House Hunting 2021
Sunday evening, Kim and I made an offer on a house.
By Capital Thinking · Issue #900 · View online
Sunday evening, Kim and I made an offer on a house.
The Greenwood Place (as we’ll call it) was listed at $649,000. We offered $677,777 escalating to $777,7777; no repairs required; and a $50,000 appraisal gap waiver.
Our offer was not accepted.
We offered to buy a home for $128,000 over list — but it wasn’t enough!
That’s right: Two months after selling our home — and three months after beginning to search for the next place — Kim and I have waded back into this crazy housing market.
We’re not sure how long this process will last (or what the outcome will be) but we’re prepared to be searching for many weeks, if not months.
Both our mortgage broker (Michael S.) and our real-estate agent (Michael K.) tell us we’re doing things exactly right for this market.
- Kim and I both have credit scores over 800. “Everything looks unbelievably perfect here,” Michael S. told us in June. “That’s amazing. Perfect credit.”
- We’ve sold our previous house and are currently renting a place while we search for another. This allows us to make offers without home sale contingencies.
- We’re willing to take calculated risks to increase the strength of our offers, but we’re not willing to compromise our financial health in doing so. “You can borrow $850,000 all day long,” Michael S. told us. “You’d probably have zero difficulty qualifying for $1 million.” We don’t want to borrow a million dollars though because doing so would severely compromise our other goals.
All the same, there aren’t many homes on the market right now. Demand far outpaces supply, which is driving prices up and creating insanely competitive situations.
It doesn’t matter whether we’re doing everything right. We’re still going to run into folks who can make cash offers at more than $128,000 over a $649,000 asking price.
Our plan? Be patient. Remain vigilant. We don’t need to buy a home at the moment — and, in fact, perhaps it would be best if we didn’t — but we want to be prepared to pounce if/when we find the right place.
Today, I want to share a bit of our thought process as we attempt to buy a home in 2021.
Where We’re Starting From
Currently, Kim and I are paying $2300 to rent a 1000-square-foot home in a nice, walkable neighborhood on the south side of Portland. We like it.
(True story: Two days ago as I was walking the dog, a neighbor stopped me. “Is your name J.D.?” he asked. “I’ve been watching your YouTube videos!” First time somebody has recognized me from my tiny YouTube channel haha.)
This $2300/month rent payment is comfortable for both of us. Kim doesn’t have the extensive retirement savings that I do, but she’s in good shape compared to most people.
She can afford $1150 per month for housing. And while she (and I) would love to have a lower housing payment, she’s willing to go as high as $1200 per month.
Our current housing situation leaves me swimming in money. That’s the way it feels, anyhow.
You see, one of the reasons I wanted to move was because I’d managed to cripple my monthly cash flow. I had too much invested in our house. I owned it outright. One-third of my net worth was locked into the home and couldn’t be used for other things — such as buying food.
When we owned the home on Wisteria, my monthly housing expenses were $377 for taxes and insurance. (Kim had no housing expenses. The home was mine.)
Based on my non-retirement investments and savings, I had a monthly budget of $2059 to get me to age 59-½ (at which time I could access retirement accounts). That $2059/month budget was far below my actual spending, which averaged about $4200/month.
By selling the home and moving into this rental, an amazing thing happened. Even though my monthly housing expenses jumped from $377 to $1150, my after-housing monthly budget increased from $2059 to $7588 — all because I now have a pile of cash in my bank account.
This improved cash flow is 100% because we I no longer have $500,000+ locked up on home equity. It’s in my bank account.
Yes, some of it will soon be in home equity once again (we hope) because we’ll use it for a down payment on the next place. But I’ll retain a sizable chunk of that to bridge the gap between today and 25 September 2028, when I turn 59-½.
So, today I feel like I’m swimming in money. Instead of running a $2100 monthly budget deficit, I have a $3300 surplus. I am, once again, financially independent.
This is our starting point.
As we hunt for homes, I maintain a running spreadsheet that (among other things) tracks my projected monthly budget for each home. In fact, this monthly budget is my number-one consideration in purchasing a home.
I am fifty-two years old. In the past thirty years, I’ve purchased four homes — and I’m about to buy a fifth. My homebuying habits are almost perfectly aligned with the American average. Homeowners tend to stay in one place for about seven or eight years, on average.
In other ways too, my homebuying habits have been typical. If I’m not careful, for instance, I can get wrapped up in the emotional side of the process.
When my ex-wife and I bought our hundred-year-old farmhouse in 2004, I was 100% motivated by emotion. There was nothing logical about the decision. When Kim and I purchased our most recent home in 2017, we allowed emotion to over-ride logic to our detriment.
This time around, I’m trying to be logical and deliberate.
After four years in a house that proved problematic, and in the midst of a housing market that seems to have gone mad, I want to make a smart decision.
Photo credit: Ian MacDonald on Unsplash