18yo needing unique financial advice

Tue 25 Dec, 2018 12:16 am
Thank you SO much for taking the time to read this; I really appreciate it!!!
So I recently inherited a home in Austin (no mortgage; all paid off). I am currently living in it but I don't want to live here longterm. I want to move as soon as I am able to get a good paying job, but having just turned 18 that will take a little while. I can't purchase a cheaper house after selling mine because they're all expensive in Austin and other cities. I can't move to a rural area or even many suburbs because I rely heavily on friends/public transportation at the moment...and what 18 year old wants to live in the suburbs/middle of nowhere anyway?
The problem is that it seems to me like another recession is coming very soon and the housing market is overvalued and inflated. With my home price being so high I feel like I should sell now and invest the money in something low-risk? I'm worried if I keep the house when the recession hits that I will lose a lot of money on it. I don't know if property taxes rise or fall during a recession either or if that is even an issue. My home price has been growing like crazy since it was built (up $100k in 6 years), and its estimated value has already gone down $1500 this week after stocks went down from the gov't shutdown, McMaster leaving, and the Mnuchin tweet. But I've just now started tracking the estimated value closely and don't know if the dip is correlated or not, or just some sort of isolated correction. And- hey- I live in Austin- cost of homes are high because people want to live here so the prices are better justified.
I don't know a whole lot about investing but I have a friend who is a bank consultant that is going to sit down with me and talk about it. I still don't know if this is a smart decision though or if I'm overthinking the recession thing. But I also loathe my neighborhood and public transportation in my immediate area is a b**** too, so it is already tough to live here. Yet having a home brings security and I could bring in extra much-needed income by getting a roommate. Renting an apartment after selling could be difficult too because I would need to find a safe cheap place that would accept me, could fit my furniture, and accept small dogs. I would have to find more work to afford an apartment, but then it would be more difficult to find time for college classes.
This is such a big decision. I can't talk to my family (and the bank consultant friend) about this because they're all Trump supporters and believe Trump is doing a tremendous job with the economy. They think, "What recession?" When I talk with the friend, should I trust his judgement considering he has a differing view of the current state of our economy, or am I the one who is overthinking? I don't know who else to ask, and I don't know if I can afford a financial adviser. I've heard they're very expensive.
I'm also stressed because if my fears are true and it is a good decision to sell the house, my family won't understand. Again, they'll be like, "What recession? Housing market what?"
Tue 25 Dec, 2018 08:44 am
Get a roommate, or 2. When you decide to move get a property management company to rent out the house and oversee all the expenses.

You will always have cash flow if you keep the house and rent.

Don’t fret over the near future and that the value of your house seemed to have “gone down” in the last week. Look at the Travis County Central Appraisal District website, where you can look up the appraised and market value of your address. The value of the house may go down, but the land value will undoubtedly go up every year.

You say the house is paid for, but you still have to pay the property taxes each year, which in Austin will be thousands of dollars. That’s why you need to get a roommate now and put that money aside to help pay property taxes. After living there a year you can get a homestead exemption, which will lower your taxes a bit.

On the Travis County Central Appraisail district site you will also see what the property taxes were in years past. However, you as the new owner will be paying property taxes based on you. The person you inherited from had the homestead exemption if they had been living there awhile, plus they could have had other exemptions such as over 65, disabled, etc.

The first thing I would do is find out what your property taxes you be. You can call or visit the TCAD office and they will help you. Call them first to find out what you need to bring with you on a visit.

As far as worrying right now about transportation, that’s a temporary situation. At some point you’ll have a car. Owning property is a long term investment, and can literally be a lifetime source of income.

Your concern now is having enough money for property taxes each year. Plus of course utilities, homeowners insurance, upkeep.

Where in Austin is this house? What zip code, neighborhood? What is the closest major intersection? Is it an area where a lot of building is going on? People buying houses, tearing them down and rebuilding? Is the house in good shape etc?

Recessions and presidents come and go. You live in a city where the land and housing is going up regardless.

Tue 25 Dec, 2018 09:58 am
I felt I needed to come back and mention a few other things. Mostly because of your age. After posting I got to thinking how new all of this must be to you.

You are in a unique position in that you are 18 years old. What is happening, being a land/homeowner is something I realize very few people your age can conceive of in a concrete way. This is one of those things that was supposed to happen “in the future”. Putting myself back at your age, and who I was, I’m not sure if I would have been more terrified, lost, or not being able to look past the immediate/near future.

The following is what I would be telling my younger self.

Sit down with pad and paper, draw a line down the middle, and on the left side write all the positives about this situation, and on the right all the negatives. Over the next few days, weeks, months add to each side as necessary, and cross off things that are no longer a concern. I can almost guantee you that you will not cross off any of the positives, but will cross off the negatives as you put them in the proper perspective, or solve this.

Some of the positives that immediately come to mind, in no particular order...

Land ownership
Source of income (roommates or renting house out)
Having a certain roof over your head
Pride of ownership
Space to potentially start a home business without having to rent space
Being able to decorate/use your home as you want (mostly)

Negatives (and putting them in perspective)

Property taxes (can roommates supply enough money to pay all or most?)
Transportation (at some point you will get a car, and you can use Uber, Bird scooters, bus, bike, walk)
Expression of dislike of neighborhood. Why? Is it unsafe (rent house out, rent out an apt in another area)

Job. I’m not getting this one. You don’t want to live in the country, jobs are in the city, Austin is a big city with very low unemployment, so jobs are easy to get and you can work one that pays your expenses, along with roommates paying property taxes.. you can interview for that better job while you are working the typical 18 year old job. Jobs for 18 year old generally involve working some nights and weekends, so you have times during business hours to inverview. With roommates paying property taxes, or renting the house for more, covering property taxes and income of rental (yes, that’s taxed as income, but with many write offs like depreciation, repairs, paying property manager, etc) you would have enough money to rent a small place and work your 18 year old job for as long as it takes to find a job you want long term.
Tue 25 Dec, 2018 10:10 am
I'm with chai2 (good morning, Merry Christmas). In particular, property ownership = tax benefits. Your property taxes are deductible, as are many improvements, particularly green improvements.

And check if the government provides grants. You might be able to get $$ you don't have to pay back just for adding solar panels or insulation, or having asbestos professionally cleared out, or proper lead paint abatement. See: http://www.austintexas.gov/homebuyer-resources

Think big picture and long-term, as in, really big picture and really long term. And consider what could happen in the future. What if you have a kid? Or you become disabled? Or you want to take a lower paying job because you love what you do or you have a calling (such as to teach in an underprivileged neighborhood)? Keeping the house and using it for income makes all of those things either easier or possible at all.

Reliable passive income rocks.
Tue 25 Dec, 2018 10:20 am
You are not so much overthinking IMO as thinking about stuff that really doesn’t matter.

Whether there is a recession now or in the future doesn’t matter because nothing lasts forever. At 18 years old you have decades until retirement, and the economy will have gone through any number of economic cycles and changes of administration. Think long term. Imagine being 45 or 55 and thinking about how much land in a city like Austin would be worth, and how much money you have made off that land over the years. Also as you get up to retirement you can then sell and have money for a comfortable life with no financial worries.

I realizes you probably don’t understand some of the things I’ve been saying about income taxes, write offs, etc. That’s why there are accountants. If you don’t want to be responsive for upkeep, collecting rent and so forth, that’s why there are property management companies. Yes you do spend money on them, but as long as you can make enough money each month with rent to pay these people, plus property taxes, repairs etc you have a free property that will appreciate over the long term.

Just so you know, I live in Austin too. I bought a house that had been repossessed by the bank for really cheap about 25 years ago. I bought it for about $57,000. Yes we put a good amount of money to fix it up. If I sold it today I’m sure the new owner would tear it down and rebuild. But the land itself would sell for about $800,000.

Imagine what your land will be worth in the future, especially if you always had your expenses paid by renting it.

Just think, you could be working at Jimmie Johns, taking your time off for looking other work, be a freaking Home Owner, and have your housing expenses paid all or mostly by roommates or house renters.

You my friend, are in an unbelievably exciting position.
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Tue 25 Dec, 2018 10:21 am
Feliz Navidad Jes!
Tue 25 Dec, 2018 11:02 am
Sorry to monopolize, but that concern that you would put on the negative side about if an apartment would have room for your furniture, or if you could have pets?

Cross that one out right now. Write it down, but put a line through it so that later you can go back and have a chuckle over you thought that was a reason for concern. If you decide to rent the house and rent an apartment in an area you like better, you will find a place that takes pets. You only take the furniture you like best from the house for the apartment and rent the house with the furniture. Or you sell that furniture, or donate it or give it away.

I understand it. Your mind is whirling. Thousands of dollars of property tax, and a coffee table are renting equal space in your brain as far as problems. I do that all the time. I’ve just had more practice in sitting down and deciding what’s more or less important. It’s just practice.
You are 18 ( I’m not saying that that as a bad thing. Just putting it on a timeline). You have plenty of time in your life to fill it will furniture you love, and can afford because hey! You have a good job and rent out a house in Austin Texas and have 100% equity in the land and house.
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Wed 26 Dec, 2018 09:25 am
You didn’t mention the condition of this house. That’s a factor, plus the overall economic potential or liability of the neighborhood. All things to consider.

You are young and if you are continuing your education, you might not want to be saddled with property so far away.

I’d get an appraisal and then sit down with a financial advisor snd see if investment income from the sale of the house would meet your survival needs or if you should keep the house and plan your future job around that community.

Lots to think about! Good luck.
Wed 26 Dec, 2018 03:20 pm
Yes because no one would ever want to own an asset that has increased in value $100,000 in the 6 years since it’s been built, or outright own something that can be rented for thousands of dollars a year. Enough to pay property taxes, property management and an accountant who will make sure the owner gets all the rental deductions and depreciation. Plus who would want to have this long term money maker, or heaven forbid, a guaranteed place to hang your hat regardless of what happens to you.

One comment the OP made was interesting. He/she expressed concern about “losing money” if they wait to sell it, as opposed to selling it now.

The OP inherited this property. You can’t lose money on something you were given.

To the OP. I notice you have started several topics on A2k, but never post a 2nd time on any of them.

I wish you would come back and give your thoughts on what you have read.

Btw, I read your post to a realtor friend of mine last night, and he verified people don’t get a piece of valuable property and then turn around and sell it based on temporary situations like you described.
Wed 26 Dec, 2018 04:08 pm
Looking at “blackbear’s” previous posts, perhaps setting up a trust from the proceeds of the sale from this house ( to provide an income while continuing a college education) might be an idea.

Not many 18 year olds are ready for homeownership.
Wed 26 Dec, 2018 06:48 pm
Why wait until you’re “supposed” to be ready?

Blackbear can get a property manager, accountant to take care of the repairs, finding renters, and taxes. You pay a fee and still make money and also have land, which as Will Rogers said “they’re not making it anymore”

In a growing extremely popular city like Austin, my educated opinion is that the OP would be kicking himself for years to come for giving up something that can provide a lifetime of income and security.

The fact he is young is all the more important as there is that much more time to grow equity.

If he wants to go to college, he can use the equity on the home itself to take out a loan, and renters will essentially make the payments.

Stop trying to hold people back from securing themselves income and security, when one can learn the ins and out at any age.

Besides, the pendulum is swinging in the other direction from the extreme of it being the common belief is is necessary to spend tens of thousands of dollars or more to get a piece of paper, which isn’t panning out in getting people jobs, and leaving them with years of heavy dept.

Having this opportunity of having an income producing property affords a person the freedom to get educated with less dept, or the time to acquire skills to do whatever they enjoy doing and making a living.

Besides, it’s really not that hard.

People just love telling others they can’t do something, and it will end up badly.

It took me wasted years to wake up and realize all the horrible things I was warned about either never happened or were absolutely manageable.

I believe our young friend can totally keep this land, make money, and always have a place to life , even if there are expenses, which would be covered, involved.

It’s not rocket science

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Thu 27 Dec, 2018 10:13 pm
Hi chai2, thank you so much for your replies! I've been wanting to respond to the last few posts I have made over the last couple months but I have been incredibly busy since then (job searched, started my first job, traveled, more appointments, etc.). As much as I've wanted to respond on able2know, these things have just taken precedence, ya know? I wanted to respond to you on Christmas but have become incredibly sick. I want to respond more in-depth right now to you and punkey, but all I can practically do is use up tissue boxes and sleep lol. I will soon though! Just letting you know I have read yours and others' posts and I appreciate them very much. :-)
Thu 27 Dec, 2018 11:14 pm
Thanks for replying blackbear.

Looking forward to hearing your thoughts.
Thu 31 Jan, 2019 06:23 pm
Hi guys, sorry for the late response.
I had just been thinking about the alternative, which would be to invest, and over a longterm period I could receive a larger return of investment.
But then again I could still invest a lot of money anyway with the rental income once I become financially independent.
Also, I guess a part of me is in disbelief at how much my home has increased in value over the last six years. I'm thinking, "This can't go on forever. Is there a housing bubble? This is insane!"
Thu 31 Jan, 2019 08:00 pm
Ok, look.

You don't seem to understand that because you inherited this house. It was free to you. If you went to Las Vegas and bet $100 at the blackjack table, and got it up to $100,000, then lost it all again....you didn't lose $100K, you lost $100.

If the value fluctuates downwards sometimes (which the value of the land is going up, up, up) you Still aren't losing money.

You know how you're going to GET financially independent? By owning property and using it for income.

You're in disbelief how much your home value has increased in 6 years, since I think you said it was built?

Track the value of home in general over the last 50, 60 and more years.

Real estate IS a long term investment. You talk about wanting to make a long term investment, but insist on thinking short term by worrying about economic cycles.

What kind of other investments are you talking about? Stocks? Do you know anything about investing in stocks? Are you going to go with index funds, and let someone run that for you, and pay them commission? If you are worried about your land suddenly becoming worthless, you'll have a stroke every day watching the stock market.
A business? As if that isn't risky?
Exactly what other kinds of investments are you talking about?

You don't seem to realize you have a bird in the hand, and the easiest, surest way to hold onto an asset like land (don't worry about the house, even if it depreciates, the land will go up) is to work that house now by renting it out, and or living in it.

Why are you overcomplicating this?

Instead of your individual thoughts that this is "insane", it "can't go on forever", have you done any actual research about what the value of land has done in Austin over generations? Here's a clue. It hasn't gone down.

I had asked you in a previous post where in Austin your house is. I don't need an address. But I am curious as to what general area/neighborhood you are in.

I assume you've lived in Texas more than a year. You have excellent schools all around you that you can get in state rates. You work part time, go to school somewhere in Texas, pay a property manager to take care of upkeep and collect rents, and you'll finish school having used the rent to pay all or most of your tuition.

Instead, you worry about finding a place to live that will take your pets, Trump, who will not be in office forever, and some vague fear that you are going to "lose money".

Look at this chart about Austin in particular, since 1980.

You see the dips, uptrends, plateaus. But it is generally going up.
You were born in the year 2000. Less than half the time this graph is for.


Below is a chart of the Dow Jones for over 100 years. Notice how it has the same. Dips, uptrends, plateaus, but generally going up.

That's long term.

Thu 31 Jan, 2019 08:36 pm
1) I am going to disagree with the advice here. Housing is not the best place to keep your money. If you sell the house, buy something smaller and invest the money in the stock market, you are very likely to come out ahead.

2) I am also going to strongly disagree with the idea that if you lose this money it doesn't count. Right now you have $100,000 (or so). That is real money, where it came from doesn't matter. If you lose it you will have lost $100,000.

3) My most strong advice... you should get professional financial advice. You should pay someone for it (free advice is worth what you pay for it). You should avoid advice from anyone who has an interest in your decision (do not pay for advice from a realtor or a stock broker). There are good financial advisers... find one and pay them.

Random advice from random people on the internet is not worth very much.

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Thu 31 Jan, 2019 08:48 pm
Geez Chai, I was looking at your charts. They are awfully misleading.

1. The housing chart only goes back to 1980. The stock market goes back to the depression. Do want to guess what happened to housing values during the depression?

2. You chose a graph of the stock market is a log scale. Your housing housing chart is not. It doesn't show that the stock market is growing significantly faster than the housing prices at the same time.

Quite a bit of writing has been done on this topic... comparing apples to apples. The general consensus is that you will do better in the stock market in general.

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Thu 31 Jan, 2019 09:01 pm
Sorry... I am just thinking more about this. By far, the best investment you can make is in your own education. Getting a 4 year college increases your lifetime earnings by $900,000 on average, and getting a masters is worth $1.5 million.

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Thu 31 Jan, 2019 09:40 pm
Chai is giving you good, sound advice. One point I would make is that you not rush into anything. Don't let anyone ramp you up into an urgent decision to invest. It stings when you miss out, but not nearly as much if you invest and lose everything. Be careful of others motives, they may not really know anything about money and are just little giddy over the idea of 'available money'.

Don't co-sign any loans for friends...trust me on this. Also, try to keep relatively circumspect about property values, some people will be thinking you are filthy rich and that's never good because they may assume you can easily part with money. It doesn't mean they are bad people but they may be very young and inexperienced about money. I worked for DOD for many years and I have horror stories about young GI's who would sign up for additional 6 year tours to receive the re-up bonus (usually pretty healthy). Unfortunately some of them blew thru the money in 2 months.

OK, I'm sorry that I sound negative, I just want you to be safe and smart. You have plenty of time, so please don't get anxious or rushed. Even if we hit a big downturn in the economy (I've weathered several) you will still have the property, and then you just wait until the economy climbs back out. Good luck, and listen to Chai.
Thu 31 Jan, 2019 09:48 pm
Oh, one other thing. Whenever you have a bad vibe about politics 'listen to yourself''....never invest in other people's president worship.
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