Real estate in New Orleans
August 23, 2010 8:09 PM   Subscribe

RealEstateFilter: I'm young, single, nearly debt-free and tired of paying lots of money to live in an apartment. Should I buy a house when my long-term plans don't necessarily have me sticking around more than 3-5 years? It's in New Orleans!

I've lived in the city about 5 months. I can't help but check out the for-sale signs on the cute shotguns Uptown/GD. I'm paying too much money on rent to be living in a boring apartment surrounded by strangers.

I'm aware that with an 'older' property in New Orleans, there will be significant expenses beyond mortgage--maintenance, repairs and especially insurance. I want to spend time and money on a place I'm going to love.

Mid-term plans/hopes include going back to school in about five years, probably on one of the other coasts. So I would be pretty far away, and I'd either need to sell, or rent for enough to cover (most of) the cost of mortgage and maintenance.

General real-estate questions:
-Of course people buy houses and then move in the span of 4-6 years. Is this a bad practice? Other than the risk of the housing market falling, what is there to lose?
-How much do I "need" to save for a down-payment before I buy? Recognizing that this is something I'd like to do in the next year or two if at all.

New Orleans-specific questions (for those who know it's not covered in oil):
-Is there anything specific to New Orleans that makes it a true exception in real-estate terms? How bad/different is it really compared to any other housing market?

I appreciate your insight as I don't know much about the subject of real estate (resource recommendations also welcome!)
posted by ista to Work & Money (14 answers total) 2 users marked this as a favorite
Well, 3-5 years gives you some flexibility and some limitations.

Risks: Continued housing stagnation. Underwater situation. Excessive fees incurred over that from renting (namely maintenance, property tax, insurance, catastrophe, liability)

Rewards: Fulfillment, potential economic benefit, credit boost, historically low mortgage rates

Downpayment issue: most banks require more "skin in the game" whether that be 10-20%, but 25% is what I always recommend as it makes the cost-basis hedged in terms of your amortization scale.

You are clearly in a very seed phase of exploring this option. Do some research, and calculate the cost compared to your own risk appetite.

Good luck and do your diligence on the house.
posted by Hurst at 8:16 PM on August 23, 2010

This thingy from the New York Times might help you, in this first stage.

posted by juniperesque at 8:45 PM on August 23, 2010 [1 favorite]

Typically, IIRC, the closing costs, transaction fees and so on are enough to wipe out a fair bit of any potential gain in housing price. (Mortgage finance fees are maybe $4K, real estate fees can be a few percent.) Like, you start thousands and thousands in the hole, as the ink dries on the paperwork.

I think the common mindset of rent-as-waste-of-money is wrong. In one case, you're paying a landlord a bunch of rent every month, to compensate them for the use of a residence costing hundreds of thousands of dollars. In the other case, you're paying a bank a bunch of rent every month to compensate them for the use of a couple hundred thousand dollars of cash that you used to buy a residence. Most of the times I've crunched the numbers (for various reasonable assumptions), the two are about equally expensive.

Normally, I'd recommend buying if you're interested in spending time and money on your place, and in it for the long haul, but if you're already planning on moving out before you buy, I'm not sure it's worth the effort.

As an alternate option, surely someone has purchased a cute shotgun and is now renting it out (maybe they're back in school on the coast).
posted by Homeboy Trouble at 8:55 PM on August 23, 2010

Unexpected maintenance costs can be really big, sometimes. If I was pretty sure I'd be moving on in 5 years, I think I'd rather find a nicer rental than go to the trouble of buying and fixing up a house. Incidentally, fixing up an old place can sound like fun but after work, family obligations, cooking and cleaning, it has away of claiming all your hobby/leisure time.
posted by bonobothegreat at 9:05 PM on August 23, 2010 [1 favorite]

Buying has many attendant fees, selling is not easy, and maintaining property is expensive. Keep renting.
posted by goblinbox at 9:09 PM on August 23, 2010 [3 favorites]

I went through a moment of feeling like this upon moving to New Orleans recently, too, just from looking at the (seemingly, by rest-of-the-US standards) quite low prices on the local listings. There are some important things to remember, though, that end up making buying seem like less of a bargain, and that in my opinion make this too much hassle to even consider as a short-to-medium-term plan.

First of all, the condition and maintenance and construction of the local housing stock is very poor by most of America's standards, even without factoring in possible flood damage; those "cute shotguns" are, for instance, often totally uninsulated and unsealed, built to the construction standards of the nineteenth century, and will cost a fortune to keep climate-controlled, much less to renovate. (For me what made the more recently constructed apartment building a good choice was, exactly, that it was "boring": that is, it had no unanticipated problems, and was in a condition that would be considered turn-key habitable in the rest of America, which many properties in New Orleans aren't.)

Second, the local economy is in very bad shape and not likely to improve that much in the next few years, so there aren't a lot of buyers lining up — and this makes it hard to find good tenants, too, should you need to rent the place; when looking around recently, I saw many nice enough rental properties sitting vacant, some apparently empty for more than a year. That is, the real problem with coming into a down market in a place like this isn't the slide in prices so much as the extreme slowdown in sales (which, again, my uninformed sense at least says is worse here than many though not all other regions). With the possibility of needing to sell again in the short-to-medium term, this means you have to think of the house as a potentially very illiquid investment. If you're going to do this, you should really be comfortable with a not unrealistic worst-case scenario in which you end up moving away and find you're unable to sell — or possibly even rent! — the house for a few years.

Having said that, if you are comfortable with the possible financial downside and still want to look at properties, I can recommend a realtor, Michael Zarou with Latter & Blum's uptown office, who is a nice, honest, and knowledgeable guy.
posted by RogerB at 9:25 PM on August 23, 2010 [2 favorites]

Once you do your research (and you sound like a newbie so do lots of reading) and crunch the numbers, if a mortgage + est. insurance + property taxes + est. maintenance costs is comfortable, and you're still motivated and undaunted by the potential downsides, then buying is a good idea especially if you're paying the same or more to a landlord now.

There are some articles indicating a housing shortage in the coming year(s). This is good for you if you become a owner/landlord. However, New Orleans is a unique marketplace...before you buy perhaps you should call up some property management companies and pick their brains. How long have rentals been on the market? Look at Craigslist ads for house you see the same ones for many months? What's the rental price point - is it enough to cover your mortgage once you decide to move? Of course, the market may have changed when you decide to move in the future.

Obviously, you are going to get a home inspection. Pick a great one (not one suggested by any real estate agent). Grill your inspector about the house and construction generally. (side note: inspectors in some states aren't supposed to give you repair estimates if they see something amiss in the property..conflict of interest as many of them are also contractors). Write it all down and call around to see how much it costs to fix major problems.

If you buy a property and don't have major repairs, I'd suggest jumping in with both hands and doing lots of DIY. You'll save tons of money and your work doesn't have to be perfect since you're leaving in 3-5 years anyway. It can be really fun and gratifying. It's all kind of a gamble...but I still think it beats renting.
posted by KimikoPi at 10:52 PM on August 23, 2010

You pay a lot more (relatively) to rent than own, not because the property is "worth" more money, but because you get to walk away when you are done. Same thing when considering the cost of a hotel room verses renting. You are paying for the privilege to leave on shorter notice.

So, don't look at it as paying a lot to rent. Look at it as paying to avoid all the hassles and costs of trying to get out of something you own.

tl;dr: rent.
posted by qwip at 11:24 PM on August 23, 2010

I would only buy in New Orleans if I wanted to invest in the community long term or put down roots. And even then, I would consider heavily that my investment in said community might not come to much considering the bleak future most likely ahead for the city.
posted by Sara C. at 5:16 AM on August 24, 2010

You pay a lot more (relatively) to rent than own, not because the property is "worth" more money, but because you get to walk away when you are done

That's a little simplistic, and not even always true. Sometimes it really is cheaper to rent. Arguably we are in one of those times.

Hardnosed commercial residential property buyers try to not pay more than what they could realize on five to seven years of rental income. That's pretty damn low. but you never know.

Question is, what would the place be worth in five years if you're ready to leave? After the buying and selling closing costs, that is? What else could you do with the money you would be putting down on it? Would you be holding on to this when you leave in five years? Being an absentee landlord is not easy, and not always profitable. Selling it may not recoup what you put into it (real estate prices have yet to revert to the long term mean.) Then there is real estate tax- maybe not bad in NOLA, but it is part of the real estate fixed costs.

Your four to six years and gone figure is a little worrisome. Figure I've heard is seven years, but even that is pushing it.

Maybe you should just look for a different apartment to rent.

Just ot complicate matters further, here's one woman's take on rent vs buy in a cool city. But her circs appear significantly different from yours.
posted by IndigoJones at 6:35 AM on August 24, 2010

I was recently looking to buy a house down here. I think RogerB nailed a lot of good points, so I'll just add a few more bits:

1.) My real estate agent (also through Latter & Blum) kept reminding me that this is a screwed-up market right now. Every seller in New Orleans thinks that they're already being bled to death at today's prices, and every buyer hears that the market is in the gutter and so they think they can ask for another $20k off the top. This can - but not necessarily will - lead to some negotiations that are perhaps more intense than they would have been in years past.

2.) I thought I had a great idea about how much I needed for a down payment and how much I could afford to spend overall, and how much property taxes and so forth would be. I used lots of online mortgage calculation tools and estimates and so forth ... and still didn't know my numbers. Go to your bank and say, "I'm considering buying a house and I want to know how much blah blah blah." If you do get serious about shopping you'll want a pre-approval letter anyway, so you might as well see what you can truly do with your money.

3.) Get the most detailed information you can about what happened to the building during Katrina. How much water (if any) did it take on? Was it flooded and gutted, or left untouched? Was mold remediation performed, and if so, by who? There are a lot of seriously nasty unremediated buildings still floating around. I wouldn't buy anything without knowing the provenance of the place.

Also, this city has a weird honeymoon period. I honestly couldn't suggest to anyone that they should buy a place here unless they'd lived here at least one year. I love it, I don't want to live anywhere else, but I still get sick of it sometimes. Buying a house after your having lived here for only half a year seems a little rushed, but then again sometimes people get married on the second date and live together blissfully for 60 years.

There are lots of great neighborhoods in this city, so don't feel like you have to limit yourself to Uptown and the Garden District. I've been in Bayou St. John / Fairgrounds for almost two years now and love it more than my time in Uptown or Mid-City.
posted by komara at 7:03 AM on August 24, 2010

I'm a New Orleans homeowner. This is my story. We bought a cute shotgun double in spring 2008, after having worked with a fantastic agent and looking for two solid years. It took us that long to find something in a dry neighborhood that we could afford. Even on our two professional incomes, plus 20% down given to us from the parental units, we were still not able to afford anything turn key ready uptown. We bought a rundown but not totally hopeless place in the Uptown neighborhood where we already lived. We were able to get the tax refund thingy (sorry I don't remember all the details) for new homeowners, which I think is still being offered but I'm not sure.

We worked our asses off to renovate the apartment quickly so that we'd have some income, and rented it out in September 2008 via Craigslist. We did not have any trouble renting; the ad was only up for one day and we had a dozen inquiries, one of which worked out and she's been here ever since.

We then started renovating our side, which took much longer for several reasons: it's hard to renovate a home yourself after work and on weekends. There's a steep learning curve for doing things like sheetrock and plaster installation/repair. We ran out of money several times. We took out another loan in order to hire a contractor when we got sick of doing the work ourselves. All through this we were living in a 350 sq.ft. apartment, so it wasn't an ideal situation. Anyway, we finally moved in this past January and are now deliriously happy in our lovely home with 14 ft ceilings, fireplaces, hardwood floors, lacy gingerbread, etc. Your basic cute shotgun.

As for your questions about the market here compared to elsewhere, I don't really know. I think that if you're willing to work pretty hard, you can get a good deal on something, but that's probably true anywhere?

tl;dr: The whole process, from deciding to buy to moving in, took us about 4 years. Unless you're wealthy and/or dedicated to living here for quite awhile, it's probably not worth it. On the other hand I wouldn't worry about being able to rent it out. If it's a nice place in a decent neighborhood, you'll have no trouble renting the house if you need to.

I'd be happy to put you in touch with our wonderful, hardworking agent if you'd like, or talk to you more about my experience if you're interested.
posted by CheeseLouise at 7:24 AM on August 24, 2010

Try looking in Algiers Point. Old neighborhood, much cheaper than uptown. We bought here in 2004 and our house has gone up 25% in value in that time.

Of course, our homeowner's insurance cost doubled after Katrina, but being on the West Bank (and close to the river) we had no flooding or much damage at all except for the inevitable roof damage that everyone had. (Oh, and of course we had to replace our fridge.)
posted by pyjammy at 10:51 AM on August 24, 2010

I honestly couldn't suggest to anyone that they should buy a place here unless they'd lived here at least one year.

Good rule for moving to any new area. If for no other reason than to really get to know the neighborhoods.
posted by IndigoJones at 4:23 PM on August 24, 2010

« Older It's not a Nigerian money order, but......   |   More "Pathologic" than "Doom" Newer »
This thread is closed to new comments.