Help- Forced to Buy A House in Seattle in the next 6 Months!

[radycardia]

Here is the story. (and maybe using the word "forced" in the title was misleading, but I really need help from as many people as I can)

Married couple. Gross combined income will be right at 100K. (Around 9% of that goes to student loans). No significant change in income expected.

We are moving to Seattle for the next 4 years, maybe 5. Potentially longer but I can't count on that. I can count on being in Seattle for 4 years, and 70% sure we would stay for 5.

We have been renters since we left home and went to college (9+ years). Between the two of us, we have paid well over 150,000 dollars to the rent gods. We are tired of living in an apartment and we would like to purchase a home/townhome. Financial reasons are not the driving force behind the desire to be homeowners. I have moved to a new apartment every year for the last 9 years. I am tired of moving. I am tired of hearing people next to me at night. I am tired of not having "ownership" over my place to live. If I want to smash a hole in the wall to install an a/c unit, I want the freedom to do so. I want to paint the walls or upgrade the windows that are letting air in/out. I want the privacy. I want a yard so I can finally get a dog and not feel guilty about leaving it inside while I am at work. I want to have a BBQ. We really want to buy a place to call our own, even if it is only for 5 years.

BUT.....I don't want to make a stupid financial move and buy something that is going to ruin us financially. We have a great quality of life right now. Our current rent is $1500 a month. It leaves us with lots of play money. I have been saving just under $1400 a month. (ie: making us live on a budget that simulates a $2900 a month rent check) We have been doing just fine with this. We are traveling lots and are by no means roughing it. We have no car payments, no healthcare payments, not even car insurance payments. Our monthly expenses are rent, power, tv, internet, gas, food, and fun money. That's it. I don't expect that to change at all since our jobs will be the same, but we might have to get a new vehicle sometime soon. If so, I would buy a used car with cash.

We currently expect to have just over $30,000 saved at the end of the year (june 2010) It's not a lot, but it was essentially all saved this year.

We are moving to Seattle in June, so we would be looking to buy a place sometime in April/May/June. Historically the markets are more buyer friendly in the winter and if we buy in the spring we might be ahead of the summer rush.

We both have good credit (>750) and we both have good/stable jobs. At the end of my 5 years I expect to get a significant pay raise (ex: 50K per year to 175K - depending on Obama's healthcare plan).

I need to be close to UW for work, also, I will be at Harborview 30% of the time. I really don't want to commute, so I would need to find a place that's within a 10-20 minute drive from UW. This has limited out search to an area that south of Nrothgate mall and north of I-90. We have discovered that this area is not cheap. BUT, we think we could find a place that we could afford that would be in the right area. I think the Greenlake area would be perfect. Capitol Hill is right in the middle, but I think that's a little too trendy/loud/active for us. We like the quiet/slow/community feel of the Greenlake area. We don't really know the area, so we are open to any other suggestions that are close geographically.

So, here are my questions:

1.) Would spending $350K on a house/townhouse knowing you are only going to be there for 4 years be foolish? I have looked at the graphing calculator on the NY times website and seem to come up with a time frame right at the 4 year mark.

2.) What kind of rents would I be expecting for a 3/2 + garage in a good area close to my work?

3.) Nobody knows for sure, but I am optimistic that next spring will be a decent time to buy. Agree or disagree?

4.) What would you do in my situation?

5.) Any other helpful information to share?

Thanks in advance for anyone kind enough to share their opinion.

JD

[ira s]

1.) Would spending $350K on a house/townhouse knowing you are only going to be there for 4 years be foolish? I have looked at the graphing calculator on the NY times website and seem to come up with a time frame right at the 4 year mark.

Fro a financial standpoint, it could be very foolish. Time frame on the NY Times website? Like Yogi Berra said, " Predictions are hard to make, especially about the future." When you sell a property, there are costs incurred. Almost a 2% real estate excise tax. Up to 6% real estate commission. Escrow fees. Title fees. Costs that are often 9% or so subtracted from the sale price. Prices are still dropping in the Seattle area, and most of the people on Seattle Bubble don't expect that there will be large price increases in the next few years. Some of us expect continued large price drops. I'm not one of them. I wouldn't be surprised to see prices to continuing to drop for another year, and then stay flat for a couple of years after that. I'm not saying you shouldn't do it if it'll make you happy, but don't think it'll be a financially savvy thing to do.

2.) What kind of rents would I be expecting for a 3/2 + garage in a good area close to my work?

I think you can currently rent a 3/2 with a garage in a good area close to work in the range of about 1600-2200 per month.

3.) Nobody knows for sure, but I am optimistic that next spring will be a decent time to buy. Agree or disagree?

Certainly more decent than it was two years from now, and maybe more decent than right now, but by all traditional measures, Seattle real estate is still overpriced.
Greenlake is going to be pretty pricey...Maybe something closer to Harborview? First Hill or the Central District?

[BillE]

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[ira s]

Closing costs for the buyer are generally between 2-4% of the purchase price, depending on lender points and loan origination fees.
As far as tax advantages, right now the standard deduction for a married couple is 11,400 dollars, so interest, property taxes, etc would have to exceed that. If you bought a 350,000 dollar home with 10% down, your deductible interest, taxes, etc would be in the neighborhood of 22,000 dollars for the first full year, so that would be about an 11,000 dollar advantage over the standard deduction, but keep in mind that as you make payments, more and more of your payment will go towards principal and less to interest, but in the first few years it is heavily weighted towards interest.

http://www.smartmoney.com/personal-fina ... aks-14327/

[deejayoh]

between closing cost and selling costs, you are going to be out at least 10% of the value of anything you buy

so do you think that what you buy is going to appreciate 10% in four years?

Try this - find some rental homes/townhomes on Craigslist (yes this is the absolute best place to look)

then go to redfin and find the same listing. See what it is renting for vs. what they are asking for sales price

Do the math. It will be 30-40% cheaper to rent. No way you make that up in taxes (remember you also have to pay insurance, property tax, and in your case probably PMI). Then figure out how much you can bank in 4 years versus what you might make in appreciation less the 10% out of pocket to turn the place.

Probably a pretty easy decision still at this point.

[Markor]

A townhouse HOA isn't going to let you smash in a wall to put in A/C. From what you've said, I'd focus on a single-family house. To own one now vs. later would probably cost you an extra $100K above renting. Prices just haven't come back to reality in the Seattle area yet. Plus it's a very good idea to rent in a new city for a couple years, to figure out where you really want to live.

[perfectfire]

[biliruben]

Rent. I just bought, but with a 20-30 year timeline.

Rent. Look at North Fremont, Phinney Ridge, Greenlake, Ravenna, Wedgewood, Bryant, Greenlake, Viewridge, Wallingford, Greenwood, Maple Leaf, Meadowbrook.

You can find something much nicer than what you can buy, though it will take work and patience. Less work and patience than buying a place.

[Courtney]

I've lived a block from Greenlake for 5 years and love it, it's a great neighborhood. I rent a studio apartment in order to afford it.

Be sure to add up all the buying/selling fees, plus taxes (property tax is quite a chunk), insurance, extra points for that sub-20% down payment.. and yard maintenance, repairs, homeowners dues (if applicable) and so on. Then add up how much interest you will pay over 5 years (you could probably subtract about 25% from that number since it's tax deductible).

Also include your opportunity cost: What would you have done with your $ if you didn't use it on a down payment and house payments? Maybe a Roth IRA, or matching 401k? Maybe you'd just save a more substantial down payment, offset by further drops in housing prices.

Add ALL of those things together, and subtract it from the profit you expect to make in 4 or 5 years of owning the house. Then, remember that you might not make a profit. Then find a nice rental.

Tips on Greenlake:

Whether you rent or buy, avoid the west side near Aurora (aka Hwy 99)

Ravenna is a nice street. It looks big but the traffic is pretty slow and there is a wide greenbelt between the two lanes.

I live across from the fire station which can be noisy, but I don't mind. There's a firefighter who plays bagpipes on Saturday sometimes and he's really good.

Tangletown is a nice area w/ great little restaurants 2-3 blocks from the lake. Tangletown and the east side of the lake (the Starbucks side) are the two nicest areas I think, but the north side near Duke's Chowder House is very nice too. As is the chowder.

On Craigslist be sure to search for GREENLAKE and also "GREEN LAKE" (with quotes) separately, or you will miss some listings.

Okay hope this helps a little, good luck!

[radycardia]

Thanks for all the advice.

After crunching the numbers, it looks like we will be renting.

I don't know if I am excited or not. I would be willing to spend an extra 5-6K per year to have my own house (assuming all other things are equal) but after 4 years I don't think I would come out ahead even with a 24K loss buffer.

I am mostly concerned about being forced to move or to deal with changing rent rates. I also would like the option to make improvements to a house if I wanted. I don't like uncertainty and not having that control.

Anyway, looking at the listings I am optimistic that we can find something where we will be happy.

It is going to suck to be paying ~$2200 a month in rent.

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