Many things could go wrong in a real estate transaction, but if you want to succeed, you have to be prepared and develop the skills that could equip you to close the best deals. Ashley and Alex paid $2400 for a 600 sq. ft. apartment in Boston. They knew there had to be a better solution for them, so they researched. Alex is analytical, so listen to their story to see how they went from mad about high rent to discovering how to run the numbers and make the plan to switch from tenants paying out-of-control rent to finally being in control and becoming sensible homeowners. Tune in to know how to manage your finances, know when to make a move, and ask the right questions.
First Time Buyer Couple Interview – Making The Move From Apartment To Condo
Real Life Story Direct From East Coast First Time Home Buyers
What do you do if you live in an expensive area and you’re paying high rent, but you’re not sure if you’re going to stay there forever? In this episode, we talked to Ashley and Alex. We explore all the math and numbers for people living in the very expensive area of Boston, trying to figure out if it makes sense for them to buy a place that they might bail on in a few years. Let’s do it.
This is Alex and Ashley. They bought a home on the East Coast. We are so excited for them.
How’s it going?
Everybody wants to know how you do this. First of all, tell us. You closed at the end of May 2022. When did you start your journey? How did you start?
It started right at the beginning of the year 2022. We were thinking about whether or not we’d be renting again, which we pretty much assumed that we would. Everybody tells you that you need 20% down and believe them until you hear otherwise. We were looking into what it takes to buy a home and realize that as you’ve mentioned in your show, there’s not a lot of good information out there. We started looking through podcasts and found yours, and took off from there. We started listening around February 2022 or so, and then started to figure out what it takes to make this happen. We also took a course at some point.
It’s an online course through Zoom in our local area. We didn’t learn too much unfortunately through that, but at least we started to hear some of the terminologies and get ourselves familiar with what it would take and what the steps were for the process.
I always like to be fair and ask, are there any other resources you could recommend to people when they’re starting? A to Z is going to be coming here, but was there any place else where you found some good stuff to help you get going?
I do think that course was a local course for us run by the City of Cambridge. They did a nice job of at least getting guests to come in and lecture about it. It was 6 weeks, 1 hour or 2 at 7:00 PM. It was nice that they had that. On different days, they bring in a realtor and on another day, they’d bring in a lender and then a home inspector. They give you the rundown and a chance to ask questions. From that perspective, it was good. It gave us a perspective of what the process looks like, but it didn’t give us much in the nitty-gritty of how you get it done. That’s where your show came in. Outside of that, it was a lot of googling and fact-checking between multiple sources.
I know exactly those courses. I’ve been asked to come in and be the realtor at those. That’s great to hear from you. I haven’t talked about this a lot on the show, but you readers out there, you can check your local city resources. A lot of the time, they’re going to tell you the stuff that happens when you’re already in the process because there is nobody that has my job title, a random dude who helps you plan twelve months ahead of time. Everybody’s job is part of the transaction. It’s great to hear it so it doesn’t come at you the first time while you’re doing it. You found the show then. What were your next steps? What did you realize you already had in place and what did you realize, “We’ve got to get on this stuff fast?”
One of the biggest things was getting our finances in order. We had gotten married a few years ago so that was something that we had been talking through, but we hadn’t finalized everything after the excitement of the wedding wore off and we needed to get some of those things handled. Looking through and seeing exactly what we could afford, we’re like, “Is this something that is even an option for us?” as we were thinking through different opportunities.
In addition to that, we wanted to see places and get an idea of what was out there. We didn’t have a realtor in mind. I started asking around for some recommendations from a few friends that I have here that have bought houses before. Not a lot of people do because it’s so expensive in Boston. We went to a random open house. It was through Zillow where they assigned us a realtor and we’re like, “Fine. We’ll let them show us around and all that.” That was the start of it. That day was the time I reached out to you asking for a realtor recommendation in our area, fully expecting to never hear back. Little did I know I was going to hear back in five minutes with contact info, and she was already contacting us. It was wonderful.
It’s so funny because, for those of you reading, I connected them with my Boston unicorn, whom I’ve been working with for years way before I started the show. In August 2022, we were in San Diego at a conference we go to every summer. We high-fived and talked about you guys. It was awesome. I was like, “What’s up, girl?” She’s such a good peep and a pro.
When I started the show, she was one of the people whom I started to brainstorm with. I have this idea and she’s always able to help because, in your situation, the average price for a home is $400,000. The rent is around $2,000. I always tell people, “If the numbers that the people that are talking to you are different, either cut them in half or double them.” I’m from Southern California so this won’t scare me, but tell us what was your rent as a young married couple in Boston?
We were paying $2,400 for a “700 square-foot apartment,” which we calculated peak COVID to be maybe 600 being generous.
I hear two things there. Number one is “700 square feet.” That’s genius. I’m making t-shirts. Number two, you were locked up, bored and decided to pull out a tape measure? Is that what happened?
Not really. We were curious because we were measuring a couple of things and we had been there for three years. We moved in 2019. We stayed there during the pandemic. We both worked from home in very close quarters, so we were finally like, “How big really is this place? I don’t think it’s 700 square feet.”
I am under contract with a couple here in Southern California who read the show and reached out to me. They’re in the very same situation. We did the inspection and they were so excited. I was like, “What are you thinking about?” They go, “You don’t understand. When we work, his desk is up against that wall and mine’s up against the other, and still we’re right on top of each other, even though we’re on opposite corners.” I think theirs is 750, although they haven’t measured so maybe it’s only 600.
We riskily put both of our monitors on the same desk when we first started and tried to sit right next to each other. That lasted all of the week. We were in separate rooms after that.
There’s one thing I’m hearing that I was blown by. There are those great city programs. There’s a lot of great stuff out there, but the fact that you committed to all those nights lets me know that you were ready to get out of this place that was built larger than it is. Moving forward then and understanding your finances since you were in an expensive area, did you have any idea what a mortgage might cost? Before you started with me, had you had that information?
Somewhat. There are lots of online calculators. Any number of them will give you a ballpark estimate of what a certain square footage type of place might be. If you know the cost of the place, you can put it in and it should give you a rough idea of the mortgage. I’m very much an analytical guy so I wanted to see not just the mortgage but all the taxes and the closing costs and what happens when we turn around to sell it because there are fees there too.
We try to take more of an all-encompassing approach where we looked at if we rented for these until 2024, let’s say, versus if we bought and sold a place that we would look for in the same timeline, how would that shake out? We put together a spreadsheet to try to crunch some of those numbers and do our best to calculate home appreciation and all of that.
It’s not as big of a difference as I thought it might be. I thought buying a house is overwhelmingly going to be the better choice. It turns out that you do need to take some time in the place for that to come to fruition and get the home appreciation that you need. It’s not just the mortgage that you’re paying. It’s the other costs. A lot of those are things you don’t pay when you rent. We’re trying to make sure we factored all that in.
One thing that kept coming up is whenever we’d talked to that one realtor that showed us around that first house we saw, I was like, “How do you come to terms with all the other fees aside from the mortgage?” The answer we always kept getting was, “Trust me. I’ve been in real estate for a long time. It only takes a couple of years and you’re already seeing the gains.” I’m like, “I don’t think I believe you because you’re dismissing me when I bring up all these other numbers. I do know that buying a house tends to work out for the better but I wanted to see the actual numbers behind it.”
We put something together and hopefully, it’s about right. By and large, it will be an advantage to have the peace of mind that our rent is not going up. We aren’t going to have to move again for quite a while and we can keep the place if we want to as an investment moving forward. It’s a very positive thing. We can do what we want to it, which is great.
I want to unpack that entire little paragraph there. I couldn’t agree more. There’s a lot of stuff in there that people don’t tell you because it’s not going to turn you into an instant client. It’s going to make some people think, people who don’t use spreadsheets as much as you do. You have to have the data behind it but it’s funny. Do you know that the number three reason that people want to buy a house is the last thing that you said?
People hate not being able to do stuff in their landlord’s place. What’s been the most freeing thing you’ve been able to do? Is it painting a wall or hanging something?
Ripping out the medicine cabinets that were so ugly and huge. That was the first thing. When we looked back at it, maybe I shouldn’t have ripped out the lights and the mirrors and then not move anything immediately after to use and move into a place that has no mirrors and lights, but it was so fun to be able to say, “I don’t like that, so I’m going to immediately replace it because I can.”
There’s a massive dopamine rush. In LA, they’re making those smash rooms but imagine the emotional experience. You’re not just breaking something but improving something for yourself while you’re ripping it out. That’s super cool. I’ve got to touch on it because you said it. Everything that Alex was talking about is doing the numbers and figuring it out.
What the realtor didn’t explain and say to him that they should’ve immediately said is, “You’re right. The average appreciation over the last hundred years has been about 3% to 4%. It costs about 7% to 8% to sell your home. You should not buy a home and think you’re going to sell it in two years, especially when we had a 19% appreciation in 2021.”
In an average market, it takes you two years to break even. Your home goes up 3.5% and you have to pay 6%, 7% to 8% to sell your property. All these two-year people, I love you for reading the show and being excited. You missed it. That was 2013 and 2014. You could have done it from 2020 to 2022 and made 25% minus 6.5% or 7%. That’s the math on that.
The other negative math that comes into it is maintenance, upkeep, taxes and HOA but in general, you should be looking at your PITI payment the same way you look at your rent payment. If it increases, what’s interesting is in the 2 years, you might be losing $500 a month or $6,000 for the 1st year but in the 2nd year, it could break even with your taxes and insurance when your rent goes up. With a 5-year run, how much do you think your little 600-square-foot place is going to be? It’s going to be crazy that someone’s going to be renting that place for $3,000.
We were lucky that our rent stayed the same for all three years we were there. Probably because it’s a smaller place and a local owner so they maybe didn’t feel the need to raise it but we’ve heard horror stories of people’s rents around here that started at, let’s say, $2,500 for 1 bedroom, maybe 600 to 800 square feet and the landlord is trying to raise it to $1,000 a month so a 50% increase or maybe 30% increase in a single year.
It’s the supply and demand, which is so frustrating. Everyone is talking about the recession but we’re still in a position where we’ve got 4.8 job raises in 2022 and the job market is hot but the news is going to talk about inflation and recession coming. In the meantime, unemployment is down and the job market is still hot. There are not enough places to rent and the landlords are licking their chops for your lease to come up. They’re like, “$50 worth of paint and I can raise it to $700.”
This is fantastic. That was a great little step into something else, some real-life practical information for people. Even though I love Makayla, I always tell people there’s a list of 188 things that can go wrong in a real estate transaction. Some of it is out of our control. Are there any tips, warnings or guidance that you would give people besides being prepared and taking classes? Is there anything that shocked you?
Maybe not shocked in this one but knowing what your options are for the offer itself because it comes at you fast. Talk about things ahead of time, which is something you preach on the show as well. Know what you can do to make your offer competitive. I don’t think I fully appreciated how competitive the market was getting 30 offers in the same place. When it comes to single-family homes and even in the suburbs of Boston, you don’t have a chance unless you’re putting a high percentage down or mostly cash or something like that.
One of the big things we did was take some of your advice, which is to temper expectations for what we could afford and be realistic about not just what we could afford but where that was and how the competition would factor in. If you can find an area that maybe you weren’t originally looking at, you can get more features in the house that you’re looking for but you might sacrifice here or there, maybe the location or something like that.
Those are things we looked and thought very hard about. We can’t compete with people that are trying to buy two-bedroom single-family homes. That has to waive every contingency possible. That wasn’t something we were willing to do. We’d waived most things but we’re not willing to waive a mortgage contingency. It’s things like that. Be realistic. If that’s what everybody does to get those places and that’s something we’re willing to do, we can look in those areas.
Boundary setting, I love it. Did you end up making some of those compromises? Did you land in an area that you hadn’t thought about? Did you reduce the price or amenities? What did you do?
Originally, when we went to our first open house, we were looking to stay in the same area in which we’re renting. Alex had been here for a bunch of years. I had moved here and we are in our little comfort zone neighborhood that we loved for many years and slowly realized that that’s not where we’re going to be able to buy a home. That would be something that we wanted to be realistic about.
We looked in different neighborhoods in which the house itself was more what we were looking for and largely in a different neighborhood. In our minds, the biggest sacrifice that we made was location but all of the features itself. We’re in 900 plus square feet and have a lavish lifestyle I feel compared to our little tiny apartment. I can shout to Alex from one side of the condo and he doesn’t hear me, which is not the case in the other place where we lived.
There are a lot more options in terms of areas that we were willing to sacrifice. Ultimately, we ended up with everything that we were looking for but ideally, not in the neighborhood that we wanted to live in in Boston. It also helped us get outside of our comfort zone and live in another area that we would have never considered had we not probably been looking to buy.
I can’t wait to go home and explain to my wife how awesome it is that she can’t hear me because we’ve bought a lavish house. That’s the greatest thing ever. She gets all mad. I have to explain to her, “You should be happy we have this much space, honey. That’s fantastic.” From the beginning, I’m guessing that it’s your Zillow rep, the door opener. After that first viewing of something, was there a lot of conversation about what you should do next or was it like, “Did you like this? Do you want to write an offer?”
It was some of that. It felt like he was being more of a salesman than anything like, “Work with me and we’ll find places.” He was very supportive and all of that but you get their vibes. When somebody doesn’t feel right, they don’t feel genuine. He had been a great realtor for all I know but that was the vibes we were getting.
The hardest part is what you were talking about. When someone reaches out to someone and says, “Show me this property,” there’s only so much conversation you can have while you’re there at a property and walking around where someone else is going, “You’re planning. Let’s work that.” It’s a whole different ball game.
You were talking about the competition. Fortunately, that’s slowing down for our folks but it’s still massively important to make sure you understand all your options with the offer. It’s not like a car. It’s not just work the price and that’s it. Say no to the floor mats. Where were you in your down payment? Were you under 20%? Were you at? Were you over?
What we had planned on from the beginning was getting down to 5% or 3.5% if we could do an FHA but that was where talking to the lenders started to come in. When we started looking for pre-approval, we went to our unicorn realtor Makayla. She suggested a whole team of people to work with, down to the attorney. That was great. She had everybody lined up, all people she’d worked with a bunch of times and the process was very smooth because of that.
When we started talking to our lender, asking what the options were and trying to run numbers on it, they said that an FHA loan is possible but it’s hard to get the numbers for it because they have to run a separate application and they felt like some of the other fees associated when you go FHA with the renter’s insurance and all that would probably end up canceling out. They felt like they could get interest rates down low enough with an adjustable-rate mortgage. It’s what we ended up compromising on or what we were doing for the offer.
We knew we were going about 5%, which was the plan. What else could we do to make our offer more enticing? We didn’t have more than 5% when we also add in closing costs after that and all that. Places around here are around $700,000 but neither of us is too far into our careers that we had a ton saved up. We put money towards student loans and all of that. We didn’t have a huge nest egg but we had a good chunk. We decided, “We can’t go more down payment. How else can we make things more competitive?”
We talked to Makayla and listened to your show. Things we ended up doing were putting in an escalation clause to try to make things more competitive. This place was listed for $30,000 less than we paid for it. Our offer was not that far off from the original list price but we put in such a big limit for that escalation clause that we figured, “Let’s see what’s out there.” Ashley, do you want to walk them through the timeline when we saw it and all of that?
I saw it on Zillow on Monday. I texted Makayla that we need to see this place. We saw it on Tuesday. I put the offer in Wednesday morning and it got accepted Wednesday afternoon. We were often running from there.
I tell people all the time, “I know that maybe you are listening to me while you’re working out. It’s boring. Prepare because your head is going to spin.” The people I was telling you about that I’m working with, we saw a place and funneled down. I didn’t go eight days in and they were like, “Oh, my god.” It can go so fast. Monday, Tuesday, Wednesday, bam. Everybody asked for money and they sent you a mountain of paperwork.
We looked for a lot of places and nothing was checking all the boxes. We’re getting to the point where we’re like, “We need to decide if we’re going to be signing our lease, re-sign or look for a new place to rent.” Everything is on the same cycle here so if you’re not looking at the right time and you wait too long, you’re going to lose out on good places to rent too. We’re like, “Maybe we aren’t going to find a place.” The next day after we had that discussion, Ashley was like, “Look at this place. We got to go see it.” I was like, “Let’s go see it before the open house and anybody else sees it.” Twenty-four hours after it was put up on the website, we were the first people to see it.
There were three people after us that night. It was in fifteen-minute increments. The next people were here. We were all seeing it on Tuesday for the open house that was scheduled for Saturday. It took off from there. We were on the phone with Makayla, consulting her on our strategy on what would make it the best and most competitive and what would get us to that because we were very serious about it, knowing that it was exactly what we were looking for.
We saw it online and Ashley was immediately like, “This is the one. We’ve got to get this place.” I was like, “We have to go see it.” She was like, “Fine.” Right when we saw it, we’re like, “This is it.” We barely even looked at the place. We knew it’s what we wanted to add to everything and more, parking included, which is a big deal around Boston.
The second we get to the front door, Makayla is close friends with the seller’s agent and we’re like, “Thank God.” That probably played a big role in the actual offer process as well but that was great. It’s that plus the escalation clause. The appraisal language we put in that we would pay, I forget how much over the appraised cost.
It’s a gap, not a complete waving and stays beholding to it.
I think we said $15,000 of what we put in as our offer. We then were going to do it. The only reason we were comfortable with that is that our realtor was pretty confident after doing all of her comps to say that this place is going to appraise very close but probably going to be over what we ended up putting in as our offer. She felt confident that it would appraise at least very close to what we offered. That felt like it was more for the sellers than it was for us so they felt comfortable. This thing wasn’t going to fall through. The other part of it was they wanted to move fast. It was a 30-day closing, which is maybe not as fast as some people go but it is on the faster end from what I understand.
Did you have to tighten up the inspection periods? Was it shorter than normal?
After a few days, everything got shortened down a bit but we weren’t doing an inspection anyway.
Everybody, reread this. If you don’t understand it, that’s fine. The unspoken piece of the appraisal gap there is list prices don’t matter in this market and when the market changes because people are going to list their homes and they’re going to be insanely too high as opposed to when you were at the beginning of 2022.
There were two huge benefits of your unicorn realtor. Number one, she’ll never tell you but I’m pretty sure you got in because she knew the people. That’s huge. It’s an important part of the business. People are still part of the world. You can’t buy a home on an app. There’s not an unethical part to it. The other agent will confidently look in the eye of the seller and say, “These two were even but this lady closes deals.” That’s a huge deal to the seller.
Having the understanding to be able to help analytical minds like you, understand that the $15,000 appraisal gap and offering a little bit over but we might end up $30,000 over, those numbers sound gigantic. I’m sure people reading are freaking out but I know what happened based on what you told me. You looked at it, put the offer in and she told you after she did the comps, “We’re going up. Be ready. I don’t think we’re going to have to eat into your $15,000 appraisal.” That’s a huge difference.
For anyone who lives where home values are at $200,000, you probably have driven off the road already but for my friends in San Francisco, Denver is getting pricey in 2022, my unicorn out there. In Boston and LA, this is what we got to deal with. I love the fact that you understood that especially on a five-year plan for you, it might not be super sexy.
You’re not going to make 2019 or 2020 numbers. A student loan is going to be getting behind you. Being a renter is getting behind you. You’ll be able to do this next time. You are young. I’m sure things will go well for you and your career. Thank you so much, guys. I’m going to put you on the spot. Anything you want to tell the readers about the whole experience?
Make sure that when you’re having conversations, do your research. That was something that I was a little bit hesitant about. Maybe Alex asked all the questions. Being a first-time home buyer, you’ve never been through it before. As long as you trust in the team that you work with, they’re going to help support you.
What made me as somebody who maybe wasn’t as familiar with all the parts and being more on the fun side of things versus Alex taking more of the financial and the analytical mind gave me a lot of peace of mind knowing that people do this every day. Trust them. If I was freaking out about something but our realtor wasn’t, especially as you’re getting closer to closing, it was fine. Make sure that you have that team that you trust and don’t be afraid to ask questions.
Embrace ignorance. It’s okay. Stay fun. You’re a fun person but you also sound like a smart person. There are people that I see their insecurity holding them back from asking questions. I love what you said. Trust the people first and once you’re working with them, ask away. It’s the only way to move forward because someday they’re going to give you paperwork about 1 inch thick and ask you to sign every single page. You better be confident.
For me, my big thing was much like you’ve talked about so many times. The process of finding your team does not start with the lender. Pre-approval is not step one. Getting an education is step one and a lot of that comes from finding a realtor. Honestly, you’re so much better off finding the realtor first and using them to connect you to the rest of their network. If you go to your lender first, get a pre-approval, then you go find a realtor and your realtor is like, “I hate working with that person. I don’t like them,” maybe they’ve never worked together and don’t know what each other is all about. You can’t work efficiently in a setting like that.
Building the team in a cohesive way, which usually starts with the realtor was huge for us. That was something we learned from you. For me, that was a big part of it. It’s a scary process altogether. You can convince yourself based on which article you read if it’s a good or a bad idea. Everybody’s got a different opinion. There’s always risk involved.
However your brain works, figure out what is best for you to convince yourself that this is the right move. Maybe it will take you longer than you thought but it will probably go faster than you thought if you’ve got a good team and are thinking properly about it. I don’t think when I moved here that I was planning to buy a house even within the next couple of years. It wasn’t until we realized you can get by with 5% down but you’ve got to make yourself competitive in other ways. Learn the tricks you can play ahead of time and then trust the team that you built. Those are the things I’d like to end on for that.
I’m going to call this episode Rewind. It’s both the things you said right there. I hope that everyone out there reads and understands that here’s a very nice young couple that I’m meeting in person. We’ve been talking online. Everything about understanding that this is possible, even in Boston, was going to translate and trickle down to everybody else.
It can seem weird to the whole realtor at first but Alex, thank you. This is insider information I found out. The realtors are still running their business the old-fashioned way. They’re not training the people well enough when they’re new. Silicon Valley got all the lenders on the tech side of things. Everything you see says, “Lender first. Pre-approval first.”
It’s the insider secret I try to explain to people but I sound like a jerk. I’m trying to say, “The reason the realtor tells you that is that they’re lazy. The average realtor makes $33,000 a year. 87% of realtors quit in the first 3 to 5 years. Maybe they don’t want to work and help you understand the financial options and all the things that you can do but it also might be maybe they don’t know. They are trained.”
Do you see a first-time buyer in an open house? Send them to a lender. Lenders figured that out and they’re hating everybody online. I’ve said it 1,000 times but reread this. When you’re with someone who’s experienced, they will be able to help speak both languages to you. People ask me all the time, “What makes you a good realtor?” I’m like, “When Alex talks to me about the numbers, I’m going to give him numbers answers. When Ashley and I are talking, we’re going to be figuring out which tools are going to rip out the medicine cabinet.” You got to understand both sides of both buyers and try to make it as great of a situation.
I’m going to let you guys go. You know that Makayla will be able to help and I’m sure her team too. We’re going to be talking every six months checking in on the numbers. This is not just one. It’s tougher in your area. I’m talking to some people who bought in Utah, which is blowing up. We’re going to keep checking in every six months and figure out the best plans for you. Episode 98 is all about maybe if you can figure out a way to keep that property, break-even here in five years, keep that property and then retire. That will be super fun. Thank you so much. I appreciate you being on the show.
Thanks a bunch, David. We appreciate all your help.
I said it best in the interview. No need for a recap here, just reread. Know the real story coming straight from the horse’s mouth. If you’ve got friends and family interested, it would help the show out if you shared this show with other people. You can do it right from your phone. Hit the little hamburgers. Share this by text.
As always, if you have any questions, go to HowToBuyAHome.com, Ask David. There’s a button right there. Promise, I’ll answer you, and we’ll do what we can to get you started on your personalized plan. Maybe you live in an expensive area like Ashley and Alex. We’ll figure out how you can get this done and make the numbers work for you. You can do this.
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!