Last week I had an introductory call with a gal who has a quite common profile: Living in the city with her husband and small child, has a close friend who bought a Country House Realty listing a couple years ago and having visited numerous times, is completely smitten with the whole Upstate vibe. Because of the little one, renovating isn’t really in the cards. Her budget was “under $200,000”.
When buyers are interested in the lower end of the market, ie below $200k, and they don’t know a lot about the process, I’m always quick to advise caution, because there are so many expenses that are part of the actual purchase process, beyond the cost of the house, then coupled with the ongoing, never-ending expenses associated with home ownership, that fleshing out the financial ramifications of buying a second home is really vital to avoid over-extending.
She has $15k in cash, and said they had heard about first time homebuyers programs that require only 5% down. (NOTE: The conventional amount to put down in cash is 20% of the purchase price.) Quick back of the envelope math using $10,000 as the downpayment, at 5% of the purchase price will be sufficient to buy a $200k house. So I get where she’s coming from. The reality includes the following:
COST OF THE PURCHASE PROCESS
• Home inspection: Ballpark $1,000. Add a septic inspection, +$700.
• Survey: Banks usually require a recent survey these days, and if the seller doesn’t have one, it’s on the buyer to provide. If one exists but is more than 10 years or so old, and the surveyor is still around, the fee to “re-certify” is less than starting from scratch. But depending on the amount of land and other considerations, it can run from about $600-$2,000 and much higher for larger (or more complicated) properties.
• Attorney: Legal fees can run from about $800-$1,500 or more, particularly for higher-priced properties or more complicated sales.
• Mortgage Fees: The bank will supply a schedule of fees if you’re financing your purchase. Among the costs is a charge for their attorney, for the appraiser, for running a credit check, points if that’s the mortgage you choose, etc. They can roll most of those lovely fees into your mortgage, so this will not all be out of pocket, but worth being aware of.
• Taxes: Your seller will have paid school tax (Sept) and town/county tax (January), and at the closing table your attorney will present you with the amount, calculated down to the day, the sellers are to be reimbursed.
• Fuel: Buyer reimburses seller for any fuel in tanks, and even for wood if a substantial amount is being left.
You may have writer’s cramp from all the checks that are written at the closing table.
COST OF HOME OWNERSHIP
So you’ve bought the house, you’ve furnished it, you’re sipping wine and drinking local brews around your fire pit. You’re an Upstate Homeowner! Here are the costs that will be a part of your life:
• Taxes: If you can, roll your taxes into your mortgage, and you can contribute monthly to these otherwise significant fees. Always look at the taxes when you find listings you love. Taxes can really vary between towns and utterly change the complexion of your monthly payments.
• Fuel: At least in my world, fuel is the second largest annual expense, barring unexpected big ticket items like a roof or new heating system (my 2019 investment, which I’m still not ready to discuss). What’s the cost? It will vary wildly depending on weather, changing commodity rates, how insulated the house is, etc. A small cottage might be about $1,200-1,400 per year (without stinting on comfort), but with the bulk of the expense incurred between November and April. (Pro tip: Fill your tank in August before cold weather rates kick in.)
• Homeowner’s Insurance: This will completely vary based on the value of the property.
• Plowing and Mowing: If you think you’ll be mowing your own lawn, let me tell you, you won’t. You’ll have a million other projects that take up your weekend. And it can snow quite a bit up here, so plowing services are essential.
• Electric: Actually really cheap (unless you’re using it to heat).
• TV/Satellite/Internet: These services add to the monthly nut.
COST OF GETTING AN ACCEPTED OFFER
The other less obvious need for cash has to do with the actual bidding process. In our market, which is generally a seller’s market at the moment, the houses in the lower price range that do not require a massive reno and that do not have significant flaws will be in great demand. It may be that buyers are willing to pay over the value that a bank will appraise it for, meaning that the buyer needs to have more cash to make up the difference. Have a look at Beech St. Cabin and Hemlock Road. These two properties had enormous interest and within days had offers over the asking price for all-cash. Not all listings will have this level of popularity, but the difference between coming away a winner and not, may be an extra 10-15% in cash.
I shared these points with the prospective buyer and she expressed understandable concern that she was going to “miss the market” and that prices will skyrocket and their chance will have passed. While it is likely we’ll see some price appreciation (finally), the market is unlikely to jump 25% or even half that, across the board, in a year. Some of the towns that have come bursting onto the scene in terms of popularity had no name recognition six years ago. There are plenty of areas that you’ve likely never heard of now, that have spectacular scenery and are very underdeveloped, but which are 15-30 minutes to the top hot spots. They’re not going away.
The moral of the story is, make sure you have enough cash so that the dream of an Upstate property doesn’t become a nightmare. Have more cash than you need, or at least have enough to feel confident going into the process that you can be competitive in the bidding process for what you’re looking to buy, and that you can handle the items listed above with some left over to cover those that are unexpected.
If you are among the intrepid few who are willing to tackle a gut renovation, or even if you just want to learn more about how a house is put together (and disassembled!), stay tuned as I embark on my own project taking a seasonal cabin along the headwaters of the Neversink River and upgrade it to year round status, while adding, hopefully, a bit of flair. I’ll document the project here in the blog, but you can also follow @bluequillcottage on Instagram and on Facebook.