Ep.25 - SOML: How We Bought A House in LA
Long story short, we bought a house in LA in 2015, 3 years after we finished undergrad. If you are wondering how, then you are at the right place. No, we did not receive a gift from the parents, nor are we investment bankers. But we were D-I-N-Ks, dual-income with no kids.
THE JOURNEY BEGINS
We started this journey in July 2014. First step was research.
We quickly learned the four things we need are good credit, ample cash, high income, and low debt. If you want to have an in-depth understanding on each, you can go back and read episodes 1-4, as I explained them within the context of living in Los Angeles.
What's our situation in 2015? (Each category was given a difficult score with 💚 being easy, 💛 being moderate, and ❤️ being difficult)
Credit Score (💚): We both had +760, which is enough to access the best market interest rate.
Cash Savings(❤️): We had around $45k in savings, not even enough for a 10% down payment. It did not matter, instead of the 20% down, we were going for the 5% conventional or 3.5% FHA.
Income(💛 ): We are DINKS. We pulled in between $120k - $130k/yr.
Debt(💛 ): We had $4,500 ($400/month) left in a car loan and another $8,000 ($150/month) left in a student loan.
So What Does It Mean? It means we could afford up to $550k. With that in mind, initially, we wanted to buy a 2-bed condo or a small house.
If you are curious what YOU can afford, I think this calculator from Redfin is accurate enough to give you a ballpark (note: I am not sponsored).
WE KEEP ON SEARCHING, FAILING, AND LEARNING
LESSON 1: CONCURRENT SALES IS A NO-NO FOR US
Property : 5376 Fairview Blvd #101, Los Angeles CA 90056 (link)
Price: asking $344k, sold $335
Post-mortem: We were in escrow, but it was a concurrent sale, meaning the seller wanted to execute the sale to us and the purchase of her new home at the same time. We waited for over a month in vain with her holding on to our $3k deposit. Eventually we withdrew the offer and moved on.
LESSON 2: HOA IS THE WORST
Property #2: 3750 Santa Rosalia Dr #310, Los Angeles CA 90008 (link)
Price: asking $359k, sold $370
Post-mortem: The HOA is a difficult entity to deal with. We were in escrow, but we lost the property because the HOA would not produce a document a lender asked for. In the end, we were in a deadlock and we could not close the sale. I was actually quite glad, because the HOA fee was $441, too high for us anyway.
LESSON 3: BID 10K ABOVE ASKING IS STILL NOT ENOUGH
Property #3: 8405 West Blvd, Inglewood CA 90305 (link)
Price: asking $378k, sold $410
Post-mortem: We were in a bidding war for this cute home with a koi pond. We offered $10k above asking, but we still lost the bidding war. Only after it was sold, we realized someone offered $32k above the asking price.
LESSON 4: TIME FOR A CHANGE
We felt the HOA fee for condos was not worth it, so we started to think about ways to focus on single-family homes. The strategy we used was to pay off all of our debt, yet still keep enough cash for a 3.5% FHA down payment. That's exactly what we did.
Here is the new situation
Credit Score (💚): +760
Cash Savings(❤️): : $32K (-$13k)
Income(💛 ): Unchanged.
Debt(💚)): None
So What Does It Mean? With all of our debt gone, we could now start looking at homes in the range of $500k - $650k.
LESSON 5: LIVE OR DIE BY THE APPRAISAL
Property #4: 6330 Buckler Ave, Los Angeles CA 90043 (link)
Price: asking $518k, sold $528
Post-mortem: We were in escrow. But the home appraised $10k lower than our offer. The implication was that we needed to come up with additional $10k in order to close on the house. With our new strategy, we only had enough to close, nothing extra. As a result, bye bye house.
WE FINALLY FOUND OUR HOME 12 MONTHS AFTER WE FIRST STARTED
After failing and learning along the way, we adjusted our strategy one step at a time.
We learned to avoid concurrent sales, and we realized we prefered not to deal with the HOA. Eventually, we changed our focus from condos to homes. To do that, we had to make tactical changes by using 1/3 of our fund to pay off all of our $13k debt.
In the final stretch, we made sure to always offer at least $10k above the asking price. Eventually, we were blessed to find our perfect home for $600k in 2015.
I hope you enjoyed the article. Follow me on Instagram: dollars_and_sense_la.