Adulting 101 Part 3

Welcome to Part 3 of "Why Did No One Tell Me?!?" or, "What High School Should Have Taught Me." (Part 1 is here.)

Buy a house. You need to live somewhere, right? 

It seems obvious and an oft mentioned part of The American Dream, but if you're like me, you grew up in an apartment. If high school taught how to get from living with your parents to moving into your own home, I must have been sick that day.

Besides what we learned in Part 2 about needing good credit, I was 25 years old before I heard anyone mention that the typical down payment for a home is 20%. To give you an idea of size of that challenge: According the the U.S. census, the median price for a new home in the U.S. is $315,100, so 20% of that is $63,000!! By the time I realized this, I had already been in the workforce for 9 years, and had saved nothing toward that - overly concerned with paying off student loans quickly, which I also discussed in Part 2. 

Another thing I had to learn by getting old enough to have friends who now own homes, is the strategy behind choosing a home.

If you live in a big city like I do, the cost of houses changes drastically based on neighborhood. One way to get more for your money is to spend time in the neighborhoods adjacent to your favorite spots. You have time while you're saving up, and even over the course of just a year or two, you should be able to identify what "up and coming" places are truly worthy of the phrase. Try to get a house somewhere that is nearby lots of development, but still a bit seedy, or "ghetto" in the modern, slang sense of the word. Over the course of 5-10 years, the developed areas will start expanding to include your area, and as a homeowner there, you will be in a better position and have more of a voice regarding what happens. Renters (like me) will be priced out and have to move. Don't make the same mistakes I have.

One more strategy is buying a "starter" home or condo. Because housing prices tend to go up, especially quickly in more metropolitan areas, your first house doesn't have to have 3 bedrooms and a big backyard. It just needs to be somewhere desirable or with strong future potential to become more valuable. Once you need a larger space, you can start looking to suburbs and sell your "starter" to pay off that home loan and make a down payment on your new home. 

With these long term goals in mind, here are some tips designed to help you save money on housing and stay sane in the process:

Option #1: 

If you can live rent-free with your parents (assume this word includes "family/other guardians", please) after high school: do this for as long as you can. 

Before you dismiss this idea, imagine taking one-third of all the money you work hard to earn, and burning it in a fire every month. That is what paying rent feels like. It gets worse: you also have the privilege of spending still more money to furnish and fill your apartment with stuff you already had at your parent's, and eventually you will have to pay more money to pack and ship it to each new place you move. All the while, you let a room at your parent's go unused? You may feel embarrassed or lame as an "adult living with their parents", but instead of figuratively burning that money, start "paying rent" by putting that one-third in your savings account every month. after just a couple months, you will only need to glance at your bank statements to see the merit of living with the folks.

 
**If your parents want to charge you rent, this question becomes a slightly more difficult calculation.  You need to carefully measure how much you will still probably be saving against the costs and freedoms of living "on your own". You also need to consider your personality and family relationships and how they factor into your decision, too.

The "End Game": Save enough money to make a down payment on a home; 20-25% of the cost of that house. I have heard you can even put as little as 10% down, but that obviously comes with its own set of added fees, and higher interest rates which will cost you loads, long term. Still, if you are buying a used home, in a relatively cheap market, it may be worth considering. 

Once you have your down payment, you can decide on a place to buy. Or, if you've grown comfortable with your current living arrangements, keep saving up! There are a million personal factors to consider, like "are you staying in the same city/state", "are you continuing on with school", or "do you want to live in your new house forever, or rent it out"? While considering these and other questions, keep building capital toward an even larger down payment.

Once you figure out where to buy: don't wait any longer than you have to. If you have family who can help you get to that 20% threshold faster, don't be too proud to ask.  Even though a 15 or 30 year mortgage sounds intimidating, it is usually a lower monthly payment than rent might be, so the sooner you start making payments, the sooner the house is yours! You can always rent it out, if life takes you to a new location. Having this first home gives you the power to sell it even before you have paid back your mortgage, and move somewhere better, whenever the opportunity comes along. Much like global warming, despite economic highs and lows, property is a zero-sum supply, so ong-term, demand will always rise. Be patient.

Option #2:

In the meantime, although it will take longer, those of us who can't live with family will have to start renting. Just like buying a home, different factors should be important when selecting where and what kind of place you rent. proximity to parks, beaches and public transport are great for helping you save money and have fun, inexpensive places to stretch out, exercise and decompress.

Renting solo versus having roommates:
So you can't live with your folks, and you can't buy a house yet. Your first decision is whether to rent a place on your own/with a significant other, or roommates. Living alone simplifies your life and maximizes your freedom, but also means a smaller space and slows down your saving toward a home. Having roommates also comes with its own set of challenges, but typically you should get to pay less for more space, split other costs, such as internet and utilities, buy fewer furnishings, and even live in a better neighborhood. For these reasons I would advocate having roommates as long as it provides you with adequate private space, too.

The ideal roommates are your friends or family, but in the absence of that, strangers you found on Craigslist can also be cool roommates. The following are some important things to recognize and agree upon, before agreeing to live together:

• Everything has a monetary value. Even if you live with friends, you all need to pay a fair share of rent based on access to the total space. If any of you were living alone, you would pay more for perks like a larger room, a private bathroom, balcony, or parking space. If you are not sharing the same space equally, the rent you pay should reflect that, accordingly. If you think, "I don't have a car, so I'll just give my friend the parking space", heed my words: You will eventually come to regret that, because you are giving up access to that space, which has value. More people means less access to shared spaces, too. If your roommate decides their significant other is moving in with them, it doesn't matter if everything they own stays in their room, or they have a private bathroom, because this new person has access to your shared spaces, the need to pay their fair share, whether they use it or not. If your apartment is going from 9 people to 10, that share won't be very large, but if it goes from 2 people to 3, I can guarantee from experience, that will make a huge difference, and they should pay their fair share, or find somewhere else to live.

Understanding that principle, there are 3 simple rules that should help you live harmoniously:

• The Golden Rule: Treat your roommates, their possessions, and shared living space the way you would want them to treat you, your things, and spaces you inhabit together. This means: don't leave messes, unwashed dishes, take up the TV or bathroom for long periods of time without consulting the other people ahead of time.  It also means being patient, and recognizing everyone gets busy or makes mistakes, and allowing some slack. You're not perfect yourself, so don't demand perfection. 
• The Spider-Man Rule: "With great power, comes great responsibility". You are paying for the space you rent, and that means you should have the freedom and the power to decide what time you come and go, having friends over, playing media and the volume of said media, but your power should not impose on the same freedoms of your roommates. You don't need to ask permission to host a party, or have a friend or relative come to stay, but you will avoid conflict and tension with your roommates by being responsible. That means cleaning up after your friends, family, parties, etc. and communicating in advance what your plans are, who you are bringing into the space they live too, and for even better relations: let them know if they are welcome to join you, or invite their friends as well. Also, if someone is staying for longer than a week, you need to agree whether to compensate your roommates, or allowing them the same leeway.
• The "Pets are Gods" Rule: I am a proud cat owner, and I cannot imagine a faster way to win my scorn and full-blown hatred, than by mistreating my pet. Whether you yourself have a pet or not, treat every pet kindly. Pets are gods, and their owners are the high-priests who worship them. Everyone else is a commoner in the church of that pet, and like a real god, if you witness their deeds, good or bad, you would go to the priest and report what you saw. Whether they shit on the carpet, pee on your bed, bite or scratch you, or run away, you should feel obligated to tell the owner first, and they should let you know how to handle it. If you are not pleased with the "priest's" answers, it is between you and them, not the pet. Pets should never be "punished" by anyone other than their owner, the same way you would never try to punish a god.

I mean, come on. Just look at that face!

That's all for now, class! As always, feel free to ask questions, comment, tell me if I'm wrong, and share this with anyone, especially young people just stepping out into adulthood. This is info designed to help everyone from all walks of life, but it also takes into account that we shouldn't be penny pinching hermits sacrificing our present life for a seat at the "grown ups' table". We need art history professors, but the world needs janitors too! We should all be getting the right preparation, so that anyone can achieve their goals, and be financially independent, and it is my hope this will help someone out there.