“Buying a house” has been a joke at the expense of millennials for a decade — but a lot of us are in stages of life where it’s both desirable and potentially an option.
In this mega-post, I go into everything: my real estate purchases and how they changed everything for me, why buy – and how to asses the value YOU get, the sticky ethics and why I think it’s still good to buy (if you want to), some surprising realities and costs, frequently asked questions about buying a house, investing, and dump a houseload of resources on you – including info on an upcoming workshop.
Table of Contents
Navigate this wildly long post with the handy links here!
- The Basics
- My Story
- Ethics, Feelings, and Intersectionality
- Why buy or not? Assessing the 4 types of value
- 10 tragic truths (you wish were not true) about trying to buy
- 6 surprising costs you pay for when you own
- Financing: Mortgages 101
- Why own? What is possible When you Buy
- Creative Possibilities: Collective Project
- Real Estate as Investing
The Basics of Buying a Home
Buying a home is for many a big dream on the bucket list and the ultimate marker of “making it” (for the rest of you “making it” perhaps means a yacht, or maybe just going to the grocery store and not looking at prices).
Where will it be? Will you finally get to go outside naked? Can you actualize your HGTV ideas? What magic memories will it hold? ...and how much is it going to cost?
At its most basic, buying a home (aka buying “property” – an apartment, house, farm, etc) means you get the title to land and a building officially filed as in your name, and you get all the rights and responsibilities: making use of the space, as well as associated costs, like property taxes, maintenance, and paying off a mortgage loan if you take one out, as most folks do.
You have to have a certain amount of income and decent credit to qualify for a mortgage, and you’ll need money in the bank to start, and money coming in to keep it going. Thems the facts.
Before we go further, a bit about why I care — and why I am uniquely qualified to share this ridiculously long post (and workshop!) about buying…
I’ve always hoped to buy a home and in 2015 I started examining the process. I saw folks around me buying, the real estate market moving, my queer community’s gathering spaces closing, paid-off land projects making beautiful inclusive decisions, and felt the complicated freefall feelings of someone whose parent rents and therefore had no basement or childhood bedroom to run back to if things got bad for me.
For me, realizing that my credit was there but my income was woefully inadequate and my savings were a joke for the NYC market wasn’t fun. But it kick-started two things that would change my life:
- I got my butt into better paying job seats. This was the direct route to my dream (+ has had the side effect of lots of interesting projects!) and it motivated me to figure out the hop from nonprofit to tech.
- I decided to invest in real estate outside of NYC, where my income and savings were adequate — especially since when I started, I partnered with a friend #babesinbusiness. This has been my major financial teacher, as learning what houses *really* cost, and then becoming responsible for thousands of dollars in loans completely reset my mental money anchors.
In late 2015, coached by yet another working-class hustler friend who’d bought, we bought a multi-family house. It was in many ways a LEARNING PROCESS (a whole ‘nother post). I want you to skip the wrong assumptions I had and mistakes I made but get the benefit of the education, because I ultimately learned enough to be able to co-buy a second house in 2018, and a third on my own in early (thank g-d) 2020.
Owning with someone else, and being responsible for the care of other peoples’ homes while making financially sustainable decisions with rentals has taught me that you have a lot of choices as both a homeowner and a landlord. Pro tip: there’s no rules written anywhere that you have to maximize for profit only. You can choose to maintain nice and fairly priced housing for others while gaining value yourself outside the weirdness of the stock market. Again, topic deserves a separate post!
But, three house purchases and almost five years in, I have a lot of experience and insight to share and back-end spreadsheets that have helped me :). I have made mistakes along with great decisions, and had my incorrect ideas harshly corrected, which I’d love to help others avoid.
It gives me a lot of peace to be confident that when I leave NYC I’ll be able to buy a home for myself, and someday I’ll leverage the investments to fund the art retreat / land project of MY dreams. #BeYourOwnSugarDaddy. I didn’t do it alone — remember, I started with a business partner — but I also didn’t start with anything else but that and a $40k a year job and $20k in the bank I’d saved dollar by dollar over a loooong eight years. Read more about how to save here or here.
ETHICS: It’s not right, but it’s also ok
If you have unease about owning real estate, you’re not alone and have good reason. The history of property as an enacted concept is brutal, connected to harshness in colonialism, enslavement, marriage, industrialized labor, gentrification, value extraction…. It goes on and on.
But, property ownership is also correlated with housing and financial stability, land stewardship, wealth-building, and the ability to exercise your right to live your life and go about your business as you damn well please. It’s both, and on the puny individual level most of us operate on, the benefits far outweigh the harms we could ever do. As a matter of fact, it can allow you to do good.
If owning property wasn’t meaningful, why would it have been systematically denied to Black Americans or women? I often wonder what would be different in queer culture if the history of housing discrimination, homelessness, and lack of ownership of queer – especially lesbian – gathering places was different, and if we’d had more stable cultural spaces and homes to offer each other.
My position is that it’s complicated and the socioeconomic outcomes are better for marginalized folks when we own: our homes, the buildings where our businesses go, and investments. We’re in a system that uses the concept of private property as a core function; both conceptually and in practice. Property is not going anywhere. We must learn to utilize it as a system to stabilize, protect and elevate ourselves and each other.
I have to admit, I started out suspicious of owning things: all I could see was the brutality and unfair inaccessibility, and heard the voices of people around me pointing these out. Now, I see with a bit more nuance, that some of those voices come from people who are uncomfortable with property ownership because of the property their families own. If you’re uncomfortable due to that, it could be because you’re benefiting and feeling the truth that it’s not fair that some people benefit and others don’t. It’s also not fair to advocate for other people not to get the benefits you have, just because you’re uncomfortable with your privilege. Because at the end of the day, you’ll still benefit without doing anything, and others won’t unless they take action.
It’s not right, but it’s ok to do something about it.
For those of you who get a financial boost from family to get into a home – that’s great, honestly it should be that way for everyone and just because it’s not doesn’t mean it’s not ok for you. Here’s to more of us getting what we need, having stability, and getting to do all the good things that come with that.
Some folks want to figure out ownership because it’s been historically unequal, and it’s time to get some housing stability and wealth redistribution around here. Those interest deduction tax breaks and homes to pass down shouldn’t just go to rich people, my dudes. A feeling of relief and creating stability for yourself and loved ones is ok to want, and ok to try to get.
In the US, security and stability is hella tied to owning shit. I’m going to talk and teach about how to own property because it is inaccessible and unequal, and one way to make that right is to make it accessible to more people by breaking down how it works: how it could work for you and what you want. Especially to you good people — because believe me, something else I’ve learned by diving into investment property is that the places you’re not buying miiiight be bought by a family or also might be getting bought by a whole ecosystem of LLCs owned by Jakes Joshes and Johns, and they dont give a fuck about anything but making money. I go read those threads so you don’t have to!
It’s not right that owning a home is difficult or tied to inequality, but that’s all the more reason I’m motivated to help you make it possible. Let’s change some social determinants around here.
I want more progressive and ethical people to own homes and land, so we can more easily do creative and expansive things on our terms, and for ourselves and each other, like:
- You want to pay money to yourself instead of a landlord? Get comfortable with dealing with ownership.
- You want to steward land? Get comfortable dealing with ownership.
- You want a land trust with affordable housing? Get comfortable dealing with ownership.
- You want a collectively-owned business? Get comfortable with dealing with ownership.
- You want the opportunity to build the yurt-laden organic food artist retreat of your dreams in a yard? Get comfortable with dealing with ownership. Yours or someone else’s, up to you!
- You want to create and defend affordable housing? Get comfortable with dealing with ownership.
- You want to spend your time as a cultural worker more than at a dayjob? Get comfortable with dealing with ownership, yours or someone else’s.
- You want to provide (or live in) movement housing? Get comfortable with dealing with ownership.
- You want to build a place to offer rest for those you love? Get comfortable with dealing with ownership.
- You want an investment you have more control over than stocks? Get comfortable with dealing with ownership.
- You want to hold down the cost of housing? Buying locks in your cost, so Get comfortable with dealing with ownership.
- You want an accessible building and community space that you don’t fear getting kicked out of? Get comfortable with dealing with ownership.
We have to always balance reality and desire – and if you desire to have a place that’s stable and where you have enough control to make big decisions, the reality is you have to get comfortable with dealing with ownership — yours, a group’s, or someone else’s. If there’s a group of you seeking to buy, check out my post on How to Buy a House with Your Friends.
Why Buy (or not)? Assessing the Four Types of Value
“Is now a good time to buy?” Without doing a market analysis here, we can acknowledge that interest rates are at 50-year lows and if you don’t have a yard…you might really want one these days. There’s a lot of activity in the housing market, and it’s called a “sellers market” because it’s easy to sell and more challenging to buy [or is it?] since there are more other buyers. This could be a whole separate post, so let’s start with the basics: what are you trying to get out of buying?
There are many, many reasons to own, along with the basic (and ok!) I want my own house for me and my family. But did you know there are four types of things you will get from owning property? Consider each of these as you decide whether to buy, to evaluate what the worth of a property is to you.
There are four types of value you can get out of owning real estate.
- Emotional value – achieving a positive feeling, like of stability or autonomy or hell yea I did this pride. You can’t really put a price on this, though technically the cost is whatever it costs you to get a property.
- Market appreciation value – this you have very little control over, but averaged over the US, the value of housing has gone up along with inflation, with specific cities going up way more. Don’t buy property expecting over-inflation appreciation (unless you buy under market value and/or do work to increase the market value). And, since appreciation value doesn’t even matter until you sell or go to refinance a loan on the place, if you plan to live in the building for a long time/until you die, it won’t matter to you if it appreciates, if you don’t sell to gain the appreciation.
- Land/building value – whether you pay in cash or have a mortgage, you’ll own respectively, all or some of the value of the land/buildings, and that’s a material value. It’s a thing, and that thing is your property. This is the basic value proposition of owning, by the way. You can take loans out against the value that’s yours (if it’s paid off, paid down, or appreciated). You can sell and get someone to pay you the current value. A lot of folks think of a property as their retirement plan because they expect to pull out some of the land/building value to live on, once they stop working. This can apply if the property is a home you live in, or one you rent for any use. Speaking of…
- Use value – you might live in it! You might use it for your business or rent it to someone else’s business! You might rent it to someone for housing! You might have a grant / patreon model paying so a collective can plan great things in it! You might donate it to be used for any of the above. You own it, and you decide how to use it. That’s kinda the whole point.
Ten tragic things you wish were not true about buying property (but you can handle the truth)
There’s a lot of things that are true about buying property that aren’t “right” – but wouldn’t you rather know the truth than be stuck in your idea of how it’s going to work? Yeah, thought so.
You can handle the truth – you’ve been through 2020.
I can help you plan to save to get some stacks, and I can help you plan ahead to navigate the many surprises coming your way. I’ve bought three times and each time learned something – and while I’m sure there’s more to know, I’ve outlined the important elements that are unpleasant but true based on the current systems.
- Your income needs to be on paper with the IRS for 2-3 years. YEARS. If you’re a freelancer/self-employed, be ready with the last 3 years of taxes. If you get a W2, have two years.
- Your down payment needs to be in your account for at least 60 days ahead of time UNLESS it’s a direct gift from biological family. They will check, it’s because of 1) AML – anti money laundering and 2) making sure you’re not borrowing money from a friend they will assume you have to pay back. You have to think like a risk-averse basic person who doesn’t understand chosen family.
- Closing costs add another 4-7% to the purchase price – sometimes you can get the seller to pay them, but not always — and definitely harder in a hot market! Sometimes you can get them rolled into your mortgage costs, but not always, and you’ll have to make sure you’re able to qualify for the new, larger mortgage if so. Paying closing costs means you’ll need more money, like a LOT more money. For a $300k home, that would add $12k-$21k to the money you need to hand over to get those keys.
- $15,000 is not a lot of money in real estate world. Neither is $25k. I’m sorry, I know. $50k is just on the edge of “real money” to the people who do these transactions regularly. Yes: you might do a $25k transaction, but just know you’re a lil peanut if you are (and still, you deserve respect!).
- You need another 2-6 months of principal and interest (P&I) in your account (on top of your down payment/closing costs) to get that mortgage approved
- The official idea of family is really limited. To a mortgage lender, family only means biological or legally wedded family. So if you happen to have parents who are giving you $$ for a downpayment, the system works for you. If you happen to be a few best friend life partners, you all are illegible to the mortgage system. They just won’t believe that one of you has the downpayment if another is to be on the mortgage.
- No buildings on the land = no mortgage. Land isn’t collateral (a thing the bank can re-sell if you default on a loan) but a proper building is.
- Your official income relates to the amount of mortgage you can get. More income reported on your taxes = more mortgage available to you. If you make $45k a year you are unlikely to qualify for a $400k home. Same if you make $90k but write off $50k on expenses.. your official income on paper is then $40k.
- Getting a mortgage over 510k (in 2020) constitutes a “jumbo loan” and is harder to get. You’ll need better credit and a down payment of at least 10%, or 15% if it’s your first time buying. This number nudges up a bit each year.
- Inspection and Appraisal fees are upfront and extra — find a place you like? Have an extra $600-$1,000 cash on hand to pay to get it inspected to see what’s “under the hood” and, if you’re ok with the inspection report, then you pay for it to be appraised by the bank to confirm they are lending the value the place is worth.
Buying property is complicated and there are hella hidden costs that basically assume you’ve got stacks of extra money laying about and a personal advisor (eg, that you are privileged). Knowing what’s coming at you can at least help you plan — so, speaking of….
The surprising six expenses you don’t know about until you own
- Water isn’t free. Even if you have a well, you have to maintain the systems.
- Your monthly costs are likely to be higher than what the real estate apps estimate. They assume you’re putting 20% down and usually get property tax estimates wrong. A much better estimate is going to come from a mortgage pre-approval, plus you manually estimating and adding 1% of the home’s value annually for all maintenance costs.
- Yup – Maintenance on your home costs money – especially when you start. Assume 1% value of property year/average and add it to your monthly savings. For example, on a $300,000 home that means expecting $3,000 year averaged over time, which is a $250/mo cost. Saving monthly means you’re creating a “sinking fund” to pay for the big (a roof!) and small (a window screen!) expenses WILL that come up when you are responsible for the building and grounds.
- Private mortgage insurance (PMI) is added to your monthly mortgage payment if you put down less than 20% of the purchase price. PMI is a type of insurance that may be required by your mortgage lender if your down payment is less than 20 percent of your home’s purchase price. PMI protects the lender against losses if you default on your mortgage, it doesn’t protect YOU at all, sadly.
- Property Taxes are higher than you think – apps don’t usually get it right, and different cities/states reassess taxes annually, on sale of property, etc. There might be additional taxes for school, or an exemption if you live in the property. Ask your realtor how it works where you are buying. Also, property taxes can go up. Ask your realtor if they go up annually, or what.
- Sooo are you doing that yard work and house maintenance or are you paying someone else to do it? Do you have the tools and materials? It’s not just about the roof you gotta replace, there are everyday tasks that need to be done: is it by you or will you outsource?
Hello – You can learn this ahead of time without strife!
In the Money Tips for Buying a House workshop, we go through a whole worksheet so you can get REALLY clear on what your expenses might be. The sessions this Fall are only $35 — that is like 1% of what you’ll save by learning this stuff from my hard-won experience ahead of time, so RSVP and see ya there?
FINANCING: MORTGAGE 101
Some of you will buy in cash, and you all can skip this section unless you’re curious about the pain inflicted on the rest of us. With an all-cash purchase, you can skip many steps: mortgage shopping, pre-approval, paperwork, appraisal … if you’re getting a mortgage, get ready for your examination (gloves snap).
Getting a mortgage is how most people get homes, since most of us just don’t have that much cash lying around. When you have a mortgage, you own a percentage of the place, and the bank owns the rest. If you don’t pay the mortgage, the bank can eventually take it back (foreclosure) and try to sell it to recoup their loan, and you get nothing. Because this is heinous all around, banks tend to have programs to help homeowners who are falling behind on payments, and even certain types of bankruptcy let you keep your primary residence (and keep paying on it).
If you’re serious about buying a home, absolute step 1 is to understand your financing costs and options. These dictate a LOT of your options. Talk to a mortgage broker and, if you’re within 6 months or less of trying to buy, get a pre-qualification (simpler) or pre-approval (more steps, more “official”). Why?
- Most important: YOU need to know how much mortgage you’ll qualify for, and about how much monthly cost to expect
- A realtor is unlikely to start to show you homes without some proof you got money to buy.
- Offers you put in are much more likely to be taken seriously
There are a few types of mortgages. The two most common:
- FHA –– you can put down 3.5-5% you have a fixed cost over 15 or 30 years. These have the unfortunate quality of having PMI for the life of a loan. However, they’re also away in for a lot of people, and still worth it for many.
- Conventional fixed rate — put down 5+% and have a fixed cost over 15 or 30 years. These require you to have “better” credit and reliable looking income.
The main differentiators that influence the types of mortgages available to you and what it’ll cost you are:
- Use: Is it for you to live in full-time, as a part-time/vacation, or are you renting it out? If you’re renting it out, you’ll have to put down more than if you are living in the place.
- Building type: Is it a single family home (SFH), or a multi-family apartment? If so, are there more than 4 apartments — because you’ll need a special loan (and this is why you see so few residential buildings with tons of apartments).
- Down Payment: How much of a percentage of the cost of place are you putting in? Depending on the use and building type, you’ll need to put down 3.5% – 25%
A note about down payments — as pointed out above, they’re NOT your only cost!!!
Some additional things that influence mortgage types:
- Price of building: if it’s over $510k, you’ll need a “jumbo” loan
- Building zoning: if it’s only zoned for commercial, with no residential area (house, apartment), you may need a commercial loan
This is a LOT of variables — which is why you need to talk to a mortgage broker about financing once you’re serious about buying. You’ll learn a LOT.
However, a broker won’t necessarily share all the back-end context and systems with you — they’re not all great explainers — and that’s why I’m giving a workshop on buying! It will take a team for you to get there.
So many folks have big and amazing ideas for what to do with a hunk of barns and a few acres. I love weirdo land projects as much as the next queer, and I want you know a bit about what you’re getting into:
So you want to fundraise for and start a land project
You’ll need to know the ten tragic things and the six surprise expenses and you might want to read about buying property with friends. Most important to me is that you fundraise enough money because it’s all so much more expensive than you think.
So you want to buy a house with your friends?
I wrote a whole post on the social and process work needed — you’re creating a little democracy (or a dictatorship, your choice) among you all. Group dynamics and governance are a thing, be intentional.
So you want a commercial property
Time for a commercial loan! Or, a lot of cash to buy outright (always easier but not available to most.) A commercial loan requires a registered business, that makes good (over $500k annually) money, with annual records for a few years, and a cash flow/revenue plan. That you? Great! Not yet — well…work that business plan, or make a Plan B.
Real Estate as Investing
Some people think about their homes as investments — and in a way, they are but as I pointed out above: it’s not an investment you can realize (eg get money from) until you sell it, and if you’re planning on living in it til you die that means … you never get money from it, though of course you get the value of a secure place to live.
What about if you just want to buy property but not for you to live in, and try to get money from it? That’s investing.
Now, writing the word “property” always makes me hear a tiny trumpet in the background and imagine there’s a horse to be ridden somewhere nearby and that perhaps I am in England. It’s awkward, but the term is correct when you’re not talking about buying precisely a house, or a home — and it’s the term you’ll be getting familiar with if you‘re interested in buying rental investment property.
This topic is going to get a whole other treatment, later, because there is a lot of detail and acronyms we could go into (Cap Rate, CoC, BRRR and on and on), but I want to start with three key points:
- Higher Down Payment — If you’re thinking about investing in rental real estate with a mortgage, plan to put down 20% for a single family home (SFH) and 25% for a multi-family…30% if your income isn’t lots. These mortgages do not have the same low down payment amount options as personal mortgages.
- The *other* 1% rule — could I reasonably rent this for at least 1% of the purchase price. One of your goals should be covering your costs, which will be many and this rule of thumb is your first sniff test to estimate if this might be a sustainable investment.
- Investment Diversification –– ahhh the exciting world of risk management! If all your money is in one stock and that tanks, where does your money go? Away from you, that’s where. And if all your money is in the stock market and it tanks, where does your money go? … right. Choosing to invest in a few, different things – stocks (business), bonds (cities/states), property (buildings/land), and so on means that the ups and downs of each of these sets of value balance each other out and you are less likely to go completely broke than if you own only one.
The ethics: As I mention above…there’s a LOT of folks getting up in that real estate (RE) game these days, and not all of them are friend to moral approaches. So sadly, one benefit of investing in RE is blocking the chads from flipping the shit out of neighborhoods.
More directly, as a small landlord, you have a lot of power to be the landlord you wish you’d had: when the pandemic hit, we reached out to our renters (well before any laws came out) to tell them their housing is secure, and we’ll work with them as needed if they lose income due to COVID, and to focus on staying healthy. You can do that. It’s especially easier because we have a reserves, but *there is literally no law mandating exploiting every last dollar from people if you own the house they rent.* Yet landlords do this…because, capitalism rewards greed.
Finally, as a RE investor, you profit when you take care of your property and keep your tenants happy and renting from you. As an investor of any other kind, you have a lot less power and sometimes you profit when companies make decisions you disagree with. It’s complicated, but so is all the choices we make in the system.
I like it because it adds nuance, diversification, and a different level of security to my life. And maybe someday it’ll mean I get a house to live in, too.
Frequently Asked Questions
What kind of team do I need to buy?
Your realtor is the center of your team and I suggest you interview at least two folks since you’ll be spending a lot of intense time with this person and (hopefully) learning a lot from them along the way.
A mortgage broker and inspector are basically required, and if you’re looking at a place that needs renovation a contractor to help you estimate reno costs is also valuable.
Like…. How much is a house?
Houses can be $80k (rural Ohio) or $800k (Ottawa suburbs), it is all dependent on the area, the size, and the condition. There is no universal expectation to set, pals.
Forget listing price. Use the apps – Zillow and Redfin and Trulia — to learn what homes in a particular area have recently SOLD for. That’s the key information.
How do I save up a down payment? And how much?
As you read above, $15,000 is a lot of money … unless you are trying to buy property. The annoying answer to this is “as much as possible”, but you’ll struggle to get anywhere with less than $15k in a small town where houses are $125k and you’re putting down the bare minimum of 3.5% + closing costs. However if that’s your location and plan – there you go!
How you save it up – that’s where your creativity comes in. I rode a bike everywhere for 17 years to skip having to buy a bus pass. For the first 5 years that was truly due to having no money, but after a while I was able to save that cost, and putin that $100/mo into a savings account was part of the money put into my first property purchase, along with saving my tax returns and 10% of every dollar I’d gotten. Look, I’m able bodied and extremely motivated not to have the same financial outcome as my parent soooo that helped and this method might not be available to every broke person let’s be real. Later, I realized it was a hell of a lot easier to just negotiate higher salaries and have more money to save, which is how I save money now.
Aren’t there programs that help people?
Various counties and cities have programs to get people into homes by helping with closing costs (those extra fees that surprise and frustrate a lot of people – just not you). There’s usually a timeline and lots of extra steps BUT you get/save thousands of dollars so, if you can access it? Quite possibly worth it. Look up the place you plan to buy and call around to see what you can get.
Is it always better to buy?
What kind of value do you want to get out of it? Financially, use a Rent vs buy calculator to learn your break even date, and then factor that into your decision along with considering the other things you want. Usually you need to live in the place for 2-5 years to break even ahead of renting, but the more expensive renting gets the shorter that time period is.
There’s a lot more you can learn, and in particular understanding the timeline and your true cost to buy are SUPER useful, which is why they’re the key elements of the workshop /zine I’m sharing.
There’s also a discussion on co-owening glossary, a spreadsheet calculator, a list of all the things you’ll want to do in order, and a lot more detail.
I’m piloting it right now for $35 so sign up for a workshop session soon, while it’s live and before prices go up 🙂
Money Tips to Buy a Home Workshop
In this 90-minute remote workshop, you will:
- Understand the biggest surprise expenses and how to be ready for them
- Become better prepared (credit, income) to apply for a mortgage – and know why
- Overview the timeline, team, and tasks you’ll need to buy
- Estimate your true cost to buy a home
- Identify who
This workshop is for you if:
- You want to know what it really takes, financially, to buy a home
- You are imagining you will buy in the next year or two
- You already have savings
- Are planning on using a mortgage
- Have any kind of plan that involves friends / collectives, a land project
We don’t cover:
- How to make your house look ig-worthy
- House hunting or search tips (get your realtor on that one)
- Savings or income plans to get a down payment together