Remember Post #1? I shared one of my biggest financial goals: to own and invest in real estate. It is still my second biggest priority (after getting out of debt), but I think I need to admit to myself that I am just not prepared yet. Let’s say I get approved for a mortgage, find a place that would make sense as a rental property and come up with 10-20% down. If I do that, I would have probably 45 cents left to my name following the closing of the house and zero slush funds to take care of buying appliances, maintenance, repairs or anything else. And then what? Well, shoot, we need a washer and dryer, so it’s off to Home Depot for the zero-percent interest card! And Macy’s! And Lowes! And Bed Bath and Beyond (just kidding, I hate that place)! I would be back to growing my debt in a heartbeat.
There are a lot of other things I need to consider before buying my first place:
1) I need to reduce my credit card debt: I have a horrible confession. I realized last month that while my overall debt has been going down, my credit card debt has stayed almost exactly the same from when I began tracking it last June! I have four debts, two being credit cards and taking up two-thirds of my total debt and the other two being my student loan and car which are less than $10K combined. I’ve brought my Discover card balance down somewhat, but I need to attack the remaining $4,300. It needs to be gone in less than six months. Being down to three accounts and that much less in credit card debt will make my repayment a lot more manageable and a mortgage a lot more obtainable
2) Additional, dedicated house funds: I need at least a $5,000 slush fund just for the house (separate from the down payment) for unexpected closing costs, appliances/stuff for the house and funds to cover at least two mortgage payments in case I became unemployed. Current amount: Um, $10?
3) Who’s living here: me or tenants? I asked Money Mamba the question a few weeks back: do you buy real estate investment property when you rent your own home? He made some great points as did the other readers and it doesn’t come down to any hard and fast rule, but what makes sense for you. On the one hand, the area I want to buy in is not bad at all (it’s in Orange County and all of the OC looks idyllic compared to LA, where unless you’re in Brentwood, it can look like one endless strip of dingy corner stores and broken sidewalks), and I would be 100% comfortable livng in the place I eventually plan to rent. But does it make sense to make a move from LA down to OC, relocate, set up the condo with appliances and whatnot, just to move out in 6 months to rent to a tenant? And will we have another 20% down payment ready for a second place or will we go back to renting? I haven’t decided at all because I’m so hell-bent on just getting a place, which brings me to the title of this post…
4) I’m Too Emotional to Make Rational Decisions in Real Estate: Maybe it’s our culture (I’m Iranian), but I grew up around a lot of real estate talk and near-real estate worship. I know more real estate agents in the Southern California area than seems reasonable. I’ve spent many a weekend house-hunting with friends, family, heck even acquaintances if they invite me (I love open houses). So I have always, always, always wanted to buy a home, or maybe lots of homes, or maybe an apartment building, or a mall or a parking lot, or JUST SOMETHING, damn it. Sometimes it feels like I have a “To Do” list for my life and it looks like this:
It’s true. I put the pressure on myself and I let it get to my head. I think I am way behind in everything because I don’t own any real estate yet. But it’s not a small decision. It’s not something you just jump into because it seems like the right thing to do and everyone else is doing it. More importantly, I chose to live a different, non-traditional life for a couple years and made no effort to save money or stay in one place. I loved it and will never regret it. So why do I beat myself up over something I chose? It’s irrational. It’s emotional. Its like PMS, but worse because it’s in my head every day like some grating video game background music that loops over and over and over again because you didn’t shut off the Xbox. What I am trying to say is that I can’t trust myself to make reasonable decisions that aren’t intricately tied up with my expectations of lifestyle and perhaps wanting to impress people or show them I’ve made it when it comes to real estate. I don’t like that part of my thinking and I need to get it straight on my own about why I am buying a place and why it makes sense. And I have to understand that owning real estate with a mortgage is not going to magically solve all of my financial wants/needs and keep me from worrying about money ever again. It’s more stuff to think about and new stuff to take care of. I think a good next post in this series will be getting past my more immature expectations of real estate.
The market in Southern California has started to recover, but interest rates remain low and there is still plenty of inventory in Orange County and Los Angeles (not so much in San Diego). So if I really want to buy that house and not just dream about it, I need to get serious about paying off my credit card debt, separating out savings for a house fund, and not getting rushed into something for “fear of missing out”. That’s been one of my biggest flaws in my thinking, which is worrying just a little too much about what others are doing and how I compare to them. I loved Mo Money’s post on that idea, that sideways glance (how did he get that?) and she has some great advice on getting over it and living your life or, to put it in a more annoying way, “do you”.
I still dream and obsess over real estate. But I need to develop patience. I’ll continue to read and stay current with the market. I’m just getting my head in the game so I can do this thing right.
Do you guys have any great real estate first-time experiences to share? Is there something you wish you had known before you purchased your first property? Would you buy a property to rent if you didn’t own the home you live in? Or if you already do that, does it still make sense for you?