That's the same philosophy we use when advising our clients on real estate investing, and that's going to be the theme of this series of articles.
Just to be clear: ALL real estate purchases are real estate investments. Some of today's financial gurus like to spout that your personal home is not an asset or an investment. I personally think that this is reckless advice. My basic rule of thumb is that if I buy something that I intend to turn around and sell at a later date, then I treat it like an investment. That doesn't mean that I necessarily intend to make money on that investment (e.g. the purchase of a car), but that does mean I crunch the numbers on it before I purchase it and understand upfront whether I am going to make money or lose money on it when I go to sell it.
This idea that your personal home is not an investment is, I think, one of the reasons why so many people lost their shirts during the Great Recession. If you don't think of your home as an investment, then you're not going to pay attention to the numbers when you're buying or putting money into your home. And trust me, there are plenty of unscrupulous people out there in a variety of industries who don't want you to pay attention to the numbers - sellers, builders, contractors, lenders, etc. So if you are thinking of buying a home, whether on your own (not my recommendation) or with the help of an experienced realtor, here are three factors to consider that will help you "avoid the dartboard" and make a good investment out of the purchase of your home:
1) Look at all of the numbers associated with the purchase. If you are only paying attention to the monthly payment and nothing else (and trust me, there are some professionals that subscribe to this approach), then...red flag. At a bare minimum, you need to look at the resale history of the neighborhood you want to buy in, the estimated cost of any repairs or improvements you want to make to the home and whether you can recoup that cost when you sell, the tax situation for the district you will be moving into and potential closing costs to name a few. I always tend to do a deeper dive than this for my clients, but this is the bare minimum I would recommend.
2) Look at the school district where you would like to buy. If you say school systems don't matter because you don't have school-aged children, then...red flag. You may not care about the school system right now, but when you go to sell your home, many of your potential buyers will care. I would say that after condition of the home, the next biggest factor that impacts resale value is the strength of the school district, so if you don't have a realtor helping you, then you need to do your homework and get educated on school districts before you buy a home.
3) Don't base your purchase of a home on any assumptions about how long you are going to live there. So many people tell me when they are looking to buy a home that they plan to stay in it for a few years or to raise their kids in it or stay in it until they "go to the home." The harsh truth is that nobody knows how long they're going to stay in a home when they buy it. For that reason alone, how long you plan to live in the home should not really play a factor in any discussions about a possible purchase.
What should figure into the decision-making process is the numbers - it's all about the numbers. You know what you like in a house in terms of design, layout, yard size, etc. You don't need a real estate professional to tell you what you like. But you probably do need someone to tell you if what you like is a sound investment.
And that is the most important takeaway: Your home purchase is an investment, and you should treat it like one. The single biggest factor driving your decision on the purchase of a particular home should be the answer to this question: Can I buy the home that I want, at a price that I can afford, make the improvements that I want to make to it, and still get a check at closing when I go to sell it? If you can answer "yes," then you have just made a sound investment, my friend. You are not throwing darts at a board; you are betting on a sure thing. And that is always a good thing.
-Chris Camperelli at www.theeliterealtypros.com
