With all this talk about housing going up from inflation it has gotten me thinking. I don't know how long it will go on and I could end up missing out on a decent price on a place to live.

I am 28 and have never had a mortgage. I have been waiting to buy a house since the bubble burst and instructed friends around me to wait as well, but they haven't. I haven't been technically right yet because prices around here (Charlotte) haven't really dropped. Sales have slowed, but average sales prices haven't moved much at around 195-205k in the past year. I want something much cheaper than that, 75-100k. I've been saving and could have around that in about 18-24 months. My credit history is impeccable, so I am not worried about getting a loan, but for the longest time I've been questioning why not just save up and pay cash for a house. Would it cost me more in the long run to buy within the next 6 months and get a 15 year mortgage versus waiting 18-24 months and paying cash on a potentially higher property value?

One could say why live mortgage/rent free and I would reply with the fact that I am a wage slave and my track record in investing has been pretty much a failure. In my world, I only have so much money per month, and that number doesn't change much. If I can reduce fixed costs I can have a lot more money to spend on discretionary items. I have used this methodology on buying cars. Since paying off the loan on my previous car very rapidly, I won't buy another car on credit if I don't have to. It freed up a lot of cash flow that went directly into savings. Also my grandma taught me at a very young age, "if you can't pay cash for it, you can't afford it". Now housing might be an extreme example, but I have taken that advise to heart and want to continue to follow it.

Your grandmother was very smart.

As far as buying goes, I wouldn't recommend it in the next 6 months. Even Charlotte's housing has quite a ways to fall.

Grandma was RIGHT, and I agree with Ifly. Not the time yet---but I suspect the "bottom" is a ways further out.

Use the time to increase your savings. I have very little doubt that your target price ($75-100k) will be available in the timeframe you specify.

They're selling bubble era homes outside of Ft. Myers, Florida in the $30-40K range.

You are thinking along the same lines as I. I have a price in mind and looking for the right house for that price. However, it's not quite there yet. It may come to pass and it might not. The house I buy at my age, I will die in so it's not really an investment per se. What are your long term aspirations? I'm trying to educate my son, who is house hunting, to think about the whole picture. Is the house you buy, the house you want to raise a family in? Is that house in the locality that you want to raise your family in? Is that house in an area where the HAVES are stable and away from the HAVE NOTS?

You still get stuck with property taxes just about anywhere you go.. To live mortgage/rent "free" including the rent you pay the state, you'd likely need to buy a multitenant dwelling that can fund the taxes and maintenance out of rents..

Use your time to do research and learn the area, the neighborhoods. Don't forget to drive through them after midnight and on weekends. A 'hood that looks pretty quiet during the day might be wild and noisy at night. Check online crime maps. Appearances can be deceiving.

One thing I found helpful when I bought my first house. I looked up the property records to see how long the seller had owned it and what they'd paid for it. There might be circumstances where a seller would be happy to make any "profit" on their place, and that could be much lower than what other homes have sold for.

Never be afraid to make a very low offer. All they can say is No; the world doesn't end or anything ;-).

Longer term aspirations are more along the lines of buying a house with cash and living in it for a few years then possibly renting it out to pay for my next mortgage. I know the pains of renters so that is up in the air. Really I am chasing the cash flow for either savings or spending on upgrades to house/car/vacations/whatever. Karl says the vast majority of people buying houses don't buy the house in total dollar amount, they buy the payment. I agree, but don't want to follow that school of thought. My girlfriend has school debt and is a teacher so she probably won't ever contribute to the mortgage, so I am going to have to take this all on my own. I am not as concerned about schools because we don't have any plans for children yet, but maybe in 3-4 years and then it will be a few years before the child starts school so it will be plenty of time to sell/rent it out/move.

From a cash flow prospective, would renting for the next 18-24 months and saving all available cash be cheaper than buying a house with a mortgage and paying it off in maybe 3 years instead? Of course it all depends on the house and what upgrades are necessary, but I wouldn't walk in blindly. I've worked on houses before and can do some basic repair/maintenance myself.

Also I am aware I'll always have to pay property taxes and it doesn't bother me. To me, even $2 or $3k/year is fine because its only a few hundred a month, instead of $1000+/mo for rent/mortgage.

If you come to be in a position to pay cash for a house, the possibility of paying cash with a quick closing can be used to get an extremely good deal from someone desperate for a quick closing. Obviously, you need to be thoughtful in how you handle any risks related to clouds on title or structural issues. If you want something like a title search or title insurance to address clouds on title issues or if you want a structural inspection, then researching how to get these contingencies met quickly can permit you to still promise a quick closing without being as apparently reckless as I have been at times in the past. You might for example be able to find an attorney or title company that will do a title search in several days and a professional who will do a structural and/or termite inspection in several days such that you can make any contingencies in your proposed contract be ones that will quickly expire.

Because I believe that in general we are not yet at the bottom and because you are patient and because you really can save many thousands of dollars if you promise a very quick closing in many situations, I would err on the side of continuing to build your savings until you come across something you simply can't pass up or you have enough to pay all cash. When we do hit the bottom, we are likely to bump along the bottom for awhile. It is not like you will be left behind if you don't buy at the absolute bottom.

Controller:

Think outside the box.

I have built many houses part time. I average 30% profit per house.

You may want to look for land to build on. Pay cash for the lot. Make sure water is good in the area. If you have cash, you can be aggressive. Use spare time to clean up the lot while u save for building.

Most counties have a "homeowner" built house provision. Talk to the county inspector for details. He can be your friend. Ask for references. Be your own contractor. You can insulate, paint, trimwork?, etc and save a bunch. When u have enough cash to build, get started. Put all quality components in the house with max insulation. Think about maintainability and longevity. 30 year roof shingles, Pella/Anderson windows, etc. Keep it simply without 30 corners,etc. Keep energy costs in mind. Think about the number of bedrooms and the impact of county taxes.

If you want to live a city, look for dilapidated buildings with good bones. Fix up one room and bath and live in it while you chip away at the other rooms. If codes allow, buy a cheap camper and live in that while you rehab the house.

While your saving your money, spend your time reading about passive solar design, rehabbing old houses, and generally educate yourself about hvac systems, plumbing, electric, etc.

Try to stay away from any tract built house that was put up in the last 10 years. Many were ****.

Oh, living debt free is marvelous.

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I am not as concerned about schools because we don't have any plans for children yet, but maybe in 3-4 years and then it will be a few years before the child starts school so it will be plenty of time to sell/rent it out/move.

Schools are always a factor when it comes to selling a house. You eliminate too many potential buyers if you own a house in a poor school district. I wouldn't buy another house in anything but the best school district available in my commuting area.

We have some great old historic neighborhoods in my area that have been redeveloped over the last few decades. Affluent folks are moving back into the city core, near downtown. One neighborhood association president tells me not a single child in the subdivision attends public schools. They all go private or home school. It's just "part of the cost" of living in those neighborhoods. The public schools are war zones with poor student performance. Apparently the lack of affluent students really baffles the school principals. Go figure ...

Sandor wrote..

I have built many houses part time. I average 30% profit per house.

Is this something you'd be willing to discuss in more detail? Maybe off-line?

Sandor, I think building is a little more work than I want to do, however I wouldn't be scared of rehabing a house. I've helped out on a few habitat for humanity houses and I know my way around many aspects of building, but certainly not everything.

I've been keeping my eye on homepath.com and there are many that come up needing work, some more than others. This is where a good inspector comes in handy. I've seen a few where it needs either a new foundation or a new roof, both which scare me, but others that just need cleaned up and painted, or maybe a new kitchen. Also some go faster than others, because there are a lot of people in the business and they know which to stay away from and which are great deals. I am not looking to get into flipping, but I figure when I am ready I can jump on a good deal.

Bb1 - ask your questions.

Rehabing a house can be more hassle than building one. Did architectural design, new, old, commercial, residential, 2d and 3d for about 10 years.

I HATED old buildings that had to be rebuilt. It was always such a pain in the ass. Nothing is ever square, nothing is ever built as the plans show.... Always run into problems.

Now if it's something minor like painting, new shingles, stuff like that - sure, go for it. But if it needs a lot of work, particularly structural work - build a new one instead.

Bb1 - Sandor is right. If you're willing to build your own house, you can save a bunch and just contract out the jobs you really can't do.

Find something where you can build what you want (no covenants) and then just build something reasonable. Bid out each part you can't do (foundation, framing,, I'd recommend sheet rock) but ****...most of the rest a handy person can do all the way to electricity, plumbing, tile, windows and doors, roofing, painting, trim (short of crown molding..that's an art), cabinets, fixtures, appliances, decks, landscaping, etc. Just find a place where you can build over time and with cash. Serious...the only things I would not attempt on my own are foundation, framing, and sheetrock. Some places would require an electrician for code but I did everything in my basement all the way to GFCI's and 2 way switches. The internet is amazing. You can learn how to do anything on it. Trim and sheetrock are an art. You can do it but it will look like ****.

Are you ok with living in a home that is not finished? Are you ok with it taking a couple of years to finish while you save cash for each next step? If so, you can do this.

It's like auto maintenance to me...you can change your own oil for 7 bucks or you can pay for convenience and have it done for you for 30. Ever look at what a brake pad or rotor really costs on the web? LOL. Same with a house.

Sandor, 86, I'm starting to like the idea of building my own home. I'm not looking at doing it for a few years, but you've given me something to think about.

We've built the house we're now living in for about $5k. Only 300 sq ft, but there's only two of us.

You don't HAVE to build "traditionally"...

TS,

Is your house made out of hemp? Now that house would be fun to build, got to dispose of the bud somehow -- in the ground, water, miracle grow you know Southern Oregon Composting, and don't forget the 9 foot high green mesh fencing.

Wow, 300 SF Truth. Please post pics :)). You da man. I am not sure I would have what it takes.

I'm away from the house just now with no pics of the place. But for your imagination, it's a post-and-beam structure with straw bale/cob walls and a "rocket stove", courtesy of the fine Ianto Evans design. Very cool building that makes a nice "annex" to the fifth-wheel RV (so total of 600 sq ft.) Spacious!

Good ideas here. I would vote for a multi-family home. Duplex or Triplex. If you can do work yourself that's a plus. Deals are out there for the not so pretty homes.

Anyway with a multi you can have your tenants pay most if not all your mortgage, taxes and utilities. I have a friend that does that and he pays a total of $122/mo to live in a 2k sqft apartment... Utilities included... Vacancies are a problem but he is dog friendly which really helps keep tenants in place. Plus because you live there you have more rights then a standard landlord...

As for small houses - 800sqft for a 2 bedroom is nice and comfortable. 300sqft? Wow...

http://www.tinyhousedesign.com/tag/cabin....

I've looked at Sheldon's stuff. Very interesting. And while I appreciate the thrust of his idea, the cost per square foot is needless.

Still a proponent of cob/straw-bale, though understand that for many westernized sensibilities, it's a stretch. Can't beat the cost of materials, though (or the longevity---there are buildings centuries old on virtually every continent.)

Cobra2411

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I would vote for a multi-family home. Duplex or Triplex. If you can do work yourself that's a plus

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The Mutifamily home is a very good idea. I do this now myself. I have a Triplex where I myself live, and have two rented apartments. When my units are fully rented I live practically rent free.

My only other advice though would be to do it in a landlord friendly state. I live in New York City, and if ever a tenant becomes a problem, it could be a pain in the ass to evict them. Most times up to six months.

Six months market pirate...ouch. That would be painful. I have had two evictions since I started rentals. They were out in less than two months and I thought that was a pain in the ass.