The month was June 2015.
I had just graduated with my Master’s in Financial Math in May and had been working full-time for about 5 months. Life was good.
For the previous 5 years, I had been living on campus or in the neighborhood to the north of campus, renting out a room in a house with friends or living in a dorm. Since the friends I was living with and myself were all going to turn 24 in the next 12 months, and we all had degrees and jobs, we figured it was time to move away from campus. The question was, “to where?”
This post is the start of a series of posts on the story of how I decided to buy a house, and 19 months which have followed. In this series of posts, I want to hit on a lot of different things: income from roommates, benefits of owning real estate, stresses of home ownership, pride of a job well done, and why I’d recommend all young people to buy a house or duplex and rent it out if possible.
Back to the story. In Minneapolis, Minnesota, the natural next place to look for young adults (22-35) is the Uptown area. Minneapolis is a large, vibrant city with many different neighborhoods: University of Minnesota and the surrounding area, Northeast Minneapolis, Downtown, Uptown (Calhoun-Isles), the area near Lake Nokomis, the area near Lake Harriet, North Minneapolis, etc. Each of these have their own unique feel to them; Uptown is right next to 2 large lakes where in the Summer time, the beach and rooftop bars are always popping!
A quick digression: I know what you are probably thinking… Minnesota? Isn’t that the place where it’s negative temperatures for some of the year?!? Yes… sadly.. as I’m writing this post, it is about 10 degree outside. What’s funny as well is I just got back from a game of broomball (it’s like hockey but with boots and a mini soccer ball) Yes, Minnesota has some horrible winter days, but the Summers and Falls are amazing.
Anyway, my friends and I decided Uptown would be our destination. There were 4 of us looking for an apartment in the area. Long story short, we weren’t finding anything for 4 people. Most of the apartments were studios or 1 bedroom, and there weren’t too many houses for rent. Here’s where the story gets interesting.
I was sitting on the couch with my buddy on Monday, June 1st, 2015 (the day of the week will be important to the plot), and said to him, “Hey, I know we are kind of striking out with the whole apartment search… I wonder what I could buy.” I’d been following Financial Samurai for some time and looking for ways to build wealth. I’d dabbled in some stocks by trying to day and swing trade about $750, but didn’t have too much success. Given that at my day job, I was making a salary of $63,000, and had a student loan of about $8,000, I was in a pretty good situation to get approved for a loan.
I went on the computer the next day (Tuesday) at work and got pre-qualified for loan of $330k. I was shocked, yet at the same time, thought it was about right given where mortgage rates were. In addition to getting pre-qualified through my bank, I also went to Lending Tree and submitted an application for loans… let me tell you… those lenders are RUTHLESS!!! I must have gotten 100 calls in the next 3 days!!
Next, it was time to go searching for homes. I went on Zillow and searched “4+ bedroom, 2+ bathroom, $200k – $300k” and a few hits came up in the Uptown area. I hit the button to have a real estate agent contact me and again… let me tell you… those real estate agents are RUTHLESS!!! Again, I got about 50 calls from people trying to be my agent! Some of them I’d chat with and see if they actually cared about my wants and needs. I got on the phone with a gentlemen named Steve Jones and he walked me through what he was seeing in the Uptown area. We agreed to meet Friday and he would show me a few houses in my price range.
Fast forward to Friday, I arrived at the first house around 10 AM. Steve and I went over the agenda: we’d be looking at 3 houses in the Uptown area. The first house was priced at $212k, had 4 bedrooms, and 2 bathrooms, and looked to be in good shape from the pictures. The one downside: when I drove up to the house, I was not comfortable in this part of the town. In all big metropolitan areas, there will be some “shadier” regions and the surrounding houses were run down and the sidewalks were dirty with trash. We walked through the house, but I told Steve that my roommates would not be comfortable there.
For the second house, I was slightly skeptical about it when Steve mentioned it to me: it only had 3 bedrooms and was at the higher end of my price range listed at $289k. When we arrived, I fell in love. Built in 1900, this two story house had been a rental for the past 8 years. The kitchen had been re-done, the bathrooms re-done, and the woodwork was in great shape. Below are a few pictures:
In addition to the back deck, updated kitchen and bathrooms, and the fact it was a rental property, there is a 3 season porch off the master bedroom and a 3 season porch off the front of the house. The downside was there were only 3 bedrooms; there was a den though, and I was hopeful we could turn it into another room. The location was in a vibrant area; very walkable, people were walking up and down the streets for the hour I was there. I was almost drooling over this place to be completely honest with you!
After leaving the second house, we checked out a third house which I was actually pretty excited to see. From the pictures online, I was very interested. The third house was a 5 bedroom house which used to be a multi unit. I was excited because it was possible I could get another roommate and boost my cash flow!
We arrived at the house and… oh my… in the front porch there were two lawn chairs and a cooler with cigarette buds and beer cans on it. Hey current owner, if you are trying to sell, don’t leave out empties! We walked inside and it wasn’t much better… soot on the walls from smoking in the house, carpet stained, unkept counters and cabinets. It was listed for $279k… it needed about $150k in repairs just to be rentable. No dice.
I left Steve after the third house and immediately called my friend Greg. I said, I think I found the house. It’s a 3 bedroom place, but we can turn the den into a room if need be. He was for it, he was a little skeptical given the time line of events, but if I was going to do it, then he’d have to go along with it.
I called up Steve that night and asked if we could do a showing Saturday. I was going to bring my girlfriend at the time, my dad, and grandpa to get their impressions of the house. If they thought it was a good idea, I would have to consider making an offer. We met the next day and went through the house again. My grandpa, who is quite handy, commented that there were no real issues he saw that would be major in terms of structure of the house.
I figured I had to make a decision. There was an open house scheduled for that Sunday and I knew the place would get multiple offers that next day unless I acted quick. I was ready to make an offer.
Later that day, I made an offer at $280k, down from the $289k offer price. The owners stuck tight at 289k. I said, “Okay, how about $285k”. They came down to $287k and we made the deal. I was going to be a home owner!!
- Friends and I were looking to move away from campus and rent a 4 bedroom house or apartment
- I had a random thought on a Monday in June, “I wonder what I can buy?”
- Tuesday, I got pre-qualified and started searching for homes.
- By Wednesday, I had a few houses lined up to go through for Friday.
- Friday, went through 3 houses, the second house I loved and needed a second look.
- Saturday, went through the second house again and decided it was the one. I made an offer, negotiated, and was going to be a home owner.
In 6 days, I went from wanting to rent, to buying a house. I was going to be a home owner and own an asset worth almost $300k. I was going to have 3 renters; I didn’t know the first thing about being a landlord or a home owner. I wasn’t even that handy! Well… a few positive things: I’d have 3 renters and would be bringing in a good amount of cash. If something went wrong, I would have the funds to do something about it. Also, there is a wealth of knowledge out there in books and the internet. There is no time like the present to learn I told myself!
This concludes part 1 of my house story.
Do you think my house buying strategy was a little reckless? Looking back, I think I was really stupid to do this so quickly. That being said, later in this series, you will see why I believe it was one of the best choices I have ever made.
Stay tuned for part 2 on the closing process, the mortgage origination, and friends as tenants coming soon…