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!

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