Buying a house

We've been renting a house since we moved from SoCal to Penn last year. Renting was a good choice, as we needed to get to know the new area, and make sure the schools and neighborhood would work for us.

We rented our old house to a family moved down from NorCal to SoCal. They rented out their house too.

So for the first time in my life, I've become both a landlord and a tenant at the same time. It was quite an experience.

We tried to be open and communicative to our tenants, and stayed on top of all necessary repairs. I let them know all the things they should know to live in our house comfortably, especially anything that may become a safety issue. In turn, our tenants have done their best to take care of our property. We appreciate their paying on time and being proactive on any repair issue. In a difficult year, this relationship worked out quite well.

Our landlord, on the other hand, had been avoiding direct communication at the outset. If there is any repair issue, they would rather not be bothered... eventually, as one would expect, this kind of relationship ran into problems. We paid a generous above-market rent for them, in return we got almost no help from the owners who had lived here for a long time. Moreover, when it was time to renew the lease, they wanted to raise our rent, despite the softening market.

These problems pushed us towards buying. That aside, the economics appears to become more and more favorable for buying: home prices have been dropping steadily over the last year, mortgage rate has hit historical low and got lower. For a bigger house in the same neighborhood, our rent would more than cover the mortgage payment. With tax savings taken into account, we would be roughly ahead by the amount of principal payment we would pay against the house. That is, with a little bit of work as a homeowner, we would be building up equity every month. That equity would be totally gone to the landlord if we continue to rent.

In other words, if we buy the house we're renting now at market price, and rent it out as an investment property, we would be generating a small positive profit at year 1. Bear in mind this is one of the best neighborhoods in this area. Usually people tend to want to own, not rent. In such neighborhoods, it's usually hard to break even with rentals at the beginning. So this is a clear sign that it's about time to buy if one has a stable job. The housing may not have hit bottom yet, but it should be fairly close.

We found several houses we like. As we got into the market and started making offers, I quickly realized how thin the market was. You rarely see multiple offers. Very few buyers. At one point, our withdrawal on one house affected the pricing of some nearby properties immediately... Sellers have to price it right, or risk sitting on the market for months after months, and going through multiple reductions.

We didn't get the home purchase tax credit. Interstingly, the expiration of the tax credit have benefited us far more than $8000: The market had become markedly softer and the mortgage rate had gone down even more dramatically since June.

As I write this, we're getting ready to settle this week. After this local move, the turmoil of 2009 which had affected us in a big way will finally be behind us.