I’ve been seeing an interesting phenomenon this year. Seems like some home buyers are so driven to “get a great deal” that they’re buying homes they aren’t even that excited about living in! I’ve been financing houses since 1990 and for the most part people are generally buying houses to improve their quality of life. The first house you buy is a starter home. Later in life you move up to a better community, with better schools and a bigger more comfortable house. Maybe you want a gourmet kitchen, a bigger yard, more bedrooms and baths? Somehow over the past year buyers have gone off on a totally different tangent where the only important factor is how cheap the property is!
Let’s review what you want the house you buy to do for you. That’s right. The house is doing something for you; it provides your family with shelter, gives you somewhere to reside, a place to come home to where you feel comfortable. For many people, including me, their favorite place to be. Also, there are some key financial benefits like the tax write-off from paying interest and property taxes, the reduction in your mortgage balance over time and the increase in value that real estate has shown over time. One thing that has confused people in the last few years is that wildly increasing real estate values made them believe the house was their best investment. A house is a home – not an investment. Historically, real estate values have risen on average 2 to 3% per year and that’s all you should expect.
The main key here is that a great house improves your quality of life. People used to want to end up in their dream home and they would work hard to get there. I remember the good old days when my clients would call me and be so excited that they had found the perfect home and wanted to talk about the numbers and see if they could afford it. I loved those calls. I miss them.
Now people call me and say they found this foreclosure that has no kitchen cabinets or appliances and the previous owner took most of the plumbing fixtures before they left. The basement was flooded and there may be some mold in the house, but, it sold 4 years ago for $275,000 and now we think we can get it for $150,000! It’s not really what we we’re looking for but man is it a great deal!
I hate to point out the obvious here, but I just can’t help it. This type of home is probably going to require about $75,000 worth of work to get it back to livable standards. If you move in the house and then start the work you’ve got about 6 months of misery on your hands while you live in a dusty construction site. After all of this you have spent $225,000 on the place and driven yourself and your family crazy in the weeks and months it took to remodel the place. It’s likely that you could have purchased the house down the street that’s not in foreclosure and is in excellent condition for the same total amount of money. So what did you gain?
The main point here is that all of the homes on the market right now are selling at great prices! As a home buyer you should not ignore houses that are being sold by private owners. These are the properties that have been lovingly maintained and you can move into them and enjoy them on day one. Let’s get back to the basics; buy a home in a community that you like, in a neighborhood that fits your family and a house that you love!
Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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