Why I wish we hadn't purchased our first home

15 Replies

I vividly remember looking out of my bedroom window at the gleaming Devon tower in downtown Oklahoma City. We had just finished moving in and my wife and I were still caught up in the glam of living downtown. Our 725 sqft apartment cost $1175 before utilities, a good deal compared to other cities, or that's what I told myself. Fast forward one year later and we hadn't increased our savings, we added credit card debt, but were making more money than we ever had. Why? Selfish Pleasure. Instead of doubling down on eating out, cutting our rent in half, or working harder, we make another great decision. We're going to buy a house. Now, it all worked out in the end for us. I have no idea how though! DETAILS OF OUR HOUSE PURCHASE - Sellers accepted our offer $4k below asking price - Sellers also made an additional $3500 in repairs - Sellers additionally covered $4k in closing costs - Due to severe complications with our loan company, they voided out all fees - We paid a total of $700 cash for our house, only covering the home inspection and sewer line camera. I don't know how we escaped so cheap, but we did. From what I've heard, situations like ours never happen. #blessed We put an additional $3.5k into new floors and paint. Of course one month in we had to install a new cleanout and line costing $600. Go figure. The point is we had less than $2k in savings and bought a house. If I could go back in time we would rent for another 6 months, save $6-8k, and then purchase a house. Don't rush. Renting is safe. People told me we were throwing away money. They are wrong. 1) Our rent insurance deductible was $500. Our house deductible is $2800 and 4 times as expensive. 2) The first few years of your mortgage is mostly interest anyways, so if your rent is cheaper than your mortgage, it works out. 3) You don't have to repair the house with cash that is needed elsewhere. I hope this post was helpful. Stay away from my mistakes; make your own.

@Braden Downs ,

Sorry it isn't working out for you, why not just sell it and go back to renting?    Rent out a room or do AirBnB?  With owning you have options-- renting you better not break that lease.  So many people think renting you have options, whereas I think ownership is when you actually do!  

Part of home ownership is dealing with the unknowns, we're having to get a whole new main for our sewer put in, $3,500,  but it's part of being an owner.   You shouldn't see the deductible as anything but true emergencies, so maybe it's a mentality thing with how you view it?   No one forced you do the paint or flooring, so that $3500 could have been put in your emergency account instead... IMO you should do everything you listed, but in your current home now!    You know when you won't think it's a bad idea?  tax time!      Another time you won't think it's a bad idea.. if it appreciates and you can get an equity line! 

I will say, if you can't handle your own homes ups/downs, do not get into rentals! 

@Braden Downs I am with you. People who say that you can buy cheaper than rent have never had a foundation repair, roof replacement, or termite infestation. Renting is not throwing money away, because having a place to stay has value. It is a necessity like food, but nobody ever says buying groceries is throwing money away. If you own enough rental property, you can buy whatever you want, but until then renting where you live is a wise choice.

Hello @Linda D. , thanks for your response. We fully plan and have started on doing the above mentioned things in our current house! You are also technically right we could of not made the improvements right off but chose to. Overall, I am happy with our house and understand the benefits of ownership (equity, taxes, etc). I just think we were naive in rushing to buy a home. Our tale should serve as a cautionary warning to others in our position. Any fruit can be spoiled if picked before it's ripe.

@Braden Downs I think it is a major problem in our lending system that we allow someone to purchase a home with $700 cash out of pocket. My security deposit is bigger on my rentals. In previous generations, cash down payment were required. 

No offense, but you had no business buying a home with that little an amount of money. They tightened up lending standards for investors, but left the same careless standards in place for primary residence. 

It seems like you have good self awareness of your situation and like you are looking to change in the future. You hit on one key point, which is reducing your excessive spending. I would recommend signing up for a Dave Ramsey Financial Peace University. It will teach you how to budget and pay down debt. 

Happiness is not connected to spending.

Most of the buyers for my flips can only afford an FHA 3.5% down loan and I always have to kick in 3-4% credit for closing credit to close a deal. I always wonder why they don't do 5% and get a conventional loan to lower fees. Most investors wouldn't get deals if buyers didn't get in over their head. The thing that most buyers don't realize is the 8-10% transaction cost if they were to try and sell a home through normal means. Most of the deals that go FHA or low down payment aren't really great deals in the first place. Investors pickup most deals with cash or 20-30% down or get creative with owner financing. 2 triplexes I just closed on require new roofs even though we got a roof cert. for 2 years. Cost is going to be $34-38k just for the roof replacement. If I started out investing and these were my first investments, then it would take a large chunk of my budget. It pays to have a significant rainy day fund for problems like these. I think most people and my coworkers want to buy the "American dream" and it quickly becomes a nightmare once these kinds of issues start to pop up.

If a person does not plan to live in one place for ten years, renting may be a better option. You will gain little equity in the first ten years. The cost of buying and selling the house will eat that up quick. It may be different if you live in a market that is growing double digits a year ( NOT OKC). Historically most people bought a house and resided there for 30-40 years. The idea of paying off your mortgage was enticing and celebrated. The concept of a "starter"  home is a ruse to the middle class perpetrated by those who profit off of loans and closing deals. People are more mobile today and change jobs and locations frequently. I encourage young people to rent and prepare to buy later. As a landlord, it is great for my business.

You may find Dave Ramsey to be helpful to get you on track with your finances. It sounds like you allowed your spending habits to get out of control. Dave Ramsey has a podcast, website, and a few books. The book that explains the steps that you can take to get out of debt is titled The Total Money Makeover. It is not too late to create a better future for you and your family if you can get your finances in order.

@Joe Splitrock I agree we shouldn't of bought a home this early. We have started using Every dollar (Ramsey's budget app). Fortunately, we have also picked up over $1k in OT jobs and have an additional $1k coming up in February. Plus I have a government job with good benefits/retirement. So we may have a little debt and low cash reserves, but we have over $6k in retirement accounts already,have a Roth IRA, and strong job security. Overall I would give our financial situation a C -, while hopefully hitting a solid B by the end of 2018. The goal being $6-8k emergency fund and max out our Roth.

@Anthony Dooley   sounds like the OP is simply undercapitalized to own any kind of real estate whether a rental or a home to live in.. and as such rental is the ONLY option..

@Braden Downs - thank you for sharing your experience.  It is important to get the word out, especially on a site like BP, that not all houses are appropriate for all people at all times.

I have always maintained that buying is better than renting only if we buy a deal, below market value, with payments and upkeep we can afford and have reserves for.  I personally bought a primary that had a mother-in-law unit I could rent out to help with costs.  'Luxury househacking'. The rent will always more than cover operating costs once the debt service is done, making it a true 'asset'.

Maybe this house experience will force you to say 'I've had it!' so you buckle down and prioritize your spending and income.  Even if you one day sell and only break-even or even lose a little after sales expenses, this one lesson will pay you dividends for a lifetime.  Thanks again for sharing.  That takes guts!

@Braden Downs Buying Vs Renting will continue to be a topic of debate for generations to come. Now, you won't have to leave this website to find many who have made millions in REInvesting, of course, from taking rents from tenants over the years. 

The real question is: how exposed are you to knowledge and intel about money? There have been millions of Americans who never owned any real estate and others who have dominated the real estate space owning a ton of real estate. 

For instance, a doctor who saves lives every day at the local hospital could have paid rent all through his life to a real estate investor who owned many rentals in the same local area. Who is right or who lead a better life?! Who knows!

Buying or Renting has to be personal, to you, and to what you want out of life. When you discover that, nothing really matters!

Hope this somewhat helps you lol. Goodluck. Thanks! - Ola  

On a 30 yr fixed rate mortgage, the first year the principal balance is only paid down by about 1.7%. That percentage goes up very slowly each year after that. So assuming no appreciation (or depreciation) it would take over 3 years to pay down the mortgage enough to sell, cover a 6% realtor commission, and roughly break even.

This is one of many examples why I rent and invest out of state

rental:

http://jettamartin.pacificunion.com/real-estate/83...

buy:

https://www.redfin.com/CA/Walnut-Creek/818-El-Pase...

It's going to take me 150k just for my down payment to match the monthly payment, not to mention closing costs on a 750k loan.....

Or on a lower price point 

rent:

https://www.zillow.com/homedetails/2530-Oak-Rd-APT...

Buy

https://www.redfin.com/CA/Walnut-Creek/2709-Oak-Rd...

again, take my down payment and buy something free and clear if I wanted out of state or use it as down payment to get multiple properties...

Recommend reading The Theory of Poker by David Sklansky. You don't win the game by making zero mistakes. You win the game by making fewer mistakes than the other guy.

An important corollary: You can do everything right, and sometimes things still turn out wrong. Do everything right anyway.

Best of Luck with Your Real Estate Investing!!

It's critical for your success, security, and peace of mind that you work on increasing your savings greatly.

You are a two-income household and it sounds like you both make a decent income.

I guarantee you that if you do not change your habits on saving, reducing costs, etc. You will experience some problems that will complicate your life greatly and which could be avoided/reduced if you set yourself up with financial security.

Often-times one misfortune can set you down a spiral of bad events if you don't have the means to correct the first emergency.

What I would suggest is read Scott Trench's book if you have not already.

It's important that you get yourselves to an absolute minimum of $10,000 in cash savings (not including your retirement). 

Even if you are both only making $25,000 per year saving close to $20,000 should be doable. But you have to think smart about finances, and make lifestyle adjustments.

If you can set yourself up with financial runway you alter your life for the better.

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