Leaving LA

San Francisco Sunset

Got your attention, didn’t I?  Sorry for the hook there but it’s not necessarily a true statement yet.  Right now, the Fiancé and I are starting to evaluate our options.  Since I work remotely, it means that she can find a job she wants, anywhere in CA she wants, and we can go there.  Even better, it means that we can seriously re-evaluate how much money we are spending on our apartment, gas, etc, and find a place that can save us thousands of dollars a year.  Maybe, just maybe, we can even find a place where we can buy a house.

Unfortunately, most of California is pretty expensive.  The cool places to live (San Francisco, LA and San Diego) are all ridiculously expensive and don’t accomplish much with respects to saving us money.  That leaves the more inland cities of California and really, that means only one place: Sacramento.  We’ve been looking into Sacramento as a potential place to move eventually for a few weeks now and might even take a trip up soon in order to check it out.  I know, I haven’t even been there before but I’m considering a move there.  It’s crazy talk!  But remember, I’m a bit of a crazy person in the first place.  Besides, Sacramento has a couple of things going for it!  Things like:

  • Friends!  Some friends of ours have already moved up there and they LOVE it.  Always good to have a built in base when you move.
  • Lots and lots of legal positions.  It’s the capital of the largest state economically and population wise in the US.  The laws that get passed here tend to have a much wider range of influence than what happens in Providence (Sorry Ted).  This means lawyers galore!
  • Right between Tahoe and San Francisco.  Two places that are seriously awesome.  The fact that I could easily drive over to Tahoe, one of the best places to snowboard in the country, makes me a bit giddy.  Just saying.
  • Cheap, Cheap property.  The median 3 bedroom home price in LA right now is $524K.  In Sacramento it is $186K.  Not only that but the schools, in the right neighborhoods, tend to be much better than anything that the LAUSD has to offer.  I’m just saying, it’s a big difference.
Definite small city vibe

Definite small city vibe

Seriously, the house prices kill me.  Looking at homes in LA is just awful.  You can’t find a house in an OK area in LA that is under $450K, which by the way is WAY over any budget I could possibly ever come up with.  In Sacramento, we could buy an actually starter home in a good neighborhood for under $250K.  That means a 3 bedroom, two bathroom house with a bit of a yard for roughly the same amount or less that we pay now for a 1 bedroom apartment we do not own.  It may just be me but I definitely like the thought of owning rather than renting.

Mostly though, Sacramento (or San Francisco or San Diego) would just be a good change of pace from Los Angeles.  I’ve been here for four years now and the Fiancé has been here her whole life.  And quite honestly, LA has never been my place.  Some of you out there probably know what I mean.  It’s just never felt like a permanent home type place.  That’s the best way I can describe it.  Even with my current apartment, the dog, my Fiancé, LA still is just not quite the right place for me.

Now, obviously I need to visit Sacramento.  I’m not going to move to a place sight unseen.  The last time I did that, I ended up here in LA!  And lived in a fairly ghetto (although cheap) apartment for years.  But I at least feel confident that if we make a move, it will be the right one.

Living in the right place

Sunset

Los Angeles is a pretty great city but it definitely has some huge downsides.  This is arguably one of the most expensive cities to live in here in the U.S.  It also has probably the worst public transit system and some of the worst traffic known to man.  Also, did you know that LA is huge?  Seriously.  It has the worst case of sprawl ever.  I mean, we are talking WAY too big.  The city itself is just over 500 square miles while the county is an unimaginable 4700 square miles.  Just for comparison, Rhode Island is only 1200 square miles.

The point is, despite taking up all this space, there isn’t any quality, inexpensive housing to be had.  Because the city built out, rather than up, the cost per square foot is way higher than it should be, making the most affordable homes under 250K to all be 25 year old apartments that were converted to condos.  While it’s possible to find a good house here and there, there just isn’t any solid inventory.

After living here for three years, I’m actually getting tired of LA.  Yes, it’s pretty.  And the weather isn’t all that bad, although it gets really, unbelievably hot in the valley during the summer time.  And since I’m not from here, the thought of eventually (years down the line) moving somewhere else in order to maximize my earnings (and happiness, let’s not forget that part of the equation) has been rumbling around in my head.

So what should be my criteria for a place to move?  Let’s make a quick list, shall we?

1.  Cost of housing

2.  Schools

3.  How quickly can I get to my family?  Are they around the corner or are they around the globe?

4.  Will the girlfriend actually like it here?

5.  What’s the transit system like?  Can I get around on it?  Or will I be using my car?

While I’m not looking to move anytime soon, I’ve definitely been taking a look at a couple of different places and several have really caught my eye.

  • Austin, TX
  • Denver, CO
  • Boston, MA (Yeah hometown!)

At this point I’m not actively looking for work or anything in any of these cities; I’m pretty happy with my job and still have a few years to go before I can take my career elsewhere.  But I’ll tell you what, when I look at Austin or Denver and see a beautiful home for $300k that would be a $1 million house in LA, I kind of lose my mind.  A big part of financial independence and making some money later in life has to do with owning your home outright and maybe, if you’re ambitious, having some rental properties throwing off some income for you.  In LA, that just seems borderline impossible these days.  But in TX or CO it seems like someone can actually do it.

I really feel that a lot of what I’m doing trying to improve my savings, build up a buffer, etc, really has to do with happiness and contentment.  Being happy with my job, where I live, and being content and happy with my financial security are things that really seem to drive me.  The more I think about it, the more I feel the place I live will need to be a place that I can really work into my life plan and help me be happy overall.  LA just doesn’t seem to be cutting it anymore in that regard!

So what cities should I be looking at?  Are those three my best options or are there others that I’m not thinking about?  Let me know!

I just broke my lease!

I just broke my lease and it feels amazing!  Mostly because I’m actually getting out of it without owing anything to my landlord, despite there being eight months remaining on the lease.  Am I magic?  Maybe.  Is my girlfriend a kick-ass attorney in addition to being a badass cook?  Absolutely.  I know this ventures off the normal path I go down but this is something that has been occupying my time for quite a while.

When the girlfriend and I moved into our new place, we really expected it to be a good solid apartment.  While it wasn’t in the best neighborhood of LA, it was a fairly well maintained building, had responsive management, and was fairly cheap for what we were getting.  Despite some of the downsides, we were really excited.  Then the rainy season started here in LA.

Waking up in the middle of the night to dripping, your first thought is usually that it’s a sink.  So you get up out of bed, walk with your eyes closed to the nearest sink and try to fix the faucet.  You then walk back to bed assuming you’ve done the job.  It was at the walking to the sink part that I realized the water was in the bedroom.  And there was a lot of it.  The girlfriend and I quickly woke up and turned into disaster experts.  By this I mean we grabbed all the plastic bins and towels we could find and hastily arranged them under where we thought the leak was.  At this point, we figured we had done the best we could and went back to sleep.

In the morning we alerted our landlord about the problem, who quickly dispatched the handyman (once the rain was going) to fix the problem.  At this point, things were OK in the apartment.  It was still fairly musty, suggesting some not so friendly mold, but there wasn’t any water anymore.  That is, until the 22nd of December.

Once again, the leak struck at night.  This time it was in a smaller area but way more water was coming down.  I decided that in order to keep it from spreading and to focus it on one spot, I’d drill a hole in the ceiling and then put a screw next to it, giving the water a path down to the bucket.  Holy cow!  An actual stream of water came out and went on four just under thirty seconds.  After another day, the leak had finally stopped.  Over five gallons of water had leaked from our ceiling.

At this point, we were livid.  It obviously wasn’t fixed and there was a whole lot of water that had been up in our ceiling.  That meant one thing: mold.  Ugh.

After a few weeks of going back and forth with the management company trying to get a mold inspection we finally gave up and told them we would like to be let out of our lease.  Now I’m not a landlord like Mr. Money Mustache but this is not something that ever happens.  And truth be told, I think it’s mostly the result of a bad situation combined with a great good cop bad cop routine (I will let you guess which one I was).

So, there you have it.  I’ll write in more detail later as to the process we went through with management in order to help other people out with this but in general, try to not get mad at management!  They’re just employee’s typically and will try reasonably hard (by law) to help you out.

So I’m thinking about buying a house Part 2 | Real Estate Madness

Real Estate

Condo photo by Ed Bierman

One of my first posts on this site was about how I was starting to lose my mind and considering buying a house without putting 20% down.  After meeting with a real estate agent and discussing buying a first home and building my real estate empire (evil laugh), I have to admit that I have no idea what I’m doing.  This is completely foreign territory to me.  In general, the thought of buying a place and not throwing money down the drain is pretty attractive to me right about now.  I’ve spent almost $33K in rent since I moved to LA in 2009 and that money is just gone. No equity, no return, nothing!

Digging more deeply into the numbers have made it pretty clear that buying a place, even if it’s just a one bedroom condo, makes a lot more sense.  Right now I’m paying $1000 a month.  The breakdown for the one bedroom condo would look something like this (not including real estate broker fees, loan fees, etc):

Purchase Price       $150,000
Down Payment      $  10,000
Loan amount         $140,000
Interest Rate                   3.6%
Mortgage Payment  $634.60
HOA                            $268.00
Insurance and PMI  $195.83
Property Tax              $152.55
Monthly Cost           $1250.98

Using the mortgage amortization calculator from Bankrate.com, I’m able to see that after 5 years, my equity position in the property (if the value sees neither appreciation nor depreciation) would have grown from $10,000 to $24,000.  Not bad!  But wait, let’s play around with the calculator a little bit.  If I pay an extra $100 a month into the mortgage, then my equity position will grow to just under $31,000 in five years.  Not only that, the value of the mortgage will have dropped below 80% of the property value (once again, if values neither appreciate or depreciate).  Although that is a big if, let’s assume that does happen.  I would then be able to refinance (if rates were good) in order to reduce my PMI.  If rates were not good, I could always just leave it be.

Either way, let’s look at the rental value for the one bedroom condo’s in this complex.  After checking craigslist, as well as some other comparable items, a fair price seems to range from $1500 to $1600.  I’m guessing that the $1500 range is more likely, even in 5 years and with inflation.  So, I put my property on the market to rent and am able to find a good tenant at $1500 a month.  At this point I am able to make an additional $250 dollars a month from my initial $10,000 investment.  If you wanted to even skip the part where I lived there myself, I could buy it and immediately put it on the market to rent and collect the extra $250 a month.  However, there is no way I want to be caught holding any property without a tenant.  I definitely do not have the savings to manage that sort of mishap right now.

So where does that leave me now?  Well, in theory this really seems like a good idea.  But in practice I’m just not so sure.  I run the numbers over and over again and while they work, they leave me feeling not so hot about the whole thing.  The risk management side of me is terrified (or maybe that’s just the young adult side of me, who knows?) while another part of me is screaming for me to pull the trigger. Although the thought of finally owning some real estate and getting some (sort of) passive income is tempting, I really am not sure I’m ready to commit to that.  I’m not terribly concerned about a property tying me down at all but still, who knows.

What do you think I should do?  Is it a wise investment or a poor decision?  Not going to lie, I could use some real estate advice right about now!

So I’m thinking about buying a house

So I’m thinking about buying a house and it legitimately terrifies me.  I mean, I’ve lived in my teeny, tiny studio apartment that lacks a full size fridge for almost 3 years now and while I am certainly tired of it, I’m not sure it means I should go out and buy a house.  This impulse (that’s what we’re calling it for right now) has been lingering for a while but really had the fire stoked underneath it the other day at a Labor Day party.  I was sitting at a table with a real estate broker and picking his brain about owning rental properties and what the market is currently like.

He then asked me what I was doing renting when I knew it was basically throwing money away (over $36K for me so far!) and was basically holding me back.  In general, my apprehension is born out of the fear of an underwater mortgage or of buying a crappy place that I just don’t have the money to fix.  Because let’s face it, I’ve got a negative net worth.  I’m not exactly liquid!  I definitely can’t put down the highly desired 20% on a property.  I couldn’t even do 10%.  Then we really started talking numbers.

There is a condo complex right around the corner from my work that is about 25 years old at this point.  Although the building wouldn’t be described as young, it did go through a major renovation about 7 years ago to make it a little more upscale.  And in that housing market, it made a killing.  There is currently a one bedroom, one bathroom condo at this complex on the market.  In 2007, freshly renovated, it sold for $307K dollars.  Today it is being sold for the bargain price of $132K.  And this is where the numbers start to make sense.

The building is FHA approved, which can make buying a house significantly easier.  Because of this, I would be able to put down 3-5% and still be able to purchase a condo there.  Prices range from that low of $132K up to $200k.  Overall, the Mortgage, HOA, Insurance, PMI, and Property Tax would still combine to be less or just a bit more ($200 dollars or so) than the apartment I’m currently living in right now.  That’s totally doable!  Even better, this fits into my long term plan. Which reminds me, buying a house is a part of my long term plan.  My extremely cliche, long term financial freedom plan.

The Long Term Plan: Continue to save a large portion of my income and invest fairly conservatively, while maxing out my 401K (check!) and Roth IRA (err, working on it).  Buying a house to eventually rent out, rather than live in, is also a pretty big part of this plan. Then buy more real estate, rent out more of it and one day have some passive income that can let me do what I really want in life: coach high school track and field.  Yeah, coaching track and field, I said it.  Definitely not what you expected!  But I love doing it so why not make it a goal, right?

I should point out that buying a house now would run completely counter intuitive to all the advice I give my friends, as well as my own personal belief that you should never put less than 20% down on a home.  You can see some good reasons for that over at Trulia and 20somethingfinance.  Of course all these reasons make sense but then again, it would be the same as renting a place.  And it would be a better place than I’m living in now, which remember, has no fridge.  And is a studio.  In the ghetto.  Seriously, my street goes Uhaul place, Danger Dog restaurant (using the term restaurant loosely here), Chop shop, Storage facility, my apartment building, semi-projects.  I really want to move out of there.

What this really comes down to is whether buying a house with such a low down payment (and at such a low value) makes sense.  I already know that it would be fairly difficult to sell the properties I’m looking at right now if I ever got in a bind.  From talking with the realtor, they sell in 45 to 60 days but neither of us see any real appreciation in this type of condo over the next 5 to 10 years.  Chances are any profit I could pull out down the road would be from the money I put in.  The plus side is, as an eventual rental property, I wouldn’t sell it for a while.  Buying a house is definitely a tough decision.  If anyone has any insight, let me know!