Tales from the Wallet: Thoughts on Buying Property

how to buy a condo.indexed(1)When should you consider buying an apartment or house to call your own? What should you know before you start the process?

When I asked the readers last week what sort of financial topics they wanted to talk about, a number of people chimed in asking that we talk about buying an apartment or house. All finance topics are fairly huge ones, but this one is particularly huge — books! classes! blogs! — not to mention very regional-specific. I’ve looked to buy an apartment in the New York City area twice, so I’ll share my experiences there, but let’s just keep in mind from the get-go that this post will be written in very broad strokes.  This has kind of turned into a runaway post, so I’ll put some reader Qs up front — ladies, what have your experiences been with buying property?  Have any of you decided that, despite having the money to buy, that you would rather rent?  What factors would you advise a younger woman to look into?  What resources did you find most helpful when researching? (Pictured: FOR SALE BY OWNER (if you can find it), originally uploaded to Flickr by The-Tim.)

Some Basic Considerations

Risk Factor: As far as investments go, this can be a pretty risky one, even though there’s an attitude (at least in NYC) that you will always make money on an apartment. I’ve seen some friends sell their apartments for nearly a 50% profit a few years ago — I have some other friends right now who need to move for their jobs and realize that not only are they losing their down payment, but that they’ll have to pay an additional five figure sum just to walk away from their homes. Ouch.  It should be noted that right now, prices are generally the lowest they’ve been in a long while — that is by no means an assurance that they won’t go lower, though.  Keep in mind that if the economy continues to tank, rents will probably self-correct pretty quickly — but a mortgage will not.

Renting versus Buying: There are a number of online calculators that can tell you if renting or buying is better, such as the one at The New York Times. For my own $.02, I’d suggest taking these with a grain of salt, but that’s me. I just fooled around with the numbers, putting in the rent my husband and I were paying at our last apartment as well as the purchase price for our condo, and the initial number said we’d be better off buying after 15 years — but after I went to the advanced tab and jiggered around with more numbers (such as adding in the broker’s fee I’d paid to find the rental, deducting the closing costs for our condo which were paid by the seller, etc), it said we’d be better off buying after 4 years.  Meanwhile, the Yahoo calculator tells me I’m saving $70K after only 3 years by buying my apartment rather than renting.  So: grain of salt.

How much you can afford? This is always a tricky question.  Things to consider:

  • The down payment. In New York City, you almost always have to put at least 20% down in cash; some places require more like 30%.  For example, if the apartment you’re buying costs $500,000 and requires you to put down 20%, that’s $100,000 down, and you’ll be borrowing $400,000 from the bank.  Note that loans over $417,000 are generally considered “jumbo loans” and will be at a higher interest rate.
  • The monthly mortgage payment. Most home buyers end up borrowing a massive amount of money in order to buy a home, and your monthly mortgage payment will massively affect your lifestyle.  Consider your debt to income ratio. Before you get the loan, your bank will check your credit score and will assess how much debt you have to pay every month (student loans, credit card bills, the proposed mortgage payment, any condo/co-op/HOA fees, etc) compared with how much income you make.  Most banks like to see your debt be no more than 28-36% of your income — many co-op boards may be a bit stricter than that and want no more than 28% debt to income.
  • Additional monthly fees. In addition to your bank loan, many home purchases come with built-in fees, either as “maintenance” fees from the co-op or condo, or HOA fees for the house.  I always looked at these as the equivalent of “rent” — even assuming I owned my home outright, I would still be paying X to live in the space — and I always looked for places with a fairly low maintenance fee.
  • Taxes. This is where things get complicated.  Back when I was first looking for an apartment (in 2005), all of the “sale sheets” in NYC told you what your estimated tax savings were — because of the way most mortgages are structured you primarily are paying interest, NOT principal, for the first 3-5 years you own.  Interest is tax deductible, so a lot of sellers would do this math on the sales sheet to the extent of “This is what your mortgage is each month, but when you factor in tax savings, THIS is the real number!”  Which always seemed like a ridiculously low number about equivalent or less than the cost of renting a comparable space.  They weren’t doing this when we were looking again in 2009 — perhaps because there’s been so much talk of having that particular tax deduction repealed.  Either way, remember that really only makes an impact in the first 3-5 years of owning, and then the tax savings taper off.  Real estate taxes are usually deductible also.
  • Closing costs. I’m sure this varies widely from state to state.  Just here in New York, it depends what kind of property you’re buying (is it a building that is newly going condo or co-op?  Is the purchase price more than $1M?  is it a condo or a co-op?).  The big money for closing costs is usually the broker’s fee, which in New York is about 6% of the purchase price — but most of the time the seller pays that fee, not the buyer.  Buyers are responsible for a number of other little costs that do add up, though — when we bought our place, we wound up paying things such as title insurance (it can be .5-.8% of the purchase price), mortgage tax (1.8% of the purchase price, but it only applied because our mortgage was less than $500K), legal fees to our lawyer, as well as smaller bills such as a “managing agent” fee, the bank attorney’s fee, a credit report fee, an application fee, an appraisal fee, and then money for title searches.  At the end of the day, we paid nearly a third of what the sellers paid, and neither were what I would call insubstantial amounts.
  • What else you could be doing with the money that’s tied up in the down payment? Traveling?  Cushioning yourself if you got laid off?  Helping an ill parent?  Making money in the stock market?
  • How much cash will you have left in case you get laid off, have huge medical bills, etc?  See our prior discussion on emergency funds.

Kat’s Adventures in Purchasing Property

Like I mentioned above, I’ve looked to buy an apartment twice.  The first time was in the spring of 2005.  I was single but making good money, and thought perhaps I should consider buying a studio or one-bedroom.  I was only interested in the Union Square/Gramercy Park area of Manhattan.  I looked for about 4 months — every weekend I’d head out with my broker, and we’d look at places.   In 2005, the market was fantastically different than it is now, though — bidding wars were common.  I’d see a place listed for $X, and the seller would ask everyone interested in making an offer to make your “best offer” on a specific day.  I’d submit an offer (usually of $X, the asking price) and find that I’d been outbid, sometimes by as much as $50K.  I put in four offers, if I remember correctly.  I vividly remember the first place I offered, and would have been happy with that purchase — but by the fourth offer (which I don’t even remember — I think it was an extremely small studio that someone had tried to convert to a “two bedroom” around 9th Street) I was pretty disillusioned.  After I put in my offer for $X, the seller came back and said “just $5K more will get you the apartment.”  I made one of the hardest decisions I’d made at that point in my life and walked away from the deal — I just wasn’t psyched enough about the apartment and I was tired of the whole experience.  The hardest part about it was my poor broker — he had literally come out with me most Sunday afternoons to go looking at apartments, and I considered him a friend by this point.  He was getting a fantastically short stick out of all of this — four months of work and no commission or payment of any kind! — but I did what I had to do.

(On the renting side of things, I had been in a studio on Fifth Ave. and decided that, for my next apartment, I should rent in Brooklyn to see if I liked the area and perhaps consider buying there if I did.  As it turned out, I hated living in Brooklyn with a fiery passion — I was single, all of my friends were in Manhattan, the subways never seemed to be running, and cabs could never be found, so invariably I was teetering around Brooklyn Heights on 3-4″ heels searching desperately for a cab.  I found that it made dating difficult also — Manhattan guys didn’t want to date a girl who lived in Brooklyn, and it was a royal pain trying to meet up with guys who lived in other parts of the city, such as Williamsburg, Hoboken, or Queens.  So I stayed until my lease expired, and then rented a bigger, nicer one-bedroom back near Union Square — where after about a year I met a nice Brooklyn boy, who is now my husband.)

2009:  After my husband and I were married in May 2009, we started the search for an apartment in earnest.  The market was totally different this time — prices had fallen drastically in recent years, and mortgage rates had also taken a dive.  If a place was listed at $X, it was common to see numerous price reductions — sometimes by as much as six figures.  This time, there was none of the tomfoolery I’d experienced in 2005.  Bidding wars?  Bidding at “ask”?  Are you kidding?  It was a commonly accepted practice to bid at least 10% less than the asking price, sometimes even more than that.  Places that were initially outside our budget either eventually came down to our budget, or else we would later see that they had gone into contract with a reported purchase price that was well within our budget.  This was a season for bargains, clearly — much more my speed.  We kept telling each other that it didn’t matter if we bought at the BOTTOM of the market, so long as we didn’t buy at the top.  This search was also different from the first in that while I no longer needed a doorman-building, like I’d insisted upon in 2005, I now refused to consider places that were walk-ups (hoping that babies and strollers would be in the future).  With my husband by my side, I also was far more open to renovation projects than I would have been as a single girl — he’s in the construction/design industry and, in addition to knowing a number of contractors and suppliers and more, he also is much handier with a power tool than I am.  We wound up making two offers this time.  The first was on an apartment that we called the “time warp” — it was if it had been designed with Miami Vice in mind.  We didn’t get the place — our offer matched the offer submitted by a pair of empty-nesters who, the seller thought, the co-op board would like much better.  The second was on our current apartment, which has really weird angles and needed a kitchen renovation (which we thankfully finished already) but more than enough space for us to grow into it.  Funnily enough, the condo is just a few blocks from the rental apartment that I hated back in 2005-2006.  It was about a four month process from when we made the offer to when we took possession of the apartment, if memory serves.  In addition to the closing costs, we had the entire place repainted before we moved in, and we also paid an electrician to put an overhead fan in our bedroom.  Oh, and yes, we went back and used my old broker from 2005 — he got a bigger commission than he would have in 2005, and he only had to show up at a few different meetings because my husband and I preferred to do most of the looking ourselves.

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Kat’s Takeaway

I really, really lucked out in that I walked away from that deal in 2005 — if I had held it until I got married (2009) there would have been absolutely no way I could have sold it then for any sort of a profit, and we’d be trapped.  All of the places that were in my price range then would have been way too small for my now-growing family, and honestly I’m glad that once my husband and I got married that we had the freedom to create a home together, rather than have him just move into a place that I’d already established as my own.  But then, hindsight is 20/20…

This isn’t to say that I’d advise all single women to not buy property, but in my case I really lucked out.  I have no idea how my current apartment purchase will shake out — but like I said we have more than enough room to grow, most of the renovation costs are behind us, and if worst comes to worst we could hold this apartment for a long time.  At this point in time, I feel like we got a great deal, I’m glad we did it, and I feel like it was a smart financial decision for us and a good use of our money.

Further Resources

– I got a number of books out of the library about buying a place.  I wouldn’t say that any of them were particularly helpful, but they all contributed to my general knowledge.

– I loved using StreetEasy when we were looking — I could set up alerts, do price comparisons, and more.  I had to slowly wean myself off it — I think I hung onto the “premium subscription” for a full six months after we were already in the apartment.

– TV shows.  Honestly, my husband and I both got addicted to shows like “My First Place,” “House Hunters,” and “Property Virgins.”  It was fun to follow the buying process for another person/couple/family (even if the show was outdated and they were buying in a totally different economy, or if they were buying in a completely different area of the country), and it was fun to see the kinds of issues that came up.

Like I said: this post is written in huge, broad strokes, but hopefully this gives people a basis for discussion.  To repeat my questions above: what have your experiences been with buying property?  Have any of you decided, despite having the money to buy, that you would rather rent?  What factors would you advise a younger woman considering her first property purchase to look into?  What resources did you find most helpful when researching?

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  1. just Karen :

    I own a condo and my fiance owns a large house about a mile away. We are currently living in the condo while he rents rooms in the house, but it is definitely going to make things difficult when we marry – we are stuck having one place that’s small and cheap and one that’s big and pricey (in relative terms – I am in an inexpensive housing market, so his mortgage of $1900/mo for a 4 bedroom house probably seems like a bargain to most of you, but since I have paid down and refinanced my condo, the $450/mo for my two-bedroom is hard for me to imagine giving up). I am really torn as to whether buying was the right choice for me – in the end, since I have been able to pay down almost half my mortgage, and I have a great location, I think it has been worth it. The big factors to consider IMHO are expense, how much money you can put down, how long you plan on being in the location, whether you anticipate any life changes during that time (marriage and/or kids being the biggies), and how easy the property you’re looking at will be to resell – my fiance’s house is fantastic and works for what he needs, but the layout is unusual and probably not that appealing to the average family, so I am guessing it will need to be on the market for a while before it finds the right owners… I don’t think it’s bad to buy while you’re in a transition period, but be sure it’s something well within your budget and fairly attractive for resale. In retrospect, while I love that we are both financially responsible enough to have bought property while in our 20’s, I wish we were looking for a home together that would be OUR house rather than juggling too much real estate.

    • $450 a month for anything that you could live in is unimaginable to me. Lucky, lucky you.

      • SF Bay Associate :

        Kat, I too am totally addicted to House Hunters. Episodes like the $600k 5000 sq ft estate outside Dallas blow my mind, especially when compared to a recent episode in SF – $780k for a 2 bedroom condo in the “up and coming” (very gritty) dogpatch area of SF? Sounds about right to me… normal, right??? But then Just Karen paying $450 for a 2 br? Wow. My crappy 2br in a SF suburb is $2k, which is actually considered inexpensive for where it is. I’m very interested to see where this discussion goes, but it really does seem materially vary depending on location.

      • just Karen :

        1400 sq. ft, four blocks from my office, 2 bedrooms and 2.5 baths , private garden, fireplace, etc… I love the midwest! But with full disclosure, when I first bought the place and financed 95%, I was paying almost twice what I am now.

        • I’m Midwest, too and my 1300 3 bed 2 bath house, large fenced in backyard about a mile away from groceries, restaurants, etc. is $720 a month (without associated utilities etc.) The rental house we looked at – same specs, no fenced in backyard and right on the highway… $900 a month, with nothing included. Buying was a much better deal for us. I too, love the Midwest. :)

    • I think I want to buy a condo. Should I look in manhattan or Brooklyn if I am looking for a boyfriend?

    • Recently walking through D.C., I saw a small empty lot being sold for the bargain price of $99K. I got a chuckle out of the fact that my first house, a brand new build in Texas, cost less than that.

      • $99K for a lot? Where was it?? That is a bargain. My husband and I are currently doing the house-hunting thing in DC. It’s painful.

        • It was a tiny, crappy lot too. I don’t remember where it was now. A good real estate agent is key. Good luck!

    • Anonymous :

      You can still get that house you want. Rent the condo out if the association allows renters. When buying condos make sure you can rent the condo out before purchasing and that the mortgage and assessment and real estate taxes combined will be less than what you can get if you rent it out. My son bought two condos. He lived in one condo for a year and later moved to a different location. He rented the condo and nets $500 a month after paying assessment and taxes. He paid $22,900 cash for a large one bedroom unit, which was a foreclosure. The other unit, which is a two bedroom unit he rented immediately after paying $25,700 cash, which was another empty foreclosed unit. He nets $1100 a month and now live where he wants. Make your real estate investments first then those investments will help you for life.

  2. To share my experience:
    I was offered a job in a smaller midwestern city in October of my 3L year. I knew I wanted to be in this city, even if I changed jobs. I have lived here before, during undergrad and rented that whole time. I was aware of the cost of renting and the pros and cons. I knew I wanted to buy a house because after looking at the rates to rent a comparable home, the mortgage was less than the rent per month. I looked at 35 houses in two days during BarBri and had a fantastic realtor. I found a house, in a small town right outside the city and have never looked back. The initial costs of buying were overwhelming. Thankfully, my now H was making great money at the time and paid our down payment and our first few months mortgage while I was not drawing a paycheck. It was all the little things that really added up: We didn’t have a lawnmower. Or a garden hose. Or enough furniture, linens etc for the extra rooms in the house. I also ended up having to do a but of remodeling, so that was a lot of work, though not particularly pricey since I did a lot of DIY stuff. The problem I had was that there were things in the house that I simply couldn’t stand: brass fixtures. EVERYWHERE. So I bought all new light fixtures (pricey). But eventually, I got burned out on spending money on the house and we are on hold for awhile.
    Ultimately, it was the best decision for us. We got an amazing rate on our mortgage and are paying much less per month than we would be in a rental home or large apartment/townhome.

  3. Maddie Ross :

    We bought in 2008. It was not the “top” of the market, but rather during that first little lag. Housing had allegedly “softened,” but this was pre-AIG, pre-bailouts, and pre-big drops in price. At the time, we felt we got a really good deal. At this point, I can hardly watch HGTV or look at real estate listings b/c it just makes me want to vomit. While I love our 3BR, 2 BA ranch, I ideally would love a bigger house. We bought thinking we’d be there for 5-7 years, tops. At this point, more than halfway in to that time frame, our house is valued at $60-75K less than we paid. We’ve also pumped money in to the house to replace the HVAC (which we knew going in), the roof (which was a surprise) and three toilet commodes (also a surprise). We’ve spent so much on need-to repairs, we haven’t even been able to tackle want-to upgrades other than painting. Not trying to be debbie downer, but just adding my perspective that it’s not all fun and profits.

    • Yes. I’d like to emphasize the point that home ownership is almost inevitably much more expensive than what you estimate, because the repairs and maintenance costs of a house cannot really be imagined until you live in one for a few months/years or through the seasons and watch things slowly (or quickly) age and fall into disrepair. Everything. Houses are not built to last, and especially after a winter like we just had here in the northeast, your roof will leak, your walls will crack, HVAC systems will fail … not to mention what you will may need to pay for yardwork and lawncare or even just basic fall/spring cleanup and snow shoveling (even if you DIY, the equipment is expensive). Add to that all those renovations you have in mind, and add to that your dream shopping list of new wallpaper and sidetables and lamps etc to fill up your extra space, and … well, renting might be cheaper. Many of the couples I know who are now in new homes are asking themselves what was so wrong with writing a monthly rent check and being done with it.

      That having been said, I love living in a house. But my advice would be
      – try to find a place that’s in “move-in-condition”. Ideally, the last homeowners did a bunch of renovations already, and you can just enjoy them. Maybe the buying price is higher, but statistics show that homeowners almost never make up their investments in home renovations back in sale price (especially in this market) so take advantage of that fact and by being on the right side of that equation.
      – try to buy a newer house, if you can. Older houses may have charm, but they also have old, leaky, rusty, molding, crumbling, fall-apart pieces that will need to be fixed soon, and things like small bathrooms and closets that need renovations.
      – know thyself and your capacity for renovations and domestic drudgery.

      Good luck!

      • I think you make a great point about the renovations. We bought a very renovated, and very old (1912) bungalow, thinking we were probably losing money on the deal because we weren’t doing them ourselves. Now I am so glad we bought the house we did. We knew we didn’t have time to do all of the work ourselves, so we decided it was worth it to pay for the convenience. We also are in a city that has had very little market volatility, so that has been huge. Although we paid almost the full asking price, we were one of three bidders after only one week on the market. Our house is in a great location, and we have (almost) no doubt we could get at least what we paid for our house now.

  4. Ooh, my favorite topic (besides fashion): real estate. I have bought twice, and my biggest advice would be: find a realtor that you LIKE and TRUST. I’ve had experiences where I felt like the realtor was much more interested in making the sale than in what I wanted. I found my last realtor through a work colleague and loved her.

    • somewherecold :

      Do you have any suggestions for interviewing (if this is the right word) or picking a real estate agent? I have a list of recommendations from people I trust, but I don’t know how to decide which one to start with.

      • I did exactly this – I set up time with 2 different realtors that were recommened. Part of my final decision was based on personalities – who did I want to spend time with / who did I get the sense I could trust. Other part was based on answers to some ethical questions I asked “If you were the selling agent on a property I was interested in buying, how would you handle the negotiations?” (A realtor can’t in reality represent both sides fairly at once. no matter what they say). In the end, I worked with someone who was fantastic and I’ve used multiple times.

      • A list of questions is good, but I also think you would get a good gut instinct based on coffee with them. As meg said, you’re going to spend a lot of time with them, so you better like them.

        That being said, I would ask them about difficult situations and how they’ve handled them. Negotiations where there was only a few small thousand difference but no one would budge; negotiations where the other side was playing shady; apartments where the buyer was hesitant; buyers with unrealistic expectations; etc. Although I think it’s more important when you’re selling, I’d also try to get a sense of how hard they’re going to work. How often do they email clients? How often do they send them listings? One of the things I loved best about my broker was that I felt like she worked REALLY hard to make my sale and purchase happen. I was following real estate pretty closely anyway with Streeteasy, and she and I would often simultaneously email each other the same apartments, so I knew she was completely on top of what was coming on the market. Also ask if they work with an associate — you want to make sure this is the person you’re going to deal with, not some newby.

        Good luck!

      • somewherecold :

        Thank you for the very helpful advice!

    • We found our realtor by visiting open houses in the areas we wanted to buy in – we would spend time talking with the realtor showing the house, figure out how much he or she knew about the market (and often about that building or development in particular), and figure out whether we liked him or her. We talked with about half a dozen realtors and ended up with one who did a great job of guiding us through a tricky and emotional purchase, and I would recommend him in a heartbeat.

    • This. We loved the realtor that helped us buy our current house. He did not try to pressure us to buy and actually told us not to buy certain property. We went to him thinking we wanted a condo. He immediately told us that we were not condo people but that he’d show us condos. After looking at condos for a couple days, we realized that he was right. He also explained to us that our budget for a house was higher than for a condo since we would not have to pay monthly condo fees. When we started looking at homes, he rejected quite a few as soon as we stepped in because they would not appreciate well. Ultimately, he found us a house that we love and by presenting the offer himself, he got our offer through even though it was the lowest of 3. We would have been lost without him.

  5. Hubby and I are starting to talk about buying a place in the next few years, so I’m excited for this thread! Has anyone done major renovations while working a demanding job?

    • I actually moved because I was facing the prospect of major renovations (kitchen / bathroom gut) while working in Biglaw. The only options I saw were to high an interior designer or to move my mother out to ride herd on a contractor.

    • Anonnnner :

      Yes…. and be prepared. Of course, it depends on whether you have a contractor do the work or you do the work. We did most of the work ourselves and are proud to say, after 3 years, our house is completely finished. We both work 50-60 hours a week, which is why it took us so long. But, we are relatively young, without kids and had a great time doing it together. The small amount of work that we had done by others was a pain with our work schedule. It’s hard to get them to come on the weekends and I was just too paranoid to have them there all day every day while I was at work. There was a 3 week project that required third party work during the week so when that happened, we paid a family friend (who is a general contractor) to come and “supervise” and just remind the workers that someone was there watching. We are so glad we did it though since, due ot the market, we will now be living in the house until we are 80 :)

    • I redid all the cabinets in our kitchen when I took a month off after the bar exam and before I started work. I could not have done it while working 12 plus hour days. It took me six days, waking up at 7 am and working until 10 pm (with a lunch break and some other errand breaks) to get them done and it was exhausting. I will probably tackle the cabinets in both bathrooms this fall, but that would be small potatoes compared to what I did in the kitchen. I even had a friend help me quite a bit. It was rough.

    • Diana Barry :

      Yes. We renovated the kitchen while I was working in biglaw and also pregnant with our first. My H works at home, so was able to get deliveries/plumbing when they arrived. We did the demolition on weekends and at night (weekends with family help), and we were also the GC, only hired plumbing and electrician (DH did all of the cabinet installation). It was a lot of work, but we had a great time doing it (YMMV – many of my friends would not have done it!). It would be substantially more difficult if (1) you have kids while trying to renovate, and (2) no one works at home.

    • I posted below. I am 8 years into a historic fixer and have worked full time, with two young kids, the entire time. I owned a house before this one and made a lot of improvements to it as well.

      You can live through it, but it will be dusty and noisy, and it helps to have a somewhat flexible employer, as you may need to leave in the middle of the day to meet your contractor or an inspector.

      I have had re-done or installed:
      foundation (yes, twice)
      earthquake retrofit
      termite work
      full kitchen remodel
      two bathroom remodels
      paint-stripping from wood wainscoating (a surprisingly major project)
      attic flooring (done by husband!)
      asbestos abatement

      Aside from the dust and noise, the other two key factors are the trustworthiness of contractors and the accuracy of initial estimates. (Double them mentally, just to be safe.)

      Make sure you have a general contractor on any job that is going to involve specialty contractors (called “subs”) Otherwise, you will become the general contractor, and that is a full-time job by itself.

    • We did a (small-ish) kitchen renovation while my husband was away on a surprise 3-week out of state trial and I was in the middle of two closings. Our renovation was installing some new cabinets (but leaving the old ones in place), installing new countertops and sink, painting, and minor touch-up stuff. It took about 2 weeks.

      The kitchen turned out well, but I regret that we weren’t around to be more attentive – some of the paint isn’t up to my standards, the cabinet drawers slide open on their own, etc. If one of us had been around to monitor things, I suspect the work would have been better quality.

      My advice, if you really can’t be around, is to make sure you get an exhaustive punch list from your contractor before any construction starts. Our contractor broke it down into minute details – what tools they would bring, what items they would take out and how they remove them, who would clean what, and when everything would happen. It made it much easier to stay on the same page; if I got home and something wasn’t what I had expected, we could both work off the same plans and discuss what should have been done.

      Also, our contractor made it a point during the bidding to do early-morning and evening site visits, and told us that he would be available by phone at those times during the construction. Ask whether your bidding contractors will be around outside of business hours.

  6. In 2006, I moved for a job. I wanted to buy a house, found one I liked and could picture living in for 10 or 20 years, and calculated out what all my expenses could be and that I could afford the asking price. The bank I’d had all my accounts with for years preapproved a smaller amount. My realtor suggested Countrywide, and they did indeed approve the loan. In the meantime, I really got to thinking about those numbers and got cold feet. In the end, I only stayed in that town for 2 years (a different, longer story) and every time I hear Countrywide in the news, I think of the broker that recommended them, the house, and how glad I am not to be caught up in that mess!

  7. Consider what matters to you. I bought a townhouse in a suburb that means I have a long commute to work. BUT… I have a flexible schedule and the suburb is a “hot” location for a number of different firms. I chose the most house (in terms of living space) that I could afford and would want long-term, and I lived in the general area for four years before buying.

    Next – I made a spreadsheet of all of the features I thought mattered to me. Each place I saw was ranked. From this, I was able to narrow down the things that “really” mattered.

    Finally, I lived on the “money I would have left if I bought a house” for a number of months, to see if I felt deprived. From this experience, I realized that, as a homebody, I wanted a place to come home to and be in on the weekends more than I wanted the other things.

    The right decision is an informed one, whatever that decision ends up being.

  8. Great post! For many single woman, this is a typical “dilemma” and my best suggestion is that you should never let a ‘what if’ hold you back from buying a home. Be realistic with what you can tackle.

    My best decision was to go the townhouse route 9 years ago so that I would not worry about outside maintenance and then I also purchased a home under 10 years old. Excellent decision! My now H moved in with me once engaged and this home gave us time to settle in to marriage, save money and decide what we both wanted next. Yes, at times we felt a little cramped. Isn’t that part of being young and starting out? We now just purchased our first home together and my decisionsyears ago is still well-thought out. We are able to rent out the townhouse for a very small rental income. But we have someone else paying the mortgage and HOA dues each month while we ride out this market.

    It is best to just take a look at what will suit your needs in multiple ways and not just the here/now. I loved every minute of being a solo homeowner and now share with H.

  9. I bought in Brooklyn in 2008… at the beginning of the downturn. What I thought was a good deal has turned out to be less so. However, I’m in a unique position. I’m a tenured professor in the humanities. It is extremely difficult to move professionally given the shrinking market for these positions. My mortgage is less than my rent used to be in NYC. The maintenance fees are additional to my old rent, but I get it all back in taxes. Given that I’ll be at my same institution for at least another 10 years, I think it makes sense not to throw money at a landlord, down the proverbial drain, and into a mortgage that in the long run, I am likely to make back. If I had waited another few years to buy, I would be in a “better” location but probably still couldn’t swing a 2 bedroom on my own. I enjoy my current neighborhood but it isn’t where I want to live forever.

    • I think you meant that the tax savings from the mortgage interest deduction are enough to offset your maintenance fees, but I just wanted to clarify for anyone not as familiar with the deduction that the actual condo/HOA/maintenance fees are not deductible for federal taxes, nor in the one state I’ve done returns in (MA).

  10. Georgiana Starlington :

    I’m choosing to go against the grain, for now. I live in a small Southern city in which EVERYONE with a decent job owns a home. When I first started my law firm job, I wasn’t ready for home ownership or to decide, on a long-term basis, what part of town I wanted to live in. I chose to rent an apartment in midtown, where there are tons of young professionals and young families. It’s a quadplex in an area of mostly 3 bedroom, 1900s-1940s era houses. I love my apartment and the neighborhood it’s in, and I plan to stay here for awhile.

    Because housing prices are so great right now, everyone keeps telling me to buy. But here are my hangups:
    1) I still don’t feel quite ready to handle the responsibilities of home ownership all by myself. I don’t have to do yardwork. If something breaks, all I have to do is call my landlord. If a hurricane comes, all I have to worry about is the contents of my apartment, not the building itself.
    2) I love my apartment. It’s a 2-bedroom, 1-bath, with a dining room, study, and huge living room. I don’t see outgrowing it any time soon.
    3) I have decided that this is the neighborhood I want to live in, but it’s an older area with cute houses that often need alot of work. I don’t feel comfortable with the price of an already-update house, and I lack the time, money, and talent to fix one up myself.
    4) I don’t see any reason to buy unless or until I get married. If I never get married or have kids, I won’t need anything bigger than this apartment. And if I do eventually get married, then we can more easily buy a house with combined incomes rather than just one.

    Meantime, I’ll start saving money for the lakehouse I eventually want to own with my 3 cousins.

    • This. I’ve been at my firm for 5 years and still haven’t bought a house. I’ve been in the same 1250 sq-foot apartment for 4 years. I occasionally get strange comments about it, but I think it’s the best decision for me. I’m not married, and I don’t have kids. I don’t want to expand my lifestyle, and buying a house would drive my expenses up considerably (mortgage, insurance, taxes, maintenance, repair, probably HOA dues). My rent actually went *down* this year, and I’m only paying about $50/month more than I did when I moved to this city 5 years ago! My nesting instincts occasionally kick in, and I’ve even gone so far as to get approved for home loans and look at a bunch of houses. I constantly troll Trulia and other real estate sites. But I’m just not convinced yet that buying is the right financial decision for me.

  11. I strongly recommend buying for single gals. If you have a good job, chances are that the mortgage deduction is the only deduction available to you. Even after 7 years, my mortgage deduction is the largest deduction on my taxes.

    Where/When to purchase are matters for significant debate. I live in Chicago. The condo market has had its issues, but single family homes in my neighborhood are selling for more than my purchase price. I have owned two properties and my strategy has always been to buy the biggest I can afford and pay attention to up and coming neighborhoods.

    IMHO nothing exceeds the feeling of coming “home” to your own place. No condo associations, no pet restrictions, no garbage or maintenance issues. Your house is what you make of it.

    • Ballerina Girl :

      Did you buy a place that you would “grow into” if you married/had kids? Or just get a place for yourself with the idea that you’ll possibly sell later?

  12. [Insert Handle Here] :

    Don’t forget the post-closing, “make the home yours” expenses!

    Before you make an offer, go through the house with a very critical eye and think about every single thing you would want or need to do to the house to make it your own. I’m talking from small (door handles, faucet fixtures) to big (appliances, external paint). Then, price out those things and factor them into your monthly budget.

    That’s something we didn’t do very well and it really left us strapped (but okay) for the first year or so. Examples of things to look at are: window coverings, re-landscaping, patio furniture, garage storage systems, closet storage systems, toilets, vanity tops, shower doors, trim color, condition of baseboards, faucet fixtures, door stoppers… the list goes on and on and it all adds up.

  13. karenpadi :

    I bought a house in December mostly as a hedge against raising rents (the rent on my last apartment is now over $400 more a month than what I was paying less than a year ago!).

    -I went in knowing I’d have to initially invent $10k in new pipes (gas and water) and then had a $4k “surprise” sewer line repair.

    -Having to manage landscaping and yardwork. And paying for it.

    -Making changes I want to change like converting a wood-burning fireplace into a gas fireplace, replacing a chandelier with a ceiling fan, adding an over-the-range microwave…

    -Living in a safer neighborhood with more amenities–I can leave my windows open while I’m at work without fear.

    -Having rent locked in for 30 years (if not shorter).

    -Breaking even in terms of rent/PMI.

    I probably won’t actually sell this house even if I move out. Right now, being conservative, I could rent it out for about a $200/month profit. Plus, thanks to Prop 13, I have a fixed tax base.

    My advice, buy way less house than you can “afford”. I halved what I could afford and looked in that range. Thinking back, I probably should have added another 10% to that budget. YMMV

    Another piece of advice, don’t even bother looking at REOs in San Jose. They are trashed and smell bad. Short sales are a long shot too. Given a do-over, I’d be sure a least TWO offers had already fallen through because the bank came back with a high price.

    From a lawyer’s perspective, home-buying is a racket and the buyer is the sucker. Don’t forget that you hold the purse strings and never be afraid to walk or demand a price concession if something turns up in the inspection. think car buying only 10x worse.

    • Okay, I’m finally asking: What does YMMV mean? I looked it up, and the only suggestion definition I could find is “you make me vomit.” I’m guessing that’s not what you meant, karenpadi.

  14. Does anyone have experience as a buyer in a short sale? Is it just a total nightmare or worth the extra waiting/ paperwork?

    • I did this last winter, or I guess I should say, I tried to buy a short sale. I put an offer in the week before Christmas. It was accepted by the seller day of. I had been told it was a single bank I’d be dealing with and the price was pre-approved by the bank. Turns out there were two mortgages with two different lending institutions, and I had to go through the whole approval process from the beginning. The primary lender approved my offer end of January. End of March secondary lender did as well, but they wanted the seller to sign a promissory note for at least part of the outstanding balance on the loan. Long story short, 13 days before closing, the seller decided he didn’t want to pay anything, so he pulled the condo off the market and decided to force foreclosure. I am now VERY wary of short sales, and when I resume my search (probably this fall/winter, having just renewed my lease), I will only be looking at standard sales.

      I now understand why several of my friends’ realtors and my sister’s flat-out refused to show them short sales. IMHO, not worth the headache for the buyer or the realtor.

      • As the daughter of a realtor I can tell you that short sales are nightmares for anyone who doesn’t work at the bank. Your realtor will call everyday, email everyday, exhaust every possible path to get the sale to go through and the bank just takes their time. You are stuck on their schedule. The banks are literally running the show and are making life a pain for everyone else.

        This leads me to another point. A lot of people feel very comfortable bargaining during home buying (as they should since it is a negotiation between the buyer and seller). What never ceases to amaze me is how many people will ask their realtor to cut their pay in half at the last minute so that they can get the house they want. Yes, you hired them. But, any good realtor will be working their tail off to get you your house and then you want to cut their pay at the last minute? I’m sure most people wouldn’t be happy if at the end of a huge deal at work their boss came in and said the client had requested to cut their price in half so it’s coming out of your salary after the work is done.

        Sorry. Rant over. It just really makes me mad.

    • karenpadi :

      I tried to buy a short sale. The house needed a lot of work and so I negotiated the price down $40k before the offer was sent to the bank. Bank came back wanting $70k more and wasn’t going to budge on price. I walked after sinking $1k into inspections. That house just sold for $35k less than my offer. :(

    • Frustrated Academic :

      We made offers on two properties that were short sales. On the first one, the bank came back (four months later) asking for $20K more, which we agreed to, but we then walked away after the home inspection results revealed some serious structural issues.

      The second propertly had already had the short sale price approved, so we went in, looked, and made our offer. This was October 2009. On December 23, the bank accepted the offer and asked for a closing date of January 14, 2010. This led to a very special Christmas Eve phone call between myself and our guy at Chase, who could not have been more understanding and nice about the whole thing. Luckily,we had a 20% down payment ready to go, were not selling, and were prepared with documents, etc. We closed on January 14 (and immediately had to do $10K in plumbing work), and have been renovating ever since.

      If you want to go the short sale route, be prepared for it to take a loooooooong time and for some agents not to be interested. We were lucky because we were not in a hurry to move and our agent was my dude’s boss’s wife. The reality is that in some neighborhoods here in Chicago, the majority of the properties on the market are short sales, so depnding on where you are, you might not be able to avoid short sales.

  15. markymark :

    I bought a condo in Chicago in 2007 and got totally burned. I will never buy in this city again. I bought a brand new place, got a good deal since the market was starting to crash. Once I moved in, the nightmare began. Water coming in through the walls, windows, basement, and roof. All the owners had gotten inspections before purchasing, but those inspections will not tell you about faulty foundations, a lack of fire stops, no flashing between floors and windows, and other structural issues.

    The city came out to check the property and lo and behold, it did not meet code. The city had never inspected the place, the licenses on the property were all fraudulent. Basically, the city neglected its regulatory duty, the developer made off with 1.5 million, and now four owners are stuck with worthless properties. We cannot sell (because there are so many violations). We cannot repair (because the condo association is broke from lawyer fees and really who would loan a new condo association $300K in this market). Banks will not foreclose (because they do not want worthless properties either).

    I have been in and out of city court for 3-4 years. Have spent more money on lawyers than on the property. And see no end in sight.

    If you are buying in Chicago, be very careful.

    • I’m not sure what this has to do with Chicago specifically. The developer fraudulently represented that the building had all its licenses – sounds like the warning should be to be wary of new construction and double check the validity of licenses and inspection certificates, not to avoid Chicago.

      • YES, never ever buy new construction.

      • Not to say this isn’t a problem everywhere, but this is definitely something I’ve seen a lot of in Chicago. When I was househunting (every week for 2 summers, never did buy), my agent would point out how the properties weren’t up to code. Several of my friends have ended up with properties not up to code and had to spend lots of cash as a result; e.g., to install a roof deck or deal with flooding in a duplex down. Lots of shady developers in Chi-town who disappear as soon as the condos are sold.

  16. I think I may have a unique perspective on this — I am 29 and am already on my second purchased house. I have learned a lot of lessons along the way; maybe they will help someone or prove a foil to some of your own lessons. We live in a large Midatlantic city.

    DH (then DF) and I bought a small townhome in 2008. We had put in an $800k offer on one place following the 90’s “conventional wisdom” to buy as much as you can afford and that “house poor” was a good thing because it forced you to save, you could grow into your house, yada yada. We didn’t get that house, and shortly thereafter DF lost his Biglaw real estate job. Bullet dodged. Lesson One: Make sure you can pay the mortgage on one salary.

    The $500k 1, sort of 2 BR townhome we purchased was wonderful for starting out — DH is quite handy and he had the place dry, tight, and gorgeous within a year. With our busy schedules we loved being able to walk to restaurants, meet friends for sidewalk happy hours, and have the home be pretty much “turnkey” – little to no maintenance, no yard, etc. The smaller mortgage payment let me quit my Midlaw job for government work. Lesson Two: Do not sign yourself up for Golden Handcuffs.

    When our lifestyle changed because my work hours changed, we realized that in fact we loved being at home, puttering around, entertaining, having overnight guests. And a much larger home with a yard for our new dog, that we had been admiring for years, came on the market. Lesson Three: Think really objectively about what in your LIFE makes you happy, not what about a HOUSE makes you happy; and find a house that fits that.

    So, in winter 2010, we decided to list the townhouse and start bidding for the larger home, and decided we would move if we lost less than what we would have paid for in rent during the two years we lived in the townhouse. Lesson Four: Set concrete parameters for yourself. It makes it much easier to resist emotional pulls. Lesson Five: Transaction costs (closing costs, transfer taxes, moving, real estate agent commissions, etc) are REALLY expensive and are extremely frustrating to pay because you don’t get much tangible benefit out of it.

    We started bidding in February, and wore the seller down through the spring. In April we got a great offer on our townhome by the first couple to walk through. This was a shock — the townhome was smaller than many in the area and had one fewer bedrooms than many in the area. Lesson Six: Sometimes you get lucky.

    We used the expiring offer on our townhome to put pressure on the seller of the house we wanted, and that coupled with the four month siege let us meet our financial parameters for the spread between the two houses. Lesson Seven: Patience (in my case, DH’s) PAYS OFF.

    Now we are in a 4500 sq foot home with plenty of room for guests, entertaining, and a yard for our dog. It needs some TLC, but we love nothing better than a weekend day full of house and yard projects ending with a glass of wine on the back deck with our best friends that ends up carrying on into the night and DH’s Eggs Benedict the next morning.

    Of course, YMMV.

  17. My husband thinks buying real estate is too risky, but I am longing for a home. I have stockpiled enough cash to put down a 50-70% down payment. After working so hard and living in teensy apartments my entire adult life, I feel like I’ve earned a place of my own.

    I think real estate “investing” is one thing. However, just like I could buy a pair of $80 high heels, but instead I buy shoes in the $200-300 range, I think owning is a luxury. If I can afford it, why not?

    • IMO, I think real estate “investing” is very different from putting a roof over your head. You are looking to buy a home for yourself, a place to live. Maybe if your husband stops thinking about it as an investment, he’ll feel more comfortable with the idea.

  18. Good topic. I am so interested in reading all the comments.

    To buy or not to buy. I am of the mind that it usually only makes sense to buy if you’re going to stay somewhere for at least 5 years. Obviously, not always true (as Kat’s example demonstrates), but I feel like between closing costs and moving expenses, it’s a decent rule of thumb.

    Which is actually exactly my problem. The S.O. and I have saved enough for a downpayment, but in NYC prices are still so insanely high that an apartment we can “grow into” in an area we would want to live in just seems impossible. We can afford an apartment similar to our current rental but, despite my mother urging me that “buying is always a good thing” and the fact that I truly love my apt., I feel like it doesn’t make sense to just buy a 1 bdrm. now if I want to have a child anytime in the foreseeable future (thanks to the prior post on declining fertility, this is especially worrisome).

    I find myself hoping against hope that prices in NYC drop somehow, but who knows if that’s naive and maybe I am just missing out on an opportunity to buy before they rise again even more.

  19. I love my rental apartment in downtown DC. Thanks to rent control, I can afford to live in a neighborhood where I could never afford to buy. I don’t have to do maintenance. I don’t have to mow the lawn or maintain a garden. I don’t have to worry about putting the trash and recycling out on the curb. I don’t have to worry about unanticipated costs for emergency repairs or HOA assessments. I have someone available to sign for my packages. If a pipe bursts at 3am, an emergency plumber is one phone call away at no cost to me. If the washing machine eats my shirt, my shirt will be replaced at no cost to me. I don’t have to budget for seasonal increases in electricity and gas costs because those are included in my rent. And if there’s ever a major problem, I can pack up and leave on 30 days’ notice. I could go on, but I think I made my point.

    • I am a renter, too, and love the flexibility and convenience. And the fact that I could pick up and move somewhere cheaper if calamity befalls (I’m not married, no additional salary to rely on).

      But, just this week I’ve started thinking about moving into a larger rental that suits my needs better. The problem is that my place is fine in some ways – it’s a nice, unique coachhouse property where I’ve been for 5 years and has really nice landlords who live next door – it is just a little too small (no real dining room; no guest room) and being a coachhouse, I am subject to the whims of my front house neighbors when it come to backyard BBQs and keggers (maddening). And to size up to a nice place will drastically increase my rent from $1550 to about $2700-3000/mo, from what I can tell from browsing craigslist. And these nicer properties that are flooding the rental market right now might also kick me out in a year when they decide to try to sell. Hard to justify the higher price and risk when it’s not going towards equity. Someone please tell me that it is totally justifiable to rent a higher-end place.

    • I agree with you about renting, although most situations do not sound as ideal as yours. I owned a townhouse during the more stable market, made a decent profit, and am not really rushing to buy again. I hated having to sit around all day waiting for an AC repair, or all the other unanticipated costs associated with buying. Plus in Florida these days, there are so many complaints of homeowners insurance going up by over 100% in a year- so even if something seems like a deal now, you may find that a year from now you’re paying $500/month insurance on a relatively modestly priced place.

      • Yes, good point. Apart from the cheaper to buy or rent analysis, it’s important to be aware of legal protections for tenants and rental market standards. DC has quite tenant-friendly laws, a majority of buildings are rent controlled, and the norm in the market is to include utilities in rent. Having on-site, 24-hour maintenance and a staffed office were also important to me. In a place with landlord-friendly laws, high utility costs, and no perks, renting could be much worse than owning even if it was technically cheaper.

      • Accountress :

        re: Homeowners’ insurance in FL- 100% increase is better than being dropped! My childhood home is over 50 years old, and our policy was dropped when it hit 50 because it wasn’t as safe a home. Which I don’t get, really- there’s new construction with water seeping through walls and <10 y.o. houses being toppled by hurricanes, yet my home has stood through half a century's worth of hurricanes and we've never had any structural damage.

  20. I’ve bought three times since 2003, and sold each time for a profit (most recently in May 2007). I work in real estate, so my job gives me a lot of insight into local and national markets.

    I am currently renting and have no interest in buying. I’d strongly caution other women out there – especially single women – against buying in this market, unless you know (for sure) that you will want to stay in place for at least 6-8 years. That means you know you will never lose your job, or get transferred or have a significant other who wants to move, etc., etc.

    If I meet a guy or get laid off or want to quit my job, not being tethered to a condo or house will simplify my life and give me way more options.

    When I got out of grad school, shortly after selling my last property, I was a little green over fellow classmates’ new real estate escapades. Every friend I know who bought something back then is now looking to sell for job or personal reasons…and they are all underwater.

    Just don’t do it – unless you are a real estate professional and/or have gold-plated job/life security and/or if mommy and daddy will come to the rescue if something goes wrong.