This is part II of a series on buying our first home. Part I dealt with the initial search for a broker and a property. Today I’ll take a look at the next phase of our search: this is when things started to get serious.

As winter started to fade and the weather got nicer and nicer, M and I decided that one reason we didn’t find anything to buy the year before was because we were dealing with our broker’s assistant instead of himself.

So we emailed him (email was the main communication channel throughout this whole process) that we wanted to go out with him personally and he said no problem.

Here’s how it worked: we told him what we didn’t want to compromise on (two bedrooms, central air, no garden units) and the area we wanted to be in (Lakeview/Lincoln Park). He would pick us up at our place and drive us around to a series of appointments he had made.

The Places

Let me get one thing out of the way first: our broker knows his shit. He’s been doing this for 17 years and he knows the developers, he knows the city, and he is good at what he does. No doubt about it.

The places we looked at all matched our “must have” list, but there was always something funky about them. Sometimes it was a weird floor plan or a cramped living space or a dank-smelling stairway.

But there was always something. This would keep happening at every place we visited until we got home one time and talked about whether or not we were being picky. Were we being stupid? Were we not taking advantage of the down market that Chicago real estate (and all US real estate, really) was going through?

Redfin’s Role

As time passed and we visited more and more places, the quality of units we visited started to fall. Maybe it was us or maybe it was the places, but we felt like we were getting further and further away from what we were looking for.

So we started looking online on our own: and this is where Redfin played a huge role. As soon as we discovered the site, the game changed. We would find properties we liked and we’d email them to our broker. He’d do a quick review of which ones sounded/looked good, and then he’s schedule the appointments, pick us up, and take us out to see them.

This made the whole process MUCH easier. It forced us to pre-screen each place and from that point on each place we saw was our fault if it didn’t meet our needs/wants. For more of a walkthrough on Redfin, check out my write up on Wisebread.

It gave us a jump start and made the whole process fun again. At that point, we had probably seen some 50 properties altogether.

But still we found nothing we’d want to buy—not even close.

Persistence

We went out with our broker time and time again and now that we were seeing pictures and details of the places before we physically visited them, things got better.

We felt like we were moving in the right direction.

In the meantime, the market kept getting worse (or better, depending on which side you were on). Prices and rates kept going down and the first-time home buyer’s credit loomed on the horizon—it would end at the end of the year.

This put even more urgency into our search.

At this point we had seen around 70 places and it just didn’t feel like we were going to find anything, which was an awful feeling. We felt bad about going to this many places without ever coming close to putting in an offer, especially since our broker was used to million-dollar homes and we felt like he was doing us a favor.

But we kept looking: it was addictive to go on Redfin and hunt for new places in new neighborhoods. At this point we were off the high rise idea and had moved on to anything that met our specs, as long as the location was close to the lake and in the neighborhood we wanted.

One bad thing that came of seeing this many places is we got a lot pickier: all of the sudden our list of must haves grew: washer/dryer in the unit, a separate dining area, top floor only, and parking.

After seeing so many different places that included one or the other of these details, we felt said to ourselves “Hey, that would be really nice to have. Let’s add it to the list.”

Which made us even picker and got us feeling like maybe we were being unrealistic. It was a tough time because we were all over the map: our price limits varied (fuzzy math is a powerful thing), our demands for being in certain neighborhoods fluctuated when we saw we could get more for our money further away from the lake, and we felt more and more confused about what we wanted.

We were lost.

But Wait, There’s Hope!

Then one day we got into our broker’s car and drove a block north of where we lived. M and I gave each other a look that said, “Well, we know we love the area.”

We walked up to the third floor (!) and checked out the three-bedroom (!!) place.

This was a place we could live in. This was more like it. Could it be that we had finally found a place we liked enough to put an offer in?

We’ll find out next week on the next episode of Buying a Home.

Image by tukanuk

Tags: broker, buying a home, Real Estate, redfin

This series of posts will look at our ridiculously long home-buying process (that had a happy ending!) in the hopes that people out there can learn a thing or two from what we did right and where we messed up. Today we start with “The Search,” which covers the first year of our home-buying process.

After M and I had lived together for about a year, we started talking about buying a place of our own. We didn’t know anything about the real-estate market at the time (it was booming) or how much we could afford—at that point it was just talk.

But as more and more time passed and the amount we had paid in rent started to climb, the talks got more and more serious. After going over to a friend’s place (which him and his wife owned) and hearing so many great things about the real estate agent he used, M and I decided to call him up.

Looking for a home looked like fun. We would know—we watched every home-buying show under the sun: House Hunters International, My First Place, Property Virgins, Property Ladder, etc.

After watching so many people (our friends and strangers on TV) realizing the “American dream” of owning a home, we figured it was our turn to take the plunge.

Our First Mistake

We weren’t ready. Looking back, it’s painfully obvious. But at the time we thought that if we found something, we would buy it.

Just like that.

The reality is we were in browsing mode. We wanted to see what was out there and test out what we could afford. Which turned out to be: not much.

High Rises

When we moved in together, we chose a high rise because it was by the lake, convenient, and had a pool on the roof. We liked it so much that we started with those set parameters: we told ourselves we wanted to look at high rises near the lake and not too far north (this is in Chicago, by the way).

So we called up my friend’s broker and he had his assistant pick us up and show us some places. Right away there were some problems:

• We didn’t want his assistant, we wanted the main guy since my friend spoke so well of him
• The agent was a friend of my friend’s family, so he had done them a favor by representing him—he typically sells million-dollar homes
• We did not have a million dollars

I think you can see where this is headed.

But we went out around three times with his assistant and looked at high rises near the lake. That we could afford (I ran some rough mortgage calculations). They all sucked. They all needed work. They all made us feel poor and stupid for thinking we could afford a high rise near the lake.

This was not renting—it was a totally different beast.

We only saw one place that encouraged us: it had decent square footage but would need a lot of work. And because the price was low, we could probably afford to do the work it needed. Or so we thought.

Pain in the Assessments

But then we got our rude awakening: a little something called assessments. Typically, these range from $150 to $300/month. For high rises, you’ll see them go from $600 up to $1,300/month.

It’s almost like you’re buying and you still have to pay a rent for the right to live there. Insane!

This was our second mistake: we fell in love with the idea of living in a high rise. It got it stuck in our heads that that’s what we wanted and that’s what we were going to get. We saw the numbers, we could do the math, but we clung dearly to the idea despite what the reality was: we could not afford it.

That first year we probably saw around 20 places and never came close to making an offer. As fall came and the weather started to get cold, we decided to take a break and wait until next year, when we would make a point to go out with the actual broker and not his assistant.

That’s when the real fun would start.

Check out part II here.

Image by MissTurner

Tags: agent, assessments, buying first home, high rises, search

A few years ago I opened a Roth IRA account with Vanguard because they are the best place for index fund guys like myself.

I built my portfolio with some basics:

• S&P index fund (VFINX)
• International stuff (VGTSX)
• Mid cap stuff (VIMSX)

Not a bad mix—maybe too much stock (100%, actually)—but I was young and figured I didn’t have to dip into bonds for some time.

So I held tight.

Then I started reading about REITs. Real Estate Investment Trusts are securities (like stocks) that allow you to invest in real estate without becoming a landlord.

What’s so special about them? They typically pay a nice dividend because they have to pay out at least 90% of their income (to fit this designation), and that means the people owning the shares get paid.

Sweet!

But that also means you have to pay taxes on those dividends, which sucks.

Then I discovered a way to not pay taxes on dividends: owning dividend-paying stocks in a tax-sheltered account like a Roth IRA.

One more thing: I also have a Roth IRA account with Scottrade, which is where I keep my recently split B shares of Berkshire Hathaway (I’m a huge fan of Warren Buffett) and where I can buy stocks in my Roth at a cheaper cost than with Vanguard.

And that is where I would buy a specific REIT if I found one I liked. And back in 2006, there were plenty to choose from. Among the big names that caught my eye were AHM and New Century. Why? Because their dividend yields were juicy—I think they got up to around 8% at one point.

AHM’s Stock Chart — I dodged a major bullet

At the time I was really responsible about my investments so I got the prospectuses and annual reports and went through all the details.

It seemed the reason these companies were raking in so much dough was because of something called sub-prime mortgages. I had no idea what those were but quickly realized this was a buzz word. Everywhere I saw it, dollar signs followed.

But something about the whole idea of getting 8% back on my money (without any appreciation of the stock) and laying down some serious cash for an investment that seemed too good to be true held me back.

Thank god.

All hell broke loose and subprime mortgage companies went under—AHM and New Century included.

But this idea of owning dividend-paying stocks in my Roth always stuck with me—it seemed like a no-brainer. REITs were still out there making money and paying out 90% of their income in dividends, just not with obscene 8% yields.

And when the shit hit the fan I remembered the wise words of Warren Buffett:

Be fearful when others are greedy and be greedy when others are fearful.

Time to Get Greedy

When the real estate market tanked and the stock market plummeted, I realized this was the perfect time to go in there and buy some damaged goods.

Anything that had a solid foundation that had taken a hit was bound to bounce back.

Including real estate.

But instead of risking my money on one individual REIT, I went to Vanguard. They had an index fund that diversified in a variety of REITs to spread the risk around.

I could put my REIT in a Roth strategy to work with minimal risk for cheap: their expense ratio was only 0.26%, which is what some mutual funds charge.

So I took a hard look at buying Vanguard’s REIT Index Fund (VGSIX). The downside: I needed $3,000 to get in the door. Ouch.

Not only is that a lot of money, at the time it was around 67% of the annual amount I could contribute to the account.

So that meant I couldn’t load up on all the index funds I currently owned that had dropped in price so much. I wouldn’t be able to buy low.

So I passed on this chance.

Now comes the part where I messed up:

That red circle down there? That’s the closest I was to buying in. Price at the time? $8.

Price today? $15. Without dividends.

The Lesson

Well, clearly the first thing I did well was not pull the trigger on buying AHM or New Century when they were rolling in money. Something told me it was too good to be true and I was right.

As Warren Buffett has taught us (did I mention I’m a fan?), sometimes the best deals are the ones you don’t make.

On the downside, I didn’t have the balls to make the second move, which would’ve netted me an 88% return in just over year with tax-free dividends to boot.

And all I have to show is this long, winding post.

Shoot.

Tags: reit, Roth IRA, vanguard, vgsix, warren buffett

Personal finance is kind of like breakfast—it’s crucial to get your day off to a good start, but you don’t want to be having breakfast all day long. This isn’t Seinfeld—you eat breakfast and then you move on to lunch and dinner.

And right now I feel like I’ve been eating Corn Pops and orange juice all day—personal finance bores me.

Once you get certain basics down (spend less than you make, contribute to your retirement, create a budget, etc.) you should move along and step into the next phase of managing your money.

In my mind, it’s making more money.

Before I get blasted for sounding materialistic or shallow, let me say one thing about money: it won’t bring you happiness (not on its own anyway) and it won’t solve any problems you have in your life.

But it sure doesn’t hurt.

The other day I was making my infamous sandwich at work and I realized that some people just aren’t built for personal finance. They have absolutely no interest in doing stuff like:

• Building a budget in Excel
• Finding the best rates to store their money
• Researching the best place to open a Roth IRA
• Calling the cable company to get a better deal
• Hassling your bank to get stupid fees refunded

This isn’t exciting stuff, but for some reason personal-finance nuts love to do it. We’re proud of it. We take what we have and we make the most of it. And we often rail on people who don’t “get it.”

But most people just don’t care.

They don’t want to spend time on the phone or online to save a few dollars here and there. And you know what? That’s totally fine.

As I stood there waiting for my sandwich to toast, I had an epiphany: there might not be a universal appeal to making your finances more efficient, but there is one thing I know we can all agree on.

We all want to make more money.

I’m not talking about whoring ourselves out for every extra cent we can get. I’m talking about doing something meaningful outside of work and getting paid for it. Like this blog (although “getting paid” is kind of a misnomer in this case). Like having side projects that help others and make some money.

And that’s what I’m working on right now: a side project that I’ll treat more like a business than I have this site, which is more of a place I use to chat and talk about the things I find interesting. Could I monetize it more efficiently and turn it into a good income?

Sure I could. But then I’d be writing about online stock brokers and the best banks to store your savings in.

And I just don’t care about that.

More on this project as it unfolds, but I’m pretty excited about it. I feel the way I did when I was getting this site off the ground and everything felt fresh and new.

Image by yaybiscuits123

Tags: making more money, personal finance