Ask Uncle Bill

Buying A House-Be The New Kid In Town

When one is in a crummy situation, one wants change fast.  Change doesn't usually come very fast so, like all big projects, you have to take it one bite at a time.  Living in Chicago then was not only cold it was depressing as interest rates were double digit, the Japanese were going to take over the world one Toyota at a time, New York had declared bankruptcy and it was only a matter of time till Chicago did the same.  The Rust Belt was going to blow away.

We gotta get out of this place.  But where?  Someplace warm.  Left out Minnesota and most of what is north of the Mason Dixon line.  California?  Maybe, but housing prices were crazy even then and for bringing up kids?  Not real sure about that one.

We picked Richmond, Virginia.  Huh?  Don't ask me how but we thought that would be a good place to start.  So how does one learn about the local environment?  In the days before the internet and even some today, the world relied on newspapers.  Local news, sports, weather, jobs, housing--the newspaper had it all.  So we became probably the only Chicago subscribers to the Sunday edition of the Richmond whatever its name is newspaper. 

We learned a lot.  Pretty good weather, bit damp in the summer but hey.  Great housing--Civil War houses, plantations, new houses.  And CHEAP.  But soon found out why.  They were cheap because there were no jobs.  Dammit.  Only two big companies and they weren't growing-actually going backwards and a bunch of banks that had Planters and Cotton in their names.  They hadn't hired anybody since Reconstruction. 

Told a lawyer at work about the place and she moved there.  She got a job, I couldn't.  Even visited the place but still no jobs.  Rats.  Richmond was out.

But the process of learning had been learned and we kept going.  So when I found out about a job in Texas we checked it out pretty quick.  And liked what we saw.  A pharmaceutical company (pharmaceuticals pay a lot but the politics is murder), cheap housing, good schools, near Dallas.  Better yet, nobody knows about it.  Fort Worth.  As Will Rogers put it--Fort Worth is where the West begins and Dallas is where the East peters out.  Yahoo. 

I took the job.  A realtor called and asked if we liked ranches.  I said we prefer two stories and she said, no, ranches, as in cattle.  I had a lot to learn but I did.

And it is warm, often hot, but I can play golf 48 weeks out of the year.  Not bad.

So if you hate where you are or can't afford it or just want a change, start doing your homework.  It's going to take awhile.

Buying A House-So Move Already

A friend beat me up for beating on people living in 'good land' terrritory like San Francisco.  Good land being places that will probably retain their value and/or go up in value because of the lack of land for expansion.  Obvious places come to mind like San Francisco, New York and parts of Chicago, London.  If you want to live there, do so but be ready to pay the price.  A long time ago I decided to not pay the price.

So here we were with our nice remodeled house in one of the priciest suburbs (think Home Alone, Sixteen Candles, Tom Cruise's first movie) in Chicago, good job flying around the world, two healthy little kids that were pretty good natured as little kids go, so of course I can't stand the good times and decide to leave because I am cold.  Physically cold, like in freezing.  Chicago had just gone through two of the coldest winters on record and I was tired of shivering. 

I was also tired of taking a train to work every day.  Walking from the station to the office one day I fell in with Phil Marieneau who went on to become head of Gatorade, then something at Pepsico and is now head of Levi Strauss.  He may not be head of Levi Strauss now because they ain't doing so hot but anyway he was.  Back then Phil hadn't hit the big time yet and was grousing, like me, about the train.  Phil was pretty analytical for a marketing guy and informed me that we, the commuters, spent a month a year on the train.  Couldn't believe it.  Got to my office, pulled out my trusty Hewlett Packard 12c and yep, there it was--a month a year sitting on a train.  I almost threw up.  Talk about depressed.

And then the cold.  Sitting one morning on that train, stopped because something broke, I saw a sign saying it was like the 90th day in a row below freezing, or zero, or something.  Didn't matter to me, I was frozen.  I swore then and there that if I ever got off that train, got warm, moved to a 'hot' place that I would never, ever, complain about being hot, no matter how hot it was. 

But how do you go about moving?  Pick a place and then get a job there.  Easier said than done but it can be done. 

We will find out how tomorrow.

Buying A House--It's Not Just About Money

Most personal finance books, sites, and blogs treat home buying as a financial exercise.  It is but it is more than credit ratings, downpayments, and mortgage insurance.  Buying a house means you becoming a Grown Up.

May not be shocking to you but sure was to me.  Oh, by the time we started looking at houses I had a bachelors, masters, a good job, and a marriage that was clicking along pretty good.  But I also had a secret, an out, an option.  I could always give notice, quit, pay the last month's rent and hook 'em to Margaritaville.  Within hours I could be sitting on the beach without a care in the world.  Not that I would ever do that but the main thing was, I Could.  Not so when you are dragging a huge mortgage around.  Ok, you could still do it but the chances just got a lot slimmer.

Or quit the corporate world to write the great American novel.  Or try out for American Idol.  Or be a ski bum.  Or a circus clown.  Or buy my own business.  You could still do all these things but not likely.  Not likely even if you didn't have a house but even less likely if you did.

A house also carries a lot of embedded luggage.  Most houses have at least three bedroooms.  Why?  You can only sleep in one at a time.  Houses have at least three bedrooms because most people that have houses have kids.  Yikes.  I can't have kids, I thought, I am one.  Not anymore, buddy boy.  Grow up.

Same thing for bathrooms.  Why two?  Or three?  Well, you can't expect the kids to share.  Wow, we just went from no kids to kids fighting over bathrooms.

All apartments and houses have kitchens.  But if you buy a house, check out the kitchen because you are going to be spending a lot of time there.  You will be spending a lot of time there because you won't have any money to go out to dinner.  And if you have kids you won't be going out to eat because in restaurants people look at parents with screaming kids like suicide bombers with the bombs strapped on the outside.  Little kids and restaurants do not mix.

Pretty grim, huh?  Not really.  We made the plunge, bought a hundred year old house, and I grew up.  I went from all thumbs to sneering at Bob Villa.  I learned how to drag wires, solder copper pipe, hang cabinets and even put in our own furnace.  I fought and wrestled that old house to its knees.  Damn near killed myself in the process a couple of times but sometimes you have to live on the edge.  And the kids came.  They are great.  It is not hard to raise kids.  The only hard part is you don't know the results for about twenty years.

So go ahead and buy the house.  But be aware that you will become a Grown Up.  Has to happen sometime.

Buying A House--Your Career

Career choice has a lot to do with home buying patterns.  If you're a corporate guy with Citibank or a big ad agency than you are probably going to be in New York until you drop dead.  You are not going to be in one place if you are in the military, you are going to be in at least 10 places in 20 years. 

If you are stuck in New York or Chicago or San Francisco or some other land locked metroplex then the choice gets even easier, if no less depressing.  Live in the city or live in the suburbs.  City means condo, private schools, and you take the kids to the park to see a tree.  If you move to the suburbs than the bread winner gets to make the sacrifice doing the commute thing, leaving in the dark and getting home in the dark.  Pick your poison.  Oh, it's not that bad.  Millions of people do it and do it everyday.  Just lost it's charm for me one winter day when the train broke down five hundred yards outside Northwestern station in Chicago and I, and at least two hundred not very in-shape corporate types slogged up the tracks over a bridge with the Chicago River fifty feet down, in a ten degree below temperture and a 40 mile an hour wind.  That wasn't all that bad, I was more worried about a rail deciding to do a switch and chop off my Allen Edmonds attired foot at the ankle.  Still shudder over that one.

But if you get the condo in the right neighborhood or the house in the right suburb, you will probably make money.  Maybe a lot.  Anybody that bought a house in San Francisco ten or twenty years ago knows what I mean.  And I thought anybody that bought a house in San Francisco ten or twenty years ago was nuts.  So don't listen to me about California housing.

If you are in the military or move a lot you will probably not make a lot of money in real estate because you won't be there long enough.  Also, God didn't put military bases in Manhattan or Golden Gate Park.  (Actually, he/she did once because the Presidio was in San Francisco but that closed.)  In the military you get a housing allowance that covers most of the cost, you get a new house in a decent neighborhood with a lot of good neighbors that take care of their houses because they are in the military and they will be moving soon so they keep things up because they are going to have to sell in a hurry.  But you won't make a lot of money on the house because your house looks like the one next door and, again, you won't be in it long enough to realize any real appreciation.

One thing you could do, and we may do with Marc when he transfers, is rent out the house.  I'm usually against that kind of thing but let's look at the numbers.  A bunch of new lieutenants hit the base every year and they need someplace to live.  You get transferred.  Your cost (prinicipal, interest, insurance, taxes) is 1,100  a month.  You rent to two lieutenants, both with a housing allowance of $850.  Charge them $1,600 a month and clear $500 a month plus the write-offs involved with owning rental property. 

But the hassle of investment property, you say?  Yes, but highly reduced with these tenants.  One, they have jobs.  Two, they probably don't sue on a regular basis. Three, give them a list of plumbers and such and tell them to get anything that breaks fixed.  Fourth, if they don't pay, call up their commanding officer.  They will pay, believe me.

But, you say, you are not in the military, maybe don't live in New York or San Franciso but just want a house.  Actually, you are not looking to buy a house, you are buying a lifestyle so let's explore that tomorrow.   

Buying a House

Why not just write a book?  Will probably take that long but you got to start somewhere.  Also, been thinking about it a lot lately as Marc closes on his first (he's only 25) house this afternoon.  I have become convinced that house purchases depend on 1) your career path, 2) your geographic plans,  3) the georgaphic market you are considering buying in right now 4) the market you move into, 5) the career field you are in and finally, the amount of money you currently make. 

Those were thrown out in no particular order so I'll take on number 3 right now and tackle the rest later.  Where you plan to live will severely impact your choices and your pricing.  I was at a presentation by my financial advisor and the inevitable question about houses and bubbles came up.  His short answer was that if you live in Florida or Las Vegas or want to buy in those areas, there is a bubble.  If you lived in the New York, Chicago, or San Francisco areas there was not a bubble.  Maybe an overly stimulated market but not a bubble. 

Why?  Because in New York, Chicago, and San Francisco you are basically buying land.  As Will Rogers said--buy land, they're not making any more of it.  Well, you can buy land in any of these cities but if you buy land in certain areas you will probably be robbed, if not killed.  You want, and so does everybody else, 'good land.'  And good land is found in good areas and everybody knows where they are so the prices are high.  Westchester, Darien.   Glencoe, Winnetka, Kenilworth, Wilmette.  Burlingame, Mountainview, San Mateo, Menlo Park.  You will buy a piece of junk for a lot of money but if you stay long enough you will get your money back and probably make some.  Really expensive to get in but once you get in you ride the escalator.  Maybe, maybe not but the odds are in your favor.

What if you want to live in Las Vegas or Florida or Texas or New Mexico or Iowa or Colorado?  Well, first there is plenty of land and lots of it is 'good land' and lots isn't but you have more choice, no doubt.  There are always the good parts of town but there will be more good parts than bad parts which means more choice which means more reasonable prices.  This isn't a revelation but a fact.  A 1, 500 square foot three bedroom, two bath house in San Mateo is close to or over a million.  And it is seventy five years old with seventy five year old problems that cost money.    In Shreveport, La. a two year old three bedroom, two bath costs $150,000 because that is what Marc is buying today.

So pick your place but be ready to pay  for the privilege of living there if it a place with limited 'good land.'

More later.