So I’m thinking about buying a house and it legitimately terrifies me. I mean, I’ve lived in my teeny, tiny studio apartment that lacks a full size fridge for almost 3 years now and while I am certainly tired of it, I’m not sure it means I should go out and buy a house. This impulse (that’s what we’re calling it for right now) has been lingering for a while but really had the fire stoked underneath it the other day at a Labor Day party. I was sitting at a table with a real estate broker and picking his brain about owning rental properties and what the market is currently like.
He then asked me what I was doing renting when I knew it was basically throwing money away (over $36K for me so far!) and was basically holding me back. In general, my apprehension is born out of the fear of an underwater mortgage or of buying a crappy place that I just don’t have the money to fix. Because let’s face it, I’ve got a negative net worth. I’m not exactly liquid! I definitely can’t put down the highly desired 20% on a property. I couldn’t even do 10%. Then we really started talking numbers.
There is a condo complex right around the corner from my work that is about 25 years old at this point. Although the building wouldn’t be described as young, it did go through a major renovation about 7 years ago to make it a little more upscale. And in that housing market, it made a killing. There is currently a one bedroom, one bathroom condo at this complex on the market. In 2007, freshly renovated, it sold for $307K dollars. Today it is being sold for the bargain price of $132K. And this is where the numbers start to make sense.
The building is FHA approved, which can make buying a house significantly easier. Because of this, I would be able to put down 3-5% and still be able to purchase a condo there. Prices range from that low of $132K up to $200k. Overall, the Mortgage, HOA, Insurance, PMI, and Property Tax would still combine to be less or just a bit more ($200 dollars or so) than the apartment I’m currently living in right now. That’s totally doable! Even better, this fits into my long term plan. Which reminds me, buying a house is a part of my long term plan. My extremely cliche, long term financial freedom plan.
The Long Term Plan: Continue to save a large portion of my income and invest fairly conservatively, while maxing out my 401K (check!) and Roth IRA (err, working on it). Buying a house to eventually rent out, rather than live in, is also a pretty big part of this plan. Then buy more real estate, rent out more of it and one day have some passive income that can let me do what I really want in life: coach high school track and field. Yeah, coaching track and field, I said it. Definitely not what you expected! But I love doing it so why not make it a goal, right?
I should point out that buying a house now would run completely counter intuitive to all the advice I give my friends, as well as my own personal belief that you should never put less than 20% down on a home. You can see some good reasons for that over at Trulia and 20somethingfinance. Of course all these reasons make sense but then again, it would be the same as renting a place. And it would be a better place than I’m living in now, which remember, has no fridge. And is a studio. In the ghetto. Seriously, my street goes Uhaul place, Danger Dog restaurant (using the term restaurant loosely here), Chop shop, Storage facility, my apartment building, semi-projects. I really want to move out of there.
What this really comes down to is whether buying a house with such a low down payment (and at such a low value) makes sense. I already know that it would be fairly difficult to sell the properties I’m looking at right now if I ever got in a bind. From talking with the realtor, they sell in 45 to 60 days but neither of us see any real appreciation in this type of condo over the next 5 to 10 years. Chances are any profit I could pull out down the road would be from the money I put in. The plus side is, as an eventual rental property, I wouldn’t sell it for a while. Buying a house is definitely a tough decision. If anyone has any insight, let me know!