5 Things + 5 More Things
5 Things + 5 more things
I suggest you gather information before buying a home. Many people buy a home based on emotion. The real estate industry, just like Wal-Mart or Target or any successful retail enterprise, count on your emotions for spending decisions. Let’s take a look at things to consider when deciding to buy a home.
1. Affordability: Homes have never been more affordable than the present. I didn’t say that. Burton Malkiel, the author of A Random Walk Down Wall Street, made that comment in the March 23rd edition of the Wall Street Journal. More specifically he said, “Housing affordability has never been more attractive.
2. Risk: Sure, there are risks in home ownership, but the Wall Street Journal, New York Times and news outlets which cover housing believe we at are the bottom or near bottom of the housing market. Remember, all real estate is local. There is no risk in renting but there is also no potential for reward.
3. Tax Law: Mortgage interest remains a deductable expense which reduces the cost of home ownership. Your mortgage payment of $1,700 will cost roughly $1,455 after deductions (depending upon your tax bracket). When I read about potential changes to limiting property tax deductions, it most often involves vacation homes not homesteads.
4. Rates: At this writing the 30-year mortgage rate is 3.875% and the 15-year is 3.125%. Cheap money.
5. History: According to the Federal Housing Finance Agency average appreciation index, Wisconsin was up by .35% the last quarter; down 2.06% the past year, down 7.23% for the past 5 years and up 22.61% over the past 10 years. http://www.fhfa.gov/Default.aspx?Page=81.
Historically, property has appreciated at 3.5%. This is based on data from 1890 to the present from Robert Shiller (Author of “Irrational Exuberance”). While there is no guarantee that homes will appreciate in value (the same can be said of the U.S. stock market) we are left to look at the historical record as our guide. Shiller’s site is: http://www.irrationalexuberance.com/
6. Wants vs. Needs: The starting point for any real estate purchase should be a discussion of wants and needs. They are different. Take care of the needs first and only spend money on the wants if they are affordable. Don’t let emotions get the best of you.
7. Dirt: Location is important for when you buy a home as well as for when you sell. There are many things to look at in terms of dirt. For example, I recently looked at a home with a client and noted the block face across the street had 5 absentee owned duplex homes. The homes were in good condition. My concern wasn’t the existing condition, it was the future condition of the absentee owned homes.
8. Structure: Is the home brick, sided or frame? Cladded? Is the roof asphalt shingles or shake or cedar shake? Is the basement settlement crack typical or a sign of problems to come? Does the home work for you in terms of how you live? We are not inspectors but the aforestated are matters that must be looked at when looking to buy a home and in determining value.
9. Value: Value is determined by finding 3-5 similar style homes which have sold in the past year within a 3-6 block radius of the home you are considering buying and then making adjustments for the differences among them.
10. Circumstance: Are there circumstances which will allow you to buy the home for less than value (an estate that wants to “dump” the home)? Or, do the circumstances work against your buying the home for less than value (an estate concerned about fiduciary responsibility)?
Information: The daughter of a past client called me for advice about buying a home. She lived in Green Bay which is an area Homebuyer Associates doesn’t serve. I suggested she visit my website and read my past newsletters for some insight about how to buy and what to be careful of. No, it’s not as good as having Homebuyer Associates at your side, but it will make her a better informed buyer. Thanks for reading.