A couple of years ago, when property values plummeted, I was inspired to finally begin the journey towards purchasing a home. I live in an area of very high property values compared to the rest of the nation, hence why I waited so long. I knew I had to do three things: improve my credit, pay down my debt, and save for a down payment. I’ve completed two of these three things with the last one being a bit more challenging for me. However, I know I should buy a home in the near future before things swing the other way.

Why is now a good time for me to buy?

Zestimate Historical Data Chart

Housing prices have fallen to an all time decade low while rent has continued to shimmy up. I currently pay a hefty price for a rental when I could instead be paying one-third less and own something in a comparative neighborhood. If I were to continue living in the area I currently reside, there’s one neighborhood in particular I’d choose; it’s the neighborhood in which I grew up in. It’s still a safe, primarily residential, middle-class neighborhood.

Using Zillow to focus on this neighborhood’s housing prices, I selected one property for sale to focus on to analyze buying viability. This particular property is similar in square footage to my apartment, almost 1,600 square feet, and has been updated with granite counter tops and refurbished wood floors. It’s definitely a “starter” home but not considered a fixer-upper. Using Zillow’s Zestimate chart, the property I analyzed has dropped over 10% in value over the past 10 years. That’s a huge drop considering this same property increased 35.22% by the end of 2002. It’s currently selling for a reasonable price of $345,000; steep for a “starter”  home in most states, but a deal in Southern California.

Of course, this is a short-sale home, meaning there’s a lot of messy paperwork surrounding this sale I’m sure. Researching the sales history, this home sold for $315,000 in 2003 and then $540,000 in 2005. Ouch! That was a 71% increase in two years. However, at $345,000 with a 20% down payment and a 3.75% interest rate (lowest interest rates in history!), the monthly mortgage payment would be $1,510 including tax and insurance – that’s $700 less than what I pay in rent.

So Why Am I Not Buying Just Yet?

I can’t predict what will happen to property prices over the next couple of years; they could go down or they could go up. Yet, that’s not why I’m hesitating to purchase property. My two biggest roadblocks to my decision are: 1. I still don’t have my down payment saved yet. As much as I’d like to save 20%, my goal at the moment is to save up 10% of $350,000 and I’m just not there yet. and 2. I may not be living in my current neighborhood within two years. Crime, graffiti, population increases, and the lack of job possibilities have made me rethink the area I live in and I don’t know if I want to live here another 10-20 years. If I purchase a house, that’s the minimum amount of time I’d live in it.

So for now, I’ll continue to rent, work towards my savings goal, and keep my eye on property values. If I see them begin to inch up at an alarming rate, like it did in the early 2000′s, I know I will have missed the boat…again. However, I think it’s safe to say we won’t be seeing that kind of increase anytime soon.

Are property values in your area declining or reversing?

For the past two years, my goal has been to purchase a small-ish house in the near future. My “near future” has changed a bit over time from 18-months to more like 2-3 years mostly because I really would like to save an ample down payment on a house. But with all my research on the price of homes in my neighborhood or a neighborhood in which I’d like to purchase a home, it really comes down to “What can I afford realistically?”

During the housing boom, many people forgot to ask themselves this question. Historically, the financial sweet spot has been to purchase a home within 3-times your annual salary range. For example, if you gross $80,000 annually, you can comfortably afford a $240,000 home. Of course, in Southern California this limits me greatly with houses still averaging over $320,000. But all is not lost. There are places throughout California where I can still find a home for under $250,000. Of course the questions comes down to “Do I want to live there?”

I digress. Guiding home affordability, besides the simple 3-times your salary financial rule, are mortgage calculators. There are some terrific calculators (like emortgagecalculator) out there that factor in your down payment, home owners insurance, and property taxes, calculate your monthly payment and how much you will pay in interest over the span of the loan. The amortization charts are always scary to analyze, but paying off your mortgage early can alleviate some of that anguish by lowering your total interest payments. Just because you agreed to a 30-year mortgage doesn’t mean you can’t pay it off earlier.

Once you’ve worked the numbers out and have found a price you can comfortably afford, it’s time to get the rest of your ducks in a row. That means, making sure you have little or no consumer debt, your credit score is closer to stellar than subordinate, and you have saved a decent down payment (as close as possible to 20% or more.) Don’t forget that you’ll need some money for closing costs, so factor that into your savings as well. You might also want to factor in repairs and maintenance money as well.

As I prepare to purchase a house in the next two years, my goal is to save about $60,000. A lofty goal, but with dedication and determination, I should be able to make it!

How did you prepare to purchase your first house? Any tips or guidelines you’d like to share?

Finally, a building cost website that makes it easy to calculate how much it would cost to build your own home.

Each time I find a new little house plan website with creative plans to drool over, I can’t get my head around how much it would actually cost to build a particular design. Most home plan sites either estimate a ball park figure (regional prices vary greatly, so this is no help at all) or prompt you to call them once you’re ready to begin purchasing the blue prints. Neither method helps me make my initial decision;  to choose a home within my price range.

However, after skimming the Tumbleweed Tiny House Company for their newest plans and sales, I noticed that they are now advising would-be builders to a website that helps determine building cost: Building-cost.net. This site is awesome and the first I’ve seen of its kind. Here’s how they estimate building cost:

• Select how many total exterior corners. Fewer corners may mean less expense.
• Enter the total living area square feet including porches.
• Select the quality of building materials. Tumbleweed has a sample step-by-step manual that meets their recommendations. Some building materials can be good or average instead of excellent to reduce cost.
• Add in extra square feet for porches, attics, basements, etc.
• Quickly answer a couple of questions about location such as is this a tract home and is it within or outside a metro area.
• Decide on cooling and heating; central air vs. wall units.
• Decide on fireplaces.
• Select your state and metro area.

The estimated cost includes a foundation on normal soil (I’m guessing this does not include initial soil samples or prepping the lot, ie. leveling it out for a flat foundation pad), excavation for the foundation (Question to readers: does anyone know if this means leveling out the lot?), plumbing, appliances, permits, supervision, design fees, electrical, and hook-ups, plus a few other items associated with building.

After choosing one of Tumbleweed’s larger “small” houses, the B-53, for a total of 940 square feet with a second story and using their cost guide as a reference, the total estimated cost ended up at $144,636 if I were to build this home somewhere near the central coast of California. That’s a heck of a lot more reasonable than what I would have expected.

Of course,  quickly searching for similarly sized houses in the area, buying an existing house costs the same amount. And it already includes the land, so really it’s cheaper. However, many of these homes are older and would need some remodeling. So I guess it boils down to wants; Do I want to design my own floor plan? Do I want to spend the extra money and build something new? Or can I take an existing home and remodel it to meet my needs for less? Those are the questions that perplex me.

Have you looked into building your own home? Have you built your own home? Did you take an existing home and remodel it? What challenges did you face?

This is part two B of a three 1/2 part series on Moving to a New City. I’ve narrowed down my search to four cities in California I’d like to research further before visiting them individually. I realized that before I could actually visit each city, I needed to compare prices for renting vs. buying property in each city.

A recap of the cities I intend to visit over the next few months:

• Roseville, CA – closest metro is Sacramento.
• Concord, CA – closest metro is San Francisco
• Ventura, CA – closest metro is Los Angeles
• Atascadero, CA -closest metro is San Luis Obispo (but I wouldn’t consider this an actual metro – this city is most remote in comparison to the others.)

Since Ventura and Atascadero are within driving distance of where I currently live, these two cities are first on my agenda. Using Zillow.com to compare rental prices with home sales, I notice that it might be better to purchase a house rather than rent. Below is my analysis:

Ventura, CA:

Prices in Ventura have decreased quite a bit compared to home prices a few years ago, yet homes still hover around $350K -$450K. I’ve actually visited Ventura before and really like the ‘old’ downtown area. Unfortunately, rentals are few and far between in the downtown area and home prices are out of my price range ($650K and up). However, a few short miles southeast, not far from the shore, I found an adorable rental home and a quaint house for sale:

Ventura, CA Rent or Buy

According to Michael Bluejay’s calculator, buying a house for $415,000 compared to renting for $1,950 would be profitable in year 7 of home ownership. However, my monthly mortgage payments would be approximately $3,000 per month with a 10% down payment. That’s $1,050 more per month in mortgage than in rent! Could I even make that much of a monthly payment? I don’t know – it would be a stretch. Guess I need to stick to homes in the mid-$300′s! Fixer-upper here I come.

Atascadero, CA:

Atascadero is about a 3-hour drive north of where I currently live. I’ve never visited this area before, so using Zillow.com to hunt down appropriate properties was a little tricky, especially since house prices range from high $100K to $900K – that’s a huge difference in prices. There are also few rentals listed on Zillow in this area, making it more difficult to compare. Atascadero appears quite mountainous, which would make biking around challenging – a potential drawback to this city.

Atascadero, CA - rent or buy

I found two properties within a couple of miles from each other -one for rent and the other for purchase. According to my calculations, buying would be more profitable after year 5. There are a few homes under $300,000, but until I visit the city myself, I have no idea why there is such a huge price range between homes. I might need to look a little bit north in the town of Paso Robles, CA. It’s about 10 miles north and has less expensive properties. I also found some really quaint photos of their historic downtown area that piqued my interest. The area also seemed a bit less hilly, meaning it’s better for bicycling.

Within the next few weeks, my plan is to physically visit these two/three cities; bike around, check out properties, get the ‘feel’ of each city. Stay tuned….

Renting – some people view this as a great option to housing, others view it as a waste of money. Whatever view you have on the subject of renting and what it does to your personal finances, the lesser known benefit of renting is that it can be more environmentally friendly than living in a single-family home. Yes, the chances of being able to grow a garden may be limited to a roof-top patio or small deck, but there are plenty of other ways living in a multi-unit dwelling is more beneficial to the environment than a single-unit dwelling. Here’s how:

1. Shared common space – Instead of having a room set aside for workout equipment, your total living quarters can be smaller by utilizing a common space such as a gym. A common area pool is much more efficient than one pool for every household – think about all the water you save! Laundry rooms are also less wasteful since many people are using the equipment instead of just two to four in a nuclear family unit.
2. Shared walls – Tighter, compacted units that share walls are able to retain heat better than a single standing home that is exposed to the environment on all sides.
3. Less storage space equals less crap – Most houses in my neighborhood are equipped with garages, yet the owners’ cars sit outside on driveways and streets. Instead of using the garage for a car, many people pack  it in with hundreds to thousands of dollars worth of junk they haven’t seen in years.  Think about how much stuff will end up in the trash and how much money was wasted on things that sit unused. Living in a unit with little storage space limits the amount of stuff you can accumulate.
4. Efficient land usage – Since many rental units, such as apartment complexes, are built vertically instead of sprawling across endless city blocks, less land is needed for the amount of people to occupy the building. Theoretically, this could mean using the surrounding land for community gardens or large parks filled with bike paths, ponds, and playgrounds (of course good public planning is imperative to making this work, there are plenty of instances where a park was added to a neighborhood making the neighborhood unsafe!)
5. Water conservation - With a reduction of green patches of lawn to water and perhaps only one pool or spa to fill, less water is used for recreational facilities.

With a focus on multi-unit dwellings, these benefits could apply to condominiums or town houses, whether you decide to rent or buy. Though I might not have listed every possible way renting can be more environmentally friendly than purchasing, there are definitely ways to make your own home more energy efficient.

Do you agree that multi-dwelling units are more environmentally friendly? Have you made changes in your home to reduce energy consumption or loss?