I closed on a new home in south Boulder last Friday. And this past weekend, Amanda and I — with the help of her sister Jill, brother-in-law Brian, and two hired hands — moved in.
We love it, as does Amanda’s cat, Oden, who has 3x more space and a small backyard to now explore. It’s a major improvement over the cramped and boiling-hot 695-square foot Highlands apartment that Amanda has rented for the past 15 months — and that we shared since late-April when I returned from my Spring speaking and book tour, plus a few months last year in between long stretches of travel. I will miss one thing about our former neighborhood, however: Zio’s, the local bar, where I could score $1 pizza slices and $1 PBR’s after 9pm.
This purchase ends an impressive 13-year streak during which I had no genuine address. Not since August 1999, when I left my parent’s Massachusetts home for college, have I had a place where I could reliably hang my hat.
Even eighteen months ago I would not have predicted that I’d be a homeowner today. I was fresh off the Alaska-Yukon Expedition, not ready to “settle down,” and didn’t have the financial capital or income consistency either. But life changed: Amanda and I got serious, and my business took off. Just as important, I stayed frugal — during leaner times, I had learned that I didn’t need to earn much if I didn’t spend much, and that proved to be a hard habit to break. I even found an inexpensive workaround for date nights: Groupon (which, by the way, is more effective when not disclosed). Due to this combination of factors, homeownership became more appealing and plausible.
Home-shopping and the home
The Boulder real estate market caught fire this Spring, as apparently happened in many other high-demand markets too. We began looking seriously in mid-February, but it took a few weeks of home-shopping to “understand value,” during which time many other buyers entered the market — families and couples like us who had acquired the cash and confidence to buy in uncertain times, and investors who were seeking rental properties that would provide higher returns with less risk than other investment opportunities. We were all motivated by historically low interest rates, rising rent prices, and an early Spring.
Unfortunately, the combination of surging demand and limited inventory (in March, the number of listings was 40 percent less than a year prior) resulted in rapidly increasing prices, and many properties were going under contract within days of going on the market. We submitted an offer on one property just days after its listing, but we lost to an all-cash bid of an amount that was almost 10 percent higher than the market’s going-rate just six months earlier.
By mid-June, four months after we began searching, Amanda and I had become downright discouraged. Very few properties had been listed that met our price and spec standards. And we were struggling to swallow the premiums on Boulder real estate. One of the last properties we looked at was a condo on Shanahan Ridge, which has five-star trail access. Even so, for $280,000 we hoped for more: it offered just 1,064 square feet plus a detached one-car garage, one bedroom and a loft, and one full and one half-bath; nothing had been updated since it was built in the mid-1970′s; its floor plan was inherently inefficient; and the quality of its construction and materials was frustratingly shoddy. When I reluctantly began discussing an offer strategy with my realtor, Amanda excused herself: “I’m going outside. I think I’m going to cry. This can’t be our only option.”
Agreeing with her, that night I expanded my search criteria, looking more seriously at other parts of Boulder and even at different Front Range communities. Inventory elsewhere in Boulder was also extremely limited. And I just couldn’t get excited about living in Golden, Louisville, and the other outlying towns — they all have redeeming qualities but, well, they are not Boulder. (If you have lived in Boulder, you know what I mean.)
The expanded search did turn up one promising property, however — a spacious 1969 ranch-style townhome with two bedrooms, two full baths, an apartment-style basement, and an attached two-car garage. Amanda and I peeked through its windows the following day while we were in town for dinner with friends and liked what we saw: a very open floor plan, hardwood floors through the main level, an acceptable kitchen, and a relatively enormous master bedroom.
The property demanded some compromises, however. Its location was not as first-rate: it’s exactly one mile, not 200 yards, to the closest trailhead, and it’s within earshot of both the Boulder Turnpike and Foothills Parkway. And its price tag was a stretch. But we agreed that the first drawback was tolerable and that the second could be resolved by finding a housemate to occupy the basement.
I scheduled a showing on Monday morning and submitted an offer a few hours later. I had been told that, “When you find your house, you’ll know it.” And I certainly knew it on this one. By Tuesday afternoon we were under contract. The loan approval and closing was complex and intense but mostly flawless.
Why I wanted a home
Buying a home is both an emotional and financial decision. My motivations were — uncharacteristically — mostly emotional, and thankfully I was comfortable with the financial justifications, too.
Since graduating college I have essentially been a hiking dirt bag. During the warmer months I lived out of my backpack. During the off-season I found month-to-month — or even week-to-week — living arrangements, unofficially residing at no less than seven residences in as many years, probably not long enough to meet residency requirements and certainly never consistent enough to officially declare that I no longer lived with my parents.
Like it does for many dirt bags, however, the transient lifestyle stopped working. Not having a suitable space stressed my relationship with Amanda. It hampered my business operations, as I didn’t have a stable workspace or an efficient organization system for gear and supplies. And, most of all, I felt chronically unsettled — if I am going to keep traveling for business for 150 days per year, I need place of my own where I can retreat, relax, and refresh between trips, or else it’s unsustainable.
How I financially justified a home
For emotional reasons, I wanted a home. But it was important to me that the decision was very financially sound too.
In a worst-case scenario, I figure this purchase will leave me no worse off than if I held onto my cash and continued to rent. If we did that, we would bleed about $1,400 per month. By owning, in the first twelve months we build about $400 of equity per month and pay about $800 per month in loan interest, about $200 of which we save on taxes through the home mortgage interest deduction, so our net bleed is only about $600 per month. After accounting for additional home-owning expenses (e.g. HOA fees, property taxes, capital improvements, and maintenance) we probably save about $500 per month versus renting.
Of course, I’ve locked up a considerable amount of my cash for the down payment. Given the current economic uncertainties and the looming crises on both national and global levels, I think it’s possible that at some point I may owe more on this house than it is worth, putting this capital at risk. But the property’s value would have to decrease by about 2 percent per year to negate the $500 per month savings of owning versus renting. This is unlikely over my ~20-year ownership horizon, especially in Boulder where the property values are very resilient.
If economic Armageddon never happens and the house appreciates only at the rate of inflation, for renting to be cost-effective I would need to find an investment for what would have been my down payment capital that returns at least 5 percent more than inflation.
Being self-employed in economically difficult times, I’m admittedly nervous about having to pay a sizeable bill ever month. But if our personal finances ever become really dire, we can rent out another bedroom, pull liquidity out of the property, or, of course, rent the entire home and return to the dirt bag lifestyle.