Buy low, sell high. That’s the investor’s maxim that never fails. The trick is in knowing when to buy and when to sell. Investing in a home is never as easy or as quick to deliver returns as you may wish. We all want to ride the boom and avoid the crash. Here are three ways to buy a home safely.
Don’t try to time the market
Some homebuyers believe that waiting for prices or interest rates to go lower is the way to buy a home. But there are two things wrong with that approach.
First, what is the market going to do? Unless you have a crystal ball, it’s hard to know. Between 2006 and 2011, home prices fell an annualized 7.7% a year, or 27%, according to Fiserv Case/Shiller. Since 2011 and 2014, they’ve gained back that much and more on an annual basis.
Mortgage interest rates follow the U.S. Treasury yields. A quarter point rise in interest rates will cost you roughly $25 more per month. Lock in an interest rate with your lender and don’t second-guess yourself. You’ll have more peace of mind as well as a stronger negotiating position with the seller.
Buy within your means
Irresponsible lending led to one of the biggest recessions in modern history. Many homeowners lost their homes. You don’t want to join them by buying a home that’s bigger, more luxurious or pricier than you can reasonably afford.
Lenders are facing heavy government penalties for lending to unqualified borrowers, so they’re insisting that lending standards return to historically safe and sustainable parameters.
That means you won’t be able to pay half your income toward housing which was common during the housing boom. Today, you’ll pay approximately no more than a quarter to a third of your gross monthly income for a home.
As your income improves, your home becomes even more affordable, allowing you to meet other life goals, such as adding new members to your family or starting a business of your own.
Buy long term
The longer you own your home, the more equity you build. Equity is the percent of ownership you have in the home. Think of equity as money you’ll get back when it’s time to sell.
To protect your equity, reinvest in your home to keep it in top condition. Then when it’s time to sell, your home will be more appealing to buyers and sell for more money than similar homes that aren’t as updated or attractive.
If you buy a new home every few years, you’ll throw away thousands in moving and closing costs. It’s far better to hold on to your first home for as long as you can. At some point, you can turn it into a rental property that produces income for you.
Choose the best home you can for the money and it will return the favor.
Question: My parents recently retired and live on a fixed income. They want to keep living in their home of 30 years. One idea they have is to rent out a room in their home to defray some of their living costs. They indicated they don’t want to get “too formal” about the arrangement. Do you have any suggestions?
Answer: Although your parents might like to see this as an “informal arrangement” to defray some of their costs, inviting a tenant in your home should be treated like any business contract. Your parents are becoming “landlords,” according to the California Civil Code, with its own set of rights and responsibilities.
At a minimum, the following information must be in writing and be provided within 15 days of entering into an oral agreement and once a year, within 15 days, if requested by the tenant (CC 1962).
This information is 1) the name, phone number and address of the manager, if any; 2) the name, phone number and address of the owner or someone authorized to accept service of process and all notices and demands from the tenant; 3) the name, phone number and address of the person authorized to receive rent if rent may be paid personally, including the days and hours that person will be available to receive payments and the form in which rent may be paid, such as check, money order or cashier’s check.
However, we strongly recommend that the terms and conditions of a rental tenancy be in writing so that all parties have a clear understanding of what is expected. Relying on memories of oral agreements leaves too much room for misunderstandings and disagreements that can ruin the relationship or result in legal disputes.
If your parents realize that a written agreement covering all relevant terms does make more sense, they should not rely on the type of rental agreement forms from many Internet sites and stationery stores. These forms might be out of date or fail to reflect specific California requirements. Nolo Press has forms that are reliable, very easy to use and up to date (www.nolo.com).
The first tip is to follow some checklists. You can find room by room checklists here. A good tip is to go room by room and finish one room before you start the next. This will keep you organized in your process.
As you go through your rooms, one by one, start getting rid of items. Spring is a great time to purge and get rid of things that add clutter to your home. It is much easier to clean your house without all of the extra things to go around. If you haven’t used it in about 6 months, it is time to consider getting rid of it.
If you are not the only one living in your home, you should not be the only one maintaining it. Keeping the house clean and orderly on a regular basis is hard enough; if you add in spring cleaning and decluttering, it will be even harder by yourself. Offer incentives to your family members, and encourage them to start getting rid of items they don’t use anymore. You can even assign each person a separate room. Everybody will be enjoying it once it is done, so everybody should help out.
Maintaining your beautiful spring cleaning job is a trick. Start a cleaning checklist and plan that works for you and your family, and stick to it. Once you get rid of items, try following the rule that if you buy something new, something old needs to go. This will help keep down the clutter, and hopefully prevent another purge next spring. Having everybody involved in the spring cleaning will be worth the initial hassle of motivating everybody. Once they see how nice it is to have a nice, clean home, they will be happy to help out!