05 Sep Our First House

In 2010 the housing market was ever so slowly crawling its way toward a recovery and we couldn’t have been more privileged to have begun a marriage and financial journey at that time.  My wife and I were earning a combined $95-$105k, well over the median household income in MN which hovered around $68k in Minnesota at the time.

Still though, while we didn’t fully understand the weight of the recession, we knew it was bad and we knew we had two choices in regard to housing.  Rent or buy something for less than you can rent.  We chose option two and sought-after properties under $100,000 since we could only use her income as my credit was still recovering as my newly debt free life was distancing itself from countless late payments and a debt to income ratio that was an embarrassment.  The MLS was littered with foreclosures and short sales at the time and there was a minor distinction that seemed like it didn’t actually matter in the short sale category, it was labeled “Bank Approved Short Sale.”  Bank approved must not have carried much meaning because we made an offer for $94,000 on a townhouse listed at $94,000 and our offer was accepted, theoretically anyway.

We were aware short sales were anything but short on a timeline standpoint and that the word “short” only applied to the amount paid up against the current owner occupant’s loan value.  Something like four months went by with very little or no traction, we anxiously awaited anything from the bank.  Our poor realtor, who is a rock star realtor and is still our realtor today, fielded impatient calls from me about every seven to ten business days.  She would promise to call and get an update and she would, but often the update was just that the bank hasn’t reviewed our file but it’s on someone’s desk somewhere, buried under other files just like ours.  In hindsight, had we been able to use my income we probably would have been approved for as much as $250k and we would have pulled our offer and bought the same townhouse with a different address on it for something like $110-$120k.  While this would have been just a few dollars more in total mortgage, it wouldn’t have hurt our short-term financial picture in any way shape or form.  As it sat, our total mortgage, taxes, insurance (super cheap on a town home), and association dues ran around $790, adding $20k in principal would have barely touched that and you couldn’t rent an equally nice apartment for $950 a month in the area, let alone a townhome or house.  We held strong and watched other potential listings come and go that we could have considered offering on but would have had to start over on a different banker’s desk, hoping for a different result.

It must have been about four months since our offer was accepted and fifty days or so until our wedding that my phone rang, and it was our realtor calling me unsolicited.  I was running on a treadmill at the time and I was “that guy” answering my phone at the gym because this was too important.  She was so excited and said something like, “Here’s the deal, the bank has your file in hand and will resolve it by the end of the week, however, prices have changed so instead of $94,000 previously accepted, you need to come up to $99,500.” I didn’t realize they could set the price like that after already accepting a price, we did some math together, and for some stupid reason I decided to negotiate and said to go back and offer $97,000.  I don’t think it ever hit me how stupid that was, $2,500 in purchase price is incredibly insignificant, the bank held the power, and if they didn’t like my offer my file could go back to the bottom of the pack.  Fortunately, fate was on our side and they came back and said $98,250 and we accepted immediately.  While I was excited that we got a little back, I was still not convinced the actual process would move forward, but it did, and we closed the day before our wedding.  We were the proud owners of a 1,294 square foot 2 bed 1 & ¾ bath townhome in the south metro in MN.  We owned for less than rent, we put down less than we paid in closing costs (so it seemed) and we planned on living there for ten years.

Over a three-year period we used our $8,000 tax credit to pay down some of my wife’s debt, install new interior doors and trim, and paint the inside of the house.  It made a huge impact and we loved the house.  Toward the end of the three years we had a custom mantle rebuilt on the fire place and a bench with hidden storage that really made our basement pop.  We were ready to remodel our main level bathroom to get rid of the 1970s sea-shell shaped sink and called the realtor over to give us their opinion on how much should we spend.  She walked in and in seconds looked at us and said, “Whoa, you guys have completely changed this place, we need to sell your house!” Come again? The plan was ten years, its barely over three years, we had zero intentions of selling.  She asked me, “How much would you need to be willing to sell this house? Give me a number, I show houses like this to young couples all the time and should have it sold in a month no question for top dollar.”  I threw out a number of $125,000 thinking that was way over what we’d ever get for it, the highest price decent similar home we’d seen in 2010 was going for about $117,000.  She smiled and said, “Well, add at least $10,000 to that number but I think we’d list at either $139,900 or maybe even $145,000 just to see what we get from an interest standpoint.”

We were blown away, we remodeled the bathroom and never took a single shower in it, no kidding, not one shower, minimal hand washing, we wanted it to be a new bathroom to get top dollar.  We listed at $144,900 and got an offer at $135,000 a couple weeks later and landed at a sale price of $138,000 with some split closing costs.  We cleared something like $33,000 in cash on that deal, putting down about $12,500 on our new house while using the rest to round out a larger savings cash pile and filled up our new house with furniture and a few other general needs.

We had no idea the power our purchase in 2010 would have, we just thought we bought a house for less than you could rent, and it turned out we learned the power of real estate.  We didn’t immediately make any moves in regard to real estate, but we had this extra money and really wanted to do something with it.  It took time, we built on it and eventually we did do something with it, but what a way to start!