Friday, January 24, 2014

Is Buying a Home a Good Investment in 2014?

How good of an investment is a home in 2014?" This question can be a tough one to answer in this slowly stabilizing economy. A couple of decades ago, the answer was a no-brainer. Buying a home had been regarded one of the safest  and most important investments a person could make. Owning a home was equated to realizing the American Dream. But now first time buyers can be confused even as home values and average sales prices have rebounded. Many potential homebuyers continue to wonder,  "Is home ownership a solid financial investment?
 The National Association of Home Builders posed that question in a 2012 survey and MOST AMERICANS answered a resounding, YES!   "74 percent said that despite the ups and downs in the housing market, owning a home is the best long-term investment they can make." That is 3 out of 4 voting Americans who still believe in the value of home ownership!

And I agree,  buying a home is a wise investment. I make this statement not just because I am a REALTOR®, but because I, too, am a homeowner. The key to successful home ownership is to treat your home like the investment it is. It takes discipline and time for any investment to grow in value. And like any other investment, whether it is a stock, bond, mutual fund or a home,if you have to sell in a down market,  you might not realize as much profit as you may have expected.

Key Points to Buying a Home as an Investment
There are several things to consider when investing in your first home. Don't buy just with your heart, buy with your head too.
  • 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 sell your home is to Buy Smart in the first place. Buying smart is not just about getting the home at an extremely low price. It also means getting a mortgage that you can afford. Consider a fixed rate loan rather than an adjustable rate, so it doesn't fluctuate into something that you cannot afford. Interest rates are still at very low rates. The first thing I recommend to my homebuyers is to talk to a knowledgeable loan officer and find out what options are available. There are hundreds of special programs out there and an experienced loan officer can help you find the best for your situation.

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 a few years ago, snatched up any home they could after submitting multiple purchase agreements on several homes. They often overlooked an unusual floor plan or that the home was railroad tracks with several trains passing by at all times of the day and night. They adjusted their needs to accept the power lines in the backyard or the noise from Interstate 35 just a few blocks away. But now if these same families are faced with trying to relocate, they are frustrated that buyers refuse to compromise on same aspects that they overlooked.

With the current low housing inventory in the lower price ranges, we are seeing multiple offers on homes once again. It is still important to keep calm and inspect a home thoroughly before purchasing. As a REALTOR® who loves to work with first time home buyers, I spend time helping my them to understand the positives and negatives of the location of each property we 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.

The final tip to buying smart is to determine whether equity can be increase with a little good old fashioned elbow grease! 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 required city permits. It will cost you  when you go to sell because that must be disclosed. Is gardening your hobby? 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. It can be nearly 20% less, than the value of a well maintained home in the same area.  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 2014