For five years, it killed me (okay, not literally) to write out a rent check. In fact, in that time, I spent about $135,000 in rent. I felt like I might as well have been lighting my cash on fire. I wouldn’t see any of it again. This was painful, especially for me since I had dreamed for decades of investing in real estate.
Earlier this year, I took a big step forward. I purchased a home. Yay. My kids had graduated and headed off to college. I was no longer as geographically restricted. And my girlfriend had moved in and was commuting in the opposite direction. We knew we wanted to own verses rent, and we were able to make it happen. And honestly, it wasn’t as hard as I thought it might be.
We did our research before we went down the path too far with a realtor. It’s easy for me to keep inching my way into a more expensive property, and I knew I didn’t want to do that. And my girlfriend was great about keeping us honest on that.
I created a spreadsheet to map out what our monthly costs would be based on the price of the house, amount we put down, interest rate, and homeowners association (HOA) fees. This was eye-opening. The homes we thought we could easily afford would have been a struggle. I’m so glad we gave ourselves a realistic assessment of this before we got attached to a particular home and took on more than we should.
After looking at the spreadsheet and talking things over, we determined how much we wanted our full housing cost to be (mortgage, taxes, insurance, and HOA). It was important to keep it at or below $2,500 per month. We knew we could afford that. And if we ever had to do it on one of our salaries, we could still make it work.
In addition to price, here were the other things that mattered most to us:
- Location (an area further away from the city, which brought down the price and helped her commute)
- Age (prefer newer)
- Size (3 bedrooms/2 baths for when kids are in town; but doesn’t need to be big)
- Style (open, light)
- Home type (flexible, opened up to condos to get the other things we wanted)
So here’s what we did…
We worked with a realtor and a broker (lender) that I had worked with before. We decided to put this property in my name and the next one in hers. The one thing I have going for me is excellent credit. I’ve always been great about paying my bills on time, and I never waver on that. That said, I still didn’t have a lot of cash sitting around. So to make it work, I knew I’d need to tap into my retirement money. I didn’t see any other options.
I took a small loan from my 403(b) so I could do a 5 percent down payment. That allowed me to get a conventional loan (backed by Freddie Mac or Fannie Mae). This means better interest rate. And I locked in a fairly low rate (4.5% for 30 years). It was slightly higher because I purchased a condo.
We had looked around casually months before on our own at open houses. And when we worked with the realtor, we thought we would try to purchase in the fall. But we immediately found a year-old condo that had everything we were looking for. And the funny thing is that it is directly across the street from new condos (currently being built) that we were considering. But we got ours for about $30,000 less! And we love it. And best of all, I smile when I write that check out every month. I know that I’m investing in our future…not someone else’s. And it’s step 1 (or a pre-step) to becoming a real estate investor. Eventually, we will rent this unit out. And the process wasn’t so hard.