Should I buy a house? This one? Now?
December 6, 2007 9:28 PM   Subscribe

Should I buy a house? This one? Now? (Sticky family and personal issues involved.)

Background: My grandparents are Florida 'snowbirds', with a condo there and a house in an NYC outer borough. I lived with them in the house since I was a teenager (27 now), and now live there as a sort of caretaker while they spend longer and longer periods in FL. Florida hits snowbirds with considerable property taxes, and they have a mortgage on the house. They need (on a fixed income so these bills hurt) to sell to do away with those mortgage payments and qualify for the low taxes as actual FL residents.

I'd like to buy the house: I've lived there for over 10 years now and have lifelong friends nearby. It's a good neighborhood and near all forms of transportation into Manhattan.

But my grandparents think it's still 2005 and can get $500k for the house. Earlier this year, on the same block, a significantly larger lot went for $550k, and a slightly larger corner lot went $470k. They're asking $450k from me, a family 'discount' of sorts. This (the possibly unrealistic pricing) I can deal with, but it's delicate because it's family and money.

One problem is the down payment: I don't have it, but my 401k has plenty to cover it (I'd pay the closing costs with cash). I'm not all that comfortable dipping into that, but others whom I trust said it's not a big deal since I'm young. Brokers told me about no-money-down mortgages, via sort of slight-of-hand with the bank, another thing I'm not exactly comfortable with. Is there anything wrong with either of these options?

I make enough to cover the monthly payments including taxes and insurance and utilities, with extra for actual living.

Indecision #1: The house is zoned for two-families and can be converted to such relatively easily, though not quickly. So there's potential income but nothing that would cover more than a third of the mortgage payments. Renting the house as two units (one 3br, one big basement studio) would cover up to a quarter, but in my area a 3br can take a while to fill and isn't all that practical. This is the basic rent vs buy problem, but with 'buying' being upwards of 4x what I could rent adequate space for. So: buy now, or rent and save to buy later when I have cash to put down? Market uncertainty plays heavily into my considerations here.

Indecision #2: Since I was a teenager, I've nearly always sacrificed youth and time in pursuit of money and financial security, right up until today, mostly with regret at having 'missed out'. For example, the past three years building a company, I've lost that time for finding stable (romantic) relationships, and the social skills necessary for that. So: am I now at the age where pursuing financial security is more important than living 'normal', renting, being social?

Indecision #3: I was hoping to go to school (I have no degree and would be starting from scratch). Two motivations here: an education towards a career switch or simply advancement, and an environment conducive to socializing. I've had these intentions going on 5 years now, never actively pursued. It would be impossible financially if I were to buy the house. School being recommended, is it realistic given my past?

Indecision #4: I'm being treated for bipolar, relatively successfully, but I am always wary of long-term plans, that they're unattainable, that they'd fizzle out. This mainly applies to renovating and converting the house to a two family and renting it out. I have no idea how to approach this.

Indecision #5: I think you'll find it apparent that I'm more uncomfortable with buying than not. But I can't shake the thought that I'm rationalizing apathy towards moving or just plain fear and uncertainty. Or something more complex: Am I avoiding real, binding responsibility? Avoiding 'growing up'?

Apologies for the length. I tend to over think things trying to sleep at night.
posted by anonymous to Grab Bag (15 answers total)
No one can know your situation better than you do, but it sounds as if, were this not your family property, and your long time home, you wouldn't be considering buying it, because, frankly, it's more house than you need, and a big enough expense that if anything goes wrong in your life, it could quickly become a financial albatross. Step away from the facts that it's your family property, and your current home, and the situation becomes a lot clearer.

Firming up your education, while you have the majority of your working life to benefit from having a degree is a sound alternative for your money, that you won't be able to pursue if you buy this house. Having a house that you're putting significant portions of your money and time into can be a strong deterrent to finding new friends and a mate. Finally, the current housing market, nationally, is under a lot of pressure (risk to you, as a buyer) due to the mortgage crisis. So, those are all valid reasons that you might not want to buy this house.

But that's not to say that buying something smaller, might not be in your interest. If you bought a smaller town house, you might be able to swing school financially, and not feel you had any pressure to renovate, to create rental income streams. Those would be good reasons to move, and be steps in a larger, more coherent life plan for yourself.

Good luck figuring this out.
posted by paulsc at 10:14 PM on December 6, 2007

I've seen numerous NYC-area properties go on the market for $950, get relisted at $850 a few months later and at $750 a bit after that.

I can't help but think you'll be happier just letting them deal with their house sale, and maybe looking at something more reasonable for yourself. Perhaps a condo or a townhouse, depending on the sort of neighborhood you want.

If they really need to free up cash, they should be able to arrange a bridge loan until it sells.

As for dipping into the 401k, you'll have to pay it back over a period of time and with interest. It's not a horrible situation, but the payments might be more burdensome than a mortgage. The "double-mortgage no money down, no PMI" thing is common, and has been. Nothing really wrong with it in general.

As somebody who took a long route through school, it's very satisfying to get through it eventually, even if a lot of it is completely and totally obvious. It's a totally different experience when you have years of hard work to put all the knowledge into context. I'd consider something humble enough that you can live there, go to school and work a job that isn't overly demanding (or overly high pay).
posted by Tacos Are Pretty Great at 12:07 AM on December 7, 2007

The plan for buying the house seems risky. You're still young, and renting gives you a lot more freedom to pack up and move if you need to.

Also, housing prices are most likely still falling in your area, so buying a house without a down payment would have a good chance of being "underwater" soon (meaning that selling the house wouldn't cover the outstanding mortgage debt).

I would also suggest that you never buy a house that you can just barely afford. If something goes wrong, especially if you used all of your cash reserves to buy the house, you will end up missing your payments. Don't buy a house unless you can save up the full down payment, comfortably afford the mortgage payment, and still have cash left over as an "emergency fund" to protect against unforeseen disasters.
posted by burnmp3s at 4:10 AM on December 7, 2007

As a real estate agent, I'm trained to tell people "It's always a good time to buy/sell!", but I would recommend from what I've read here that you take a step back and consider the reasons you would buy this home. If it's a personal reason, keeping the home in the family, then I might consider it (possibly as a purchase with other family members). Other than that, I would stay away from this purchase.

1. This is not a good market to get into a house you can just afford, especially with no down payment. If you lost your job, ran into some medical bills, etc, you would certainly lose the home and possibly not make enough in the sale to cover the mortgage. If the comparables are honestly selling for about the same price you're being offered, you could be in for a world of hurt.

2. Renting is a solid option right now. You don't have to deal with the current market risk, and you're not in a financial position to take advantage of a down market by purchasing a property and sitting tight through any more dips until a recovery.

3. I don't sense any "growing up" issues here. Grown ups rent, too.

Buying a house is potentially a good financial plan, but not one I recommend getting into for just that reason. Rent a smaller place, save up some money, and live the life you have in front of you right now.
posted by shinynewnick at 5:22 AM on December 7, 2007 [1 favorite]

4. You do not want to be a landlord.

Let me repeat.

4. You do not want to be a landlord.
posted by shinynewnick at 5:23 AM on December 7, 2007 [1 favorite]

Am I the only one who thinks it a little odd that grandparents want their grandchild to pay market price for their house through a conventional mortgage? Dunno what the rules are in NYC, but here in Philly there are special arrangements that can be made when you buy your house from a direct family member.

Are there smaller houses in your area that you can more easily afford? If so, I think that this would be a better plan than buying so much more than you need.
posted by desuetude at 6:30 AM on December 7, 2007

At the very least, if you do decide you'd like to buy it, please get your grandparents to agree to have the house appraised. Housing prices were severely inflated, and they're still dropping down to what they're really worth. It might hurt them a bit, but do they really want their grandchild taking out a 450K mortgage on a 400K home?
posted by explosion at 6:38 AM on December 7, 2007

Do what explosion said. Get an appraisal. Even better: get two appraisals. It will cost more than a few hundred dollars, but you'll have two disinterested third parties providing you with information about the real market in your area.
posted by croutonsupafreak at 6:59 AM on December 7, 2007

It seems likely that Florida is going to be one of the worst-affected areas in the ongoing housing crash. It depends on precisely where you are, but I'd be very careful in appraising the value of the house, if I were you. I'm sure your folks mean well, but people tend to a lot of wishful thinking when it comes to the price of their home.
posted by Coventry at 7:01 AM on December 7, 2007

Have the grandparents move their primary residence to FL, and then you rent the NYC house from them. They become your landlords. You don't have to buy; just rent.
posted by cass at 7:39 AM on December 7, 2007

Speaking as an accidental landlord, you don't want to be one. I have an ideal situation in the sense that the property I rent is nearby and in good condition. However, it is not cheap to maintain and upkeep to standards not to mention renovation that has been done to make it attractive to others for rental. Also, the pain of dealing with renters. I have been somewhat fortunate in that area but it is still stressful with regulations, inspections and then the hassling of well intentioned people who don't pay their rent. Yeah, avoid being a landlord unless you LIKE being a handyman, writing checks to handymen/women or hassling people to take care of their obligations.
posted by jadepearl at 7:55 AM on December 7, 2007

Sorry, my reading comprehension seems to be on the fritz, doesn't it.
posted by Coventry at 8:22 AM on December 7, 2007

Once more: Get an actual appraisal, not just a market analysis from a realtor. Then think about the house and if you really want to spend that money on that house. The current real estate market is more volatile than it has been in many, many years. A lot of people expect the housing market to get much worse for sellers. That said, buying a home is also an emotional decision, and if they will give you a truly good price to live in a neighborhood you obviously like, it's not necessarily a bad idea.
posted by theora55 at 8:29 AM on December 7, 2007

I third that you need a proper appraisal. And an inspection. This will hopefully provide some external, professional influence that will help with the family awkwardness, too.

Seconding that the 80/20 no down-payment thing is not shady. If the broker made it seem so, maybe talk to a few other brokers until you find one that you jibe with.

Thirding that it is not cheap to be a landlord -- you need liquid cash all the time in case a major appliance breaks. What happens when the fridge dies? You replace it, immediately, or you're paying for the value of the food that spoils. What happens when the furnace goes belly-up in winter? You fix it, immediately, or you're breaking the law. This is the advantage of renting.

If you love the house, though, it's probably worth it to figure out a way to get the house.
posted by desuetude at 9:15 AM on December 7, 2007

I just want to address your parents' belief that their house would still fetch a high price, even though the market has changed. I've seen this problem three times with people I know well. The owners see a few neighbors sell their homes for $X -- a couple of years later, they refuse to believe that their own house would go for 66% of $X, if that. Some honest real estate people tell them the truth, but they hire one that lies and says their house is worth plenty. They price the place too high, it sits on the market for many months, and they end up selling for less than they might have if they had been realistic in the first place.

I suggest that you look at the 'comps' -- prices at which similar houses have been selling in the past month. Go see similar properties that are currently for sale. Within a couple of weeks, you'll have a good sense of what your parents' house 'should' cost. Also investigate what kind of rents you could expect to charge.

I guess what I'm saying is that IF your parents decide to put their house on the market, you probably can still live there a pretty long time, since nobody's going to want to overspend on it. And you have plenty of time to make a decision.
posted by wryly at 2:14 PM on December 7, 2007 [1 favorite]

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