Friday, September 7, 2012

Question from First Time Homebuyer--Is a Home a Good Investment?

 “Is buying a home really a good investment?" That question is asked quite often these days especially as the real estate market continues to show signs of recovery. As the market heats up and there are more homes with multiple offers due to low interest rates, some first time homebuyers continue to wonder whether buying a home is a good financial investment.

For decades, buying a home was considered one of the safest investments a person could make. It was "The American Dream". But then came came the crash or burst bubble and people became more cautious about real estate investing. Now, homes are selling again but the question does remain; Is owning a home a good financial investment?

In my opinion, YES, buying a home can be a wise investment and not just because I am a REALTOR®, but because I, too, am a homeowner. The key is treating your home like the investment that it truly is. It takes discipline and time for your investment to grow. And like any other investment, if you have to sell when the market is down, there is a chance that you will not realize as much profit as you may have expected.

So what are some of the key points that must be considered when investing in your first home?

  • Buy Smart
**Price **Interest Rate **Type of Mortgage **Resale Potential **Equity Builder?

  • Maintain and Protect Your Investment
**Home maintenance **Insurance
  • Don’t Put in Your Asset in Jeopardy
The best way to have a healthy balance sheet when you decide to sell your home is to Buy Smart in the first place. Buying smart is not just about getting the home at a low price though that is a very important piece to the puzzle. Homes were a at rock bottom prices a few months ago and when coupled with extremely low interest rates, many people started thinking now may be the time to buy that first home. But with more buyers in the mix, multiple offers are becoming the norm. It is important not to over extend and get caught up in a bidding war that you cannot afford to get that "perfect" home. 

Buying smart also means getting a mortgage that you can afford and that is safe, preferably at a fixed rate rather than an adjustable rate, that can fluctuate into something that you cannot afford. Interest rates are at record-breaking low rates. Talking to a knowledgeable loan officer is a great way to get started in the home buying process and find out what options are available to first time buyers now.

But buying smart goes beyond the price paid and the loan used to finance a first home. It is also buying with resale in mind. Many, who purchased homes in the price climbing frenzy of before the market crashed, snatched up any home they could  get an offer accepted on. They were tire of submitting multiple purchase agreements and being beat out by other buyers in multiple offer situations. They stopped worrying about the perfect floor plan or caring whether the home was on a busy road or next railroad tracks. As the market picks up, buy smart and always think about the need to potentially resell the home.

As a REALTOR® who works often with first time buyers, I spend time helping my them to understand the positives and negatives of the location of each property they view. I point out how something quirky like having no basement or having a hot tub built in to a bedroom could affect the resale value by limiting potential buyers. Paint and wallpaper can be easily changed but foundation, plumbing and property location are much more expensive to deal with. Oddities it a home can drastically affect value when it is time to sell.

Lastly, buy smart by determining whether equity can be built with good old fashioned hard work! If the home hasn’t been updated, a good sprucing up could raise its value. A house that has an unfinished basement, could build equity if it can be done at a reasonable cost. Don’t take shortcuts and avoid permitting because that can be costly if you go to sell. Is landscaping your forte’? Look for a home with a yard that can be upgraded over the years. Just be frugal and realistic in what your resale will be in the end.

Beyond a smart buy, maintenance is essential as is proper insurance to be certain a home owner can afford the required repairs should the unexpected happen. Time after time I have to bear the bad news when presenting a market analysis at a home where the interior and/or exterior has not been repaired or replaced in decades. These homes are not worth what a neighboring, updated home is worth. Doing several projects over time allows a homeowner to enjoy the improvements while retaining the property value. Likewise, not insuring a home properly can be a huge risk. Worse yet, are the homeowners that make a home insurance claim and receiving payment for a repair but opt to use the money for something else.

Finally, it is important for a homebuyer to not put their investment in jeopardy. Many of the people who lost their homes in the market downturn put their homes in jeopardy but taking risky loans against the equity. Some people took home equity loans at reasonable rates but didn’t use the funds to improve their home. Some of these loans were at very high adjustable rates and as the payment rose, the homeowners just couldn’t make the payment. When I was growing up, I remember learning to never take a risk with anything you couldn’t afford to lose. I think a home falls into this category.

Like any investment, a home’s value will fluctuate. But a house is unique as an investment because it serves a dual purpose: It is a your place to live as well as a way to increase your net worth. By using the money that would be paid for rent and putting it toward a house you can afford with a plan to protect and maintain your property, a home purchase is still a good investment. 

 Copyright 2012