Beating Broke

Personal Finance from the Broke Perspective

3 Lessons I Learned When Looking for a New House

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Lessons I Learned Looking for a New House

This is a crazy market in which to buy a house. While I knew that from watching the news, recently we got to experience the market firsthand because we’re moving from Arizona to New York. The plus side is that our house in Arizona sold within three days of listing. The bad news is that we had to visit many properties in New York and put in offers on three different houses before we finally got one. Along the way, there were many lessons I learned while looking for a new home. These were the most important ones.

Beware of Low Prices

We started our search by looking at houses at the lower end of our price range. We have one child starting college this year, and two more in the next five years, so keeping housing costs low made sense. However, we quickly veered away from those houses for two reasons:

House Problems

Most houses in the lower end of our price range had problems. Two of them stunk. One smelled throughout the house, and the other smelled fine until we opened the basement door. Then we were confronted by an awful odor we couldn’t place. Others were outdated or had a strange layout such as having to walk through one bedroom to get to another one.

Neighborhood Problems

If the houses in the lower price range didn’t have problems externally, the neighborhood did. We saw one meticulously kept and updated property. However, it was the nicest house in the neighborhood, which means it might be more difficult for us to sell later. Plus, the neighbors were gathered outside and started talking about us as we walked into the house. Not the type of neighborhood in which we wanted to move.

Beware the Unkempt Exterior

Lessons I Learned While Looking for a House

I was amazed how many homeowners didn’t attempt to create curb appeal. We walked up to homes with dirty siding, peeling paint on the window frames, and a rotted piece of wood with a hole on the steps to the home, just to name a few problems.

Unfortunately, many of the backyards weren’t much better. One had a tiny mowed section, but the rest of the small yard contained weeds and overgrown grass.

If you want people to buy your home, try to make the yard and exterior of the home inviting! Not surprisingly, most properties with unkempt exteriors were also not in good shape inside.

Final Thoughts

Finding a home to purchase is a challenge no matter when you’re looking. However, in this current seller’s market, there are important lessons I learned when looking for a new house. Hopefully, we won’t need to buy another house anytime soon, but if we do, I know what to look for and when to walk away, sometimes before even seeing the inside of an unkempt house.

Read More

Declutter Your House Like You’re Moving and Make Some Cash

Making an Offer on a House

Shopping for a New House

 

What Is Required for a Hard Money Loan?

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When most people buy a house, they take out a loan with a traditional lender.  However, individuals who are interested in buying run down houses to fix them up to then sell or rent rarely qualify for traditional mortgages.  Instead, they seek hard money loans, which have short terms and give the investor more flexibility than a traditional loan.  Before you first enter the home flipping business, it’s important to know what is required for a hard money loan.

What Is Required for a Hard Money Loan?

What Is Required for a Hard Money Loan?

Of course, each lender will have their own requirements, but in general, there are three criteria that are most important when trying to secure this type of loan.  Not surprisingly, many of the requirements circle around cash on hand and experience.

Down Payment

Most banks require a 25 to 30% down payment for residential properties.

In general, a successful hard money loan fit this formula.  Consider the estimated after repairs retail value of the property.  Let say you expect to sell the property for $250,000 when you’re done fixing it up.  Maybe you purchased the property for $100,000.  You expect to complete the repairs for $60,000, and you also want to borrow enough to cover closing costs of, say, $15,000.  Your total comes to $175,000, or 70% of the expected value of the property.  If you use this formula, you will likely qualify for a hard money loan.

Cash Available

What Is Required for a Hard Money Loan?
Photo by Shane on Unsplash

Since hard money loans are inherently risky, the lender will take a close look at your cash reserves.  You will need substantial cash reserves to use during the renovation process to pay for things like HOA dues, interest payments on the hard money loan, insurance on the property, and other expenses.

The more cash you have available, the more likely you are to qualify for the loan.

Exit Strategy

The last thing the bank will consider is your exit strategy.  Most hard money loans only have terms of six to 18 months, so you must have a plan for what to do when the loan term ends.

For private properties, there are two basic exit strategies:

Sell

The most typical option is to immediately sell the property when you’re done renovating it.  You settle the hard money loan, get your profit, and are free to go on to invest in the next property.  Some investors go a step further and get a cash out refinance so they then have even more cash on hand to invest in the next property.

Rent

Another option is to renovate the property, then rent it.  When you rent it, the property is now making money.  You’ll be able to go to a traditional mortgage lender and get a traditional mortgage in place of your hard money loan.

Final Thoughts

If you are considering going into the real estate business, you must first learn what is required for a hard money loan.  When you meet the requirements, you’ll be able to secure your first loan.  After you have amassed more experience and cash, you will find that hard money loans are easier to obtain, and you’ll be able to grow your business.

Cost of Living Makes a Big Difference

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Where you live, and how much it costs to live there can make a huge difference in what your finances look like.  The differences in the cost of living between someplace like Seattle, or San Francisco and where I live, in North Dakota are stark.  Oftentimes, when you see someone using a calculator of some sort for your retirement “number” there are some assumptions that get made.  People simply assume that they are talking to people who have the same economic circumstances.  They also assume that a 20 year old male is going to need the same amount in their retirement account as the next 20 year old male.

Now, let me tell you something that will knock your socks off.  At least, it will if you live in one of those bigger cities.  Me and my family of 4 (+1 dog) do just fine on less than $70,000 a year.  We’re not extremists, living in a small trailer in a campground somewhere, eating only rice and beans all the time either.  Could we survive on less?  I know we could.  We have debt; student loans, car loans, medical bills, a mortgage, and your regular monthly utilities and such.  But, the cost of living here makes it not only doable, but affordable to live on that amount.

There are some things that cost about the same everywhere.  New and used cars, for instance.  A new pickup here still costs about the same $40,000 (depending on model and features, of course).  Other, more universal goods, like books, computers, and pretty much anything you can buy off the internet, still cost about the same.  But, for many of the other standard items, we’re a lot closer to the source.  A pound of hamburger is only about $3.50.  A pack of cigarettes is only about $4.50.  Compare that to the prices in someplace like New York, and you start to see the benefits.

Where the real difference is, is in the local goods.  Property being the big one.  I’ve compared a few times in different markets.  After the real estate crash a few years ago, prices have gotten a little better, but still aren’t all that close.  We own a 2+1 bed, 1 bath, house with no garage on a good sized city lot.  When we bought it, back in 2004, we paid a little over $46,000.  Some of you reading this likely drive cars that you paid more for.  The houses value has gone up some over the years, but the last time we had it valued, which was in 2011, it was worth $57,000.  I truly hope there aren’t too many of you driving cars that you paid more than that for, but I’d bet there’s one or two.  Comparable houses in some of the larger markets usually are priced closer to $250,000.  If I do the quick and dirty math on that, the mortgage payment would be $2,040 more in one of those larger markets.

I don’t have any real way to compare the utilities, but I have the suspicion that we pay less there too.  Our house is older (c. 1950), so it’s not the most energy efficient house out there, but we still only pay about $90 a  month for our electricity, and about $35-$40 for our natural gas a month.  Water, sewage and garbage are lumped together, and usually end up around $50 a month.

Another huge way that our cost of living is different is in travel costs.  I don’t mean vacations.  For most of that, we’re far enough from a major travel hub that it is usually a little more expensive.  What I’m talking about is commuting costs.  Last week, I slept through my alarm.  I’m supposed to be at work at 8.  I woke up at 7:55.  I skipped the shower, but I was able to get up at 7:55, get dressed, quickly help get the kids started getting dressed, and still made it to work at 8:15.  How many of you would just call in sick because you’d have missed the whole first half of the work day?  When I time my drive to work, it’s somewhere around 5-10 minutes depending on traffic.  And, when I talk about traffic, what I really mean is if there’s anyone coming when I have to make a turn onto a  street and I have to wait ’til they pass. I usually have to fill my 12 gallon tank with gas about once a month.  Sometimes I stretch it to 5 or 6 weeks.  And then there’s the savings on wear and tear on the vehicle.  I rarely put more than 12,000 miles on a car in a year.  That makes it really easy to keep a car for 10 or more years!

Now, I’m not telling you all of this just to boast about how cheaply I can live here.  Really, I just wanted to make you aware of the differences.  What you perceive as “normal” sometimes isn’t.  The same is true for me.  What is a good paying job here, would be considered a poorly paying job in a big city.  People who live in those big cities usually have a lot of amenities that come along with those extra costs.  Choices in movie theaters.  Professional sports teams.  Entertainment venues that can hold more than 30,000 or so people.  They pay for those extra amenities in extra costs that aren’t always monetary.  Crime rates, crowding, and more competition for jobs to name a few.

How does your cost of living compare?  How big is the city that you live in?  (for reference, the city I live in is about 15,000 people.)

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