Wednesday, October 24, 2007

Housing

Real estate is not a subject I know a lot about but I'm learning more as the days go by since it's been in the news a lot and since most of our friends (including us) own homes. Also, my parents are selling their house so I'm learning a ton about that process too.

Here's some things I've learned recently:

  • Housing market is at an 8 year low. In the Puget sound that may mean that it takes 5 times longer to sell that same (overvalued) property.
  • When buying a home (in today's market), expect to own it for at least 5 years before moving in order to keep the equity you put in it or you may lose $$ if you didn't use a down payment.
  • In order to sell your home, it probably requires a lot of cosmetic work and a quick talking sales person (aka RE agent) which can cause many people to rethink selling their homes.
  • Closing costs- what a rip off. Let's say closing costs are 6% of the price of the home ($300k) which equals $18,000! If you only had $50k worth of equity in home to begin with then you'll only be left with $32k for a down payment on the new home.

With all this said, is real estate really a good investment? It kills cash flow and requires a lot physically...two things I hate.

8 comments:

Doreen T. said...

As with any other investment, you need to look at "trade-offs."

Let's say you buy a house, live in it for 5 years and then want to sell it. If believe that your net proceeds would be $32K and you originally put $12K down to purchase the house, you will have a profit of $20K.

However, you also need to look at the $$ you would have been throwing away in rent had you not owned that house. Let's just say you would have paid $1000/month in rent. In five years that would have totaled $60K right there that you DIDN'T have to pay in rent!

I know this is a simplified example, however, I think you understand that there are other things to consider when deciding whether it makes financial sense to buy, or whether it is better to rent.

About the hard physical work part.... Can't help you there. I'm headed to a condo!

The Jamieson Family said...

Thanks for making up "apartment dwellers" feel better about ourselves!

anne said...

Love the post! It's totally worth it...even if you're stuck in a condo with lame neighbors, a crappy roof and little communication. At least there's some sort of equity being built.

Anonymous said...

Although if you make a smart buying decision in a good area it is the best investment you can make. I know people who bought in downtown Bellevue 5 years ago for $300K and now are being offered $1M. That ends up being a decent retirement fund...

Chris/ty said...

Those are some STEEP closing costs. Are you sure they are that much? When I worked at Wamu, they were never that much... Maybe things have changed.

Anonymous said...

I think you mean 6% is the realtor fee. That's why they always have nice cars to drive you around in.

Kara said...

6-8% is usually the amount of the closing costs that the seller of the house usually pays. This includes: 1) Loan-related costs
2) Title insurance and escrow-related costs
3) Prepaid taxes, insurance and interest costs
4) realtor fee

Valerie said...

When we were making and offer to BUY our loan guy calculated our closing costs to be 3% of the purchase.Obviously that is not including the % that would have gone to an agent, which I think is usually 6%?(we got a discount on our agent, so I'm not sure what the normal cost of that is) So all together it would have been about 9%.

Your mom makes a good point. One thing that makes calculating your outcome in a house vs apartment more complicated is having to calculate how much you have paid in interest on a loan for the house, which you don't have to pay in an apartment.