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Buying a House - Transcript

By Motley Fool Wealth Management

Alison Southwick: This is Motley Fool Answers! I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool.

Robert Brokamp: Hello!

Southwick: Hello, Bro! This week's episode is the next in our series tackling major life events -- buying a home -- with advice from Motley Fool Wealth Management planner Ross Anderson. All that, and more, on this week's episode of Motley Fool Answers.

So, Bro...

Brokamp: Yes, Alison?

Southwick: What's up?

Brokamp: Well, I've got three quick things for you. No. 1 is interest rates are plummeting. You may have read about this in the news. The 10-year Treasury is now yielding 2.48%, down from 3.24% last November. March saw one of the biggest drops in rates certainly in the last couple of years.

Why does that matter? Well, we talked briefly on a previous episode about the inversion of the yield curve, where short-term rates are yielding higher than long-term rates. Well, it solidly inverted there in March, which traditionally, in the past, has happened before each of the last nine recessions.

Dun-dun-dunnn! It's a little worrisome. The good news -- or at least neutral news -- is it doesn't mean a recession is imminent. Sometimes there's a good year or two in between the time of inversion and recession...

Southwick: You're saying we've got it in two years. OK, great!

Brokamp: Yes, exactly. And the stock market tends to do pretty well after the inversion, at least for that year or so. Plus there have been false positives in the past, so it doesn't necessarily mean there's a recession, but it's something to pay attention to.

More practically speaking, when rates go down the value of bonds go up, so March was a pretty good month for bonds. And also, mortgage rates are just plummeting. We just went through the biggest drop in rates over a one-week period in 10 years. An October 30-year mortgage was almost 5%. Now it's down to 4%. And according to mortgage data provider Black Knight, that means there are about five million Americans who could refinance and cut 0.75% off their mortgage, so if you're one of those people, definitely now is the time to consider doing that.

Rick Engdahl: I'm glad I didn't just remortgage. Oh, great!

Brokamp: We could always do it again. No. 2. There could be new retirement laws on the horizon. Something very unusual happened recently in Washington. Democrats and Republicans agreed on something...

Southwick: What? No!

Brokamp: ... at least when it comes to the House Ways and Means Committee. They advanced several pieces of legislation that if passed by the house and senate, and signed by the president, would bring a whole bunch of changes to retirement accounts as well as 529s. And the thing is there is a good deal of bipartisan support for this. Just a sampling of what could happen.

It could be easier for smaller companies to offer retirement plans and get a $500 tax credit for automatically enrolling employees.

And make it almost required for companies that are offering 401(k)s to let their part-time employees sign up, because currently they don't have to. Both of those things are good news to small employers and more coverage for part-time employees because study after study shows that the availability of a plan at work is highly correlated to whether someone is going to save. That's good news.

It's a possibility that they're going to raise the required minimum distributions from retirement accounts from 70 and a half to 72 and I think that has to go up even further, but that's a good step.

They're going to allow 529 accounts to cover private school, homeschooling, and cover student loans, so that's a big change, too.

And then finally encourage 401(k)s to offer annuities. This one to me is a little controversial. The point is that 401(k)s are good for people accumulating money, but then employers don't really provide any help on turning that into retirement income, so they want to make it easier for annuities to be included so they could provide some sort of lifetime income.

The flip side, of course, is that annuities often are very expensive and actually are not very good for people, so I'll be very interested to see how they make sure that the annuities that are offered within 401(k)s are actually good for the folks. We'll see what happens. Again, it's not law yet, but things are looking generally good for it and if they get implemented there will be a lot of changes.

And finally, the popularity and possible creepiness of Airbnb. This comes from an article on Recode.net, at least the first part of it. And they have a chart that shows that Americans are now spending more on Airbnb than Hilton. And it's now taking up 20% of the entire U.S. consumer lodging market.

That has all kinds of implications for the hotel industry and for the real estate industry, because many people are buying these houses to rent them out. So that's all good news for Airbnb.

On the flip side, there's an interesting article in The Atlantic with the title, "Airbnb Has a Hidden-Camera Problem." "The home-rental start-up says it's cracking down on hosts who record guests. Is it doing enough?" So it starts with the story of a guy who goes to rent one room in a two-room apartment in Miami. Laying in bed. Looks up. Sees a couple of lights. Goes to look at them. He's being recorded in his bedroom.

Southwick: Oh my gosh!

Brokamp: So he takes out the memory card and then leaves. Airbnb refunded his money and then paid for him to stay in a hotel.

It turns out there are lots of rules about this. Airbnb does allow some videoing of people on the outside of the house and in common areas, but it has to be disclosed to you before you rent it. But I just find it kind of creepy.

Southwick: Did you find it kind of creepy? That's a hot take, there, Robert! Controversial!

Brokamp: The article is mostly anecdotes, so there were no statistics like 10% of people who stay at Airbnb are secretly being recorded. But it just added a certain layer of "the next time I do something like that, I might check around a little bit." They had some anecdotes of people finding cameras in alarm clocks and things like that. Just something to keep an eye on. And that, by the way, is what's up.

Southwick: Good choice for a break, everybody!

So it's time, once again, in our series where we tackle major life events. And this month we are tackling buying a home thanks to Ross Anderson. Hey!

Ross Anderson: Hello!

Southwick: Thanks for coming on! Again!

Anderson: Of course! Always love being here!

Southwick: You not only have purchased houses in your past, you are obviously a professional person who talks to people about this topic.

Anderson: I do.

Brokamp: He's a professional person, yes. Not one of those amateur people.

Southwick: You can tell when I'm winging the intro vs. actually writing it. But yes, as a professional person, you are going to provide us with your professional and amateur experience in buying a house. Professional and personal.

Anderson: Sure. And to be clear, I'm not a real estate investor. I don't do this a lot. It's not a hobby of mine. I find it to be pretty painful as an experience, but happy to talk through what we went through and what we thought about, and frame that in the context of maybe some good financial guidance.

Brokamp: Let's make it clear why he is a professional person.

Southwick: Oh, because you're a financial planner with Motley Fool Wealth Management.

Brokamp: A sister company of The Motley Fool.

Anderson: That's correct!

Southwick: You have broken this down into five e-a-s-y steps to becoming a...

Brokamp: Zero steps.

Southwick: Zero steps. You always want to sell something as Five Easy Ways to Do This. But buying a house is not easy, nor should it be, because it's the biggest investment most people are going to make in their lives.

Anderson: It's true. It's a massive asset for most people relative to their overall net worth and it's a big decision and it's a long-term decision for most of us. Something you should take seriously.

Southwick: Then let's start with it. The first step, of course, is to decide whether or not you really should buy a house.

Anderson: Which I think a lot of people think of as a given. They just assume "I should be a homeowner."

Southwick: I'm an adult! That's adulting!

Anderson: That's just like checking the boxes. That's the next thing I'm going to do. I'm going to get a job, I'm going to get a home, I'm going to get a dog. Maybe a spouse somewhere in there. We'll interlace this with Sean's episode.

I think the first question is should home owning be in your immediate future or something that you aspire to? And I don't know that the answer to that is definitely yes. I think home ownership gives you a couple of protections. One against the inflation in housing. If you've been a renter, you get that letter. It goes, "Rent's going up."

We just know that inflation is going to pass through so many different items that you're locking in that cost of the home. Your tax bill still may go up as your assessment goes up, but for the most part you're securing that cost of the home that you're going to be in and protecting yourself from that.

People talk a lot about the growth of real estate as an asset. Fun fact: Do you guys know the actual real estate growth rate at a national level for homes?

Brokamp: The stats we've used in the past were stats from David Blanchett of Morningstar saying once you factor in all the costs of ownership -- like taxes and repairs -- it's like inflation or a percentage point above inflation.

Anderson: It's like 3.1%.

Brokamp: So there you go!

Anderson: It's a very unexciting number. If you're in a market like San Francisco or somewhere that home prices have been skyrocketing and have done so for a decade or more, you may think that I'm nuts when I'm say that, but home prices, at least at the national level, are not this big, exciting "go straight up really quickly" sort of asset. But you don't have to put all the money into it, either.

To use really simple math, if you buy a $500,000 home and you put $100,000 down and the home price goes up by 3%; you've made a pretty good return on your $100,000 that you put in because you're borrowing most of that money from the bank. So I think you do get some leverage upside. But in the short term, the things that can go wrong are brutal.

Southwick: Yeah! Yeah!

Anderson: They're brutal and we've got some fun stories, hopefully, that we can share.

Brokamp: Fun, in quotes.

Anderson: Fun as you smile through the pain, but I think every homeowner has gone through some of these things of just stuff going wrong that you don't plan for. And also the frictional cost of moving in and out of a home means that it needs to be a long-term decision. If you're buying a home and you don't think that you're going to stay put in that spot for at least five years, I think you're probably making a mistake. Just the real estate commissions, the mental effort to find and to get into the transaction, and the lost time -- maybe at work -- of spending all the time on this stuff is a lot.

Brokamp: The amount you spend on getting your house ready for sale...

Anderson: Totally.

Brokamp: And then there's the inspection and the things you have to fix after the inspection... is a lot of money.

Anderson: Well, selling is another episode which I'm also going to do. I don't want to go too far down that path.

Brokamp: We all know that one.

Southwick: Save it for the next time.

Anderson: Yes, exactly. I think there's a lot of frictional cost when you look at it. And so, if owning a home is your American dream, I think you need to want to be in that place for a while, and you really need to be financially prepared and so we're going to talk a little bit about how to do that.

Southwick: Let's talk about that. How do you make sure that you are financially ready to buy a house?

Anderson: I think most people think of the housing purchase in the component of a monthly expense. They think about their rent and they look at what they can afford relative to that.

First of all, if you're going up -- if you assume that your mortgage payment is going to be more than your rent -- start making that payment right now. And I don't mean paying extra in actual rent but start treating your housing payment as if it's more than it is and committing those extra dollars to savings.

I really think that's the simplest way to figure out what you can afford. Now I heard that I was mentioned on this show as the anti-budgeter.

Brokamp: It's true. On Financial Health Day.

Anderson: And I believe that. I really am. I embrace that. I'm not a budgeter where I want to figure out where every line item goes, but I do want to figure out if what's left after I commit to those expenses is enough for me to live my life comfortably. So if you think that you're going to go up by $500 in your payment, start putting that $500 in savings. Don't touch it. You can still spend the rest and see if that's a comfortable space for you.

And I think that does a couple of things. No. 1 is it starts preparing you for a down payment, because now you're accumulating cash. That's all good. And we're kind of stress testing. Does our budget support this higher level of payment, even though we haven't committed to it yet? I think that's one of the first things, is to start to stress test your budget a little bit to see what you can afford. Because if you go to the mortgage guy, they're going to tell you that you can afford...

Southwick: An insane amount of house.

Anderson: An exceptional amount of house. They're going to look at what the most you could borrow is that we think you're likely to probably not default, maybe, but if you do we're going to take your house from you.

Brokamp: But at that point they've sold you the mortgage anyhow, so it doesn't matter to them.

Anderson: Exactly. They've made their money. That's not a knock against mortgage guys. I don't think that's an evil industry. They're allowing a lot of great things to happen. But don't look at the number that they show you and go, "Oh, I can afford it!"

Southwick: It's ridiculous. We got approved for double what we should probably be living in. It's insane!

Anderson: It's a lot of money!

Southwick: Especially our first house. We were like, "What? You think we can afford this?" Ron was like, "There's no way we can afford this." I'm like, "I know! Did these people really vet us? We just gave them everything and this is what they came back with?"

Anderson: Did you guys read these numbers?

Southwick: Did you read this? Are you assuming that our only expense is going to be a house, because it's not really what it's going to be?

Anderson: I think that's the wrong way to determine the budget but start figuring out what you spend by actually doing it, and I think it's got two effects. You stress test your own budget and you start to save a little bit more aggressively.

The other thing is really that your emergency fund needs to be in a bigger spot. So three to six months is the typical guidance. If you're on the three side, I think you need to be closer to six when you become a homeowner because there's going to be big stuff. Even in a condo, which is what I just came from, I replaced every appliance and most of them not out of choice. Hot water heater, HVAC system. You name it. Dishwashers. It all breaks over time, even if you've got decent stuff in there and it's going to happen when you don't expect it.

So don't get caught out of position and end up in a spot where you're kind of pedaling backward with credit card debt and everything else. I think you've got to have your savings level higher to go into a home and be able to take the bumps and bruises along the way.

Southwick: When you're a renter you just don't think about it. You're like, "Oh, my toilet broke!"

Brokamp: Call!

Southwick: Call! It's a call! Oh, that was annoying but now it's fixed. I don't know how much it costs to fix a toilet. I wouldn't even begin to know.

Anderson: Sure. Yeah.

Southwick: It could be $1 million. It's not $1 million. I actually do know about how much it is to fix a toilet. But I didn't when I was in my twenties and when I was renting. You don't even think about all those costs and boy, they add up!

Brokamp: A couple of rules of thumb that people will use is you should assume that you'll spend 1-2% of the value of the house on annual maintenance. So if you have a $500,000 house then $5,000 to $10,000 a year. Or there's also a square footage role of thumb. So one dollar for every square foot or two dollars will give you the price of your place. That gives you a rough idea of how much you should plan.

The thing is it doesn't happen each and every year. Sometimes you'll go a couple of years without anything and then "poof!" You need to replace the roof for $30,000.

Southwick: Now you've become more disciplined with your finances. You're saving money. You're preparing yourself.

Anderson: I think it's time to start looking.

Southwick: This is the fun part.

Anderson: This is so fun. It's fun and it's stressful. I geek out on it. I still look at houses, even today, after I bought this house, because I just like looking at them. Is it weird? Is it voyeuristic?

Southwick: No, I do that, too!

Brokamp: Many people do that.

Anderson: I just like looking at other people's stuff.

Brokamp: My wife does it all the time.

Southwick: Yes, it's great! It's just important. We're not going to be living in the same house forever, so it's important to know what's out there and what the market's doing. And programs like Redfin and Zillow have made this so much easier.

Anderson: Totally! And it's become fun. I like that the algorithm will figure out what you're clicking on and then show you other stuff like it. It's like learning about what you're clicking on. I'm partial to Redfin as a shareholder, but I just think Redfin has done such a good job of figuring out that pattern of what I'm looking at and showing me stuff that's going to be in my price range and then maybe a stretch. It showed me some homes where I was like, "I think you meant to show this to somebody else."

Southwick: You've got the wrong Ross Anderson.

Anderson: But I had so much fun sifting through houses and looking at different neighborhoods. And if you do that earlier, you can start to see the patterns of how long stuff sits on the market and what the really big things are that are moving the needle, whether that's square footage, or the lot size, and the location.

And your personal wants or needs list is going to be totally different. It could be driven by school districts. It could be driven by the location and the commute. Here in Northern Virginia, that's a super-premium. Anywhere closer to the city you're paying for it, because you're probably going to be in the car less time.

And then of course all the things on the home. The number of bedrooms. If it's got a yard. How turnkey is it? Is it updated? All of that stuff you'll start to get a feel for it in your market, and I think it's really important to start assessing what you're going to get for your money if you go into it with an unrealistic expectation of thinking you're going to walk in and it's going to be a turnkey home.

And even the first time we went through this, my wife and I were used to seeing some of these HGTV shows and they're brutal, because they'll say, "We want to have an acre and a half, at least 2,500 square feet and a two-car garage and our budget is like $210,000." Then they find it and you're like, "What? Where did that exist, because that's nowhere near the pricing here." I'd live in a shoebox for that amount of money in D.C.

So start getting used to your market and just what you're going to get and I think that you'll be much better calibrated for when you get serious and ready to do that.

Southwick: When you're buying a house with someone else, it's funny how hard it can be to communicate what you really want in a house. Because Ron and I were shopping for a house for years, and I still don't really know what appeals to him in a house vs. what appeals to me. I know it's different, because we would go see two open houses. They're effectively the same house, the same neighborhood, the same number of bedrooms and bathrooms.

I'd be like, "We have to put an offer on this house." And he would say, "What, are you crazy?" And he couldn't believe it. No, we have to put an offer on this other house. It's crazy how you think you're aligned on paper, but when you actually get into a house, it's like, "No, I hate that house!" And you're like, "What?"

Anderson: Do you guys have that problem decorating, too? Is it a design thing?

Southwick: No, I think we're more aligned on decorating, although I have concerns about where he wants to put our couch. Like he has it slammed up against a wall and I that the feng shui is all wrong. It's not centered on the fireplace. People bump heads all the time. It's not until you actually get into a house that you're like, "Oh, no, we completely disagree."

Brokamp: The bottom line is housing, to a large degree, is an emotional issue and psychological issue.

Anderson: Totally!

Brokamp: You could compare two houses -- buying one and renting one -- and financially they work out even for you, but there is just some psychological benefit for some people because the house is their own. They can do what they want. Other people like renting because they're not tied down.

Anderson: Totally! I think that doing what you want thing is probably both overrated and underrated by people when they think about it, because everybody wants to do this stuff and then you get into it and you figure out, "What's it going to cost me to do that thing?" Again, those shows make it look so easy. "Yes, I'm just going to bump out that wall." That's the most common term on TV and the home renovations. "Yeah, we can bump that out."

Southwick: Just bump it out. Just open floor plan.

Anderson: You're taking down walls! That's serious work! You need a drywall guy. You need the paint guy.

Southwick: You've got to redirect the vents and the ductwork has all got to go, and by the way, someone drilled through the joist.

Anderson: Oh, my gosh!

Southwick: They always drill through the joist. Always!

Anderson: They just cut through mine.

Southwick: They just cut through them. They just do that.

Anderson: Entirely. Like what's that's needed for? That's not holding anything up, is it?

Southwick: No, of course not!

Anderson: The floor. The floor is what it's holding up. I'm not sure who does that.

Southwick: Every house we've lived in, someone has gouged out large parts of joist. It's insane!

Anderson: If you're listening to this right now and you're a joist cutter...

Southwick: Just stop!

Anderson: Please stop it!

Southwick: You're killing us! You're killing us!

Anderson: Oh, man!

Southwick: Yeah...

Anderson: Anyway...

Southwick: All right! We know where the personal comes into the professional. [laughs]

Anderson: Sure! OK! Let's assume now you're well-tuned into your market. You've saved some money. It's time to actually get serious. You've got to get pre approved for the loan. I personally used a sponsor that shall not be named.

Southwick: You used Rocket Mortgage, nmlsconsumeraccess.org No. 2020.

Brokamp: 3030.

Southwick: 3030! I can't believe I did that!

Anderson: I used Rocket. I did. And the reason I used Rocket was because they offer a very inexpensive recasting process. I don't know if anybody has ever thought about recasting.

Southwick: I don't even know what recasting is.

Anderson: Recasting a loan is if you're going to make a big payment on it at some point, that can either go to principal, and you'll pay off your loan sooner, or you can have them readjust the amortization schedule. So it actually lowers your payment. The reason we did that or wanted to do that -- we actually haven't done it yet -- is that we hadn't sold our condo when we were doing this, and so we were making a small down payment than we thought we were going to. The plan was to sell the condo and use the proceeds of the condo to lower the mortgage, and then we were going to lower the mortgage payment as a result.

Now in my particular case, all of that money has now gone into renovations in my home because we wanted to bump out a couple of walls...

Brokamp: It's easy!

Southwick: How hard could it be?

Anderson: Just bump it out! But that was at least the plan and now at some point I still may do that but haven't yet.

Southwick: Think of all that space you have now!

Anderson: It's true!

Southwick: There's so much room!

Anderson: It's true. I had a bathroom. The master bath looked kind of like a hotel room. The vanity was in the master. There was no space!

Brokamp: Oh, really?

Anderson: You just walk over to the vanity while you're in the master bedroom and we were like, it's not going to work.

Brokamp: That is weird.

Anderson: Somebody getting ready early in the morning wakes everybody up. That's a problem. So we just bumped out the wall.

Southwick: Just bumped it out. No big deal.

Brokamp: But the purpose of the pre-approval, though, is first of all, you know how much you can borrow.

Anderson: Correct.

Brokamp: But it also puts you in a stronger negotiating...

Anderson: Much so. When you're submitting that letter basically saying, "I have access to these funds," they've already looked at my stuff, you're making a much stronger offer that you're likely to be approved for the financing if your offer gets accepted.

The other thing -- and I thought this was fascinating -- is that they're doing all of the pre-approval stuff through account aggregation now. It used to be that you had to submit statements over and over again. They kept asking, "What's in the bank account now?" This was a long process. You'd have to send them months' and months' worth of your bank statements and it was just a pain in the neck. Now they just connect right to it like on Mint.com or some of these other aggregators and they can just watch and they can see if you spend all your money and tried to move it from one pocket to the other. They don't have to keep asking. It's great.

Brokamp: It's easy and a little creepy.

Southwick: Yes.

Anderson: It's true, because they're probably still watching. He spent all that on a wall? I think that process has improved quite a bit with technology.

Southwick: We've only ever worked with a realtor. Obviously companies like Redfin and Zillow... Does Zillow also offer you a network with a Realtor and you work through Zillow?

Anderson: I believe Zillow is still doing the advertising for the Realtors. They're partners.

Southwick: With Redfin you can go with them and it's cheaper or I guess you go cuckoo-crazy and not use a realtor.

Anderson: You could. I wouldn't recommend it.

Southwick: We use a realtor.

Anderson: And now you're ready to make an offer. And one of the things that our Realtor did help us with, in this case, was I think making an aggressive offer but justifying it. One of the things that you'll see people do is decide that they're going to throw a lowball offer out there. OK, the home's listed for $400,000. We'll send them $315,000 and see if they accidentally sign it.

I think it's important to remember you can be aggressive on your offer, but there are people on the other side of that, that may now be insulted that you've deemed their home not worthy of anywhere near what they're asking for it. So as the receiver of that offer, you could choose to reject it. You could choose to counter. And most people will counter. They could reject it flat out, but if you're in a reasonable range and they're a motivated seller, they'll probably counter-offer. If you justify why you're offering something lower than what they're asking for, I think we had a much likelier chance. That's what we did.

We sent the comps and said, "These three homes around you have sold. This one sold for exactly what you're asking for, but it was updated. Had better bathrooms. Better yada, yada, yada." I think it put us in a better position. Instead of just saying, "We don't think it's worth that," we said, "this is why." I think they had to take that more seriously and they ultimately accepted that offer after a little back and forth.

Southwick: So you make your offer and it gets accepted!

Anderson: We've got a deal! You are under contract! Congratulations! Don't get too excited. To me this is like being in a car dealership and then you decide what car you want. You're like together with price and the sales guy and then they walk you back to that F&I guy in the back and you're like, "Ooh, he's trying to sell me the undercoating thing on the car." Don't buy that either, by the way.

Southwick: And there's a trash pan in the trunk that we forgot to tell you about.

Anderson: All sorts of stuff. Assuming you wrote an offer that is contingent on an inspection, this is where you get to go and dig through all of their stuff -- mostly the home -- but their stuff will probably still be in it.

In the home inspection we made a couple of mistakes as part of this process. The home that we bought is on a slab construction, so it means it doesn't have a crawl space. It's just sitting on a big block of concrete. And there were some cracks and there was some clear movement in the concrete. It started making us nervous and we thought, "Oh, my gosh! Is the foundation of this house wrong?"

We got so nervous about that that we forgot all the other stuff that was in the report. So we ended up having a foundation expert come out. He looked. He said, "Yeah, it has moved, but it's settled. It's fine. It's going to be good."

We went, "Phew! Thank goodness! We're OK!" For example, they had told us that there were some droppings up in the attic. Didn't really pay much attention to it, because we were like, "Oh, that's fine. It's no big deal. It's a house. It was built in 1973. No biggie! "

It turns out they were raccoon droppings and it was a massive problem! They were up there tearing up the insulation and it was exceptionally expensive. And people said, "Didn't your home inspection catch it?" And it did, I think.

Southwick: So embarrassing!

Anderson: It really is embarrassing to have been caught by surprise. So read the whole thing! Don't get fixated on one problem! We were just so relieved that the foundation was OK that we were like everything else would be small potatoes.

Southwick: And the housing inspection, at least in our experience, is like 40,000 pages.

Anderson: It's super long.

Southwick: Of just like every little thing. Every little thing that it's easy to get lost in it.

Anderson: This little stone on your front drive was a little loose. It's a real problem. You're going to have to take care of that. Oh, by the way, there's droppings. It's raccoons. Dirty Mike and the Boys live in your attic. Don't worry about it! That's what we named our raccoons.

Southwick: It helps to name the critters.

Anderson: It was great! But they're removed! We've got new insulation. Fancy new patchwork all over the house so they don't come back.

Brokamp: Thousands of dollars later.

Anderson: Correct!

Southwick: At least the foundation's good!

Anderson: At least it's not moving. I do also recommend if you're in more of a fixer-upper sort of house, take a contractor in there with you. You can do that as well, either as part of the home inspection or book another time with the current homeowner and start figuring out what those projects are going to cost. You don't have to commit to doing those things right there, obviously, but if you're going to do some renovations, you can go into it very clear-eyed about what's going to happen to you after you close on the home.

Southwick: Robert suggested on the show earlier that your realtor is probably going to recommend someone to do the inspection for you, but a Fool recommended that you find your own inspector and you find your own person that you like and trust and get recommendations because it's in the realtor's interest that you don't find anything wrong with the house and that you move forward with it and that you enjoy it and get past it. Rob had a bad experience, so he suggested finding your own inspector.

Anderson: Yes, because in many cases that realtor is in a position to make that referral a bunch of times over. They're going to have hopefully many clients and send them back to the same inspectors, assuming the inspectors are continuing to do that. Ours gave us a few choices, but I like to do your own independent search to find your own people.

Southwick: So you put in the offer. You did the inspection. Everything's great!

Anderson: You're about to be a homeowner! It's closing day! Get your money ready!

Southwick: All your money! Really all the money!

Brokamp: And your signing hand!

Anderson: There's nothing sadder than going through all of the documents and seeing every single place that the county and the city and the state and the title, and the courthouse; all of these people have their hand in your pocket somewhere along the way. It's best to just ignore it and get down to that number at the bottom and sign your check.

But, to that point, and to go back to when you're making that deal, if you're light on cash you can ask for more in terms of seller assistance toward the closing costs instead of negotiating your price as much. If you're a first-time home buyer and otherwise the down payment's the challenge, maybe that's a better negotiating point for you because when you get to this closing step, it's still going to take you some money to get through all the closing costs.

So now you're there. You are going to be a homeowner. I think the final thing I would say is decide if you're going to do any work to the home before you move in. We had a popcorn ceiling. The home was built in 1973 and we weren't super in love with it. They hadn't banned asbestos in 1973, so we didn't really want to be in the home or have our pets in the home when they were doing the removal. They ended up going right over it, which I thought was kind of cool. They buried it. So it's still there, but it's under a layer of plaster.

But we wanted that done before we were in there. So you're ready to go. Shovel ready after you close so that you can get in as quickly as possible. Prioritize those items and I think it's fun to start meeting your neighbors. My grandfather used to say, "I've got the best neighbors in the world. I don't know them and they don't know me." But I like that sense of community and having a little dialogue of who the people are around you. I think that can also help you if there's ever a dispute of any kind that people like you and know you.

And then after that it's really about getting back to the savings game. So whatever else is on your horizon, whether that's retirement, whether that's school for your kids, whether that's home improvements now that you're in the home, get back to being disciplined as soon as you can and enjoy yourself. I think now that we're in it, we're basically through our first wave. We've got our final projects on the inside of the home being finished right now, which is the master bath that had the crazy vanity in it.

First of all, it's super exciting, because even though most of the home is starting to feel like home, getting all the contractors out of the house is going to be a nice feeling. Right now we're so used to them being in there that it's like they're living there -- so getting that done and finally being beyond it -- because we did buy a little bit of a fixer-upper and we knew that.

Price points in Fairfax County are nutso and so we were trying to come into a spot where we could still afford the home and then make it our own. I think that's kind of the cool thing about not buying something that's super turnkey, is that it's going to feel like us when we're done with it. It's our design. If people think the tile sucks, I don't care! I picked it! This is what I want!

I'm super pumped about it! We've got some projects that will be outside next, but we're going to try and do as much of that ourselves and cleaning up the yard and all that. It's fun! It's fun to have a place that feels like it's you!

Southwick: It's fun to have a place that's yours! I think my biggest takeaway -- we've bought two houses at this point -- is that it costs waaay more than you think it's going to. I don't know what the exact number is, but if you go from renting a place to buying a house, you just don't think about, "Well, now I have a yard, which means I need to buy everything to take care of this yard." And things are breaking all the time. And even just the closing costs and how much it costs to actually buy a house. Everything costs so much more than you think and it hurts.

Anderson: It's the truth. People say, "Oh, I'm renting. I'm just throwing my money away." You're not getting equity when you're renting, but you're taking on a lot more risk for that equity.

Southwick: And effort.

Anderson: And if you get popped a couple of times early on big expenses, even the amount of equity that you're going to get -- it may be a couple of years. Because early on in a mortgage, if you look at the amortization schedule, you're not chipping away at the loan very much in those first few years. It might be only $300 or $400 a payment. Even if you're making an $1,800 a month payment and one air conditioner goes out on you, it's a $5,000 expense and all of the equity you would have accrued in two years is gone. And it's like, "Oh! What a bummer!" Now you're cool and you're comfortable, but that sucks!

So if you're having trouble saving money already, buying a home is probably not for you, yet. You've got to get disciplined first. Even if it's the anti-budget like me and you just want to start saving money and ignoring where the rest of it goes, you've got to have that discipline built in before you get into the home-buying purchase.

Engdahl: I don't know how many times I've spent thousands of dollars to buy what I thought I already had. A roof! A water heater. I thought I had that already, but...

Anderson: You did not buy a water heater!

Southwick: Oh, man! We're ending on such a negative note! No, it's good! It's going to be good!

Brokamp: It is good, and if you do buy a house that you stay in for a long time, it can be an asset later on in life if you retire, because then you're downsizing and you move to a lower-cost part of the country or you do get a reverse mortgage. So it's not a complete waste of money...

Anderson: Sure.

Brokamp: But it is a long-term commitment.

Anderson: It is. It takes a long time for the math to really work out in your favor. And yes, you are making a payment. You're paying off debt and you're doing all of those things on a month-to-month basis but assume that it's going to take longer than you'd want it to.

Southwick: But go for it!

Anderson: On that cheerful note, get out there and prop up the housing!

Southwick: Ross, I'm going to make you stick around, but I also have some more to say here.

Our sister company, Motley Fool Wealth Management, is a registered investment advisor that can help you put your financial plan and investing needs in the context of your big life transitions. If you've enjoyed learning from Ross or the other Motley Fool Wealth Management planners we've had on the show, guess what? You can get even more of them in your life. I think people want to hear more stories about Dirty Mike and the Boys. So visit FoolWealth.com/radio. You'll find podcast notes and resources and you can even book a no-obligation appointment with Ross or another planner you probably heard on the show.

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Ross, do you want to stick around, because I'm going to try and sell you guys an insane house.

Anderson: Let's do it!

Southwick: Initially when I was planning for this segment I was just going to research some crazy houses and have you guess how much you'd pay for them or how much they sold for. But I landed on this one house which is just so perfect I think that you guys are going to want to buy it. So I'm going to tell you the story of this house and then I'm going to let you make some guesses along the way about what turns this story takes. Sound good?

Brokamp: Sounds good.

Southwick: First off, the house is a vast limestone cave on 240 acres in the Ozarks 150 miles northwest of Little Rock and it's called the Beckham Creek Cave. It comes with a fresh water spring. How much do you think you would pay for it 1983?

Brokamp: 1983? The Ozarks are actually quite beautiful but, then again, it's Arkansas so land is cheaper.

Anderson: How much land was it again?

Southwick: 240 acres and the cave is about a mile and a half long. Again, it comes with a fresh water spring.

Brokamp: The last time I bought a cave, I only paid...

Anderson: Well, your cost breaker back in 1983 was...

Brokamp: I have no idea! $100,000.

Anderson: I'm going to go low. I'm going to say you could have picked that up for $25,000.

Southwick: Well, if you're John Hay, founder of the Celestial Seasonings Tea Company, you paid $146,000 to convert this cave into a bomb shelter after watching what ABC nuclear holocaust show?

Brokamp: Oh, I remember this! It was The Last Day, or something like that? It took place in Kansas.

Southwick: Rick knows it.

Engdahl: The Morning After.

Brokamp: That's it!

Southwick: Close. You're probably too young, Ross.

Anderson: I have no idea what you're talking about.

Southwick: It was called The Day After. Do you remember this show when it came on?

Engdahl: The morning after is a pill. I'm sorry! [laughs]

Brokamp: Both with cataclysmic...

Southwick: Awfulistic...

Brokamp: It was a show on... This is before everyone had cable, so we were all mostly stuck watching the major networks. It was a show about what America would look like -- at least this one time in Kansas -- after a nuclear war. And everybody watched it.

Southwick: Everybody watched it!

Brokamp: It was like the last episode of M*A*S*H. Everyone watched it!

Southwick: So John Hay, the co-founder of Celestial Seasonings Tea Company, which has its own cuckoo-crazy story, watched this and he was like, "I've got to buy a bomb shelter, now. I've got to make a bomb shelter." So he takes $2 million to convert the cave into a fallout shelter. It has a hydroelectric power supply, 40-foot rock ceilings, and enough freeze-dried food to feed 50 people for two years. Also a lovely dance floor, because if you're going to be holed up with 50 people for two years, you should have some fun. He was in a religious group and apparently they used it a couple of times during some bomb scares.

Eventually he realized we were not going to have nuclear war with Russia...

Anderson: Well, that's when it happens. Right when you give up!

Southwick: So in 1987 he sells the property to someone only known as "Mr. Richardson." That person invested $6 million into converting the place into a nightclub. Opening night... Again, we are 150 miles northwest of Little Rock and someone decides to open a nightclub, but OK.

Anderson: For $6 million.

Southwick: Opening night boasted some big-name celebrities including... Can you name at least one? It's 1987.

Brokamp: Duran Duran.

Southwick: I do like a little Duran Duran.

Brokamp: Spandau Ballet. They were doing the...

Anderson: Are we going like professional athletes?

Southwick: It's 1987. I'm just going to let you guess. Celebrities.

Engdahl: Pat Benatar.

Brokamp: The guys from Miami Vice.

Anderson: I have no idea!

Brokamp: Alf.

Southwick: [laughs] Wow! OK!

Brokamp: Give us a hint. How about a hint?

Southwick: How about the biggest celebrity in 1987?

Brokamp: Michael Jackson?

Southwick: Yes!

Brokamp: Oh my God!

Anderson: Michael Jackson was there? Was he really?

Southwick: Supposedly. Michael Jackson, Diana Ross, Elizabeth Taylor, and Arnold Schwarzenegger apparently went to this nightclub.

Engdahl: I'm sure Pat Benatar was there, too. She just didn't make your list.

Southwick: Probably.

Brokamp: Probably.

Southwick: So John Hay repurchased the property in 1994 and turned it back into a house. Here's some downsides to living in a cave. The stalactites drip. That's annoying. The backyard is a mile-and-a-half long cave that is home to bats and other critters that find their way into the house now and then.

Brokamp: Racoons!

Southwick: It's always 65 degrees. It's had a few owners, but most recently it was listed in 2018 for how much?

Brokamp: $750,000.

Anderson: No, it was a $6 million nightclub before that.

Brokamp: I know, but it's outdated.

Engdahl: You haven't played Alison's games, have you?

Anderson: I was going to try and inflate the number from there. I'm going to say it's worth $15 million.

Southwick: OK, that's a little high. Rick, do you have a guess?

Engdahl: I was going to go back with the original number close to Bro's.

Brokamp: $100,000?

Southwick: $2.75 million.

Brokamp: Oh, well!

Southwick: But it's now a vacation rental and you can stay there for the low price of how much a night?

Anderson: I'm apparently really bad at this game.

Southwick: Everyone's bad at this game.

Brokamp: $1,500.

Anderson: $600.

Southwick: $1,200. What I love about this house is that it tells the story of America! It's a bunker during the early '80s, when everyone was freaking out about nuclear war with Russia. Then in the mid-'80s it was a nightclub where celebs did cocaine with each other. And then it's not really clear what happened to it in the '90s, but now it's basically an Airbnb. How amazing is this place? And it's a cave in Arkansas! So yeah! Maybe we should visit sometime.

Anderson: The real Batcave.

Brokamp: There you go!

Southwick: I wonder if they have postcards, listeners!

Brokamp: Just an idea!

Southwick: Just an idea! There's a website, so you can look up the renovation online. The renovation was really lovely. It looks very cool.

Brokamp: The Ozarks are really nice.

Southwick: So we're going to go stay there one night?

Brokamp: Sure!

Southwick: Have a party?

Anderson: I'm a little scared of the Ozarks because of the show.

Brokamp: Oh, yeah. It's a good show!

Anderson: The show's dark.

Engdahl: Ding ding ding ding ding ding ding ding ding!

Southwick: Is that in the Ozarks, too?

Engdahl: Close enough!

Brokamp: I can't remember which town I was in, in the Ozarks, but it's lovely.

Engdahl: We should do a live podcast there?

Southwick: Can you imagine me talking and then drip, drip, drip... And then it would just echo, and then a bat would fly into us. Ugh! I hate bats! All right.

Well, that's the show. Ross, thank you so much for joining us!

Anderson: Of course! I hope my own experiences can help somebody else out there!

Southwick: Absolutely!

Brokamp: I'm sure!

Southwick: And for our listeners, don't forget. Head to FoolWealth.com/radio for more episodes in this series and to book a no-obligation appointment to chat with a Motley Fool Wealth Management planner.

The show is edited cavernously by Rick Engdahl. Our email is Answers@Fool.com. For Robert Brokamp, I'm Alison Southwick. Stay Foolish everybody!

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