House in Phoenix

My friend, Janet, who lives in Phoenix is planning to buy a house for herself.  Her last two purchases have been investment properties.  This one she’s going to live in.  Janet is very practical, but

“I feel very emotional about this,” she says.

Right.  Is IS emotional. But as long as you throw in some common sense, the decision to buy could be right for you.

Janet is doing it right. She:

1. Already owns her current home outright.
2. Has her emergency fund.
3. Is buying within her financial comfort level.
4. Is planning to live in the house for many years.

She’s working her plan.  It is scary though.  We’re talking about Phoenix –  property values have gone down tremendously in the past year.  There is a possibility values may continue go down in the next year. It won’t matter to her because she’ll still be in the house when they rise.

If you are thinking about buying, are you working your plan?  Are you keeping your wits about you, while at the same time realizing it is emotional?

Yesterday I had lunch with a friend who is saving as much money as she can right now.  Her plan is to start looking this spring for her first house to buy.  She believes prices will be just right by then.  Between now and then she’s researching neighborhoods so she’ll be ready to jump on a property if she needs to.  The important thing is:  she has a plan.  What’s your plan?

However,  my research on the whole real estate process was limited to just about no research!  I didn’t know who to ask, so I didn’t seek counsel of anyone.  I went into it with blind trust.  I didn’t obtain the best mortgage for my situation.  I didn’t even live in the property for much more than a year.   When I sold it, that too was done without a lot of thought or research into the tax implications or future.

Fortunately now there are many more resources available.   And women have lots of company.  In fact, the second largest homebuying group, after married couples, is single women.  That’s why I wrote my book, You Don’t Need A Diamond To Buy Real Estate — to help single women find, buy and finance real estate.

But that’s not the whole story.

Less than a year after I bought my condo, my job moved from the suburbs to downtown Washington, D.C.  It was a real uncomfortable commute.  I had to drive about 12 miles!  Too much for this twenty-something year-old.   Plus DC was a happening place!  Why was I living way out in the suburbs?  What had I been thinking?

I rented out my condo to a woman about 20 years older than me.  She was just getting a divorce and couldn’t believe she could call me for any maintenance issues.  Fortunately for me, she was on good terms with her ex-husband, and she called him for any property malfunctions.  I still can’t believe my luck with her!

I went on to rent a row house in Georgetown.  Now I owned investment property and could depreciate it each year on my taxes.  The only thing is it would come back to haunt me after the sale.  I had to pay capital gains taxes.  At that time they were about 30%.

A profit?  Well, sort of.

Since John, the lender, was a friend of Suzie’s, surely he wouldn’t steer me wrong. I signed a mountain of papers, gave John all my employment and paystub info. Before long I was approved! Wow! It was exciting and scary at the same time. My monthly payment was $984. The lender said I only had to pay $684 each month! Cool! “That will really save me money,” I thought.

I went to an attorney office to complete the loan closing. Suzie was there. I got my keys — the condo was mine!! Vistas of Vienna here I come!

Six Months Later
What a nitwit! I get a notice from the lender telling me the payment is going up. My payment isn’t $684 anymore. I was getting used to that. Hmmm. The notice also shows my mortgage balance — it was more than I originally borrowed. That just doesn’t make sense.

Another Six Months Later
Second notice from the lender. The payment is going up, again! This time the loan balance is even higher. What is going on!

After several phone conversations and close reading of my loan documents, I learn that I obtained a loan with negative amortization. Those lower payments I was making each month — it wasn’t a gift. They let me pay a lower amount (essentially a lower interest rate) but it didn’t cover the amount of interest due on my loan. They added it to my outstanding principal balance. It was a 6-month, adjustable rate mortgage — meaning the payment could go up (or down) every 6 months!

Later I began making my full interest and principal payments. I didn’t want my balance owed to keep growing! It was helpful in the early years as far as my cash flow went, but it sure would have been smart to be better informed up front.

Vistas of Vienna - My First Condo

I thought the real estate agent was my friend. After all, I was only a 24 year old single gal, what did I know about real estate? It was 1985 — none of my friends were buying real estate. I trusted her.

The agent, Suzie, drove me around all day long looking at different condo projects. It was Fairfax County, Virginia – a Washington, D.C. suburb. Finally around 4pm, we were at a condo project being built. I was hungry. Feeling shaky. I loved the place — it had a fireplace and a cathedral ceiling. Pretty cool for 1985. Boy, was I hungry. Suzie was insistent we get this contract written up before I lost the condo. I was not excited. I was hungry!

What I didn’t know was the real estate agent wasn’t my friend. Far from it. In those days the agents worked for the Seller; there were no Buyer Agents. She wasn’t looking out for my interests. The fact that she didn’t take me to lunch should have been my clue!

The next day, after I had eaten two meals, I felt really nervous. What had I done? This condo was way over my budget! Yikes, I had to get out of it. I didn’t want that place. I called Suzie and told her I didn’t want it, but I wanted the older condo we saw which was about $25,000 less. It didn’t have a fireplace or cathedral ceilings, but it was in my budget. That’s how I found my first condo at the Vistas of Vienna — a first floor, two bedroom, two full bath brick unit with a nice patio, double ovens and a garbage compactor.

Today my next door neighbor, Sheila, is a successful, long-time real estate broker. Sometimes she regales me with stories about taking her clients out to look at property, stopping at Starbucks and buying them drinks, taking time for a nice lunch. Suzie could learn a thing or two!