Thursday, March 1, 2007

Three Keys to Buying a Home

Now that there is an agent and a broker in the picture, how do you find the right neighborhood? The old adage location - location - location only presents half the picture. A buyer must also consider their personal home needs now, five years from now, and long term needs. If a buyer is looking for a final home to retire in, school districts may not be a consideration. These areas typically have higher property taxes and services that may not be appropriate for seniors. So where does a prospective buyer begin?

First, start with a personal assessment? Are kids a factor now, or will they soon be? Is there a possibility others may move in, like grandparents or grandchildren? Is it important to go out or stay home? Is a commuter friendly location important? Many buyers never stop to think about these situations before they have their initial meeting with their agent. This can be a huge mistake because an agent needs this guidance to show the right properties. Taking an hour or two to lay these things out could save two or three weeks of frivolous searching.

After the personal assessment, a buyer needs to know how much house he/she can afford. Most investor gurus suggest consumers purchase the largest house they can. The wisdom behind this advice assumes that a house will be the biggest investment most families make. Additionally, based on past data, real estate has proven to be a safe and strong investment vehicle. Furthermore, home equity and refinance loans allow most real estate owners fairly easy access to the cash in their home, making it a fairly liquid investment.

This logic holds in areas like California and New York City, but does not fair as well in slower growth areas (just about everywhere else). In these areas a buyer is better off buying only what they need and INVESTING the rest (stock market, bonds, rental property, etc.). This is an important distinction because consumers are not better off, if they spend the money on items that depreciate in value like cars, furniture, etc. Additionally, depending on how steep the interest rate on a particular home mortgage, smaller may actually be better.

Once shoppers determine what their personal situation is likely to be in the near future and how much home they are willing to purchase, they must finally decide where to live. Now factors like schools, proximity to businesses, demographics of the neighborhood, and personal fit come into play.

Most importantly, prospective buyers should be looking at where the neighborhood is going, not where it has been or where it is now. As demographics change, neighborhood priorities change. Similarly, as people immigrate and emigrate, neighborhoods quickly take on new characteristics. Ask an agent if they can provide you with a demographics outlook for the next five years. Check to see if businesses are coming or going, look for how many young families are in the neighborhood, and evaluate how transient the population is. If there is a lot of moving in and out, expect the neighborhood to change regularly. For some this is great, for others it will be a nightmare. All of these factors contribute to the appreciation or deprecation of home values, thereby directly affecting a homeowner’s investment.

Going through this kind of analysis should land most buyers in a neighborhood that fits their needs. The next step in this process will be finding the right house. The next article will address the issue of what goes into looking for a great house and how to find the best house for the right price.'