- Buying Your First Home as an Investment
- How Investing in a Home Can Help You Meet Your Financial Goals
- Renting Versus Buying a Home (Pros and Cons)
- Preparing for Homeowner Transaction Costs
- Honestly Assessing Your Finances
- Determining a Down Payment on Your Home
- How a Mortgage Lender Sees You
- Alternatives to the Traditional Single-Family Home
- Analyzing the Potential for Real Estate Appreciation in an Area
- Finding the Perfect Home
- Photo Credits
Buying Your First Home as an Investment
There are a few important milestones that mark the significant moments in our lives — such as graduating from college, starting a career, or getting married — and buying a first home is high on that list. But before you take the plunge on such a monumental purchase, it is paramount that you find the answers to a number of preliminary questions, or risk being overwhelmed by the ordeal. As you might imagine, unfamiliarity with the home buying process can cause someone to make a series of poor decisions. This, in turn, may lead a person to purchase an unsatisfactory property (that he or she is then shackled with for the foreseeable future).
To avoid such a fate, it is useful to approach the process of buying your first home as you would a potential investment. This does not mean that you should base your decision to buy solely on a home’s chances for appreciation, though this is certainly an important consideration (and it is covered later on in this article). Rather, you should view the purchase as a life investment as well as a financial one. Ask yourself:
Will the home that I ultimately decide on help or hinder my (as well as my family’s) personal pursuit of happiness?
Specifically, what type of property is best suited to your needs? Would it be more beneficial for you to rent indefinitely, or to buy? If you decide to buy, how long will it take you to recoup the initial expenditures associated with purchasing a home (e.g., down payments, application and transaction charges, Realtor commissions and various fees)? For that matter, will you be able to comfortably afford the type of property that you are interested in? You may safely deduce that the pursuit of happiness does not include stressing out over late mortgage payments, or working 24/7 to avoid being consumed by debt!
After you have answered these questions, you will want to have an idea of what is financially feasible for you before approaching a mortgage lender. You will also want to know how a lender “sizes people up” before deciding whether or not to pre-approve them for home loans. Finally, you will need to have a solid understanding of the procedures involved with thoroughly researching a property and the surrounding area, before you commit to making a purchase.
In this article — the first in my series on real estate investing for beginners — we will explore the answers to all of these questions.
How Investing in a Home Can Help You Meet Your Financial Goals
Owning a home means more than just having a place for you to lay your head, plant a garden, and hang family photos. A home is a very real financial asset, one which constitutes a major chunk of net worth for most people. As such, the value of a home may be leveraged to help a person reach some of his or her financial goals more easily.
Think you might like to retire early? Many people decide to take out a reverse mortgage on their homes, to supplement pensions and/or other retirement incomes, in order to help them retire sooner than they might otherwise have been able to. Or, perhaps you’d like to start a small business, toss name-tags and time clocks to the wind, and become your own boss! Borrowing against your home’s equity (i.e., the market value of a home minus any outstanding mortgage debt) can help you to raise enough capital to begin such an endeavor. Another way to use the equity that you have built up on your home is to finance college for your child or children (if you have any, or would like to someday).
However, monetary benefits aside, there are other very important factors to think about before deciding whether to invest in a home. For instance, financing is an enormous commitment, and unless you are exceedingly wealthy you can expect to take out a 15-30 year mortgage to pay for your domicile. Also, you will be responsible for any and all maintenance issues that arise. Perhaps most importantly, the home that you purchase will become an inextricable part of your identity, and you must make sure that whatever property you choose is one that you can see yourself in for an extended period of time.
Renting Versus Buying a Home (Pros and Cons)
There is no shortage of real estate “gurus” who will tell you that it is always better to buy a home rather than rent. A common argument to this effect is that buying a home is cheaper than renting in the long run, due to the great tax benefits that come along with ownership. Also, that renting is like “throwing your money away.”
In truth, the reality is a bit more complex. First, the tax benefits associated with home ownership — nice though they may be — are already factored into the higher costs of owning a home. If property taxes and the interest that you pay on your mortgage were not tax-deductible, then you can be sure that housing prices would be much lower than they are now (because the total cost of owning would be so much higher).
Furthermore, it is simply not true that renting is always more expensive than buying in the long run. Actually, in some communities renting certain types of properties may be less expensive. A good indication that renting may not be the worst thing for you is if you are able to save ten percent of your earnings consistently, while still living comfortably. If you are the type of person who does not wish to become encumbered by the plethora of responsibilities (financial and otherwise) that go hand-in-hand with home ownership, and you are still able to squirrel away enough money to invest in IRAs, 401(k)s, and/or other retirement-oriented financial securities, then renting may in fact be the better choice for you.
There is also something to be said for not anchoring yourself to a piece of land for an indefinite number of years. Renters have the luxury to picking up and going wherever they please without worrying about the hassle of selling a home. Sure, there may be lease agreements to contend with, but these are much easier to adjust than long-term mortgages! Plus, should a homeowner decide to move to a different area on the spur of the moment, there is no guarantee that he or she will find a buyer in a timely fashion, nor even that such a buyer will be willing to pay a price that (at least) covers the homeowner’s losses.
However, there is one very important detriment to renting that you need to be aware of. That is, you will be leaving yourself vulnerable to inflation (i.e., the general increase in prices over time, and the subsequent fall in the purchasing power of money). Unless you live in a rent-controlled apartment, house, or other property, your landlord will most likely opt to increase the rent every time you renew your lease, to keep his or her profits from suffering as the cost of living increases (and it will) over time. Contrarily, your monthly mortgage payments will be set at a fixed-rate (provided that you take out a fixed-rate loan), and are not exposed to the ravages of inflation. Home owner’s insurance, property taxes, and maintenance fees are, but these costs are much smaller in comparison to monthly mortgage costs.
Preparing for Homeowner Transaction Costs
If you are still committed to buying a home after you have weighed all of the pros and cons, then it is time to start preparing for the financial drain that such an investment is going to have on you for the next several years — even before you start scouting out specific properties! Unless you were born with a silver spoon in your mouth, chances are that the initial costs associated with home ownership are going to stagger you like a punch to the gut. But just as the boxer who spent the past nine months training can weather the early setbacks in a title bout, and ultimately outlast an opponent to take the win; so, too, can the prudent first time homebuyer weather the immense preliminary costs of home ownership.
The daunting transaction costs that you will have to prepare yourself for will include inspection fees, costs associated with getting a mortgage (e.g., application fees, credit report fees, appraisal fees), title insurance, moving costs, and real estate agent commissions. And let’s not forget about the mortgage points (i.e., mortgage interest due up front that can run one to two percent of the total loan amount) that many lenders require. In addition to a sizable down payment, it will take most working-class people anywhere from three to five years to recoup their finances after such a hefty amount of spending! It is for this reason that you should not even consider buying a home that you cannot see yourself living in for at least this long.
As a general approximation, you can expect transaction costs associated with getting a mortgage to run you about sixteen percent of the total price of your home.1 Therefore, you will need to see your investment appreciate at least this much before selling, just to break even. Over the past thirty-five years or so, the overall real estate market has enjoyed an average annual return of around nine percent — and that is very, very good!2
But, this includes the unpredictable market fluctuations that sometimes result in significant short-term losses. If you buy a home and then attempt to unload it after one or two years, you miss out on the slow but steady appreciation that the real estate market is poised to enjoy over time. Also, you increase your chances of getting stuck as a seller in a down market, while still trying to recover from the transaction costs of buying a home in the first place!
Honestly Assessing Your Finances
Once you have a general understanding of the transaction costs involved with buying your first home (approximately 16%, as discussed in the previous section), it will be time to start crunching numbers in order to determine how much you can actually afford to spend. You don’t want to end up biting off more than you can chew, or you may very well find yourself working so much to keep up with payments that you are rarely home for long enough to enjoy your investment! So break out a pencil and paper, or budgeting software for the more tech-savvy, and get ready to take an honest look at your financial situation:
First, tally up your monthly expenses. Such costs include — but are not limited to — groceries, water and power, cable or satellite TV bills, internet, and leisure expenses like eating out or going to the movies. Next, multiply your gross monthly income by ten percent (the minimum amount of your monthly earnings that should already be earmarked for retirement savings … Right?), and then add the answer to your total monthly spending. Finally, subtract this combined expense number from your gross monthly income.
This is the amount that you will use as a baseline comparison when estimating whether or not you will be able to afford a particular property, by calculating the monthly mortgage payments that will be required of you, based on the total price of the home (minus the down payment) and the lender’s interest rate. Later on, when you are actively searching through real estate listings and/or websites, you may come across a property that you really like, but calculate the monthly mortgage cost as just a tad bit out of your price range. If that happens, don’t immediately lose heart! There are three more factors that we have not yet considered:
To begin with, the listing price on a property is rarely the same as the property’s real market value, and the final sale price on real estate is often lower than the listing.3 Also, remember that property taxes and the interest you pay on your mortgage are tax-deductible. Therefore, simply by updating your W-4 (or 1040-ES if you are self-employed), you may reduce your tax obligations and increase your monthly income enough to comfortably afford the mortgage on the ideal home that you thought just out of reach. If that isn’t enough, you may still be able to afford the property by taking another look at your monthly spending habits, and tightening your belt to eliminate frivolous expenditures. (After all, there aren’t many among us who can honestly say we don’t wish for fewer McDonalds’ receipts lying around!)
Earl’s Insights: Understanding Market Value
Once you have begun your search, it is more than likely that you will be exposed to dozens of potential housing candidates before finally choosing a home. Keep tabs on the listing prices vs. the final sales prices for these properties. In this way, you will begin to intuitively understand the difference between the real market value of a home, and the marked-up list price that many sellers (and their agents) try to push on first-time home buyers.
Determining a Down Payment on Your Home
Generally speaking, it is good practice to pay at least twenty percent down on a home’s total purchase price right from the start.4 If you are unable to do so, then most lenders will require you to take out a private mortgage insurance policy. They do this in order to protect themselves from getting shackled with a property that is worth less than the amount of a mortgage, if for whatever reason a buyer defaults on a loan.5
That’s all fine and good for them, but now you have to worry about paying hundreds of extra dollars per year in bills, so that your lender can sleep more soundly at night! For this reason, it is strongly recommended that you wait until you have enough saved up to place a twenty percent down payment before taking out a home loan. If you absolutely cannot do this, and find yourself stuck with a PMI policy, keep an eye on the total value of your home and the balance of your loan. The outstanding balance should decrease as you make payments over time, and once you see that it has fallen to eighty percent or lower, you may contact your lender and ditch the PMI (they’ll usually want you to pay for an appraisal first)!
Some buyers even opt to put more than twenty percent down when they take out a home loan. A few personal finance advisors would disagree with this approach, reasoning that a buyer stands to gain more than enough to offset the interest that accrues on a mortgage by investing the extra money in high-performance financial securities (e.g., stocks, bonds, mutual funds) instead. For instance, if your mortgage accrues interest at a fixed-rate of eight percent, and you invest your money in a high-yielding mutual fund which earns at an average rate of ten percent, then you net two percent in profits that you would have missed out on by simply paying more money down on your mortgage.
However, as every mutual fund prospectus is obligated to tell you: past performance is no guarantee of future results. Even though the stock and real estate markets have a historic average appreciation rate of around ten percent per year, it is important to remember that a few catastrophic financial shakeups are included in that time-frame! Most people reading this article probably weren’t around for the stock market crash of 1929, but what about the Japanese real estate bubble in the late 1980s through the early 1990s? If that seems a little vague, don’t forget about the junk bond crisis that rocked Wall Street during the same time period. And who can forget our most recent financial roller-coaster: the housing market crash which began in 2007, and that we are only now starting to recover from?
I don’t mention these historic financial wild fires to frighten you. In fact, you should take heart in the knowledge that, in spite of such economic troubles, the stock and real estate markets have still managed to earn investors an average annual return of around ten percent! When you invest for the long haul, you don’t have to worry (as much) about the sharp downturns that occasionally rock the financial world, and you are able to weather the hard times so that you may enjoy the good times.
But, the maddening thing about “down” markets is that they are very difficult to time. Moreover, if you opt to invest more money in financial securities than you normally would, rather than pay down your mortgage more quickly, then you may get stuck in one of those downturns and end up netting a loss. Therefore, the safer play is to invest regularly in your long-term financial securities (e.g., IRAs, 401(k)s) like you usually would, but give serious thought to paying down your mortgage more quickly if you are fortunate enough to be able to.
Besides, if you have thoroughly researched a property and the surrounding area before taking out a mortgage (discussed a bit further down), then you can reasonably expect your property value to appreciate over time. In that case, you only stand to gain by building up equity in your home more quickly (as long as you have good property insurance). And don’t forget: putting more money down on a home up front means borrowing less — and that’s always a good thing!
To illustrate, consider these two scenarios:
First, imagine that you have taken out an interest-only — or zero money down — loan for a $100,000 home, at an annual interest rate of five percent. As such, in the first year of your mortgage, you will have accumulated $5,000 of interest on the principal amount you originally borrowed (the $100,000), for a total liability of $105,000. This means that for every mortgage payment you make in the first twelve months alone, $420 will go towards the interest on your loan ($5,000/12 mo. = 416.67$). In other words, if your monthly mortgage payment is $540, then approximately seventy-eight percent of your payments will not go towards paying off the amount that you borrowed!
Also, don’t forget that you will have to factor in the added expense of a PMI policy (since you purchased the house for less than twenty percent down). In the above scenario, a typical policy would cost you about $40 per month. So, you would actually be paying eighty-five percent of your $540 monthly mortgage amount ($420 + $40 = $460, or $540 x .85 = approx. $460) in interest and insurance fees that don’t bring you any closer to paying off your home. And that’s before (property) taxes!
Now imagine that you have purchased this same $100,000 home, at a five percent annual interest rate, after paying a twenty percent down payment ($20,000) up front. This means that you only have to borrow $80,000 from a lender, and in the first year of your mortgage, you will pay $1,000 less in interest accumulated on your loan than in the previous example — or $4,000. As such, only sixty-two percent of the same monthly mortgage payment of $540, will be spent paying down the accumulated interest on your loan in the first year ($4,000/12 mo. = approx. $333; and $333/$540 = approx. .62).
Moreover, since you opted to pay at least twenty percent down on your home, you don’t have to worry about the hassle (and expense) of a PMI policy. So, that’s a total difference of twenty-three percent more of your hard-earned money going towards paying down the principal on your home loan in the first year, as opposed to your “interest-only mortgage securing” alter-ego in the first scenario. Best of all, your monthly mortgage payments will be increasingly spent on paying down the principal that you owe more quickly, as the total outstanding balance decreases over the years (provided that you borrowed at a fixed interest rate).
As you can see, it is prudent to reduce the amount of money that you will be indebted to a mortgage lender right from the start, in the interest (no pun intended) of paying off the amount that you owe — and terminating your relationship with the loan provider — as quickly as possible. Lending institutions are not run by philanthropists, and the longer you allow such organizations to have power over your financial destiny, the more grief you can expect in the way of interest accumulation, fees, and harassing phone calls on Wednesday evenings if you happen to forget a payment. (Re: “It’s in the mail, Guv’nah — swears it by me poor starving children, I do!”)
But, don’t expect loan officers to tell you about the negative aspects associated with borrowing money. They want you to owe them for as long as possible, as this is how lenders make a profit. I’ll elaborate more on the motivations that drive mortgage providers in the next section.
Earl’s Insights: Interest-Only Loans
Also known as “zero money down” loans, these mortgages are peddled to folks who can’t afford a down payment on a house. At first glance, many interest-free loans will appear cheaper in terms of monthly payments than traditional mortgages, but this is usually because all of your money will be going towards paying off accrued interest in the early stages. After a set time period, the payments jump when interest and the principal are paid together, increasing the likelihood of default. Additionally, interest-only loans will invariably have less desirous terms and higher fees than traditional mortgage agreements. Steer clear of these insidious money traps!
How a Mortgage Lender Sees You
If you have good credit, minimal consumer debt, and a reliable source of income, most mortgage lenders will be as eager to pounce on you as a starving man on a cheeseburger. They will employ an equation to determine the maximum amount that you qualify for, then sit back and watch you like a hawk from behind their desks — fingers steepled — waiting patiently for you to sign on the dotted line. Once you have done so, expect a lender to throw his or her head back and laugh maniacally, as lightning and thunder crashes in the background.
… Okay, so maybe that’s a bit of an exaggeration!
Still, there is a grain of truth in the above scenario, as mortgage lenders are notorious for allowing people to take out bigger loans than they can handle. In fact, the housing market crash of recent years was due in large part to the high number of risky mortgages authorized by loan officers across the country, which were then (predictably) defaulted on by folks who just couldn’t keep up with the payments.6 It was a no-lose game as far as the lenders were concerned, as they would immediately sell these risky mortgages to the Federal Government, then turn around and authorize more risky mortgages with the intent of selling them to the government — and so on, and so forth — many times over. Lenders made out like bandits while the getting was good, but when many loans started to default at the same time, Uncle Sam was left footing the bill! Consequently, we all ended up suffering for it.
When you are finally ready to approach a lender, just keep in mind that financial institutions exist to make money — sometimes unscrupulously so. What may or may not be best for you is at best a secondary consideration, and at worst is never given a second thought by these perfectly legal loan sharks. It would be better if Americans didn’t have to deal with mortgages and mortgage lenders at all, but they are a necessary evil for most working people.
Thankfully, there exists a healthy amount of government regulation that prevents banks and other mortgage providers from getting away with outright financial murder, or our society would undoubtedly be in much worse shape than it is now! (Re: Imagine a U.S. like The Hunger Games, where people who are unable to pay-off their debts are hunted down for sport.) Still, only borrow what you need and can afford, or risk having your life consumed by a mad struggle to keep up with mortgage payments.
Earl’s Insights: How Mortgage Lenders Size You Up
The formula that lenders use to determine the maximum amount that you will be able to borrow is based on your income weighed against your (estimated) monthly housing expenditures:
Mortgage payment + Property taxes + Insurance
Periodic maintenance and miscellaneous upkeep expenses are not included in their calculations. However, if you have outstanding consumer debt (e.g., credit cards, auto loans), your monthly payment obligations for this debt are added in, as well.
Alternatives to the Traditional Single-Family Home
In the early 1980s, John Mellencamp sang about “little pink houses, for you and me,” in a poignant musical critique about the American dream. He goes on to say:
“… [T]here’s winners and there’s losers,
“But they ain’t no big deal,
“’Cause the simple man (baby) pays for the thrills, the bills,
“The pills that kill!”
Now, while I can appreciate what ol’ Cougar Mellencamp was driving at — how it’s unfair that a lot of people fall through the cracks in our society — I’d still take a little pink house in Anytown, USA, over a dilapidated hovel in some third-world country any day of the week (and twice on Sunday)! Like another Rock-n-Roll Hall of Fame inductee, Glen Frey of The Eagles, puts it:
“Don’t even try to understand,
“Just find a place to make your stand,
“And take it easy.”
Perhaps a middle-ground between these two extreme sentiments is more appropriate. Still, if the traditional single-family home (e.g., white picket fence, backyard, porch swing) isn’t your cup of tea, there are other options available that will still afford you the financial benefits and piece-of-mind that go along with home ownership — without a great deal of the maintenance and miscellaneous upkeep responsibilities. Namely, these include: condominiums, townhouses and co-operatives.
- Condominiums – These are apartment-style living units that are either side-by-side or stacked one atop another. In fact, many condos are actually converted apartment buildings. The difference
is that you own a condo rather than rent it. You also own a share of the overall common living space provided on the grounds (e.g., swimming pools, laundry rooms, playgrounds).
- Townhouses – You may also have heard of these property types referred to as “rowhouses.” These attached homes are usually two stories tall, and in this way they are similar to traditional single-
family houses. Many even come included with a small yard. However, townhouses are like condos in that they are attached in a row one after another, side-by-side.
- Co-operatives – Also known as “co-ops,” these properties are basically condos with one small caveat: any significant changes you plan to make (e.g., remodeling, renting to a tenant, selling the property) have to be approved by the “Co-operative Association.” If this sounds a little too Village of the Damned for your tastes, then avoid co-ops unless you come across an irresistible deal.
One advantage of shared housing is that you get more “bang per buck,” in that you are able to maximize living space for the dollars you spend. Contrarily, much of the cost that is associated with owning a traditional single-family home is due to the land the house is built on. Additionally, owners of shared housing units typically aren’t responsible for heavy repairs or maintenance in and around the home. Those duties generally fall to the respective Home Owner’s Association, which the entire housing community pays into.
However, an important downside to consider before purchasing a shared housing unit is that these properties usually don’t appreciate as well as single-family homes.7 One reason for this phenomenon is the potential for over-development that exists with shared housing. As in other things, when the market is flooded with an excessive supply, demand (and cost) dwindles. Therefore, if you find yourself leaning towards purchasing a condo, townhouse, or co-op, strongly consider limiting your search to more urban areas, as there is a reduced risk of a nearby explosion in shared housing development that would drive the value of your property down.
Another reason that shared housing does not appreciate as well as more traditional housing is that the majority of people seem to gravitate towards owning a single-family home. This is due in part to the increased privacy that is afforded traditional home owners. Shared housing makes sense for people who feel safer in a group, but those who do not need (or want) the psychological sense of security associated with living among a crowd may very well chafe under such conditions.
Analyzing the Potential for Real Estate Appreciation in an Area
You have probably heard that old real estate axiom for quickly approximating the value of a home:
“Location — location — location!!!”
(The three exclamation points are my own little contribution.)
But, what makes one location more desirable than another? Which criteria give home buyers an indication that properties located in this or that area, are poised to appreciate more over time than others? Just as no financial analyst can say with one-hundred percent certainty that a company’s stock will rise or fall, neither can a prospective homebuyer predict — beyond the shadow of a doubt — which areas will appreciate the most over time. However, there are several factors that can give you a pretty good indication of whether or not the area under scrutiny (and by extension the properties located within that area) is poised to appreciate:
- Development Projects – First and foremost, check with the planning department (or equivalent) for the local municipality to see what — if any — development projects are scheduled in the area. Remember that an abundance of reputable companies, that offer lucrative employment opportunities, will drive the demand for housing in an area up. Contrarily, if something along the lines of a sewage treatment plant is slated for development in the general vicinity, the surrounding property values will drop.
- Schools – Another very important consideration is the quality of schools in an area. This is obviously true for parents and for those who would like to someday become parents, but even for those who do not have (or want) children, the quality of schools in an area should be considered before purchasing property. The reasoning here is that the property values in a particular school district are affected by the caliber of schools in that district.
- Crime – The next factor to consider when researching a property is the overall crime rate in the surrounding area. Few things drive property values down faster than an excess of violent crime in a community (save perhaps nuclear fallout). Local police departments have all kinds of useful statistics for potential home buyers, so grab an assortment of donuts and pay those boys n’ gals in blue a cordial visit! (Or, just visit your local precinct’s website.)
- Amenities – Most people don’t plan on spending every spare moment at the office. Remember that all work and no play makes (your name) a dull boy/girl. The presence of parks, sports and recreational facilities, restaurants, entertainment venues, as well as other amenities has an impact on property values. Realtors are a good source of information on what there is to do for fun in an area. Also, city municipal offices/websites will often have free brochures and other literature available on what there is to do around town.
- Natural Disasters – Earthquakes on the West Coast, twisters in the Heartland, hurricanes down South: if recent events have taught us one thing, it’s that we need to assess an area for the probability of catastrophic natural phenomena before purchasing property. The U.S. Geological Survey (USGS) provides maps that show seismic activity in various locations around the country. The Federal Emergency Management Agency (FEMA) also makes maps that show areas with high flood risks. That the frequency of natural disasters in an area will affect property values is a given, but even if they did not, the sensible homebuyer would still weigh such considerations carefully.
Keep in mind that these are highly generalized considerations, used as much to determine the quality of life that you can expect to have (if you buy a home) in an area as in determining a property’s potential for financial appreciation. In fact, if an area that you are considering purchasing a home in is already considered to be prime (e.g., excellent test scores in the area’s school district, low crime, high-quality amenities), then the real estate prices in that area may very well have peaked! For example, how many under-valued properties would you expect to find in the Hamptons, or Beverly Hills?
Speaking strictly from an investment point-of-view, real estate located in an area that could stand to see some improvement in one or more of the areas discussed above can oftentimes see the most appreciation, if the improvement(s) are made after your purchase. However, since this article is geared more towards folks who plan to live in whatever home they purchase (rather than rent to tenants or develop commercially), I am making the assumption that providing the best environment for you, and your family, trumps the desire to maximize real estate appreciation potential for your home.
Finding the Perfect Home
If you are like most people, searching for a home is going to take up a significant amount of your time. In truth, it is not uncommon for first time home buyers to look for six months to a year before finally choosing a property! This is because most working folks must restrict their research to evenings and weekends. Moreover, if you are married, disagreements over which features are important to a home — and which are not — may prolong your search even more.
To complicate matters further, you may find yourself working with a Realtor who keeps pressuring you to make a purchase. If this happens, show the commission-seeking busybody out and find yourself a Realtor who is patient, professional, and pleasant. Alternatively, you may forgo a real estate agent altogether by searching among the “For Sale by Owner” properties in your area, such as by looking on forsalebyowner.com (note: affiliate link). In fact, you shouldn’t forsake such properties even if you decide to employ a real estate agent, as you might miss out on a great deal!
In any case, be prepared to compromise. Work out beforehand those criteria for a home that are absolutely essential to you, as well as those features that would be nice, but aren’t necessarily a deal breaker. At the same time, don’t limit your expectations so much that you restrict your search to a narrow field of property types and locales.
Keep an open mind, and when you find a potential home that interests you, visit the property yourself and take in the immediate surroundings. Walk around the neighborhood (if applicable) at different times of day and meet your would-be neighbors, to get an impression of the kind of environment you might be living in. Most importantly — take your time! The last thing you want to do is rush a decision to buy and get stuck in a place that makes you unhappy.
More in the Real Estate Investing for Beginners series
Other Personal Finance Tutorials
- Find the Best Online Brokerage Firms for Your Investment Strategy
- Mutual Fund Investing for Beginners
- Harris, Ben H. Tax reform, transaction costs, and metropolitan housing in the United States; pg. 4 [Internet]. Washington, DC: Urban-Brookings Tax Policy Center; 2013 Jun 5 [cited 2014 Jan 7]. Available from:http://www.urban.org/UploadedPDF/412835-Discrete-Period-Housing.pdf
- Francis, J.C. and Ibbotson, R.G. Contrasting real estate with comparable investments, 1978 – 2004; pg.s 6-8 [Internet]. New York, NY and New Haven, CT (collaborative work): Available through Morningstar Inc.; circa 2007 Feb [cited 2014 Feb 7]. Available from: http://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/Contrasting_Real_Estate.pdf
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- Corbett, Michael. Seven reasons to put 20 percent down [Internet]. San Francisco, CA: Trulia, Inc.; 2012 Apr 3 [cited 2014 Jan 7]. Available from: http://www.trulia.com/blog/michaelcorbett/2012/04/seven_reasons_to_put_20_percent_down
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