Home buying: It’s closing time!

Well, we are almost at the end of our house hunting journey. In 1 weeks time, we’ll officially be owners of a new place. I tell you though, it’s been a lot of work and finessing financial plans! 

 

If anyone tells you that buying a new house is a piece of cake, I’d love to know their secret. Frankly, I’ve found it a moderately stressful experience. From  selecting an area, shortlisting suitable inventory, actually making a bid on a house, having an offer accepted, going through the legal documentation, securing mortgage commitments. The list of activities is enough to overwhelm you if you stop to list them all out before moving forward.

In any case, we are almost at the finish line. We’ll be closing later this week. In some ways, the experience has been a little surreal. I’ve become so used to living in the current place that moving to the new house doesn’t really seem real at this point. Though I’m sure that will very quickly change, particularly once we have that new mortgage that needs to be repaid!. But getting to the closing is just the start of our housing journey.

Cash Allocation

I now realize why for most people, housing is the biggest purchase they ever make. The amount of cash that you need to come to a closing is not insignificant. Even putting aside saving up for a huge deposit, the amount of cash that you have to bring to the closing is no small feat. In our case, it’s tens of thousands of dollars.

Between that, and the actual deposit, it can easily put you into significant financial stress if you aren’t careful. And look out if you can’t bring 20% to the table. The cost of mortgage insurance would have easily added several hundred dollars per month onto our loan. Fortunately, we had a little bit of help to come to the table with a 20% deposit.

To do another transaction of this scale again isn’t something I really want to contemplate. Fortunately, we took small steps before we got here, with our condo purchase a few years ago, but the sheer amount of resources that you have to tap into to execute the transaction is pretty mind blowing.

Short Term Budgeting

For the first time, in quite a long time, I’ve been developing a very near term budget to cope with and manage such a significant impact to our family’s immediate finances. We’ve become very lax with our budgeting over the last few years. Frankly, it’s been something that has been running on autopilot. But as we transition to a new set of expenses, and a higher expense run rate. I’ve been trying to work out if we may run into any unexpected headwinds and when they may arise.

While I’m confident that our long term expense coverage run rate is well under control, it’s the immediate short run and when those expenses hit that I’m actively watching for.

Luckily, I’ve got one very powerful weapon in my arsenal to help manage these short term fluctuations in cash. That’s the significant equity that we’ve built up in our Australian equity portfolio. The last few months have been particularly kind to the portfolio, and that equity is always available as a short term overdraft to tap into should we need it.

I’ve been at pains to completely extinguish our Australian margin loan and not carry any debt, even though I believe debt to buy stocks is a good thing. I do realize it could be valuable to dip into, albeit briefly, to avoid any unnecessary near term financial stress, or the need to take out any equity against our rental, which isn’t a straightforward process.

I do feel that we’ll need to briefly dip into this equity given some landscaping and fencing that we want to get done in our new place before we move in. I’ve heard that basic landscaping can easily some $5-10k. It’s not something that I want to spend too much time stressing over. I’d much prefer to dip into the equity, make the modifications we need, and move forward.

Dividends & Taxes

In the midst of everything else that’s going on with our house closing, tax time has slowly encroached on us. Having a significant chunk of annual dividend income means that I always end up having to pay some tax at the end of the year. This year is no different, and unfortunately, our tax liability has come due in the midst of all the other chaos of our house closing.

On the positive side, I’ll have a healthy amount of Q1 dividends that will become available in about a months time, which will cover our 2013 tax bill. Again, it’s a timing issue in terms of meeting these commitments. The Australian Dollar is at a near term high vs the US Dollar, so the Q1 Australian dividends will be coming in at an opportune time as far as our ability to derive significant  utility from them.

Temporary reduction in 401k contribution

As I’d mentioned early, one of my objectives for 2014 was to max out my 401k allocation. I’d temporarily paused 401k contributions to just the extent of the company match while we worked though managing our cashflow available for closing. Now that closing is upon us at the end of the week, and we can accelerate from here, I’ve restarted full 401k contributions again.

Getting our rental ready

The last piece of our new financial equation is how soon we can get our rental ready and how we look to manage this on an ongoing basis. There are a few small things that need to be done before we can have the rental fully ready to go. Firstly, and most obviously, we all need to move out!

Unfortunately, the reality of how we are doing our move and the fact that we want to get some landscaping done means that there will be some down time between having the new place ready and when we move out from our current place.

I’m hoping that the time from when we move out to when the rental is  ready to rent should be no more than a few weeks. That’s really the time to get the carpet cleaned and apply a fresh coat of pain (our kids have done a great job at applying their own code of graffiti all over the walls).

We’ve settled on the idea of a property manager to help us find a tenant and deal with the ongoing process of managing the rental (we just have to select one now!). Of course, it’s probably going to take off 7-10% off the rent that we receive, but with so much else going on in our lives, being an on-call maintenance guy is the last headache that I want to have to deal with at present.

Concluding thoughts

Our new housing move is a very exciting one. It’s one that I’m very much looking forward to. There will be a few challenges along the way as we get our kids settled. We’ve done our best to minimize the financial challenges of the new purchase, which can overwhelm you if you’re not careful. Fortunately, careful and diligent historical planning is going to help us ride through these next few months, before we settle on a stable expense run rate.

 

Comments

  1. Integrator,

    Congrats on the new home! Sounds like you guys have been really looking forward to this.

    Have fun setting everything up and getting it how you want it. :)

    Best wishes.

  2. integrator says:

    Thanks DM. It hasnt been without some stress thats for sure. Im looking forward to seeing our kids grow up in this place. Its a little short term pain for what im hoping will be some years of great experiences for all of us.

  3. Exciting! Is this your first home?

    Can you elaborate on what you mean by “getting a little help” with the downpayment?

    • integrator says:

      Hi Sam,

      Actually, we own an existing condo already…. The little help I alluded to was a combination of equity in our aussie portfolio and a sweetheart loan with favorable terms for a small portion of the deposit.

  4. That’s great!

    I will have to move soon as well, and have had to all but stop my investments to build up more cash to cover unexpected expenses. Though I am not buying a house, but I will be moving into a lower cost townhouse.

    Having the foresight to plan for the expected expenses with home purchasing is a very smart thing to do.

    People should make a habit to simulate any upcoming major purchase by shifting the expected cost plus a margin of safety of say, 15%, to account for final fluctuations in the price.

    • integrator says:

      DG,

      I agree. Stress testing some of your assumptions around home ownership and downside contingencies is super important. With so much cash going into a house, you want to make sure you can ride out any short term negative contingencies.

  5. Congrats FI. We just officially started house hunting last Friday….and we already feel that we are more stressed now and actually a little depressed at what kind of places are available in our price range.

    Hope your closing goes as planned and a smooth transition to a new home.

    • integrator says:

      Thanks Roadmap. We initially selected an area and were pretty despondent as far as what was available and the price at which it was available! Broadening our search out a little more in terms of area brought some good success.

  6. FI Fighter says:

    Congrats on the new home and best of luck renting out the condo. I’m sure it won’t be easy, but hopefully things go well and you get to add another income stream to your portfolio.

    Take care!

    • Integrator says:

      Thanks FIF. We are hoping for a smooth run in renting out the condo as well. A few touch ups required, but I’m hoping to have it on the market within 6 weeks.

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