What If We Lived in a Home? Part II

But, what if you just lived in a home?

In a previous E-Note I wrote about lacking confidence to buy a home.  In addition to confidence you need a good credit score to buy a home, in the range of 750 and above.  If your credit score is below 750 on a graded scale, your mortgage may cost you an 1/8 to 1/2 of a point more.

The Tin Man lacked confidence and found it with guidance from the Wizard of Oz.  I’m not the Wizard so you are on your own for finding confidence.  Information, well that’s another story.

We like to provide information in the hope our clients make informed, not emotional purchases.

Lack of confidence may be the result of concern about your job or concern about where real estate values are headed.  As to the latter I’m not sure it should be as big a concern as we make it, at least in the Midwest.

I have a few clients now who bought (they did not use Homebuyer Associates when they purchased) a home in 2003.  These clients are now selling their home and using Homebuyer Associates to buy their next home.   In each case they may suffer a loss of $30,000 – $40,000.

Really, what if you just lived in a home?

Let’s say you bought a home in 2003 for $200,000.  Today, based on statistics reported by Fiserv that home may be worth $175,000.  When you factor in the cost to sell, you may lose $35,000.  You bought at the height of the market and now you are selling at the bottom or near bottom.  You “feel” the loss 3 times more than you would feel a gain.  This hurts.

If you had lived in a tent for 8 years then I agree, you are going to suffer a loss.  If you had planned on living in an apartment at $1,200 a month do I dare make the argument that you saved money?

It may be a rationalization on my part but I’ve yet to find anyone to challenge me on the math.  The math is of course that if you didn’t live in a tent you would have paid $115,000 ($1,200 x 12 x 8) in rent over that 8-year period.  Instead, you lived in a home that cost you $35,000.

In the future, live in your home.

Risk is relative to reward.  Historically homes have appreciated at a 3%-3.5% rate.  The period 2005 to whenever we get out of this mess has hopefully taught us a lesson.  A home is not an ATM, a home is a place to live.

In the example above the buyers took a modest risk (for the Midwest) and bought a home.  That risk cost them $35,000 and saved them $80,000.

When you are confident enough to buy a home then do so but do so based on information, not emotion and not on the old rules of real estate.   For starters, understand who works for whom and the difference between Exclusive Buyer Agents and agents who call themselves buyer agents.

Buy a home that is affordable, don’t reach.  Live in the home maybe even do as I do:  consider your house payment rent to live in a space you want to live in and control.

Find your Wizard of Oz and move forward when you are comfortable doing so.  Don’t try to time the market.

I hope this information at least gave you pause to think.  If you have friends who forgot about the plight of the Tin Man send this to them.  As always, if you have a real estate related question (including rehab) feel free to contact me.  If you are a past client, thanks.  If I can be of assistance to you, your family or friends I would welcome the referral.    Thanks for reading.