I've mentioned before that owning your home is a good idea in retirement since it can save you a lot of money on your yearly spending (mortgage payments or rent). Now I've seen a few posts in the last week on buying a house (see Investoid's post and Million Dollar Journey's post) and it got me thinking about a few things. So here are some tips I've picked up over the years.
1) When buying a house: NEVER FALL IN LOVE! You must be able to walk away from any deal that you can't afford and you can only do that by not falling in love with a house. Don't even think of the building as a home until you sign the final papers and collect your keys.
2) Know your tolerance for doing fix up work. If you hate fixing things be prepared to spend more. Otherwise is you don't mind minor repairs and painting you can often get a house for 5 to 10% less than the going market price.
3) Location is ALWAYS important. You may not care about being near a elementary school but the next buyer might. So keep in mind living in a good neighbourhood close to a school with shopping near by is always in demand. Also don't buy into the myth that "But I don't plan on selling and moving," no one plans on moving it just happens and to ignore that could happen in the future with a house deal is just plain foolish.
4) If your home inspection turns up any potential major issues walk away from the deal. Often an inspection will only catch the surface symptoms of a problem. Once you are pulling apart walls you might discover that a minor water leak in the bathroom is really half your house is rotting. Trust me I learn this one the hard way with my first house. What I thought was a minor drywall issue turned out to be almost $10,000 in renovations to fix the structure beam and insulation in the house.
5) When selling appearance is the only thing that matters. Most buyer's can't see past what is on the surface, so you have to sell to that. Make sure the house is spotless (I mean spotless not just clean, for example your bathroom chrome should be polished every time you wash your hands) and invite a friend over who has a nicely decorated house and beg them to be brutally honest about your house. You need to have your house looking like a show home, even though no really lives in a show home your going to have to few a week or two.
6) Don't get greedy when selling your house. Just because your real estate agent tells you can get $X more than you thought your house is worth doesn't mean you can sell it for that. After all the agent is just trying to get more commission. Get the agent to give a range of what the house is worth and do some of your own research prior to getting an agent's advice. Then pick the low end of the reasonable range. That way you will have an offer quickly and if you are lucky spawn a bidding war.
7) Terms on a deal matter. If you make an offer with fewer conditions it is more likely to be accepted. I know that even seeing the term "Subject to buyer selling their current house" makes me nervous. I don't want an offer falling through just because the buyer is an idiot about selling their house. If the price still looks good on a offer with this condition consider sending a counter offer back with that term removed. If they have broken #1 above they will accept.
8) Never buy the biggest/best house on the block. They are just a pain to sell when you have to move since your typically in the upper end or top of your neighbourhood's range.
9) If you must sell your house with an agent try to ensure your moving more than 40 km for a new job so that you can deduct the commission and legal fees from your taxes that year (See here).
10) In a hot real estate market, don't lose your head and get emotional about the deal. I know it can be hard to do, but sometimes you just need half an hour to calm down and consider everything carefully. After all you house is likely your biggest single investment and you want to be sure your doing the right thing.
If anyone else has some good ideas, please leave a comment and share.
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7 comments:
Good article!
One thing that helped us when buying our first home was assuming the mortgage. Since we weren't in a position to put more than 5% down, assuming the existing mortgage saved us the CMHC insurance fee because it had already been paid for that mortgage. Also, you are saving the seller money that they would have to pay to break their mortgage which can make your offer more attractive.
A second thing I would consider when buying is the lot. Although it adds to the price when buying, I think it affects the resale value and the ability of the house's value to increase.
\\ hank
Can you provide any input on affordability? At what point does it stop making sense to buy a house? For example in Vancouver the median house price is 7.7x the median household income (http://demographia.com/dhi-ix2005q3.pdf), with good credit and 25% down you can get (and might need) a mortgage of up to 44% of your gross annual income for shelter, is this sane?
Jordan,
I think any multiplier past 4.0 is not worth buying a home. Why? Your home is consuming too much of your personal resources (money, time and emotional).
I honestly can't believe people are staying in cities with multipliers of 7.7 or higher. I just want to ask them have you lost your mind? Move and get a different job and have a much happier life with WAY less money.
My personal multiplier is now 3.0. My last house had 2.2 when I sold it. I know I'm a bit bias with this, but that's my two cents.
CD
My suggestion is to get more knowledge about the market by looking at as many houses as you can, even if they are not exactly what you are looking for. They don't all have to be with an agent - head out on the weekend and drop into some open houses.
This is the best way to get a feel for the market.
Hank and Mike,
Excellent points to add in.
Thanks,
CD
hey canadian dream,
nice blog you have here..i just discovered it !! Do you only invest in real estate or have you tried your hand at investing in the stock market?
Nonymous,
Glad you found the blog. I hope you enjoy it.
My real estate investments have been limited to my primary residence and REIT so far.
As for stocks, I'm typically use index funds because I'm lazy. I hate doing a lots of research. The wife has a few stocks, but not much right now.
CD
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