This last week produced some headlines about Tahoe Real Estate getting very expensive. It's true. If you go to one of those real estate websites that allow you to search within a given price range, say, under $300,000, you'll be surprised at how few inexpensive houses there are. (For what it's worth, Tahoe real estate is still cheap compared to the Bay Area and L.A.)
There were also stories last week about how young people with middle class incomes are being shut out of the housing market because it is too expensive. As young people save money to buy a house, the value of houses keeps increasing. It's like trying catch a train that's pulling out of the station.
Yes, housing costs are ridiculously expensive. But there is a simple technique that makes it possible to buy housing. It's a technique that people have used for decades (my wife and I included). It allows you to stop paying rent and begin building equity when you're very young. What could that house purchase technique possibly be, you ask?
It's called lowering your expectations.
If you have a middle-class income and are a renter, and if you think you would only consider buying a perfect house with three bedrooms, two bathrooms, a garage, and a nice yard with a picket fence, then you are probably out of luck unless you move to Kansas. This post isn't for you. There's nothing wrong with renting. But it's hard to get ahead in the long term. If you want to stay in a place that has all the West Coast can offer, you might end up renting for the rest of your life, paying off your landlord's mortgage and making certain he's rich by the time he retires.
If instead you recognize that your own future retirement will be hugely affected by whether or not you own your house and eventually get the mortgage paid off, then you might want to do whatever it takes to get on that "home-ownership train."
But when you run the numbers of housing costs versus your paycheck, you may think it looks hopeless, especially in high priced areas like Tahoe.
But don't despair! There is a way to purchase your own place in Tahoe, or near to Tahoe if not actually within the Tahoe Basin. Many Tahoe locals have succeeded at this. (They had to because Tahoe has never had many jobs that pay well.) Those Tahoe locals bought less desirable housing simply to get a stake in Tahoe real estate. Eventually, their house value went up as their mortgage balance went down. Many of them took their growing equity and traded up to nicer houses and then repeated the process.
A quick caveat. This blog post isn't for people who have high standards for their living quarters and are willing to rent forever in order to have that nice place to come home to, a nice place to invite their friends to visit.
This post is for people who are willing to make what ever adjustments are necessary to start building equity, even if it means living in a less nice place for several, or even many, years.
First, a quick digression about lowered expectations. Not too many decades ago, people thought a small black-and-white TV was a fine way to watch a show. The idea that everyone might one day think they needed a huge colored, high-definition TV would have seemed ridiculous. Never mind that shows still made their magic over the small tube. People thought air conditioning was a luxury not a necessity. When they got hot, they wiped a moist washcloth over their face and turned on a fan. People thought that a car that worked was good enough even if it wasn't the latest model (or had air conditioning!). People thought that a restaurant meal was a rare treat not a basic way to get your daily meals. People thought coffee was something you brewed at home, not something you picked up at a gourmet coffee house.
I'm not saying you have to go without the nice things in life. But if you're confronting the dilemma of how to find enough room in your budget to buy a house, then you have to be willing to change what you're looking for. And change where you're looking for it.
Of course, everyone wants a NICE house. If that's your requirement to buy, you may be out of luck. But if you're willing to compromise on most or all of your ideal desires, you will be surprised. There are houses out there that can be fixed up. They can be made livable. They can bought without traditional mortgages.
Here's your first rule of thumb in finding that house. Look for the houses that have been listed so long or so many times that it appears they are unsellable, suitable only for builders to come in and tear them down. The sellers of such house are usually eager to unload them at a very cheap price. The seller may be willing to carry a contract on it so you don't have to get a bank mortgage. And if you don't have good credit, the seller may allow you to lease with an option to buy at some later date.
Every realtor who's been around knows of these houses, and they know how the sales process works. Of course, many realtors don't want to put time in trying to sell these houses. But they might still give you an idea of where to find them. And you can probably find them yourself. The house that no one wants is usually the house that offers the greatest opportunity for fixing and putting a lot of sweat equity into your financial picture. And the house that realtors think is a waste of time trying to sell is a house where there is no real estate commission. That saves 6% right off the top, a sizable amount without which the seller might be willing to discount an already low price.
Second rule of thumb: Look somewhere else. You may not be able to find a house in Tahoe, but you can probably find one in Carson City or Reno or Auburn or Pollock Pines, all of which are an easy drive to Tahoe.
Third rule of thumb: Find a roommate or roommates. Two people with jobs can afford twice as much house as one. You can have a legal arrangement where you are both on the title. Much better, though, is to find a roommate or two who're willing to rent from you, and you buy the house yourself. (Partnerships can go bad. If you are the sole owner, then you can do things the way you want without having every decision be subject to committee.) There are also many houses that were built as duplexes or triplexes or with mother-in-law apartments. When we bought our first house in Tahoe (a dirty, rundown house that no one wanted, a house which we fixed up and eventually did very well on), there was a guy our age down the street. He bought a LARGE, very rundown house, and he rented rooms and maybe a basement corner to four roommates. When I made a comment about how four renters would make it so he could pay off his mortgage quite soon, he grinned like the Cheshire Cat.
Fourth rule of thumb: Consider looking for a condo or townhouse. Multi-unit housing is usually cheaper than stand-alone housing.
Fifth rule of thumb. Look for very small houses. You don't need extra bathrooms and bedrooms (except for renters). You certainly don't need a garage.
Sixth rule of thumb: Go elsewhere. Many workers in South Tahoe live on the Nevada side in Minden and Gardnerville in Carson Valley or just north of there in Carson City. Many workers in North Tahoe live in Reno. The commute isn't that long, and the housing is much cheaper. If instead you commute west to the California foothills, you can find lots of affordable housing. (Although beware that winter snow makes commuting from the foothills to Tahoe unreliable.)
An example of reasonable housing not far from Tahoe...
Here's a very affordable 2-bedroom townhouse in Carson City just 25 miles from Tahoe. Only $229,000. Get a roommate to rent the second bedroom and this becomes within reach of people with modest incomes and very little savings.
Or, for ultra cheap, check out this house in the foothills:
This cabin is in Georgetown, halfway between Placerville and Auburn, roughly an hour and twenty minutes drive to Tahoe. It was foreclosed. It only has one bedroom and one bathroom. It probably has many problems and would require a great deal of work. But it is only $147,000. Imagine what it could be once it is all fixed up.
Here's a two bedroom cabin in Camino, which is 10 miles east of Placerville and less than an hour to Tahoe. It's for sale for $165,000. Find a roommate to rent one of the bedrooms, and you could live almost for free. Just like the other cabin, fix it up while you pay down the mortgage. Take all the money you're saving and sock it away. Of course your friends who want the perfect little beauty will look askance when they see the little place where you're living. But they'll be envious when you've built equity while you were close enough to Tahoe to ski on your days off.
Are these places ideal? Not unless you care about becoming financially self-sufficient while everyone else is going backward as accelerating housing costs leave them behind.
Foothill cabins are affordable. They're a quick commute to jobs in the foothills or down in Folsom or Rancho Cordova. While your contemporaries are still saving for a minimum down payment ten years from now, you could have $100,000 in sweat equity waiting for you to sell and trade up. If you want to eventually retire, this is a great way to climb onto the housing ownership train.
If you feel you simply must have a nice large house in your dream destination, try to earn enough money to make it happen. If that doesn't happen, accept the possibility that you might always be a renter.
Otherwise, lower your expectations. Start small, fix, trade up, fix again. Pretty soon you'll be one of those people with a paid-for place in Tahoe or anywhere else you desire.
