Thursday, April 26, 2007

Buying a Home As Though You Were Already Selling It

When buying a home, buyers will tell me what they are looking for and will give me their price range. They sometimes overestimate the amenities and features while underestimating the cost. Everyone wants more for less, but there's a strategy to buying the right house.

Home buyers need to know what they want and the only way to do that is to make sure they are obtaining updated information so they can make a wise decision on their purchase. Once the buyers are in-the-know, they need to convey precisely what the want to their agent. It is extremely important to be aware of various loan programs that its comfortably within your budget. There are always unexpected expenses, so have a cushion to allow for costs incurred before and after the purchase.

When you buy a home -- look at it as though you're selling it! If you do not get that "WOW" when you enter the home, it's probably not for you -- and may have the same impression upon others when you go to sell it. Consider these points when purchasing a home.

1. Location - Corner lots are in high demand as well as homes with a view or on a golf course. If the home has a street behind your backyard wall, make sure it's a busy street as this is usually a turn-off for many homebuyers. If there is a street nearby, evaluate what future traffic may be driving on that street and notice the noise factor.

2. Upgrades - What the appraiser usually looks for is the amount of bedrooms/den, square footage, lot square footage, added garage space, granite counter tops, tile, upgraded carpeting, wood flooring, upgraded baseboards, pedestal sinks, covered patios, yard, storage, pool, lighting, and other unique features such as a sound system, intercom, alarm, compactor, built-in BBQ, and wet bar. If a home comprises of standard features, you should pay less but will probably have to upgrade to compete for a re-sale later.

3. Price - Many people buy a new home and discover that they need an extra $20-70,000 or more to upgrade and landscape. Pools are a good investment if YOU don't have to pay for it. A re-sale home with a pool is not valued at the full cost of the home -- it is a depreciating asset. A purchase price of $300,000 plus upgrades, appliances, and window coverings adds up! When it comes time to sell it, figure in the closing costs from both the buy and the sell and possibly paying for the buyer's closing costs as well to see what your actual profits are. If possible, try to have the seller pay some or all of your closing costs so it does not cut into your profits.

4. Financing - Most buyers take advantage of an "interest-only" loan if the home is valued over $200,000 because the payments are lower. Many investors reject this type of loan because they want to lock in their rates payments. This is judgement call made by the home buyer and should discuss options with their lender and real estate agent. The advantage of having an interest-only loan, especially if there is a first and a second, is that you can pay more towards the principle with the amount you choose, whenever you choose, thus lowering your payment. A "principle and interest" loan means most of the payment is interest at first and a very small portion goes towards principle. In good growth areas, the appreciation usually accelerates faster than paying a smaller amount towards principle, but this idea will vary depending on location and the type of home itself.

5. Flipping - This is a concept that many believe is very profitable, and again, it will depend on the location and type of home. If you're going to buy, repair, and sell the house in a short time, be sure to itemize your expenses and include closing costs, agents' commission, remodeling, and permits. Time is also money so while you're working on the house, you are also paying the mortgage. Making a profit depends on the market, supply and demand, and if the investment and time aspect is worth it. If you cannot sell the home in a timely manner, you will be paying the mortgage, taxes, utilities, homeowner association fees, insurance, and maintenance. Every month your home is vacant, you could risk having a hefty chunk diminish your profits.

It's always best to do your research and obtain advice with an experienced agent who provides information about the area, growth, future infrastructure, and current appreciation within the city and its surroundings.

The best advice is to "buy low, sell high", however, since we don't have a crystal ball and are using our best judgement, it is not always that easy. In any case, investing in real estate is mostly likely to be an appreciating asset, combined with some good tax deductions, that allows a homeowner to move up with the home's equity over a period of time. In short:

Be smart -- learn about the market.


Be quick -- when you find a deal, move forward!


Be lucky ---be there at the right place, right time.

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