (because they don’t want to show the price of the item versus installation costs).

Time to see if I threw away $153.49. I’ll keep you updated on this my vinyl window replacement. 

The Housing Market Post 2012 is Looking Terrible

Today there was a revision to the housing market predictions for 2012. Over one hundred housing analysts and expert were surveyed by Zillow. The conclusion made was that they believe housing prices will drop 0.7% in 2012 and will hopefully return to “trend levels” by 2016. “Trend levels” apparently now mean roughly 3.5% a year of appreciation. These statements have officially made me view housing as one of the worst possible investments you can possibly make in the foreseeable future.

All of these realtors and experts don’t talk about one of the most important factors, inflation. If you have a 0.7% decline in the housing market in 2012, you also have to add in yearly inflation in as a loss as well. Think about it, if you own you home outright, you need your house to increase at the rate of inflation to break even (although wise it’s a deprecation asset). So that 0.7% decline is really going to be  3.2% loss if inflation is 2.5% for 2012 (2.5% is a complete guess on inflation rates). Own a $250,000 house? You are looking at an inflated adjusted net loss of roughly $8,000 in 2012.

Let’s also note that these experts are hoping that it recovers to these “trend levels” by 2016! “Trend levels” would be roughly 1% if you also adjusted them to 2.5% inflation. So basically in 2012, 2013, 2014, 2015 you are probably going to see an inflation adjusted net loss on your property and in 2016 they are hoping you score an inflation adjusted  1% gain.

If these analysts were right, which they rarely are, a linear transition to these “trend levels” would look something like this:

2012
: –0.70% 2013: +0.35% 2014: +1.40% 2015: +2.45% 2016+: +3.50%

Housing Market 2012


Adjusted for 2.5% inflation the actual net would be:
2012: –3.10% 2013: –2.15% 2014: –1.10% 2015: –0.05% 2016+: +1.00%

Housing Market 2012 Recovery


Sadly would take you 2016, 2017, 2018, 2019, 2020, 2021, and half of 2022 to recover the 6.5% inflation adjusted loss in years of 2012 through 2015. These analysts are usually bias in favor of the housing market, but what they are predicting is that you will break even sometime in 2022, assuming a 2.5% inflation rate. You want to take it a step further? Assuming you put 20% down on your home and you could have earned just 5% return on that money, it would add 1% of your home value off opportunity cost. Adding that opportunity cost into the inflation adjusted numbers above you get:

2012: –4.10% 2013: –3.15% 2014: –2.10% 2015: –1.05% 2016+: +0.00%

Housing Market 2012 is Going Down

 


Total Inflation and Opportunity Cost:  10.5% of your home value (ignoring all other costs of buying, selling, and owning a home).

 

I am a homeowner and when I hear and read about the housing market, it scares me. The reason it scares me the most is the only way home ownership makes any sense financially is if the “trend levels” go back to pre-bubble and I absolutely never want the “trend levels” to be that high ever again for the rest of my life. Even at today’s prices I view home ownership as terrible investment and if prices go higher, I don’t think I would ever want to own a home again. Although according to these housing experts, that doesn’t seem to be a concern since prices are probably going to decline when you factor in inflation.

Disclaimer: Home ownership is much large than just investing, I cannot place a value on any personal factors when it comes to a housing decisions (family, personal pride, etc.). This article is strictly opinion and has made assumptions that are not backed up by anything (2.5% inflation and 5% return on money). This article should not be the base of any decision making. Always consult a professional.

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