Decisions, decisions

All quiet does not mean everything is calm. There was a fair bit of excitement around here the weekend of the music festival, and most of it was not the good type of excitement. I don’t want to engage in gossip or be a complainypants (nor can I promise that I won’t want to relay all the gory details at some point), so for now I’ll just note that I (once again) did not get to use my weekend music festival pass to its full capacity, there are some acquaintances that I won’t be inviting back as guests ever again, and that I was painfully reminded of how much it can suck to be a renter, all in one weekend.

For the sake of context, I’ll elaborate on the latter point just a bit. Two weekends earlier, I had noticed some issues with the drainage in the house. When the dishwasher, washing machine, and shower drained, I heard gurgling noises from the bathroom sink. Although stuff was still draining, I knew that this was Not Good. It wasn’t an emergency, however, so I waited until the regular business hours of the property management company to report it. When I contacted the maintenance department, I was told that I would be contacted after the property manager had been reached for authorization. Meanwhile, the ominous gurgling noises lessened, so I wasn’t panicking.

A series of unfortunate delays ensued which meant the drainage issues did not get addressed before Memorial Day weekend, and I found myself with house guests and a non-functioning bathroom the Sunday of Memorial Day weekend. We couldn’t use the shower, the sink, or flush the toilet, and I was forced to call the management company’s emergency line get help. I placed my first call at 11 AM that day and it took until 8:30 PM to get someone out to address the issue. In the meantime, I spent a lot of time sitting around the house and backyard waiting for notification that a plumber was on the way. By 10 PM that night I finally had a working toilet, sink, and shower, but was still quite frustrated by the experience.

If I didn’t have to go through all those layers of administration to get the drainage issue fixed, I wouldn’t have been stuck missing 95% of the music festival on Sunday and stressing over finding a place to pee. The only “benefit” of the situation: I wasn’t personally on the hook for an emergency plumbing job on Sunday of a holiday weekend.

Now that the context of “being a renter can really suck” has been elaborated, let’s look at the decision staring me in the face right now: I’ve put an offer on a house. Will this lead to an actual sale? Maybe. I’m trying to dispassionately analyze the situation, and have been talking about it with friends over the past several days.

I’ve put offers on two other houses here in Napa and lost them both. Back in Chicago, I’ve also been through the entire buy/sell cycle twice, so no part of this experience is new to me. I’ve run my numbers multiple times, received approval on a mortgage and locked a rate, opened escrow, and had a home inspection in the last 5 days. The house has two bedrooms, one bathroom, and was built in 1941. It is about 1100 sq ft and has hardwood floors, new windows, upgraded kitchen and bathroom, a single car attached garage, and a big backyard already set up for entertaining. All of the kitchen appliances (range, refrigerator, dishwasher, microwave with vent) are new and included in the price. The washer and dryer are included, but aren’t new and look a little tired.

It seems nearly perfect, but I am being cautious because of a couple of things that surfaced in the inspection.

  1. The selling agent states that the house is bolted to the foundation (meaning, it’s been “retrofitted” to mitigate damage from an earthquake.) My home inspector couldn’t verify this, mainly because of the next issue.
  2. There is knob and tube wiring in the house. The home inspector was unable to get into the crawl space under the house because there was K&T wiring located too close for his comfort. He found another way to look into the crawl space, but didn’t see evidence of the foundation being bolted, so he couldn’t confirm it had been done. He recommended that I get documentation from the homeowners about the work.

Because of that wiring, I’m going to need an inspection by a licensed electrician. I talked with my insurance company yesterday, and they’ve indicated that they will insure the house if I can get a report from the electrician that the wiring is safe. Even if the electrician thinks it is safe, I’d still need to get the electrical service replaced for my own peace of mind and to allow me to live in the house comfortably with my modern appliances. (I really want to be able to run the washing machine, make coffee, and have my computer on at the same time without losing power.) In less of a seller’s market, I should be able to use these faults as negotiating points, but I’m not sure if that will work here and now.

Putting aside those concerns, let’s exam the affordability of the house.

  • Down payment and estimated closing costs should leave me with eight months of emergency fund (EF) living expenses in the bank. Savings for things like vacation or a car replacement will be wiped out, though.
  • The monthly mortgage payment should be just under $200 more than I’m paying in rent for a smaller 2/1. That mortgage payment does not include insurance or taxes, however. (I was a bit surprised that I was even offered an option to get a mortgage that doesn’t require escrow of those expenses, but I’m happy to deal with both taxes and insurance on my own.)
  • A budget which includes line items for taxes, maintenance (at 1% of purchase price), increased insurance expenses (even pricey earthquake insurance), and increased utilities leaves me with roughly $70-$100 “extra” each month. The budget line items for “wants” (like $$ music festival tickets) is not covered, though, nor is savings for things like vacations and car replacement. This budget does include generous lines for things such as eating out and groceries where I’ve been challenged with cutting back in the past. So it is by no means “bare bones.”
  • Property taxes are a straight 1.25% of the purchase price. I have enough money in savings to pay one full year of property taxes, but it would drop my EF to just over six months of living expenses. Luckily, I won’t have to pay anything until November 1, but I’m not sure how much will be due then. (In Cook County/Chicago, tax bills were issued twice a year, too, but the first payment was higher than the second.)
  • If I have to pay out of my own pocket to upgrade the electrical system or deal with any unforeseen repairs, then I’ll be dipping into the EF even more.

There are some positive financial events on the horizon for me this year, though. Between now and the end of the year, I’ll be getting two additional paychecks (being paid bi-weekly has its perks!), so those funds can go straight into savings, home maintenance, or be used for discretionary expenses like home furnishings. In September I should see some sort of salary increase and possibly a bonus. I never count on bonuses (although I usually get something), but I’m hoping to get at least a small salary increase that would bump my take home pay by about $100 a month.

This morning I found myself pulling out my tax files for the past two years and creating a worksheet to validate my assumptions about tax implications of a house and mortgage. In 2014, I was still a homeowner and had paid property taxes and mortgage interest, which are deductible expenses. In 2015, I was a renter and had no deductions. My deductions for mortgage interest and property taxes would be quite substantial for the next few years. To me, the main value in these deductions would be to get an annual refund of cash that I can then put aside or use for property maintenance. That worked well for my much larger 1951-built house in Chicago, and I don’t see why it wouldn’t work here in California.

If I took on a housemate, I could also start using the house as a way to generate more monthly cash flow to help me tackle home maintenance/repair expenses, add to the “wants” portion of my budget, or put in savings. It’s not my ideal to have an unrelated housemate with whom I share a bathroom, but in my present state of mind I feel that it’s a compromise I could make. Around here, it’s pretty easy to rent a spare bedroom for $700 to $900 a month, even with a shared bathroom. The other benefit of having a housemate is that there is a built-in housesitter, and the potential to negotiate pet care more easily when I’m away on business trips (or personal trips, if I can scrape together vacation money again.)

Other options for generating cash flow/savings are taking on a seasonal intern in the wine industry or a traveling nurse/medical professional as housemates for only a few months a year, or looking into Airbnb. (The latter would require me to get a license from the City of Napa and would require some work on my part to turn over the room, though.)

By next Tuesday all the inspections (roof, pest, and electrical) will be completed and I’ll have to make a decision about whether I should go forward or walk away. Home ownership can be stressful, but I do miss being a homeowner. I’m grateful that I found a great place to “land” in the Bay Area, but I don’t feel like I’m thriving in my current living arrangement, just surviving.

What would you do in my place? I’m taking all the advice I can get at this point, so please do leave a comment!

Advertisements