Property Ownership: Taking Renovations Nice and Slow

Buying a home comes with so many strings attached to your emotions, and its got you moving in all sorts of directions. One of which is this desire to create your fantasy dream home, RIGHT AWAY. In this post, I am going to avoid digging into the recesses of our social upbringings to address how we are shaped to want such a thing (*cough* HGTV *cough*) for the sake of time, which I am admittedly currently short on amidst all the property fixes, the packing, the moving and student loan tackling. Rather, what I am going to say is this: Take renovations nice and slow.

First off, Congratulations! You have a new home! Have you even  taken the time to celebrate that? We are trained to seek more, more, more, that few of us take the time to be grateful for what we have. I know I am much the same. It isn’t long after I’ve accomplished something that the following words are out of my mouth: “Okay, what next?” How about stopping, taking a breath, and seeking the NOW? As cliche as it sounds, take time to smell the roses.

Now, if you’re like most people, you likely had to take out a mortgage for your newfound space. Which also means you likely spent a good chunk of change for the down payment. Dare I say that for a number of people, the down payment makes up a majority of your life savings, especially if you are young and just out of college like me. I can attest. We took 100% of our emergency fund, and spent it ALL to make a 5% down payment on a $499,900 home in Orange County, CA. While you judge us however way you wish in the way we spent that money, we are now starting from where we were two years ago, when I graduated with $575,000+ in student debt while owing my then boyfriend, now husband, an additional $20,000. Except we have paid down $100,000 towards that debt and we now have a home. I have faith that we will be just fine.

If you could get over the judgement, here is what I have to say. The focus is not to renovate the space into a dream home. It’s to build your life around something that makes you ultimately happy. Comforts of an emergency fund included, digging yourself further into financial debt is not. Rebuilding our emergency fund is where a majority of our focus will be for now. So what if the counters are cheaply made of wood, and have minor signs of water damage? So what if the sink does not properly fit into the counter-tops and caulk was used to seal it up? Never mind that the cabinets have multiple holes in them from the handlebars that were there previous to the current ones. Or that the bathroom stall has glue stuck to the walls. Yes I want a brand new couch to replace the hand-me-down that I received from my college roommate in dental school. But I’ve lived with it for five years, and looking back and seeing what I’ve done with my life says maybe it’s worth sitting on that couch a few years more.

I can tell you that most buyers, myself included, can find unlimited furniture upgrades, faulty appliances, and remodeling projects, all of which will quickly deplete the incomes of even the rich and famous. In the voice of Admiral Ackbar, “It’s a trap!” These temptations will prevent the most frugal among us from saving their hard-earned incomes. Some even rack up high interest credit card consumer debt! Feeling a squeeze in the budget is normal, but you have control over that constriction. I would recommend taking a very lean approach to your budget, and take renovations nice and slow. Personally, my goal is to go ham with the student loan debt while rebuilding that emergency fund (substitute your important financial goal here). I assure you that you will be able to transform your place into something beautiful, in time. Meanwhile, be glad that you have a comfortable place to sleep, a functioning stove, a roof over your head – all things that many people around the world can only dream about.

If you are at the point where you want to take on renovations, you may be asking, where to start? Surely, not with the cosmetics. We are fixing only those that require most attention. For example, the bathroom in our roommates space only emits hot showers. And while hot showers are nice, we do need to add cold water for fine tuning. Additionally, the fridge that’s included with the space has no water filter. So we’ve installed a water filter under the sink, to avoid plastic bottles. Lastly, we spent our entire weekend taking off the shelving and wooden floorboards that the previous owner left behind. With that comes wall spaces that needed patching and re-painting. There was a closet door on the first floor which they’ve cut a hole into, so we bought a piece of wood and cut it to create a new door. I then painted it to match the rest of the house. A majority of the work we did on our own, with the help of a cousin and uncle. Someone quoted us $500 to remove the floorboards, so we did it for free instead. Alas, here is the “nice” part to the “nice and slow”. Doing the work ourselves saved us a lot of money, taught us a few things about property maintenance, and strengthened us as a team.

IMG_0952

IMG_0970

IMG_0953

IMG_0971

Meanwhile … we have started the re-financing process!!

Property Ownership: It’s Not About Finding Your Dream Home

I think back to just a few weeks ago when we were considering buying a loft in our neighborhood and we had come across an over-priced turkey. I think, in our minds, we saw a loft we have been dreaming of, but in our hearts, we knew there was something wrong with the big picture. The main problem was that the price the seller was asking for did not match the perceived value that we had of the loft. Luckily, signs of an uncooperative seller really pushed us away and his personality became an additional factor that made us hesitate for a moment. That moment was enough.

I remember how it happened very vividly. It was a pivotal moment in our house buying venture. We had exactly three days to respond to the seller’s counter-offer … if you could call it that. We received it on a Friday and Mike and I decided to go do something we hardly do, which was to dine out. We went down the street to a chicken and waffle stand called Bruxies to talk about the pros and cons. We both were dancing around the question of, “Do we let this go or do we just bite the bullet and sacrifice a huge expense in order to get this space?” Deep down, we both knew that it wasn’t worth the cost. But we were fearful, too. Of missing out on an opportunity. Of missing out on this imagined dream.

It turns out that all of this was a blessing in disguise. As we were sitting there that summer evening, waiting for our trays of fried food to be delivered to us, I remember casually turning on my phone and searching Zillow. It was a thing I’ve done the last year and a half or so, and I’ve probably memorized nearly every listing on the market. I just liked to see what was out there, out of curiosity. On that particular day, we were primed to buy a place. On that particular day, we were determined not to be duped of our money. On that particular day, we were in a specific headspace or state of emotions. On that particular day, a loft was added to the listings.

It was actually the first property that showed up on my feed, which meant that it was the most recent addition. Or, well, re-addition I should say. I knew exactly where the loft was located, and I knew what it was listed for before. There was a $20,000 price reduction. The loft was selling for under $500,000, which, if you live outside of California and New York, you probably would not understand how great of a deal this was. My obsessive habit of scrolling through Zillow has paid off! I knew right away that those lofts were selling for a bit more than the listing price. I showed Mike, and in an instant, I think we both knew the answer. Though we didn’t say it out loud, there was a hint of a spark, maybe from some neurons firing in our brains or a shooting star over our heads or whatever, that told us this could be the one.

After that moment, we couldn’t stay close-minded anymore about the property we were going to buy when we realized there were better opportunities. The main reason why we wanted the loft in our current neighborhood was because we had already lived here. We were comfortable, we knew the pros and cons. We knew the floor plans and the neighbors. We knew the HOA people and the surrounding businesses. But it does not mean that it was the best option. The minute you get comfortable, you start to close off doors to other opportunities. Practicing the art of purposefully seeking discomfort in life, it makes sense that we went with this other loft. We had texted our real estate agent and within minutes , we had an appointment to view the other loft the next day. The loft that we ended up getting. By refusing to entertain the grossly priced loft in our immediate neighborhood, we found a loft that checked off a lot more.

  • Location: The loft we found was in the heart of downtown. Originally, we were hesitant to even consider these lofts because of the location. But once we opened up to the idea, the location ended up being its best feature. We initially feared being located in the heart of downtown, where there would be potential noise from concerts on weekends, or busy sidewalks and traffic during the day. But once we got over that, we realized that this location had more pros than we thought. Walk outside and there are many restaurants, bars, and coffee shops to go to. We would be one block away from the farmer’s market, three blocks away from one of my work offices, and within a few blocks from the courthouse, the library, the post office, and many other governmental offices.  It is one block from Main Street and located on 3rd Street, so that if and when we do decide to open our own business downstairs, we would get decent foot traffic. But best of all, the loft we ended up with was next door to one of our close friends! As in, we share a wall. As in, the exact friend whose housewarming party we went to three years ago and whose loft inspired us to live in a loft of our own.
  • Style: The style we were looking for was a live/work loft. I would admit that it doesn’t look nearly as industrial as the one we currently live in, but it definitely has the vibe of something more than just a traditional home. Vaulted ceilings, large windows, cement floors, metal railing, and exposed vents. We can always add additional industrial touches at a later date.
  • Price: The asking price for this loft was incredibly cheaper. As I calculated in the previous post How to Decide if Property Ownership is a Good Financial Decision for You, the equivalent of our current monthly rent would be a property that is less than $520,000. The loft we bought was actually originally listed at $520,000! But after a previous potential buyer changed their mind, the seller lowered the costs down to $499,000. That weekend, we placed an offer for their asking price, which is $150,000 cheaper than if we went with that fake seller. Since I have been studying the market for over a year, I knew right away when this came on the listings that the price was fair. Our appraisal came back at $505,000, so we were very happy with the one we chose.
  • Commercially Zoned Space: The loft is already commercially zoned for business! Just thinking ahead to our future dream of starting a business that’s our own gives me the shivers.
  • No Immediate Renovations Needed: Unlike the first loft we were considering, the bottom floor in this loft is already partitioned with it’s own full bathroom. Which allows our roomie to stay with us. Plus, the loft requires no immediate renovations. The inspection report came back with minor tweaks, but we can move in once escrow closes and assume our day to day without a hitch.

All of this to say that persistence and patience pays off. That fear of a new adventure should be stifled almost immediately. That comfort will lead you to over-priced turkeys and closed doors. That curiosity can lead to wonderful new paths. That sometimes, it’s not about what you plan for, what you prepare for, or what you dream of, but rather, what life gives you, and whether or not you choose to take it by the reigns and just go with the flow. That it is not about finding a dream home, but instead, finding a home that will get you to your dream life.

Property Ownership: How to Detect and Avoid Fake Sellers

What is a fake seller and why would anyone want to knowingly waste time and money on something so lame? It may seem like a bogus idea, but fake sellers are out there. Trust us, we know. From our short-lived personal experience to boot! I feel a story unraveling…

From the onset, we knew what we wanted. We have been mulling the thought of buying a property for a year and a half, and we had extensively narrowed down the price range, location, and types of homes we would be willing to consider. Additionally, we had been spying on the market over the course of the last few years. For every home type that we were considering, I knew the neighborhoods in which they were located, the price ranges, and the typical pros and cons of the properties. I knew which agents were specialized in selling those particular places as well. So the time came when we were ready to make a leap of faith, I reached out to an agent who specialized in lofts in Orange County, CA.

Originally, we were very specific in which lofts we wanted. We wanted a loft in our current and exact neighborhood. We specifically wanted one that faced the market and commercial area, rather than one that faced Main Street or Memory Lane, which limited our search to less than twenty particular properties. We requested that she reach out to any owners to see if they would be willing to sell their loft.

She returned to us on the same day saying that there IS one owner who is interested in selling. He isn’t listed on the market, and is willing to do it without opening the deal up to other buyers And by that night, we were looking at the property.

That’s where the good parts of this story ended.

The owner had an asking price that was $50,000 more than the average value of the property. He claimed that there were upgrades to the loft, which was very true. We looked at the property and we agreed there were updates. We pulled up a comp report and analyzed the selling price of neighboring lofts in the last 6 months. They were usually selling for $575-$590k and the seller was asking for $650k. We accounted for the upgrades he had made to the home and the slightly larger square footage, and the comp report analysis returned at a value of $612-$617k. Since we really wanted the space, we offered $620k, trying to work with the seller.

Unfortunately, when the counter-offer returned, we knew this was not going to be the home. He returned with a counter offer of $645k AND we had to pay for all of HIS closing costs. He was using the downstairs space of the loft for a digital business and did not physically need to be here in California. Since he does not live in this state, he viewed the selling of the house as an inconvenience and is not willing to put any effort in the selling of his house. When we confronted his agent about the ludicrous price, he simply shrugged his shoulders. He knew that the loft would be appraised at a lower rate than $650k and that the difference will have to be covered by the buyer in cash. The seller’s agent informed us that this entire thing is an inconvenience to the Seller, to which we replied, “Then why bother say he wants to sell?” And like that, we dropped them like a handful of hot coals.

How to Spot Fake Sellers

So here’s the rub. Fake sellers can easily seem like real sellers. They do all the things a real seller would, such as put the house on the market, place FOR RENT signs on the lawn, have an agent and host open viewings. However, whether knowingly or unknowingly, they waste their time and money doing all of this because they are not really READY to sell. If you don’t know how to detect fake sellers, then you cannot avoid them. And if you don’t avoid them, then you may waste precious time and money to fruitlessly negotiate buying a house that isn’t really for sale.

  • Are the sellers realistic? The number one reason that people cannot sell their homes is because of a grossly high asking price. When you hear that an owner is having difficulty selling their home at such a high price, beware! As with the case of our first loft offer, what it actually means is that the seller is refusing to accept the market’s opinion of what their house is worth. They may have an alternative motive, such as making up for the costs they’ve spent to upgrade their place. Or just to try to get more money from a buyer who knows nothing about the current market. This, by the way, is different from real sellers who mistakenly place too high of an asking price. Real sellers will wise up over time. Fake sellers will not. My advice is to move on.
  • Are the sellers motivated? Getting a seller who is motivated is important. Most sellers are motivated by a life change, such as a job transfer, a recent marriage or divorce, retirement, etc. Having a REALLY motivated seller makes it better for the buyer, because they will have a better chance at negotiation. Our fake seller was obviously not motivated at all, which made it easy for him to be uncompromising. Lack of motivation is a giant red flag. Run the opposite way, especially if you hear them say “they are just testing the market”.
  • Do sellers have a time frame? Deadlines make things happen. If the seller has no deadline, then he is in no rush to meet deadlines. It’s easy for fake sellers to start an escrow process and decide to not meet deadlines and kill the deal. Only because there is no urgency to sell the home.
  • Are the sellers forthright? Genuine sellers are open about the condition of the home and the legal status. Why? Because they are aware that withholding vital information can ruin the sale. Early disclosures of possible problems help indicate whether you’ve got a real seller on your hands.
  • Are the sellers cooperative? Real sellers want to sell their homes. They will look for ways to make the transactions go more smoothly. Inconsistent behavior is another red flag. If seller’s become uncooperative or start missing their deadlines, they may have lost the motivation to sell. When you start to see these signs, ask why they are happening. Otherwise, you may be in for a surprise if the deal ends up blowing up in your face.

My best advice is to do the same as we did. If you find yourself dealing with an unrealistic, unmotivated, and uncooperative seller, it’s time to walk away. Find something else. Maybe that seller will wise up, but then again, maybe not. You don’t want to waste your time and energy trying to coax reason into a seller like that.

Plus, you may find that it ends up being a blessing in disguise and you find a property that checks off even more boxes! Like we did!

How to Decide if Property Ownership is a Good Financial Decision for You

This post may contain affiliate links. Please see my disclosure to learn more.

Well, we are doing it! We are in the throes of purchasing our first property! Currently, we just started the escrow process, so it’s all new enough to accurately relay our experience on zee blog. I have been MIA on the finances front for a while, but I’ve decided to start a new series on Property Ownership (I say property ownership because, as you will see, we did not go with a traditional home, therefore I think home ownership is too selective of a title), in which I hope to cover a collection of thoughts and well-meaning advice.

The first of which is this: You’ve got to know what you are doing when buying a home. Unless you want to get your money swept from underneath you or risk ending up with a home that you absolutely hate, I highly suggest getting informed before even considering any of this. May I suggest starting with the Home Buying Kit for Dummies? Not saying you’re a dummy, just saying I read this from front to back and felt confident in the home buying process, which went quite smoothly for us. In fact, today’s topic of deciding whether to buy is outlined in their first chapter. Sans my own personal stories and interjections. You’re welcome!

Deciding Whether to Buy

We all make consumption choices in our lives. Whether that’s a cup of coffee, a sustainable product, or an eco-friendly gadget. Sometimes, purchases can lead to buyer’s remorse, especially when they fall short of our expectations. When it doesn’t cost much, you can get over it quickly by either choosing to return the product or deciding you will not make the same mistake twice.

As a very mindful consumer, you likely already know that I weigh the pros and cons of every purchase I make. This is especially important with large purchases, such as a car or home. Sloppy shopping can lead to financial and emotional disaster. And I love the analogy that consumer debt is the equivalent of financial cancer. So, buying a home should not be taken lightly. It should not be an entirely emotional decision. And it is not right for everybody. If that is something you did not want to hear, then I am very sorry.

The goal of this series is to go through the process that Mike and I went through in order to help ensure that we have a home we are happy with, we get a good deal on the property, and most importantly, that owning a home helps us accomplish our financial and life goals.

But before we could have even decided whether owning or renting was best for us, we had to learn the advantages and disadvantages of both!

The Pros of Ownership

Not everyone should buy homes, and not at every point in their lives. That’s a statement I believe in. That being said, there are many pros to owning your own property.

  • Owning should be less expensive than renting!

This is the first guideline that Mike and I wanted to follow. We have thrown away so much money in rent. How much, you ask? Our first 18 months, we paid $2,800 a month for our beautiful 1,599 sq. ft., 2bed, 2ba live/work loft in Orange County, California. For those of you thinking we are financially crazy, I just want to point out that an 800 sq. ft. 1bed, 1ba apartment in an apartment complex runs around $2000-$2200 in our area. I agree, it is crazy expensive to live here. I also agree that we weren’t exactly financially savvy when we started out. The next 8 months, we received a huge rent reduction to our space. We made a bargain with our landlord which stated that we ourselves will fix any problems (that totaled to no more than $200 per month) that came up, and she reduced our monthly rent from $2,800 per month to $2,600 per month. Additionally, we took on co-housing and we further reduced our rent to $1,900 per month, while giving our roomie her own bedroom, bathroom, and access to the entire house for $700 a month. She was happy because she avoided having to hemorrhage $1,500 for an old, run-down studio space, and we were happy because our rent went down almost $1,000 with those two simple changes. The savings of $900 over the course of 8 months was $7,200! YAY US!

All of this to say, that over the course of the last 26 months, we have spent $65,600 in rent. If we didn’t have our roomie, then we would have spent $71,200 towards rent, with nothing to show for it. Now if it seems like your monthly rent looks way smaller than the price of a home, which is likely to be hundreds of thousands of dollars, think again.

A very simple calculation of the home you can buy that would have approximately the same monthly cost as your rent can be completed using the following equation.

$______________ per month x 200 = $ _____________________

Example: $2, 800 per month x 200 = $ 560,000. The property we decided to put an offer on? $499,900.

Another consideration between the cost of buying and renting is the cost of doing so today versus the cost in the future. As a renter, you are fully exposed to inflation rates. A reasonable annual increase in rent is 4% per year. Remember that if you pay $1,000 in rent per month, that is the equivalent of buying a $200,000 home. Well, in 40 years, with 4% inflation per year, your rent will balloon to $4,800 per month, which is like buying a $960,000 home! On the flip side, after buying a home, your housing costs are not exposed to inflation if you use a fixed-rate mortgage to finance the purchase. So only the comparatively smaller property taxes, insurance, and maintenance expenses will increase over time with inflation.

This isn’t to say that you must buy because of inflation. But, if you are going to continue renting, you must definitely plan your finances accordingly.

  • You can make your house your own

This is a great pro to all the creatives out there. However, a word of caution:

Don’t make the place too unique. I understand that you may have a distinct taste or style. And while that may lead you to a happy life in your home, it could make it very difficult to sell in the future. If you do make improvements, focus on those that add value, such as adding skylights, energy-efficient  upgrades, and updated  kitchens and bathrooms.

Avoid completely running yourself into financial ruin. It’s easy to get carried away in the emotions associated with owning a new home. There is this urge or pressure to make it look picture perfect straight away! There is nothing wrong with making your home a dream one the slow way. When you feel the urge to throw all your money straight into renovations, think of the things you already have. Say, a roof over your head?

  • Avoiding Landlords You Can’t Get Along With. Mike and I have never personally had an issue. However, we have heard stories of landlords who neglect their tenants needs or continually refuse to fix rental units that are falling apart.

The Pros of Renting

  • Simplicity. Signing up for a place to rent is definitely easier than going through the process of securing a home. You don’t have to deal with financing, inspections, and other possible issues like you would if you were buying a home.
  • No upkeep. When you have a rental property, your landlord will be responsible for property maintenance and upkeep!
  • You have flexibility! This was actually one of our initial reasons to continue renting. Renting allowed us to not feel tied down. In the last few years since we got this place, we were going through so many changes. We got married, Mike got a new job, we started tackling our student debt, and we wanted to travel the world. I just started work and Mike and I did not know if we would like our new jobs and if this is the area we wanted to stay. Luckily, since then, we have fallen in love with our city and our jobs. We have proven to ourselves that tackling the student debt is doable, and we are comfortable enough to now tackle on housing. But if you are at a stage in your life where you need any sort of flexibility at all, then maybe renting is better for you right now. If you plan on not keeping your property for more than five years or plan to move soon, buying and then selling a property is not the way to go.
  • Increased liquidity. Many people buy their first home and wipe their finances clean with the down payment and the closing costs. Plus they have to make their monthly payments. Renting will help prevent you from being financially stretched.
  • Better diversification. Buying a property could mean that your wealth is tied up in the house. As a renter, you can invest money in a variety of investments, not just one.

Do NOT Fall for the Following Pitfalls

  • Renting because it seems cheaper than buying. You must consider the monthly cost as well as the future cost. See discussion above.
  • Buying when you expect to move soon. Additional costs that come with buying and selling a home are pretty large. Unless you plan on keeping the home for a while after you’ve moved, it may be better to wait until you are more sure of where you will be one year from now.
  • Allowing salespeople to sell you something you don’t want. Many people in the biz have a vested interest in getting you to buy, because they work off of commissions. But remember that when you buy a property, you will be the one coming home to it every day. You will be the one paying for it. So make sure that you do you!
  • Ignoring logistics. You should probably think through how every aspect of your life is affected by your home purchase. Imagine buying a home that has everything you are looking for and is within your price range, but which adds an hour commute to work. How much would you resent that home? Or imagine having a home that happens to be located in a loud neighborhood, and you are a light sleeper. These are important things to consider!
  • Don’t become house poor! Either you own a home, or it owns you. Nuff said.
  • Being peer pressured. This is a toughie. Typical me, I had to really dig deep and figure out why I wanted to buy a home. Was it entirely socially ingrained? Was it purely from a financial perspective? Was it part fantasy? I had to rationalize and confirm (and re-confirm) that I was not being peer pressured into this. That this is something Mike and I decide to do, for reasons of our own. Just because siblings, friends, and co-workers are buying homes, it does not mean you should too. Maybe they own a home, but have no finances left over to travel. Maybe their house is keeping them from quitting their work and pursuing a passion. Don’t assume their life is better than yours. And as always, never compare your beginning to someone’s middle.
  • Misunderstanding what you can afford. To be honest, if you haven’t gotten a feel for your financial situation and life goals, you are just guessing how much you should be spending on a home. So having a good grasp on your financial stance is the place to start. Also, unless you are a high-income earner, if you do not have a back up plan for unexpected life occurrences, you may find yourself in a tight situation. A job loss, family emergency, or natural disaster can make you house broke in an instant. Understanding all of this and having a back-up plan is very wise!

Given all of these pointers, only you can ultimately decide if buying a home is right for you. Not me, not your peers, not your real estate agent, and, no offense, but not even your parents. More importantly, you must analyze whether NOW is the right time for you. It may be that waiting until you have a bigger down payment, a more stable job, or a better financial back up plan is the best option. Something we as humans tend to avoid thinking about is the worst case scenario. But think about it you must.

Also, learning about the property buying process is quite necessary. If you are feeling a bit overwhelmed after reading this post and need a place to start, start with this book! I highly recommend it. Do you have other recommended reading for first-time home buyers?  Feel free to share with the community in the comments below!