August 28, 2017

On the home(buying) front: getting the work done

Interrupting this regularly scheduled post to say a few words about Hurricane Harvey. This weekend has been physically critically bad for me and it’s even worse for the people in Houston who were hit by the storm. If you want to help, please consider giving to some of the organizations below that I’ve found while reading the updates on the storm and rescue efforts. I know the Red Cross is an easy choice and if that’s what you can do, great. But local and smaller orgs also do important work and don’t have the same funding opportunities so I’m highlighting those.

Texas Diaper Fund. I’m hearing that disaster relief agencies don’t provide diapers. Babies always need diapers and can you imagine the added stress of losing your home and needing to find basics like diapers and formula? Using cut up materials like shower curtains after Hugo gave the poor babies horrible skin infections – let’s make sure they get the supplies they need.

Portlight focuses on disaster relief for disabled people. It’s hard enough being rescued or helped when you’re able bodied. Even worse when you’ve lost your mobility aids or badly needed medication or other critical to survival aids. I know that one day without my pain meds would be excruciating and I’m not even among the worst off.

Team Rubicon is a team of veterans who help on the ground and have a special fund for those affected by Harvey.

Humanity First is a disaster relief NGO that’s partnering with Muslim Youth USA to help in Houston.

And of course animals are always displaced by these natural disasters so thank goodness we have people helping here as well:

SPCA of TexasHouston Humane Society, Austin Pets Alive!, San Antonio Humane Society

Notes – the best thing to do if you’re not local is give money so that the people on site can easily get the supplies they know are needed. Donations of actual things being shipped in creates more work for the volunteers who have to figure out what to do with them.

***** Back to our regularly scheduled post *****

[Part 8] I can’t even tell you how tired I am.

I could try, but words haven’t been invented for the exhaustion created by taking on a massive home renovation, selling the home you’re living in, working full time, while raising a toddler and tending to our senior dog, as a chronic pain and fatigue person.

If such a word exists, it’s probably in Japanese or German. With JB’s language skills burgeoning, who knows, maybe we’ll discover that word soon!

I’ve spent several days literally shaking, like my glucose levels just can’t perk up, gritting my teeth to get through the day, and hoping that it’s just stress and fatigue that’s affecting me. They definitely are affecting me, I’m just hoping that’s the only cause of this marrow-deep, three tons of pressure crushing my bones feeling.

The work itself

Our biggest drain is all the decisions we have had to make every single day. For example:

  • where to place every electrical receptable,
  • where to place every single light fixture,
  • picking every light fixture,
  • figuring out what our style is we stand amidst the dust and the bare walls,
  • buying all the cabinetry, hoping the colors match what we’ll have to pick later for our walls, tiles, wood, or carpeting that we can barely conceive of right now,
  • picking said wall paints, tile styles and colors, wood, and carpeting,
  • deciding what appliances we’ll take or leave in the old place, so that we buy the right things for the new place.

Each decision by itself isn’t a big deal but it’s a relentless march of several decisions a day. Day after day, it’s been decision after decision, big and seemingly small.

Even the smallest decisions can have huge impacts, like when we decided to place our receptacle on that part of the bath wall. What we didn’t realize was that it would impact the height of the side splash, which affects the placement of the mirror, and so the mirror had to be smaller.

Or like the walls in one room aren’t straight because this is an old house but we didn’t realize it until we had already purchased our flooring and so the wider floorboards look terrible. It’s going to be fine in the end but each hiccup takes away precious brain processing space.

The money

We’ve burned through all our cash savings now and have blown through the personal loan fund from a very dear friend. We’re incredibly lucky to have this resource, and incredibly grateful, and you bet your buttons that my checkbook is ready to repay them as soon as we have the funds back.

My stash is keeping me sane, but it’s still frustrating to spin our wheels financially. We can’t do anything but keep trying to get the work done here, the work done at work, and not spend beyond reason. We are spending, though. We’re spending on the house, we’re spending on selling the old place, we’re spending to keep ourselves fed day to day.

We’re not buying any more than is strictly necessary for a functional house. It’s going to be prettier than I was looking for, but these were all careful selections of things that were needed to consider the place finished. We couldn’t very well run around on a house with no floor!

Seeking serenity

I’ve been working hard at maintaining my Zen. Really really hard. Lots of deep breathing, lots of biting back grouchy words when I’m about to lose my temper.

I’ve inherited two legendary tempers, it’s taken decades of practice reining it in. If it should get loose, watch OUT. Thus, legendary control, my friends.  Fraying a bit around the edges, but still holding on.

The occasional craving is now being entertained. We bought the fancy cheese and it’s a minor miracle we still have some Brie in the fridge. PiC was shocked to come home and find half a wedge left.

It feels like this slog is endless and that’s what’s kept me going. As long as it felt like I had time to get it all done, the stress was about keeping a lid on my impatience to be done. Once we hit the halfway point, though, it meant that the pressure was really on to see it through to the end.

I’m amazing at getting through things, but I’m not great at being finished with them. In this case, it’s because being finished with the reno means a whole new world looms in front of us: moving, leaving our home, making a new home, and CHANGE.

I hate change. My oh my do I hate change. Isn’t that rich, coming from someone who works on change every day?

:: Do you love or hate change?

Before: Background, Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7

Next on our Home Buying Adventure: Part 9, Part 10, Part 11

August 21, 2017

Selling our home in California: Part 1

Part 1 of selling our home in CA Do we rent out or do we sell?

I was sorely tempted to keep this home as a rental property but ultimately decided against it for several reasons:

  1. Because of our refinance last year, our monthly costs are quite, relatively, low now. All told, our mortgage, HOA, insurance, and taxes run about $3350 per month. A home this size would probably be renting out for around $3500-3700 per month. That’s a cash flow of $179 to $379 per month. That’s not nearly enough to cover the maintenance and have a real profit margin. The two first years of cash flow would have to be banked against maintenance costs. That could work if I wasn’t so risk averse, we didn’t have any other drains on our income, and we had a comfortable savings cushion to cover our new home expenses. Which leads me to Reason number 2…
  2. We’re comfortable right now but not once you subtract the new mortgage and reno costs. We need the profit from the sale to recoup that spending. Short term thinking, admittedly, but I’m ok with that given Reasons 3 and 4.
  3. Both our CA properties are in the worst subduction zone possible. If and when the big one hits, both properties are highly likely to be completely destroyed. I’m not willing to bank my sense of stability on hoping there’s no major earthquake until we can easily afford the deductible on our earthquake insurance for two properties, and deal with the pain of rebuilding both. One will be painful enough.
  4. I don’t want to be a hands on real estate investor. I’ll do the accounting and management from afar but if we owned a property as nearby as this, I would feel compelled to do much of the property management myself. At this stage in life, that’s not something I’m prepared to do. The other option, hiring a property manager who would take 10% off the top, means the cash flow would be even less. In fact, that expense would drop our cash flow down to nearly nothing.
  5. After five years, we wouldn’t even qualify for the cap gains exclusion.

What’s the point, then?

I know that this is the right decision for us even if I am grumpy that the math doesn’t work.

Tax implications: Capital gains exclusion

I know, this may not be the first place your head goes to when we’re talking about getting ready to sell your home but this is a huge one in our state, given our market. Once I was sure that selling was the right way to go, I went straight to the IRS for the goods to make absolutely sure our sale qualified and that we were eligible for the exclusion.

How your sale qualifies. Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met.

  • You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
  • You didn’t acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
  • You didn’t claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.

All of these are true: PiC purchased this home long before we married, we’ve both lived here for much longer than the 2-year use requirement. We file jointly but I had to be sure that only one of us had to be an owner for the 2-year ownership requirement because we left the title in his name.

Marriage. Married individuals may exclude up to $500,000 of gain if they file a joint return and neither spouse excluded gain on the sale of another home within a previous 2-year period. If one spouse meets the ownership requirement, both are considered to have met the requirement.

I’m still working on whether or not we are exempt for CA state taxes but I’m reasonably certain that we should be.

Hiring an agent

I know most PF bloggers would say “go take a real estate course, and sell it yourself!” But I’m not (mostly) an idiot. That works for people who don’t have serious and severe limitations on their time and energy. I’m hiring someone to perform a service and to spare me the real pain of having to learn an entirely new skill in a compressed period of time.

I can take the real estate course when I’m not juggling fireballs and spinning ten plates in the air. Later.

We had a great agent referred to us by our friends who were really happy with her services, twice. After meeting with her and chatting by email, we determined that her rate and style were in line with our expectations.

Out of her fee, she would be paying for all marketing, the deep cleaning service, the photography. We’re paying her to advise us of regulations, the best way to market the sale, strategize pricing, do all the marketing legwork, and handling all our negotiations.

She’s the antidote for needing to sell while suffering from a fair amount of information overload, and serious decision fatigue. She’s been incredibly responsive and flexible, going to great lengths to minimize the disruption to our lives, which was highly appreciated considering how much we’re keeping moving at the same time between this sale and our renovations.

She’s even been helping with the seemingly endless packing and transporting furniture to get this place show ready. But that leads into a whole other story, for a whole other day.

Read Part 2 and Part 3!

:: Have you ever done a FSBO or been tempted to? Or did you go the agent route when it’s time to buy or sell? How was that experience?

July 31, 2017

On the home(buying) front: money choices

The costs to build our future castle (home!) [Part 7] This whole post is going to be so much money. About so much money, I mean. Lots and lots of money. Stimulating the economy beyond anything I’d ever imagined would happen in this lifetime.

Hiring out work

The contractor’s labor, and the subcontractors’ labor, is a set price for the most part. I’m saying up front that we’re paying a premium for the general contractor whom we’ll call Bob and I didn’t negotiate a penny of that. Those of you who know me won’t even open your mouths to ask if I was “too embarrassed” to ask for a discount like some people thought.

It was deliberate. I’m a star performer at work, and I know how to treat them. You pay good money to get exceptional results. You do not nickel and dime someone who is going to play a huge role in quality control, and attend to your every need. That’s the best way to demotivate them.

Every week, my decision and refusal to negotiate his rate proves that Bob is worth every penny. He’s honest, hardworking, prompt to reply to any and all questions (stupid or not), shows up whenever and wherever we ask, on top of keeping the project on schedule. By the way, he wrote up a highly detailed schedule for us to work by. All of that makes him a total gem and a complete anomaly as a General Contractor, from the anecdotes of all the horrified friends and family hearing we were on a tight timeline.

But that’s not all!

  • He advises us on the best places to source our materials and helps us find discounts without compromising on quality.
  • He’s cultivated relationships in the contracting world: he chatted up the project reviewer which resulted in the job being classified as an update, instead of a renovation, and saved us $2700 in permitting costs. I would not have known to ask for that concession!
  • When we decided to save money on one of the “work in every room” aspects of the project (lighting) delaying it for later, he discounted his own rate by $350 to do the full job now. We didn’t ask, he offered.
  • When he made the wrong call on one of the walls, costing us an additional $500 in work, he made up for it by footing the bill for expensive aesthetic work that I wouldn’t have wanted to pay for, but PiC would have wanted.
  • He’s offered us lots of reclaimed and leftover supplies from previous jobs that the owners just wanted dumped. So far, that’s worth a smidge north of $1000.
  • The quality of his work is top notch so we passed rough inspection with flying colors.

By the end of this job, I anticipate that he will save us at least half the cost of his fees by doing stuff like this for us. Then there’s simply no price I can put on the sanity that he preserves by doing his actual services: coordinating all the work, hiring and managing the subcontractors, picking up all the materials that we purchase and checking them for damage, making all the returns.

The power of a warranty

Pretty much everything in this place is old enough to be replaced but we have to pick our battles. The roof is old, the wiring is old, the plumbing is old, the water heater is older, the furnace probably has a beard.

However, our realtor bought us a warranty that will cover all appliances, minor roof leaks, the water heater failing. She’s not so sure how well it covers plumbing because her experience has been that they’re finicky on which bits of pipes they’ll cover. Neither of us are willing to play the odds on whether or not the old wiring will catch fire, either, so we’re attacking those items now.

We’ll cross our fingers that the roof isn’t damaged and the water heater keeps truckin’ – but if it does, the warranty is more straightforward on those.

Negotiating costs

There are two places where we can really run up the bills, according to Bob.

The first is our selection of the finished materials like cabinets, flooring, fixtures, and so on. You can choose a $200 toilet, or an $800 toilet. A $20 showerhead, or an $800 shower fixture. Oh yes, you can spend $2000 on a door! (We did not.)

There’s not a lot of negotiation to be done but there are some bits you can do, aside from asking yourself if you REALLY need that super awesome rain bath showerhead.

  1.  Ask for large volume discounts. Home Depot’s Pro shop gives a high volume discount on any orders that are over $1500 in addition to whatever other sales and discounts you can get.
  2. Ask for small discounts. Our contractor gets a small discount if you use his pro account. We do!
  3. Bob also advised us that you can often request a 10% discount at Home Depot just because if you go to the assistant store manager, or escalating to the store manager.
  4. Ask for discounts just because! I online chatted with the good folks at Build.com to ask if they could beat the pricing I had in my cart and they did.

The second place is scope creep, AKA those AWOs that pop up on our progress invoices: Add Work Orders.

Those come up when you’re taking down walls to studs, thank crepes that you did and howl a few choice curses at the moon for what you found: more dry rot. If you didn’t find it, you would have fallen through the floor in about 8 months. Or your new windows would have fallen out when the dry rotted framing inside turned into a pile of splinters. Or when you realize that there’s black mold creeping across the back walls that the seller’s piles of belongings covered up. These weren’t in your original contract and that’s how the Bobs of the contracting world really make their money.

I’m so grateful that Bob was upfront about this little detail – we restructured our entire plan in the first week based on that advice and the saving is clear.

Spending choices: charge it up!

I could have chased down discounted gift cards to pay for supplies, saving 5-7%. For this project, though, I wanted the price protection from my credit card.

American Express will make it right if a store won’t honor their return policy. If something breaks or goes missing, I have protection for 90 days. We are buying tens of thousands of dollars worth of merchandise. I do not need to expend any personal energy fighting with any single merchant, and paying with the credit card is my insurance against that.

:: Would you (have you) have made any decisions differently? Do you have regrets on hiring someone cut-rate or did you have a great success story in getting a deal?

Before: Background, Part 1, Part 2, Part 3, Part 4, Part 5, Part 6

Next on our Home Buying Adventure: Part 8, Part 9, Part 10, Part 11

July 17, 2017

On the home(buying) front: rolling up our sleeves

Rolling up our sleeves, rehabbing an old, neglected house [Part 6] We’re officially the mostly apprehensive owners of a new-to-us home.

Without even taking a breath to let that sink in, we don’t have time!, we’re nose-deep in demolition and renovation work. Our final walkthrough revealed even more work that needs doing, if you can even believe that there’s yet more to do, and it’s been nothing but stress.

My credit card is melting from all the swiping, American Express’s emails about Large Purchases are tinged with a sense of alarm, and let me tell you, Mint.com is JUDGY. Yes, I know our household spending is above average!

The contractors are hard at work tearing out walls, digging out dry rot and black mold, and filtering the air with air scrubbers until it’s habitable.

Our job is collecting all the materials that we need ready for installation once the demolition dust settles. We’ve bought: kitchen appliances, kitchen cabinetry, bath tubs, plumbing fixtures, lighting – soooo much lighting, doors throughout the house, and vinyl windows. We still have to buy kitchen countertops, bath cabinetry, flooring, paints, more lighting there is no end to the lighting purchasing this will be the most well lit home in the universe, tiling, closet doors, and about 23 million other bits and bobs and joes and marks and michaels.

Everyone who isn’t paying the bills says “oh it’s great, you can get the home you wanted, just the way you wanted it!”

I think “When will this horror show be over???”

The money is flowing out so fast, even though I have the ready cash to pay the credit card bill, it’s like watching a tornado slowly rip apart my home. It’s fascinating, and terrifying, and impossible to look away. We came within $900 of my generous credit limit which has never happened before.

Our styles are clashing

For me, and partly for PiC, the worst part of the process (even worse than the spending so you know it’s bad): having to research every single thing we’re going to buy – did you know that there were so many toilets you can buy? Did you know that toilets have lids that opened automatically? Did you know how creepy it was to walk down an aisle of toilets and have them all open their lidded maws as you pass through?

And LIGHTING. Holy mackeral, lighting. PiC spent one Sunday looking at 1000 chandeliers and lamps. That’s not hyperbole. Literally, 1000 lighting options. And that’s only one of 17 research sessions.

The sheer volume is one problem. Our approaches are another.

I research a thing, find out the quality parameters, and armed with a fair amount of information, choose the three I like best and ask PiC to pick his favorite.

PiC researches a thing, researches its history, the history of its history, the entire range of possibilities that exist, he researches down to a molecular level and then presents me with a dozen choices. His way drives me crazy. My way drives him crazy.

Shockingly, we have managed to negotiate our differences with only one tiff so far.

I don’t want him to feel rushed and like he’s compromising on pieces that we both have to live with – I would hear the grumbling for the rest of our natural lives. I also don’t want to feel inundated with information, bombarded in fact, and short circuit every time someone asks me a question because it’s one question too many – some unlucky soul would eventually lose a limb, or a face to my severely compromised temper.

Solution! He is now the man in charge of all the initial research, I only have to give occasional input to steer his selections and then we finalize our choices together. I am the woman in charge of all the money: paying the bills, approving budget for each item, finding discounts and promo codes, tracking all receipts, returns, exchanges, deliveries, and arm-twisting when something goes awry.

On that note… savings!

Or at least savings on spending we had to do – not to be confused with money that we keep safe in the savings account, there to stay, grow, and flourish.

We have ordered a handful of our materials from Build.com and Houzz.com. I was skeptical at first but a friend confirmed that he’d ordered furnishings from Houzz and while it was imperfect, their customer service was good, so I was willing to give them a shot.

How I saved at Build.com: At the time of this writing, you can get 2% off at ebates or 3% cashback at MrRebates. Check both to choose the higher rebate, of course.  That was stacked with a summer sale coupon code, and I asked their chat associate to give me the 5% discount from signing up for the email list which never arrived. They did me one better, assigning a discount that was equivalent to another 7% off the total.

The key here is to create your account and fill up your cart first, stay signed into your account, then hit up the sales associate. If they dig up a good discount for you, ask them to send you the link to the saved cart with the discount instead of letting them complete the order. Close the tab with your own cart, load the link and make sure it’s showing the right items and discount. Close that link, and then go to ebates/MrRebates to reopen Build.com. You should then be able to load the cart from the newly reopened Build.com to show both the discount and proceed with your purchase.

Reminder: Gratitude

Even while the money flows out like heart’s blood, here’s perspective for you: We could be in Make Smarter Decision’s boat – budgeted but without anyone to hire! We have acquaintances who have been paying double mortgages for months and still don’t have a good contractor on board. We know people who chose to manage the whole project themselves and hire the subcontractors themselves, they’re all in a world of hurt. Demand is so high that it’s not uncommon for subcontractors to walk off a job for a better paying one without a word, and they just don’t care!

Yes, we are paying big bucks for this work to be done, but at least it’s getting done. Those folks carrying double expenses have spent nearly half our budget on just owning two properties and that’s before a lick of work has been done.

:: Have you had good or bad experiences with contractors? Are you into Do-It-Yourself for home repairs and renovations? Would you splurge on the best fixtures and appliances and doo-dads if you were outfitting your forever home?

Before: Background, Part 1, Part 2, Part 3, Part 4, Part 5

Next on our Home Buying Adventure: Part 7, Part 8, Part 9, Part 10, Part 11

May 30, 2017

On the home(buying) front: the commitment and numbers

Househunt2017: Under contract! [Part 5] We’re under contract!

We submitted what felt like our millionth (it wasn’t) offer. As usual, once that was in, I filed away all our emails on that address and moved on with life: checking any new MLS listings, checking our financials, taking the kids for a walk.

At 2 pm the next day, our realtor called. Our offer was accepted with no more than a minor change to the closing date! Holy crap.

I explored my feelings like I was checking for a hole in a tooth – is that regret? Panic? Buyer’s remorse? A little of everything? It’s still a bit unclear but it’s not excitement that’s for darn sure. That has a place later in the timeline when we actually get to move in but that’s months away. Many months. And many dollars.

We debated the new date – a change from Wednesday to Friday. Our agent doesn’t like closing on a Friday but it was also only a two day difference which would make a rent back a total pain in the pertuckus. I prefer fewer complications in an already thoroughly complex transaction, please. We agreed, and braced ourselves for the appraisal.

We’d taken the chance with the appraisal – we’d chosen not to take the contingency. No offers with any contingencies had even been considered even when our offer price was competitive. On this one, we accepted that if the property assessed at a lower value than our offer, we’d be both highly annoyed and have to pony up the extra cash because our lender would only cover 20% of the appraised value.

I did the calculations to confirm that we could bear that extra cost if we had to. It’s a good thing we did, too, because it did appraise lower than the sale price. Curses. It wasn’t by a heartbreaking amount, we had discussed the possibility and accepted it, and we had budgeted for it, but it still bothers me to think about it. You know what bothers me most? Having to input a lower value on the appraisal line than the total paid value when I adjust our monthly numbers! Nerd.

It’s not the house of our dreams

That doesn’t matter because that house doesn’t exist for anything less than $3M! Which means it might as well not exist at all. We have champagne tastes, sometimes.

We live in humdrum reality! What we get is a major fixer-upper that we can (hahaha …. have to) renovate to suit our needs, of modest size, in a quiet neighborhood. It’s near conveniences like groceries and banks, it’s a single story, with a smallish backyard where I can do some gardening and Seamus can do some serious sunbathing.

It also comes with fungal infestations, termites, appliances that haven’t worked since 1976, windows that haven’t opened since the Reagan administration, and bathtubs that have been leaking since Timberlake was a Mouseketeer. That’s just what we can see on visual inspection. I can’t wait to see what happens when we rip up carpets designed expressly for the psychedelic age.

What I’m getting at is that what we saved upfront on loan costs, we’re spending on repairs and then some. At least we’ll be living with things that we picked, but I could have lived with a strangers’ bad taste for a while to save money, y’know?

I’m already slowly losing my mind

Aside from the money part ….

Supplying 16 more rounds of paperwork to the lender, seriously, didn’t we already go through this at the beginning? Why are we going through all of the statements again?
Getting recommendations, vetting vendors, scheduling walk-throughs with the general contractor, with the architect, with the inspector, with the other contractor, taking time away from work but still getting all my work done on time.
Updating the Spreadsheet to End All Spreadsheets with our projected income, expenses, down payment, closing costs, estimated labor & materials costs;
Mapping out all expenditures against the calendar to see when we’ll run out of money, and set the upper limit for our remodeling budget!

PiC knows I want nothing to do with picking colors for tiles or handles for cabinets. I don’t care about appliance finishes so long as they work well, quietly, and don’t create extra work for me. He cares so he’s on that mission, as well as making all the phone calls because I hate talking to people during my workday.

I head up all the financials ferreting out every possible saving and promotion I can find for things we already have to do. There’s a new checking account bonus at Chase that we’ll snag, plus they’re running a promotion for $595 cash back if you set up automatic mortgage payments with them. I’ll have to keep the account open for 6 months, which is fine and worth the nearly $800 we’ll reap for going out of our way with a new account for half a year.

We discuss our decisions and process together, but mostly leave the other to their set of jobs. It’s a good sign that our partnership hasn’t frayed under the strain of another full time job demanding our attentions while still trying to do full justice to our day jobs and parenting.

Squirrel!

I keep getting distracted! I’m supposed to be answering emails from the lender, and leaving our money the hell alone until we close.

Our dividends portfolio needs beefing up so I hop into researching the stocks that I wanted. It doesn’t help that TradeKing has become part of Ally. Every time I go to stare obsessively at our savings, I stare at our portfolio. But no: none of that cash can buy stocks, it’s already earmarked for renovations.

Then that reminds me I researched a new real estate investment: Fundrise. This was a really interesting prospect and we should put … oh. STOP, I can’t invest in an eREIT right now, renovations!

I need to book cheap travel for important family and friend life events for the year so obviously that means I should maximize the travel booking rewards by grabbing a new credit card for … oh. No, I can’t open a new credit card right now, we haven’t closed yet.

It’s not that I don’t have plenty to do, it’s that having the clock ticking down til escrow makes me feel like I’m in limbo and I hate limbo. I need to be doing things.

Except right now, doing money things is exactly what I can’t do because it’ll disturb the Escrow Equilibrium. I hate  being told I can’t do whatever I want with my money.

FOCUS!

45 days until I can Gollum all over our money again. FINE.

What I am allowed to do is earn money and watch over our budget really carefully. We’re making decisions on what renovations to hire out ($$$) and what we can DIY (not that much for health and sanity reasons).

We’ll need every extra penny in case renovations go long, go over budget, or we need to carry our current mortgage a little longer than projected. PiC has had a nice streak of cash earning from his Craigslist sales, and I keep tucking every little (and big) bit away. Reimbursements from the FSA account, sales, blog income, it’s all being stashed.

That’s plenty to do along with keeping the day job ticking along.

:: How do you occupy yourself when you’re not allowed to mess with your money?

Before: Background, Part 1, Part 2, Part 3, Part 4

Next on our Home Buying Adventure: Part 6, Part 7, Part 8, Part 9, Part 10, Part 11

May 15, 2017

On the home(buying) front: SF Bay Area eccentricities

Househunt 2017: buying in the SF Bay Area[Part 4] We’ve looked at dozens of homes online and in person. We started working on this in February. By mid-March I was pretty sure that nothing was going to come onto the market that we wanted. We didn’t even see anything worth making an offer on until about April.

Oddly, this made me feel better about the process. Probably because it gives us more time to save!

We’ve done our preliminary budgeting and number crunching, though I did it again for every house that we made an offer on.

Together, on the advice of our broker, we wrote up our list of must haves.

She advised us to write our entire list separately, and then combine them to get our top 3 picks together. We were very Gift of the Magi on this one – PiC prioritized a better microclimate for me, I prioritized a maximum distance/commute time for him. It turns out that I don’t actually want the better microclimate anymore, which is a frugal win, because I’ve gotten used to the year-round fog and appreciate that we don’t need central air! My fibro has actually adapted to the colder weather these past few years, so warmer weather is not longer good for me. Blasphemy from a sunny SoCal gal but there it is.

We’ve now submitted multiple offers and a pattern has emerged.

  1. The $$$$$ option is to pay through the nose for an essentially finished home and live with it for a decade, making no changes because we cannot afford to, no matter how gaudy or stupid their upgrades were. And my goodness some upgrades are stupid. There’s the fully remodeled kitchen that had no oven, sold for $1.1M. There’s the “fully remodeled” house that might maybe have electricity but nothing else, listed for $989,000.  There was the perfectly perfect house with a microwave smaller than a chihuahua and stairs that would kill me inside of a week, sold for $1.2M.
  2. The $$$+$$ option is to buy a fixer upper and live in a construction zone for the next five to ten years as we slowly earn the cash to pay for remodeling or do it ourselves.

Debt averse as I am, the second option was the lesser two of evils. Not by much, but still the lesser. I think.

Our process and discoveries this far:

We got a recommendation for a realtor from our friend, and we love her for her honesty, responsiveness, and willingness to go the extra mile for us. We were traveling recently and she did big video walkthroughs for us so we could view homes even while we were gone.

1. Pre-underwritten loans
Our broker connected us to lender who would approve and underwrite our loan before we even had a property identified. That’s huge so when you make an offer in this market where even fixer uppers that need A TON of work are getting 10-15 offers. It allows us to remove the loan contingency.

2. This leads me to the no-contingency buyer.
We are finding that many prospective buyers are making offers with no contingencies and that’s knocked us out of the running when we have any contingency at all, forget it if you have two contingencies!

The three common ones are the loan contingency which you need if you only have a preapproval and not a fully underwritten loan, an appraisal contingency (which protects you from being committed to the offer until you know that the appraiser is assessing the property to be worth at least as much as you offered, since they will only lend based on the appraised value), and the property condition contingency for you to take a look and be sure that the place is in the shape you expect. I might have gotten that name of the last one wrong.

3. A common thing that’s done here in the SF Bay Area that I haven’t seen elsewhere is the seller often does the property inspection, the buyer doesn’t.

On the one hand, it sucks that you’re locked into the inspection company that the seller chooses but a good broker will tell you if the company is reputable or if you should get another inspection. The upside to this is that I love getting the property inspection reports with the seller’s disclosures so I can make an offer that takes into account the condition of the whole place, not just what I think I saw, and there are fewer surprises.

4. More cash is better.
Well, duh. No, I mean strategically: I found that it was more comfortable to make offers that might be over the appraisal a touch only if we had an extra 20% in case over and above our expected down payment. It’s not great, but when every house has more than 10 offers, it’s helpful to be flexible where you can afford it.

We had intended to buy in 5-7 years, if at all, so our cash reserves are net as hearty as they would be if we’d waited. The benefit of being as diligent with our money as I am, though, is that I’m one of the few people that can be offered a personal loan by a couple friends who can afford to lend it and know that I will, without a doubt, repay them immediately on the sale of our present home. This is something I never would have looked for but they knew of the situation and offered it as a way to help us bridge any temporary gaps in funding. On the one hand, it’s a huge responsibility, but on the other, I know they never would have made the offer if they didn’t have absolute faith in my judgment and discretion and that faith is based on knowing how I’ve managed our money for the past decade. The work really does pay off.

:: Which route would you pick? Are you a DIY expert or a DIY avoider? What remodeling or renovations would you feel comfortable tackling? 

Before: Background, Part 1, Part 2, Part 3,

Next on our Home Buying Adventure: Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11

May 8, 2017

On the home(buying) front: making the numbers work

HouseHunt 2017: the budgeting process [Part 3] I’ve been crunching the numbers constantly and noisily. And I do mean constantly. It’s a morning, noon, and night sort of hobby.

Taking on a new mortgage when we were within 5-7 years of paying off this one was not in the list of dreams I held for 2017. Not even close!

Buying in the Bay Area is a stiff proposition. Competition is fierce, people are making all cash or no contingency offers right and left, it’s easy to get caught up in the fervor. But not I!

Even ignoring the desire to retire early, which is quite a bit further away once the new mortgage happens, there are serious constraints on our ability to buy. Which is to say, I refuse to stretch ourselves beyond our means.

Budget considerations

First things first. Ignore what the bank tells you that you can “afford”. We all know that the bank only cares about the money it’s going to earn off your loan.

This is what I did:

  1. Set my top comfort level limit. There’s a number that would just make me run for the corner, gibbering. I absolutely won’t buy a home at that price.
  2. Ran the numbers based on that limit: 20% down payment, loan amount, possible monthly payments and total loan cost.
  3. Looked at how much the new mortgage would cut into our monthly and annual savings, assuming all other costs stay the same: investing, utilities, daycare, food, gas, travel.
  4. Then I looked at how that total number stacks up against the regional comps. This was a bad comparison – our number was not competitive at all. Instead of increasing our number, I adjusted our expectations of what we could get. Adjusted = dropped the bar to the floor.
  5. I had a moment of madness where we checked to see if we could increase our pre-approved loan limit but then I came back to my senses. It wasn’t worth it.
  6. I asked our prospective loan officer 30 questions: what products they offered, the loan terms, and how much they charged to recast the loan, if anything. After deciding which of the lenders was the best fit for our needs, I gathered all our paperwork – oh so much paperwork! – and started the loan process.

We now have a somewhat reasonable range for making offers and I’ve got a fleshed out spreadsheet to work our numbers in for each time we plan to make an offer. I also asked our insurance provider to give me a quote for coverage based on an equivalent property to what we’re hoping to find.

This means I can quickly calculate our monthly, annual and life of loan costs, taxes and insurance, and see right away if we’re making a totally unrealistic commitment. This also means I can see that our “reasonable offers” are laughable in this market. But I do NOT care. We’re going to make this work.

Helpful tip 1: Even when they say you’re fully underwritten and you can proceed with making an offer, you might still want a loan contingency because the early underwriting process isn’t the final process. Things can still change.

Helpful tip 2: Be careful about what you do with cash and your accounts that they’ve already assessed. It’s a huge pain to have to explain pretty much every transaction that you make between the time they approved your loan and when you get to closing.

Helpful tip 3: It should go without saying that you shouldn’t be running out to spend a whole lot of money after an offer is accepted and before closing. Not that you should spent a boatload after closing, unless you’re so flush with cash that there’s literally no use for that money but spending. But before closing, the important thing is that the lender can decline to fund your loan if your assets drop enough before closing.

:: Have I missed anything important in this early stage? 

Before: Background, Part 1, Part 2

Next on our Home Buying Adventure: Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11

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