Piano World Home Page Forums Restricted and Archives The Coffee Room I'm thinking of buying a house : Advice please

I am going to look into it! Thanks!

Some Interesting info:

http://www.ci.norman.ok.us/planning/Revitalization/Rehab.htm#Rehab

http://www.ci.norman.ok.us/planning/Revitalization/Homebuyers.htm

I would come and sit with you and enjoy the lemonade. My wife would be there as well and she would probably lean on you with all sorts of health and be well sorts of stuff. She is kind of sweet like that. She will start out by giving you a massage like you have never experienced (my wife is Chinese if you didn't know already) and she will proceed to advise you on all other aspects of health. Probably not entirely a bad thing. I will be enjoying the lemonade. It is up to you. I have the easy part.

Ya know, I could use some advice on improving health and mental well-being. I suffer from terrible anxiety and the effects of it.

MM

Don't worry about it.

lb

Don't sweat the small stuff.
It's ALL small stuff.

Boy Howdy. The rental house I just sold was built in 1953 and sold at that time for $11,000. 1058 SF, 3Br, 1 1/2 BA, laundry room, 2 car garage. I just sold it for $490,000, and had several backup offers. When you consider that this appreciation was all done against leveraged money ($99 moves you in!), it's not a bad deal - WAY better than .5% over inflation.

Again, SoCA is not Norman, OK., and you are in the finance business, not I. Indeed, I haven't seen a $65K house in some 25 years so there are definitely different market forces at work here.
However, I still question the advisability of renting - renting anything - when a person is able to purchase a house, particularly with favorable financing like a HUD loan.

As an example, I'll use the .5 over inflation figure. Average inflation since 1950 is 3.2% - I Googled it. Allowing the .5% you get 3.7% average appreciation. We'll assume that Norman OK is average in every particular, even though from what I hear now from people who live there, it's undergoing a bit of a housing boom just now.

$65K house x 3.7% increase per year = $2,405 the first year, $2,493 the second year, etc. Not such a hot rate of return when compared against $65K, but you don't have $65K in to the house. You have $2K in to it - the down payment. $2,405 (more in successive years) appreciation on a $2K investment is the sort of return most investors can only dream of - and it's TAX FREE until you sell it without rolling over in to another one.

Now figure in the mortgage deduction. Owing to the miracle of the rule of 78's, for the first ten or so years nearly the entire payment will be interest, and tax deductible. Not so good if you are trying to pay it off, but not so bad in terms of a tax deduction. The payment thereby comes out about the same as rent, with two important distinctions: The payment never changes while rent payments go up regularly (avoid adjustable rate mortgages like a bad habit) and if you keep after it, eventually you OWN it. Once inflation makes your payment seem small, you can add extra principal payments in to this mix and pay it off in half the time.

Oh yeah, and you can LIVE in it too - try that with any other investment vehicle.

Given all of this, unless Norman OK has some sort of outrageous tax rate, the soil is toxic or there are other forces at work in that market, buying a house there sounds like a very good idea if one is currently renting.



Agreed, BUT:

The payments won't change. Cheaper house at higher interest = the same payment as more expensive house at lower interest. Buying a cheaper house at higher interest will result in some small tax advantage, but not enough to offset even the average rate of appreciation you will have to pay if you wait a year.

Waiting is losing.


Lots of good advice given here as far as the cost of maintenance - it can be high, particularly if you are fussy about details. It can also be fairly reasonable if you are a bit resourceful and a bit patient.

Being in the biz, I don't let maintenance costs worry me too much, as long as the house is basically sound to begin with. I have the advantage of being able to do my own work, but even if I couldn't I would be willing to give up any and all discretionary spending (and some luxuries in the house itself) for the first few years just to own a house. Yes, I feel that strongly about it.

Again, back to this house in Norman. What might go wrong with it? Looks like the roof went on in '96, and even if it was a cheap roof it should last a good long while longer. If it doesn't, there are any number of ways to limp a composition roof like that along cheaply for years and years. The heating and cooling systems are 8 years old, should make 20+. If the cooling quits you can do without, and if the heating quits about the most it can cost to fix a forced air furnace is about $400. If the furnace were to disappear tomorrow, at least one winter could surely be weathered with space heaters from K-Mart - OK is not AK.

Stoves are $25-$50 in the PennySaver so don't sweat it. Hotplates are $3 at thrift stores until you can find the right $50 stove. If the carpet goes you tear it out and paint the floor until you find some nice used carpet - usually $1 per yard around here. Water heaters are $300 installed - about the cost of a set of tires. House was rewired in '96 and if they did a decent job there should be nothing it needs for 20 years or more.

Plumbing has not been mentioned, but at 70 years old the house must have been replumbed at some point. If it got repiped in '96 there is little to worry about. If the sewer becomes an issue (I see it's connected to city sewer - all bets are off on houses with septic systems) then you can buy a sewer snake for $100 and snake it yourself until you come up with the $ to rework the sewer line. (Hint - it's all about digging - and diggers work cheap). Paint is nearly free - not worth worrying about.

Windows that don't work right are an annoyance but don't have to be fixed if you don't have the $. We've already discussed the settling thing, and the house inspector should pick up any other problems worthy of concern. Termites are handled by the seller and once that's handled you don't really need to do anything for years - they eat very slowly (except in Hawaii).

If things really get out of hand, one can apply to the city for one of their ultra-low interest home improvement loans - the City of Norman mentions them on their website. If your income is low enough that you can't keep up your house, you'll qualify. If you make more than that, you won't need the loan.

One other thing - most house sales these days include a home warranty policy. The seller pays for it. The quality of these policies varies, but for the most part any repairs required in the first year are handled by the warranty people.

I still say go for it.

THANK YOU SOOO MUCH. WOW, are you sharp!

I am feeling a lot more confident about this whole thing, now that with your help I'm learnin a little bit more about the process.

I can't thank you all enough, really.

Agreed with all of Steve's last post, except for one small part: Brother, I've seen people down here do without grocery money in order to fix the A/C in the summertime. I would expect Norman to be somewhat similar...

Steve - You make lots of good points (re: leverage due to downpayment, and the basic value of buying vs. renting). And you know way more about house construction than I do. I need to go to work now, so I will repond to the financial points above later (some of my points are not totally relevant to Melody's situation). My only reason for posting the information that houses don't always go up, is so Melody doesn't feel pressured into buying before she is ready from a lifestyle standpoint. If she is, and has confidence in the construction of a house in a location she wants to live for a long time at a price she can afford without eating rice and beans at night, I am all for buying. There is also nothing wrong with saving some more money and looking for another year or two, if that's what it takes to find the right house and be financially comfortable overall. I'll give examples of whether housing may be overvalued in some areas now, and the types of housing I have seen people lose money on later.

Melody you have gotten lots of great advice.

The house is charming, the price unbelievable. Do your homework, get a home inspection. Another thing I have done in buying our houses is to ring the doorbells at the neighbors and have a chat. They can tell you the history of the house, the neighborhood, schools. Perhaps there is an issue with the house or area you didn't know about. The bonus is that if you get the home, you will have already met the folks you will be living with!

Repairs are something you can do mostly yourself, get a good encyclopedia sort of home repair book. You would be amazed what a gallon of paint with do. Be creative, I hired an unemployed neighbor to help me paint my first house. He painted only the areas too high for me to reach, I painted the rest. You can work out bartering arrangements too. I have done gardening for others in exchange for help at my place.

I bought my first house as a single woman at age 24 some 20 years ago. Folks thought I was crazy.. They didn't think I was so crazy when I sold it 4 years later for twice the price! (Remember, this is greater Boston). In fact one of the neighbors was a buyer!

Good luck and I agree with Larry, this is a monumental step in making your life better.

WAHHHH! *TEARS* The house just went under contract by another couple, while I was waiting to hear back from the realtor!!!! AHHHHHHHHHHHHHHHHHHHH

*sniffle* I'm sad....

Just some stats, not all of which are relevant to Melody's situation, I admit.

According to Business Week, national housing price appreciation was 1% over inflation from 1950, .5% if the costs of home remodeling are taken into account (new kitchen/bath, new roof/paint, etc.) On the coasts and big cities, the appreciation was 2-3% over inflation over the same time period, so that many people from big cities can retire to small towns on just their house appreciation.

Inflation in the post-war period from 1945 was 4.1 percent in the US (I believe the 3.1 percent number is from 1926, according to Ibbotson). I compounded 11,000 dollars from 1950 to the present at 7.1 percent (4.1 inflation, plus 3 percent) and came up with about 477,000 dollars, close to Steve's sale price. For comparison, the S+P 500 stock index was at 14 in 1950, and is now about 1100. This does not include the effects of leverage (low downpayment) or rental income (or costs of repairs) in the case of Steve's rental property, nor dividends (historically 4-5 percent or more, now under 2 percent) in the case of stocks.

In theory, ownership assets (which include both stocks and real estate) should have similar returns in the very very long run. At present, many financial institutions are wondering about a real estate "bubble" - for example, Goldman Sachs just put out a report saying that big city real estate worldwide should drop over 20%. The Economist and World Bank have similar concerns. I do not happen to agree with them, but their arguments are not crazy. For example, one can value real estate compared to the yearly rental price of a comparible home (similar to a price/earnings ratio for a stock). On that measure, real estate in NYC, SF, Boston, etc, is near an all time high (over 25-30 in some cases, vs. a long term average of 17-18, similar to stocks long term average P/E ratio). This is being kept up by ultra low interest rates, and the perceived undesirability of other financial assets (like stocks). Higher rates spell some danger here (e.g. if 30-fixed mortgages rise over 7.5 percent), though I hope we see muted increases or stagnation in home prices, and not a sharp drop.

But people can lose buying a home. Rosie O'donnell bought a townhome in my neighborhood for 6.5 mill in 2000 and sold it for about 5.5 mill a few months ago (this is from memory, it was in the papers). I know plenty of Hamptons beach houses bought for 4 mill and selling for high 2's now. We have friends in Atlanta who have to sell a few years after purchase and must take a 10% or so loss (house value maybe 140k or so). We bought a house in Iowa and had to sell it losing almost all our downpayment, about a year later, when we moved to NYC. Both houses had the same problem: oversupply in a "sprawl" city, and re-sales were lowered due to much new construction nearby, that seemed more attractive to new buyers. (Same can happen in Las Vegas, for example.) Also, many of my clients lost money in NYC real estate in the early 90's when NYC housing dropped 25 or so percent. Housing has never had a down year nationally, but people can lose as well as make money in personal real estate, depending on location and house and the local economy (try to sell a house in Flint, Michigan).

Owning a home should usually be a person's or family's first investment, given the costs of renting, and the long term benefits of ownership (financial and personal). But I sensed some degree of uncertainty in Melody's posts as to whether this is the right move for her at this point in time (if I misread your internet posts, I can't see you or your facial expressions, and I apologize for reading too much into your words). If there is any uncertainty, I only wanted to say that there is always another house out there, and no one should be rushed into a house purchase, for fear of rising prices, which may or may not happen. I know nothing about construction, or how to evaluate building condition. If this is the right time for Melody to buy, all I can say is - post pictures!

Psssttt....

No more than about 80 characters per line or we all end up scrolling, not just for your post but for every one that precedes and everyone that follows.

And another pointer--that little icon above your post that looks like a sheet of paper--it lets you edit your previous post at any time. Takes you right to the composition window, where you can change it. Then you just click the little "Edit" button on the left below the box and you are done.

As to the house--just keep looking. Another will come up in your range. Meantime, you have time to save and to look into various financing and rehabilitation options. Since I stay fairly well-informed around Norman about what's available, I'll let you know if I see anything that looks promising. Meantime, get hubby working!

[I see you figured out that characters/scrolling thing, even before seeing my post. ]

Thank you!

I fixed the AHHH's right after I posted. I didn't realize it would mess it up so much.

Hubby picked up a job application yesterday.

My wife tells me the SAME THING!!! All you women are the SAME! You got some kind of girl plot going?

I am so disapppointed.

Good. Now it's time to go out and find the truly RIGHT house for you.

Never fear, another house is out there.

Chalk it up as a learning experience. You'll know that much more the next time and now you have a new knowledge you can use to continue looking.

Best of luck in your house hunt.

Just to add to the good advice above: not once have I seen a friend or client miss a house, no matter how much they wanted it at the time, not come up very soon (weeks or months at most) with a house they liked better in almost every respect. Happy house hunting (and get a buyer's broker, if available)!