Alright, it has been a while but I received another anonymous question on Sarahah. As always, if you’ve got a question, comment, criticism, or genital pick you want to send me just check out the links at the bottom of the post.
Peter, we’ve never met before but I respect you and want all the best for you. So take this with a grain of salt that I know you will. Buying a house right now, might directly conflict with your goal of selling it in 3-5 years and traveling more. My brother bought a house before the last financial collapse near the peak of the market, which subsequently lost half of its value in a year or so. He is still underwater on his mortgage and having to sink in tons of money on repairs and maintenance. His future choices have been severely limited by this house. I wish to see you avoid a similar fate. Is there anything so bad about renting for another year or two?
Hi stranger! First off, I want to thank you for sending this question in a modest and appropriate way. You have asked for my explanation instead of just posting unsolicited advice on my Facebook wall. You are way better at this than most people.
Before your question, here is a little background information for those who may not be my Facebook friend (you should change that) or know who the fuck I am.
In 2014, my partner and I decided to leave Los Angeles and we spent about 2.5 years bicycling around the country. We had online jobs which allowed us a very nomadic lifestyle but we grew tired of it and moved to Wilmington, North Carolina. We’ve been here for about a year and a half now and have just started the process to purchase a home.
So, you are correct that buying a house may conflict with my goal of selling it in 3-5 years and traveling more. That is certainly a risk but I don’t think it is a huge one, but first I think you make an assumption I should point out. You seem to think there will be some point in my life when I won’t want to leave a city every few years and keep traveling. That just isn’t the case. It is very unlikely that I will ever really live in a town for more than 3-5 years at a time for the rest of my life. I want to live in dozens of cities and countries, so renting for a few more years here and worrying about purchasing at another time is endlessly kicking the can down the road and off a cliff. The perfect day will never come… besides, I am an unapologetic imperfectionist. Now is good enough for a home purchase, so we are going to try it.
I completely understand your reservations considering what your brother went through. I clearly don’t know the details of your brother’s situation but my parent’s faced something similar. They bought their house at a terrible time, took at an ARM, and have been underwater on their house ever since, which is pretty shitty considering they are approaching retirement (side point: I’m 36 and would much rather make a housing mistake now than when I’m in my 40’s or 50’s). My parent’s experience is a huge part of why I have not owned a home at this point, I just didn’t see why it was worth all the risk. But, I’ve come to realize that that risk can be mitigated in a lot of ways.
First off, my partner and I are buying below our means. The general rule of thumb is to keep housing costs at about 30% or less of income. The home we made an offer on will have housing costs of about 10% of our income. In fact, our mortgage ($600 for a three-bedroom, 2-bath home near downtown Wilmington) will be less than our current rent of $775 for a smaller house in a less central location. Not only will we avoid just throwing money down a money pit of rent, we will be saving dollars on a monthly basis.
But, even if we weren’t saving money we would probably still buy because of the greater freedom it allows. We want to decorate and paint walls, get another dog, build shelving and modifications, build a fire pit in the backyard, install a screened-in porch, and a dozen other things that can’t be done in a rental. We want the freedom to turn our house into a home that suits us.
So, the second reason that I don’t think this is a huge risk is that it is very unlikely that the housing market is at some sort of peak like it was around 2007. I’m not sure if you’re aware of this, but I’m actually a Market and Data Analyst that focuses primarily on the housing market. I put a lot of research into both Wilmington and this particular neighborhood before we decided to do this. I don’t have everything sitting in front of me but here are a few data points that I think strengthen our decision to purchase a home in Wilmington:
- Wilmington is about 95% developed and has very little room for new housing, the college (UNCW) is looking to expand the college by about 10% annually without providing additional housing, and the area is attracting a growing number of Boomers from the north for retirement, which points towards a significant increase in demand without an increase in supply (meaning, housing prices are potentially going to go up)
- Wilmington’s housing market remained remarkably stable during the housing market crash with median home prices peaking in 2008 at around $215,400 and bottoming out in 2012 at $183,900 (or a loss of about 14.6%… which isn’t huge)
- The area of town we are purchasing a home is currently being reinvigorated with new breweries, shops, and a nightlife. It is an “up and coming” area that may see significant increases in home values in the coming years.
- My partner and I have actually saved enough money to almost buy the house outright if needed. The only reason we don’t is that the interest rate on a home loan for us using my VA benefits is much lower than the income we are generating in our investment accounts. The home interest rate is 4.125% and my annual return on my Wealthfront account is about 22%, and that isn’t even factoring in how much more money I’m making on blockchain investments.
- Lastly, rental prices tend to be immune to housing market crashes and keep rising even if home values decrease. In 2008, the median gross rent in Wilmington was $817, in 2012 it was $881, and in 2016 it was $921. Meaning, the cost of renting is going to continue to rise but if we decide we want to leave our home we can easily rent it out to someone for more than enough to cover the mortgage, any repairs, and make a profit.
So, even if the market were to go completely sideways we are okay. We’ve done our research on the area to minimize our risk exposure, we’ve secured enough backup funding to cover unexpected costs or property loss, and we have a backup plan to rent the property if we really don’t want to be tied down but every other contingency falls through. This isn’t a guarantee that this experiment will be the right one for us, but life is risky and I’d rather take this risk now than wonder what could have been. We are tired of renting, we are tired of living by someone else’s rules, and we are very excited to enjoy home ownership.
Do you have a question or comment for me? Feel free to use the links below. There is literally nothing that is off-limits. You can also email me if you want a personal response and I won’t post anything publicly if you want privacy. You can also friend or follow me on Facebook, I don’t really say no to requests.
Oh, and if you get some value out of this I’m always accepting tips and my book is available via the Amazon link below on Kindle and paperback. Book: http://amzn.to/2f2tkYi PayPal: firstname.lastname@example.org Bitcoin Wallet: 3BZQcA31awrYj7LAXmMY5armp5s1T2gpsL Ethereum Wallet: 0x05F040cd6FB61377c375d487A37229359Dd6D976