Written By Jamie Pippenger
I recalled the basics of my first time buyer experience in my first post but this time were going to take it up a notch.
Total cost of 1 year in our Magnolia, Seattle condo purchased for $450,000 = $82,810.87. Shock sets in. Here’s the breakdown for that excessive sum:
One caveat is that for 10/12 months of year 1 we were paying $3000 towards the P & I monthly payment, $805.61 over the payment due. $805.61 x 10 = $8,056.10 that could be removed from this equation, but I’m going to keep it in for both dramatic effect & because we did pay that amount.
I refer to these as sunk costs. We cant go back in time & unbuy this place.
Plus, if we could go back in time there’d be more important things to do like throw it all in Dogecoin.
The next best thing to going back in time is making the best decision now.
We are likely going to move away from Seattle in ~2 years for personal/life reasons, so all hypotheticals assume a 3 year period. Lets dive into the options.
First, the control group of never buying, renting for the full 3 years:
So whats the best decision now?
I hate losing. There is no chance on Gods green earth I will let our living situation cost > $97,732.64.
But that may not be easy, and even worse, its not entirely up to me. Every current homeowner that isnt planning on growing old where they live now is at the mercy of the real estate market. The decisions we make will be the most financially sound choices at that time but uncertainty of the market is a looming dark cloud.
After realizing how much we spend each year that is not “paying ourselves” like interest, insurance, taxes, etc. I began to wonder. Maybe its not too late for us, maybe we can be saved! This market is HOT- should we sell today?
What would happen if we sold today?
Yikes- this aint it. If we sold today the 3 year cost would total a whopping $118,485.87.
Assumptions here are that cost to sell = 10% of sell price, sell price = +6.5% 1 year national return, $0 in capital gains taxes, and $0 in tax savings. Even if we sold for Seattle’s current +10% return the cost is still > $100k.
There’s got to be a better solution..
If we can sell for $543,577.33 in 2 more years our total cost over 3 years decreases to a beautiful $39,951.94.
This assumes the national return +6.5% year over year x 3. Sell price is really the only factor that matters. But I’m a realist and $544k seems like an unachievable sell price for our 900 sq ft condo (even in Amazon country). Based on my knowledge of our market I think a sell price between $510-525 is more likely, putting the total cost ~$50k. Significantly better than 3 years rent.
In addition to the numbers
I never used to think of home buyers as brave but my perspective has changed. Its not easy leaving hundreds of thousands of dollars up to a market you cant control. Amazon relocates its HQ- screwed. Recession- screwed. FED raises interest rates significantly- screwed. The big earthquake rumored to devastate Seattle any day now- screwed.
Real estate has long been considered a relatively secure investment- reliable & predictable just like we like em. It doesnt feel that way to me now.
Whether its the political climate, inflation giving me nightmares, or how millennials are reshaping the world- I would feel just as secure putting those upfront costs in an index fund.
There’s also something to be said about the flexibility of renting. Even though we expect to live here for 2 more years life can always have a different plan. If we had to move for family or jobs & rent elsewhere we’d be stuck paying our P&I payments + HOA until we could sell.
So for now we will continue to pay those interest heavy monthly payments & an HOA that would make my parents in Indiana do a double take. I will incessantly obsess over our situation because it makes me feel like I’ve got some control.
Step 1 in knowing whether renting or buying is best for you is to compare ALL costs of YOUR options- dont compare to your friends. That girl on insta might have bought a house before you because she never plans on leaving that town.
Every market & place in life is going to be drastically different, but the logic stands.
Jamie Pippenger
