This past summer has been one of the wildest times of my life. As the pandemic continued (kind of), I realized I was spending a lot of time at home and a lot of time focusing on my finances. With this in mind, I determined it was time to consider owning property rather than renting.
San Diego is currently one of the hottest housing markets in the US right now. Demand is way stronger than supply, and prices keep going up. I also knew eviction and rent-relief efforts were ending and this would have implications. With such a strong demand for housing, I worried that my rent would go through the roof. If not this year, it would happen in the next few years. As I continued to weigh the pros and cons, buying a place seemed more and more appealing.
Keep in mind, I had been saving. In order to purchase any type of property, you need to have a significant down payment. While I have been working for over a decade, I also have benefitted from supportive parents. My down payment came from my own savings, but I can’t deny that their advice and financial support over the years have enabled me to build my savings account. I know this puts me in a position of privilege that many people cannot rely on, but I quickly found out that this would not be my golden ticket.
My journey takes place between Memorial Day and Labor Day in 2021. It was a whirlwind, and the dust hasn’t even settled, but I’m finally in my new condo, and I’ve learned a lot.
1. You Need to Move Fast
I only looked at a couple of properties, but my realtor told me that people were making and accepting offers at lightning speed. I had my budget, but I knew that I would need to play my cards strategically. The best thing I could do was look at the other properties that were purchased in similar areas at similar prices. This let me know that sellers were accepting offers over asking price.
There are a lot of factors that go into a seller’s decision. So, if you’re taking out a mortgage (like I was), it’s super important to be pre-approved. I didn’t get pre-approved until I was ready to start making offers, and that was a mistake. It was a huge rush to get all of the paperwork and fulfill all of the requirements. Once you are pre-approved, you can start to make offers with the confidence that you will be able to take out a mortgage. However, some of the listings had expired. Within a matter of days, sellers receive offers and stop accepting them before the listing can be removed.
2. Be Prepared for Counter Offers
Realistically, I knew I would need to make an offer over the asking price. When I looked at other recent sales, this was very common. However, my initial offer was just at the asking price. Then, the seller reviewed all offers and allowed me to make a counter offer. At this point, I went over the asking price by $15,000. This final offer was the one that was accepted.
To get my offer accepted, I need to present the best offer. So this meant negotiating some other terms. I shortened the length of my escrow and included to a buyer rent-back agreement. I had no idea what this was, but I signed the line and made the offer.
3. You Need to Compete With Cash
I’m not sure how my realtor figured this out, but when I made a counter offer I was competing against two other buyers. Both had made cash offers, which are often regarded as more secure sales. I knew my intent, and I was going to follow through with the purchase, but I can understand why someone might be tempted to accept a cash offer over someone with a mortgage. Fortunately, my offer was accepted. I even wrote a cover letter to appeal to the buyer while he was making his decision; a choice my realtor wisely recommended.
While this makes the buying process much more challenging, it left me with a sense of security after the fact. If home prices are soaring and people are still making cash offers, this means we’re less likely to be in a bubble. If the housing market was expected to crash, investors wouldn’t be throwing cash at new properties. Yet there are a lot of cash offers out there. This makes the process much harder for new buyers, though I see the silver lining now that I am a new home owner.
4. Prepare For Paperwork Overload
On multiple occasions, I thought about giving up on the process of buying a home. It wasn’t because I changed my mind on the condo I selected, but the process of getting everything approved was overwhelming. I came to find out that lenders don’t do a lot to get you pre-approved. I needed to send more documentation than I even knew I had. At times, I was resubmitting documentation that I had already sent. It seemed as if lenders were eager to get me pre-approved, then they were shocked that I actually wanted to be approved for the loan. The process felt very disorganized and I would get e-mails and calls constantly. They wanted bank statements, W-2s, employment confirmation, and tax returns.
It’s impossible to read all of the documentation you’re sent. Every document was an urgent matter, and I used DocuSign a lot. It would jump past text and take me right to the signature line. This is how I made agreements I couldn’t remember. I knew there would be a lot of paperwork, but I wasn’t prepared for the utter avalanche I received. The volume is so great, it seems to be designed with the intent of being deceiving. There’s no way to read it all, and people just want to cover their asses in case something goes wrong.
5. Someone Who’s Selling Will Also Be Moving
During the process of making a counter offer, my realtor offered a “buyer rent-back.” Essentially, this meant the seller could stay in the property for 60 days after we closed. To be fair, I told my realtor the lease on my old apartment ended on August 31st. So, she permitted the seller to stay in the home until August 24th as part of this agreement. I’d never heard of this before, but I essentially just let someone live in my new home rent-free for two months.
On the upside, it was a nice break after the marathon of paperwork. On the downside, this was my home. I was frustrated because I needed to wait to move in. Later, I found out that the old owner also entered a buyer rent-back agreement when he purchased his new home. So, he needed to rent an apartment for thirty days before moving into his new house.
6. You Will Find the Cracks
Shortly after my offer was accepted, I needed to complete an inspection on my home. When I first looked at the condo, I loved it. During the inspection, we highlighted every flaw and talked about repairs. To be honest, most of the thing they discovered were very minor, but I felt like I was getting damaged goods. I was able to negotiate a credit for these things, but it was a discouraging point in the process.
When I moved in, I was far less discouraged. The inspection process is necessary, but all you do is discuss the faults in the property. Now, I am making minor repairs such as re-caulking the sink and fixing a screen. I know what I need to do to resolve these issues, but no home is without its faults.
7. Beware of the HOA
Given the fact that I purchased a condo, I have to deal with a home owners’ association. This is a pain, because they schedule facility repairs on their calendar without regard of the impact it has on your daily life. They also have the power to make changes, increase fees between years, and prevent certain behaviors. My HOA fee is not cheap, so every time I see a fault in my complex I feel a twinge of anger.
HOA fees have a major impact on your property. When I was looking at properties to buy, I found some really beautiful condos at a really low price. The catch? The monthly HOA fee was about $1,500. Higher HOA fees make it harder to sell the property. Whenever the HOA fee goes up, your selling price is theoretically decreased. So it’s critical that these fees are actually used to maintain the property. I might be a pain to deal with, because I know I pay for the HOA. Therefore I do expect a level of service, and allowing the property to sustain damage will just decrease value and waste money.
8. It Can Feel Underwhelming In the End
When all was done, I paid about $425,000 for a one-bed/ one-bath condo. It’s big enough for me, but it’s just over 650 sq. ft. In other parts of the country, this price could buy me a lot more. Living in San Diego, you pay a premium. Prices climb quickly, and you pay a lot to receive little in return.
However, I know that my mortgage rate is locked. My monthly payments won’t change a lot in the future, but renters will see their rent increase down the line. I also made my purchase at a time when mortgage rates were at historic lows, so that may increase up-front cost. The first couple of years will be the hardest. As time passes, I will see a better value from my investment.
9. The Investment Is Already Paying Off
I closed on my condo at the end of June. Since then, my Zillow Zestimate has increased by about $20,000. I’ve also kept an eye on rentals in the area. Monthly rent is up by $300-$400 when compared to similar units in 2020. Clearly, all real estate is being impacted by the current housing market. If I renewed my lease, I know I would have seen my rent go up.
Now that I am settled, I am happy with the decision. It was a long road, and way more challenging than I thought. I know this property is an investment, and I won’t live here forever. In the meantime, I am making the best of the situation. I get to live in my favorite city, and my monthly payments are contributing to an asset. Over time, this will appreciate in value and I will be grateful for all the legwork I put into my homeowner journey in 2021.