Just Out of College? How About Living With Your Parents?

Just when you thought you finally had all the freedom with a livable paycheck! Anyone that has the chance to live with their parents while they are getting started with their career should seriously consider it (of course, assuming there’s a healthy environment at home.) The amount you can save on rent, utilities, food etc. can add up to a nice down payment in just one or two years.

Sarah, a friend from my old office, lived in an apartment with a roommate for a year after college in the same city as her parents, and thought it was getting too expensive. She decided to move in with her parents for the time being as they offered free rent and home-cooked food. Because she had more funds freed up she spent more on dining out, entertainment and clothes, and wondered why she didn’t have any savings.

Life before saving:
Sarah makes $1950 per month after taxes. Living in an in-city apartment she was spending monthly:
$950 Rent and Utilities
$250 Car Expenses
$550 Dining Out and Groceries
$150 Student Loan Payment
$450 Clothes, Entertainment, Travel etc.
Total: $2350

Of course, it started to build up on her credit card.

Now, that Sarah was living with her parents – the question was how to make saving work for her. She was still spending all she earned, and she wanted to buy a home. For someone that likes and is used to spending more than she has, forced saving had to be the answer.

Getting to Savings:
She finally sliced her credit card and asked her parents to open a separate ING savings account for her. Every month, Sarah gives her parents a $1200 check for “rent” or forced savings. They will only deposit it in this account, where Sarah can’t access it until she’s ready to move out and buy a home. The only caveat was it should pay off her credit card balance first before being saved. If she earns a raise, the increase will added to her “rent” check.

Life with savings:
After 3 months, she has paid off her credit card balance, and is now spending the next 18 months saving up almost $22,000. What a great down payment for a home! Her monthly spending now looks like this:
$300 Car Expenses (she now lives a little farther from work/friends)
$150 Dining out and Entertainment (she now takes her lunch to work everyday)
$150 Student Loan Payment
$50 Clothes and Miscellaneous
$50 Local Travel (including camping and a short road trip)
Total: $700

She has even made a game of seeing how little she can spend each month, with some of her friends helping her find free activities to do together. After all, it helps them too.

Her parents also feel great because they wanted to help her buy a home, but don’t have the savings to offer. They are giving her what they can: A place to live and eat for free in order for her to save. Sarah’s decision to live at home is of course a compromise in privacy and living under her parents rules, but she knows this is temporary – there’s a definite end date. She is committed to it, and at the end of her year and a half of saving, she will be able to buy something of her own. Also, she’s now trained herself to spend much less and make lifestyle changes for her big goal of having her own place!

As Sarah mentioned, spending those 12 or 24 months with your parents, might just ensure that you’ll never need to live with them again.

Choose Properties For the Scarce Times

The Seattle real estate market continues to rise. Seattle, Portland, and Dallas seem to be the last urban markets standing in the Lower 48 housing boom. I, of course, want it to continue for years, but I can see the increases slowing down. The thing is…there’s just not much inventory right now in Seattle, so that won’t encourage prices to level off. Right now, the market looks good.

Unlike cities like Atlanta or Dallas, Seattle is built between two bodies of water – Puget Sound and Lake Washington. In some places, I believe there’s only about 35 or 40 blocks between them. This means there’s a relatively small, finite number of lots available “in-city” and it’s not growing. When you rent or sell, a lot here will probably be more desirable than farther out. Sure, there are many suburbs across the waters and North and South of the city, but the farther you go, the less you live in Seattle and the less a buyer (or a tenant) will pay for it.

When you hold rental property for the long term, you have to be able to weather the scarce times, even though that may be a little difficult to see during the good times. When there aren’t enough tenants and too many For Rent signs, tenants in Seattle tend to choose a place close to the city (preferably in that 35 block range,) even if they work across the water. They also tend to choose a house rather than a condo or apartment – because they can suddenly afford the lowered rents and the extra private space.

Another key factor – space for a dog to safely be outside. This means either a fenced-in yard or a lot close to one of the many public dog parks. Yes, it’s important. I heard somewhere that 40% of Seattle households have a dog, so it’s better to be open to that market.

I love a city that loves dogs.

Assuming there will be a time in the future with wide availability of both apartments and houses in and around Seattle, my goal is to find a property that falls into a desirable category that tenants would choose first. This careful approach and preparation pays off in the long term when I have less stress about finding tenants during the harder times. Of course there are other important factors in choosing a lot, and I will be writing more about them soon.

Seattle Rental Houses Become Scarce and Expensive

Rental houses are becoming harder to find. This article may be good news for rental property owners…I am linking to Tim’s Seattle Bubble for the article as I think his comments are an interesting explanation for what this means to those planning to buy a first house right now. His message: renting may still be the better way to go.

Be Ready For the Long Haul Before Buying Rental Property

If you know you’d like to be a landlord, rental property may be a long term investment path for you. Investments in rental property should be viewed as longer term. The money you sink into a down payment should be funds that you would otherwise put into long term funds, so don’t sweat the smaller ups and downs in property value. Yes, with the real estate market rise in the last decade, many people have done well in the short term, but you can’t count on that to repeat or to continue. Here’s one view of Seattle’s property value timeline.

If you buy now and must wait seven years for that property value to rise, it’s okay! You aren’t supposed to touch that money until you retire anyway. Say you put down $15,000 on a $150,000 property (10% down.) Assuming the rent (or use of it) covers your mortgage and monthly expenses without a significant profit, your main financial concern then is probably the selling price.

If the market value falls to $130,000 2 years after your purchase date, you’re not really affected because you’re not selling it yet. (Hopefully your property taxes went down too.)

If the market value then spends the next 5 years rising to $190,000, you may be ready to sell. This would mean a $40,000 increase from your original purchase price, which if you had paid cash (100%) would have been about 3% rate of return over seven years. Not great.

However, you put down 10% not 100%, so based on a $15,000 investment, you took away $55,000 ($190,000 – $135,000 mortgage). That’s an over 18% rate of return over seven years plus possible tax deductions along the way. You leveraged your $15,000 with a mortgage, giving you a better chance of a high rate of return, and helping weather the time through lower market value periods.

You have to be ready to be in it for the long haul. As long as you only use money earmarked for long term investments or retirement, and leverage your down payment at a rate with which you are comfortable, rental property may be a great idea for you.

My disclaimer: This, of course, doesn’t take into account certain aspects like real estate commissions, closing costs, periods without rent, paid mortgage principal etc. This is just a very general illustration of how to think long term about rental property investment and the power of leveraging your investment dollars. Every investor needs to carefully analyze the property for rental potential and that’s a whole other series of posts. Please consult a professional for advice.

What is Your Magical Number?

Zillow is one of those real estate resources you hear in daily conversation with your friends. Even if they aren’t planning to buy or sell a home, they have usually looked up a few spots out of curiosity. It’s popular because the site gives an estimate (or “Zestimate“) for every property, on the market or not.

There’s always one in every neighborhood: A monster house with huge gaudy Christmas decorations that suck up all the electricity in the area; a place where you never see anyone, but the neighbors try to guess what kind of people live there. This morning I saw this house in our neighborhood had a “Make Me Move” price offered on Zillow.

Zillow describes this price designation:

Make Me Move is a free and easy way to tell others the price you’d be willing to sell your home for, without actually putting it on the market. It’s that magical number you just can’t refuse.

It was high for the current market, I think, but that tells me it would take a good amount of money for them to move from it. Of course, it also made me think of what it would take for us to move from our house, what would that number be? Something based on the market value? Or maybe based on the cost of the next house we would choose? Everyone has a price, right?

We love our street and our neighborhood. If we encouraged our friends and neighbors on this street to enter a “Make Me Move” price for their houses, I think we would find prices much higher than current market value. Does this say anything about our street?

If you saw Apple street on Zillow with lots of “Make Me Move” prices that were double or triple market value compared to Orange street with “Make Me Move” prices close to market, would you think Apple street was a more desirable place to live? Or are Apple street homeowners being ridiculous and you would want to live on Orange anyway because the neighbors will at least be reasonable and realistic?

Is it better *not* to enter a “Make Me Move” price if you’re not planning to move anytime soon? Or should every homeowner do it, because…why not? It’s your magical number.

Addicted to Redfin

A good friend of mine, Jeanine, recently admitted she watches Redfin like a hawk. This was exciting – I thought it was just me! New property listings appear every day and we are there to see it first.

Redfin’s tagline is “Find, Buy, & Sell Homes Online.” It’s a real estate agency, but I use their site to find potential properties. It’s the best site I’ve found for this and so much faster than my old process.

My old way to search properties:

• I would search for new Seattle listings in my price range on Realtor.com.

• Then find the exact address, more pictures and info on the real estate agency’s site.

• If a listing was still interesting, I would find sales history, tax info and neighborhood info on the King County Parcel Viewer.

My new way:

• I check Redfin. And once in a great while, I’ll check the King County Parcel Viewer for minor neighborhood info. How cool.

It’s easy to keep up with new listings, and doesn’t take very much time – not nearly what it used to.

Even if I’m not actively looking for property to buy, I check it occasionally to keep tabs on the local market. Sure, Redfin doesn’t tell you all the complications transactions may be having, but you get to know a market fairly well by watching prices, duration on the market, sales history, and visiting a few open houses to get a feel for price ranges and neighborhoods. When you’re ready to buy, you’ll have a head start on knowing where and what you want to buy.

Telling Our Friends “We’re Heading Out!”

In January 2006, fresh off New Years celebrations, co-workers, friends, magazines and TV were, as usual, discussing the merits and trials of New Years resolutions. The air in conversation was full of doubt that anyone would accomplish all of their stated goals for the year. We decided it was time to tell some of our friends our goal – that we were leaving Seattle in December for a year-long trip around the world. Yes, it was almost a year away, but we wanted to share our excitement! Here’s what we heard:

“What? Wow! I hate that you’re going to be away for that long, but that’s really cool!”

“Seriously? Are you quitting your jobs? How is that going to work?”

“Why? Where are you going? To safe countries?”

“That’s awesome! You know, I know a few people you should talk to who have done something like that.”

“Nice – but what about Amos?”

We received so many different responses that I was sure a good portion doubted we would actually leave, or be away for that long. I think most of those folks thought we had too much going on in Seattle to just drop it all and leave.
This was all great input for us. Those that only had questions for us about what we would do with our lives in Seattle helped us make sure we had every house/car/dog question covered before we left. Those who thought it wasn’t safe, helped us keep in mind the best things/ways to keep safe. Those who doubted us only helped us keep our departure date firm.
But mostly, friends just wanted to help! Over the next 11 months we would hear innumerable suggestions of beaches to visit, things on sticks to eat, bungalows to rent and other travelers we should meet before we left like Matt and Rebecca who had done a nine month trip like this a few years earlier. What a resource!
Telling our friends was the biggest external motivator because we had self-imposed peer pressure to do everything we could to make it happen. We set the date, we told our friends, and then we began detailed plans and preparation, which meant – the Monetorium.

Getting High and Dirty

Lee and I have a rental house that has a huge laurel hedge wrapping around the backyard. It looks very much like the hedge in our own backyard, 20 feet high, lush and full. They both need trimming once a year and a major cutback every 4-5 years. At our house, this was the year for the cutback. From previous experience we know it would cost $300-$450 to have a company cut it back,and take away all the branches.

A few weeks ago I decided I would do it myself because of the Monetorium. We have ladders, a lopper and I could use the exercise. It took me about a full day to cut it back 3 feet and down 5 feet, with Lee and my brother Mark moving the ladder for me every hour. Mark also took away all the branches in two large loads to the dump. Other than a few bruises from leaning over the branches, it felt really good to do it myself.

Now we have the rental house hedge to tackle, which is at least twice as much work. Should we do it ourselves? Lee would help me on this one and we may get a chain saw to make it faster. If we do it ourselves, we would save $800-$900 on both hedges.

Why didn’t I use a chain saw on our house’s hedge? – I don’t feel comfortable hanging over the edge of our ladder 18 feet up with a running chain saw. If we bought a new chain saw, Lee would be the one holding it at higher elevations.

What about a hedge trimmer? – This works very well on new branches and leaves and is what we typically use for annual trimmings. For major cutbacks, it can’t get through the tougher older branches.

I think we’ll mark off a sunny weekend coming up and see how much we can get done.

Make the Move for the Monetorium: Lower Your Rent

Usually, the biggest expense you have is your residence. For the Monetorium and your big adventure, consider a change in where you live – just until your start date. Remember, reducing your expenses is the goal, and it’s temporary! Here are some ideas for renters:

Let’s say you have 18 months until your start date.
Could you rent a cheaper place a little farther from the center of town? How much would that save you each month, taking the extra commuting time/cost into account…$200? Multiplied by 18 months…$3600?

Here are some other ideas…
Ask yourself if you could live in a smaller place – If you have a 2 bedroom apartment, could you move to a 1-bedroom or studio just for 18 months? Donate the extra couch and desk to a younger sibling!

Check for cheaper apartments coming available in your building or buildings around you – You might be living within walking distance of work which helps you avoid car expenses. Check your options in your neighborhood.

Ask your landlord to lower your rent – Depending on the rental market, sometimes just asking can lower your rent by a significant amount if they are worried about losing you as a tenant.

Ask your landlord for extra duties – If there is not a manager on-site, ask if there are jobs you can do to lower your rent. Maybe they will reduce it by $50-200 per month if you clean the common areas twice a week or manage the landscaping. Find out what they currently pay for services and think about what you are willing to do.

Yes, this is something big that may make a huge difference in how much you save for your adventure. So, while you are changing your address for the 9th bill and squeezing your couch through tiny doorways wondering how you got it in there in the first place, reward yourself by keeping something small that you love.