You probably thought I'd forgotten about my plan to blog the home buying process. Not quite. I've just been a bit slower about it than I should have been.
So here's where things stand. While back home for the holiday I had a chance to think about this a bit more and do some more looking to see what's available. Here's what I've decided based on what I know today. I'm looking at a condo or town house in the South Bay. I'd like to stay within a 20-30 minute commute to work, but that's not a hard and fast requirement. I could always telecommute a bit more often. The price range I'm looking in is $350,000 - $415,000. An actual house is out of the question for that range and requires more work.
What you're reading is, of course, all subject to massive change if I come across better information.
The Financial Incentive
Here's what really got me motivated: the tax break. Let's use some round numbers and say that I buy a place for $415,000 and to do so I put down a $100,000 down payment. That means I need a $315,000 loan. Assuming I take that loan over 30 years at, let's say, a 6.5% interest rate. According to the calculator at interest.com, I'd have a monthly payment of $2000 if you round it up a bit. (I currently pay $1,300 in rent.) As you can see below, the vast majority of that $2000 is interest--at least initially. That's how these loans work. (Click here or on the table below to see the first 2 years.)
After the first year, I've paid $3,520.78 of the loan principal and a whopping $20,371.34 in interest. To put that in perspective, I currently throw $15,600 down the tubes every year in rent. Over the last 4 years, that totals $62,400.
That $20,371.34 interest is a tax deduction. Assuming I pay the federal government more than that much in taxes (I do), it's a huge savings. Rather than throw away $15,600 every year in rent and over $20,000 in taxes, which total over $35,000, I get to divert the majority of the tax money toward paying for the new place. [NOTE: That's not quite right, as you'll read below.]
Yes, yes, I know. This is an over-simplification. What about property taxes? That's money I'm not currently spending. Fine, add in several thousand dollars a year for property taxes. And a bit more for home owners insurance. And the inevitable Home Owner's Association (HOA) fees. And maintenance.
Well, there are a lot of little things that will certainly add up. Even if, in the end, I end up spending just as much money as I do today, that's okay. I'll have a larger place to live, probably in a nicer neighborhood, and I'll be building equity. In theory, I'll be able to sell the place sometime in the future for at least what I paid for it.
Yes, it's a gamble. The local real estate market could tank and I'd get screwed. But I'm willing to take that gamble.
Now, what about specifics of this place?
It seems that I can find something with 2 bedrooms and 2 bathrooms without too much trouble. I really only need one bathroom and would love a 3rd bedroom, but let's not get greedy. And I'm really not picky about the living room, dining room, etc. I would like lots of windows and ample storage.
This is probably what's going push me toward the upper end of my price range. At a minimum I'd like a 1 car garage. Not just a carport or parking spot. A real garage. And I'd be willing to pay extra for a 2 car garage. I like having a lot of storage space for all the crap I've managed to accumulate.
I'm looking in Santa Clara, San Jose, Sunnyvale, Mountain View, Cupertino, and nearby areas. As long as it's close to some of the major highways (85/101/280/237) I should be okay. I might consider going a bit farther like, say, Fremont.
I'd like AC but probably won't get that lucky. I can always get ceiling fans installed before moving in. After all, there are really only about 10 days each year when I'd really need the cooling help.
I must be able to get Cable or DSL there--preferably both.
I'd really like a first floor unit.
The place must have laundry hookups. If it doesn't actually have a washer and dryer, that's fine. I'll get my own (again).
The fun begins...
UPDATE: Yes, I know I screwed up and forgot to note that it's a percentage of the theoretical $20,000 that I save, not all of it. Read the comments below for more.
Posted by jzawodn at January 07, 2004 04:39 PM