My girlfriend and I just bought a condo in Chicago. We're already having visions of remodeled bathrooms, roof deck parties, and a porch with planters, string lights, and a gas fire pit — which will of course be buried in snow half the year.
For a young couple in a new city, it was also a crash course in real estate. So here are six things I learned from the whole experience.
1. Pay attention to all the costs. Obvious ones are the down payment, the mortgage payments, and any insurance you'll need. But don't forget about utility payments, the costs of commuting, any immediate renovations, and — if you buy a townhouse or a condo or something like that — any homeowners association fees. All of those need to be factored into your long-term budget plans.
2. You will only deal with middle men. Buying a home isn't like buying a shoe. Both the buyer and the seller will likely have a real estate agent, creating an extra layer between you. Both sides of the deal will likely also need lawyers to draw up the contracts. So that's another layer. In fact, the sellers won't even speak to you — so don't take it personally.
I suppose this adds a useful layer of diplomacy, but it can also lead to frustrating games of telephone, especially in hot markets where agents are juggling the details for multiple properties that turn over quickly. In our case, we weren't shown the correct space in the garage or the right part of the roof deck that goes with the property we bought. In both cases, the actual spot we got wasn't nearly as good as what we were shown.
First world problems, yes. But when you have to drop hundreds of thousands of dollars based on a 30-minute whirlwind inspection, believe me: It'll stick in your craw.
3. Home buying is a bureaucratic nightmare. Beyond the real estate agents and lawyers, there's also the bank or lender providing the mortgage, which will have its own rules and mounds of paperwork. Dodd-Frank legislation also added to the regulatory complexity, in an effort to prevent the fraudulent and predatory practices that suckered both investors and less-fortunate homebuyers into taking on mortgages they could never pay and sparked the 2008 financial crisis.
Helping prevent another financial crisis is a good thing, but it also means jumping through a lot of hoops to show you're not a credit risk: We had to provide a year of pay stubs and three months of bank statements. If we got any income as a gift, we needed proof of the transfer and a letter from the gift-giver. If you take out the loan against your 401(k) (which we didn't have to do, thankfully) you'll need documentation for that, too.
Basically, be prepared for the financial equivalent of a colonoscopy.
4. Know what sort of market you're getting into, and strategize accordingly. If you're buying in the same city you already live in, life will be easier: You'll have more freedom to house hunt at your leisure. If you're house-hunting from far away, like we were, the process will be even more difficult. You'll likely have to schedule a lot of home visits into whatever travel window you have. Inevitably, you'll get exhausted and different properties will bleed together. So have a personal system ready to go for categorizing all the things you care about, and what you liked and didn't like about each property.
Chicago's housing market isn't nearly as crazy as New York City's, Washington, D.C.'s, or (God help you) San Francisco's. But more than once we found ourselves viewing a property we really liked, but where we had to decide within a few hours what to do. In our case, even after a buyer and seller agree to a price, the law gives both sides a few days to back out of the deal without consequence. So more than once we put down a bid even though we intended to keep seeing properties, because the seller might not bite, and even if they did, we'd have a grace period.
Different states will have different rules. But if you're going into a market where you'll have to think on your feet, it helps to know what rules you can use to your advantage.
5. Understand what you're investing in. When we talk about housing as an investment, what we're really talking about is land. The physical structure of a house decays, and its design can go out of style. It's demand for the geographic spot your home is on that can drive its price ever-upward. In our case, that dynamic was made amusingly clear by the fact that, with several of the properties we wanted, we would've had to drop an extra $30,000 to $35,000 a year just for the bloody parking spot.
So if you're looking for a return on your investment, think about why people want to live in the spot you're buying. Is it the jobs? The industries? The lifestyle? And how likely are those forces to continue and grow over the long-term? Chicago struck us as a pretty solid bet in that regard.
6. "House Hunters is a lie!" as my girlfriend put it. Apparently, the featured home-buyers are largely filmed after all the tough decision-making is over. The actual process is not fun and exciting. It's long and laborious and emotionally draining.
But at the end of it, you do have a home.