Comments on: You may be Ready to buy your First Home, if…

By: Annie ( Property Awards ) Wagner

Annie ( Property Awards ) Wagner — Wed, 07 Oct 2009 09:25:24 +0000

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By: Kent F

Kent F — Mon, 30 Mar 2009 13:00:14 +0000

Still good advice after the RE meltdown. I think there will be a true buying opportunity from 2009 to 2010.

By: G.E. Miller

G.E. Miller — Tue, 15 Apr 2008 00:26:10 +0000

@ Dan/Michael: It really does vary from person to person, and a lot of the gurus out there differ on exact %’s of how much you should allocate to each. Many recommend 10% of salary to retirement, but I tend to actually think that is a little on the low side and feel a lot more safe at 20%+. Amount you have saved already, willingness to take on risk, and age are also factors to consider. A lot of the big fund companies have retirement calculators that you may want to test out. In terms of a house fund, the recommended amount to put as a down payment is 20% so that you can avoid PMI (private mortgage insurance) or having to take out a second loan.

By: Michael

Michael — Mon, 14 Apr 2008 21:54:34 +0000

Dan, I don’t have much expertise here to be honest. G.E., do you have any thoughts?

By: Dan

Dan — Mon, 14 Apr 2008 15:38:48 +0000

Michael, I’m wondering if you can offer advice on where to allocate my savings. I’m nearly 30 and have a pretty decent nest egg already in my retirements accounts. I’m looking to buy a home in the next couple of years. Do you think it’s worth scaling back my 401 contribution in favor of saving for a down payment on a house? Obviously it differs from person to person but perhaps there are some general guidelines you could suggest. For example, save $10k per year into 401k and anything above that put into the house fund? Thanks!

By: G.E. Miller

G.E. Miller — Thu, 03 Apr 2008 12:02:58 +0000

Hey Billy,

Great question. Planning seven years in advance is a great head start, in fact, I only planned one year in advance before I bought my first house – but I would not recommend that route. With mortgage companies and banks tightening their belts, I would recommend going for the standard 20% down payment on your purchase. Where do you live, what’s your income, and what is an average home price in your area? That will help me craft some next steps for you – and this is such a good question, I might make a post out of it. ~G.E.

By: Billy

Billy — Thu, 03 Apr 2008 00:50:00 +0000

im looking to purchase my 1st property in give or take 7 years from now. what are some good ways to save for it and how would i go step by step in doing the purchase? im totally clueless with real estate stuff. thanks~

By: G.E. Miller

G.E. Miller — Fri, 29 Feb 2008 02:37:25 +0000

Hi Michael. You bring up some really strong points, and your reasons for not buying at the moment are very solid. Although right now is a good market for buyers, I wouldn’t worry too much about missing out on opportunity. I think you will see a continued drop in prices for at least the first half of this year, with a slow move towards appreciation again over the next two years. But nobody knows how to time these things for sure.

This should give you some good time to focus on your side business. There are opportunity costs for everything. Owning a home, especially when renting all or a portion of it is a lot of work. Although you would be gaining equity through the rent funds you collect, there is significant value in the time you give to manage the operation. Either way, you’re doing well for yourself and have a plan, so keep up the good work.

By: Michael

Michael — Thu, 28 Feb 2008 13:06:49 +0000

G.E. – great advice! Thanks for the post. I had been considering purchasing a house in Ann Arbor recently. The thought was if I picked a place near Central Campus I’d be able to rent it out to 2 or so people while living there myself. Using this approach, I anticipated I could get my own mortgage payment to be about equal to renting, which seemed like a good way to go.

Although it’s likely I leave Ann Arbor in under 3 years, I thought the house would be a good investment if the rental payments could become a source of income, or with a 3rd tenant (replacing myself) my own payment would be lowered to $200-300/mo; a good deal for getting a 2nd house that would eventually become a true asset.

What prevented me from purchasing? Two reasons.
1) I’m working on a side business that has more profit potential than renting a house out, and would be a lower labor-commitment in the long term compared to being a landlord. If I purchase a house, the mortgage would limit working capital for the new business, and the house may become a burden that limits entrepreneurial work on the side.
2) Greatly prefer living alone. If my side business were already successful pulling in another ~$1K/mo, I wouldn’t even consider purchasing a house and having to live with tenants. I’d think about purchasing a house anyway and renting the entire thing out, but then I’m competing in the landlord business which is not my area of expertise & probably requires time I’d not be willing to give.

Your advice here has me thinking about purchasing a house again, since it seems like if you’re in a good market for buyers and you play it smart you stand to gain quite a bit in relation to the time you put in… I might wait until after the side business is up & running then reconsider the housing strategies available. Thanks again.