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Your first home serves basically one purpose: to make money to buy your next home. You are not going to get everything you want, and I wouldn’t suggest you try. If you can buy and sell your first home without losing your sanity, or your ass, you have succeeded. The following is a primer to help you out.
Your Banker Is Going To Lie To You
My wife and I were each making a whopping $11.50/hour when we got pre-approved for our first home loan. Our banker told us the bank would loan us up to $180,000. I had to fight the urge to laugh at him in his face. He offered us nearly double what we intended to spend. They are going to run some calculations, mention things like “debt-to-income ratio” and then tell you that you can afford more than you probably can. This was even after the housing crash (you know, the one where the economy collapsed because a bunch of supposedly smart people told a bunch of people to buy things they had no business buying?). Don’t take the bait. It should be common sense: don’t buy more than you can afford–even when you have an “expert” across the table telling you that you can buy yourself something pretty, it can be hard to say no.
You Don’t Want Something You’re Going To Have To Spend A Bunch Of Time And Extra Money On
If you are buying a home, I can presume you are probably newly married, and maybe even starting a family. You are probably still concentrating the bulk of your time fornicating at every single opportunity, and generally living life to the fullest. Good. You are young. That is what you are supposed to be doing. Unless your job is going to be flipping houses, you don’t have time for major house projects. You already have a full-time job and a life. This means no renovations. Houses that you can add cheap and easy value to–i.e. painting, replacing cabinets, new carpet, etc–is what you are looking for. Don’t get in over your head with finishing a basement or something like that. You will most likely be house poor and drive your spouse to hate you, and I’m told divorce sucks.
Pick Your Neighbors If You Can
My neighbors suck balls. There really isn’t any way around it. They lower my property value, are an eyesore on the community and basically bring all of humanity down a level. As I look out my window, I see three dead cars up on blocks, a tree growing into their house, a pile of garbage in their front yard, and plenty of other shit I can’t even identify. A couple of weeks ago, this interesting thing happened to me. My wife called me not a minute after pulling out of the driveway telling me to be careful as there is a skunk in the yard. A FUCKING SKUNK. I immediately put down my cereal, insta-pissed because I know my Special K is going to get soggy because I knew what I had to do.
I couldn’t leave a skunk running around the neighborhood. I race downstairs, grab my .22, and load accordingly. I then run upstairs, open the window and lo and behold, a GOD DAMNED SKUNK is spinning circles in my driveway while somehow making a clinking sound. A clinking sound you ask? Yes, a clinking sound. You see, my neighbors are straight out of the backwoods hillbilly hoarders that also feed scraps to wildlife. The clinking skunk? Well, it has a fucking tin can of some sort stuck to its head, and he is hitting his head on the pavement. I wait until he circles into the yard because I don’t want to bounce any lead into the neighbors across the street, and I unload the full ordinance, the price of .22 ammunition be damned. The skunk had to sit in front yard for the entire day because I immediately had to leave to get to work on time. (Some of you are going to laugh at that story. Thank you for appreciating my misfortune. Some of you are going to be horrified. Too fucking bad. I don’t care about your faux outrage. Grow up).
What I am getting at here is that your neighbors can easily bring down your property value. When you first see the place and the neighbor’s house looks like something that you saw on an episode of COPS, it isn’t going to improve with time. Purchase with caution.
Your Home Inspector Will Piss You Off
More often than not, hiring a home inspector is kind of like having your buddy that worked a Jiffy Lube perform major work on your car. Yes, he may be accidentally successful at fixing your whip, but he is not an expert and he is just as likely to fuck something up. As it was with my home inspector. Did he notice that the attic needed a bunch-a-ton of insulation and show me how to fix the back door? Yes. More importantly, did he notice my cracked foundation that led to $3500 in repairs because my basement started taking on water? No. Did he notice the major fire hazard electrical problems in the laundry room? Again, no. Good thing my buddy the electrician did–four years after the fact when I had some other electrical problems. If your home inspector was a master electrician, he would be an electrician. If he were a master plumber, he would be plumber. He is a jack-of-all-trades and master of none. If you can swing it, I suggest hiring professional in specific fields to look at your prospective house. They will be more nitpicky and catch both subtle and major things.
Good luck, my friends, and remember that whiskey is more efficient than beer..
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Oh and just because you watch HGTV all the time, does not mean you possess the skills to actually flip a house.
It’s easier if you’re only dating a girl. 4-5BR 3BA in the burbs and rent the fuck out of it to cover all expenses while spending most nights at your lady friend’s apartment downtown. I do go home everyday to shower though, my shower is epic. She asked to move in once, but that would mean getting rid of one of my serfs, unacceptable.
If you are cutout to be a landlord, that is not a bad route. Definitely something you don’t want to jump into without doing your research first.
I can put up with anyone for the few months the lease term lasts. After that it’s month to month and I can axe them. You get a good group pretty quick.
Been trying to convince my buddies to go this route for over a year. Gotta love leveraging.
From personal experience, whenever a project needs to be done (DIY or hiring a contractor) over-budget both time and money so you don’t have any nasty surprises.
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In regards to your very first sentence and your second point, I think that you should absolutely be looking for a house that needs renovations. If you’re looking to make money on your first home, you aren’t going to do that sitting on it for a few years, because a very little portion of your payments are actually equity. Rather, I would recommend finding a foreclosure in decent enough shape that needs a new kitchen and bathroom, etc. and using a FHA 203(k) loan (a loan that allows you to borrow passed the homes value for renovations), that way, you are actually creating value that wasn’t there before, and in a few years when you’re looking to sell, you have actually created the equity needed to make some money on the deal. Also, when you do sell, be aware of the IRS regs for capital gains on your primary residence, you can save a lot of money in taxes that way.
Solid advice. However, don’t shy away because of the capital gains tax. As long as you own the house for 5 years, and physically live in it for 2 you can exclude up to $250k (or $500k if married) of capital gains when you sell.
Thank you for clarifying, I was referring to that but my original post was already long winded enough
Hey Peter, who is this Michael Brown joker in my audit lectures? I miss you, now I need to get back to my material.
Very easy to get in over your head in that scenario but your point is well made.
In the process of buying my first place now. This hit too close to home. Solid advice.
I agree with everything in this article except your method of skunk dispatching. While I love my .22, I’ve never shot a skunk with anything less than number 5 shot out of a 12 gauge. You want to kill that fucker with one shot every time. Nothing worse than wounding an animal that has the defensive instinct to spray foul smelling liquid everywhere.
Gotta go with the .50 cal on a skunk. Too risky not to dissolve it.
I agree with everything in this article except the inspector part. You obviously got a shitty inspector. Probably had a shitty realtor then too.
Maybe so, I have no basis for comparison. She wasn’t allowed to say “go with this inspector” but she did steer us away from others. Even so, having an expert in each field can help provide better peace of mind.