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By Dian Hymer
There are deals to be made in the current real estate market. Home buyers in many areas finally have the upper hand. Ironically, buyers tend to pull back when the market is soft and buy when the market is high.
Savvy investors attempt to buy when the market it low and sell when it's high. But, it's impossible to time the market, so there is always an element of risk involved. Here are some guidelines to keep in mind if you're considering buying a home in the current market.
Short-term investing paid off for many investors a few years ago. In most cases, this strategy should be avoided today. Although the home-sale market is localized, generally the current housing market is soft and is expected to take a year or more to recover. You don't want to be caught having to sell in a year or two when the value of your house might be less than or equal to what you paid for it. After taking into account the costs of sale, you could find yourself selling at a loss.
With this in mind, don't buy unless you're economic future is secure, and you're sure you won't be relocating during the next five years. Also, don't base your decision solely on price. You might be able to buy a small two-bedroom, one-bath home for a low price in this market. But, if this won't suit your long-term housing needs, don't buy it.
Not too long ago when the market was racing upwards, many first-time buyers bought small starter homes. They stayed in these homes for two or three years and then sold for a profit. This helped fund the purchase of a larger long-term home. This strategy could get you into trouble today. You might be better off waiting to buy until you can afford a home that will provide a long-lasting solution to your housing needs.
Avoid houses that could be hard to resell. These are usually houses that lack broad-based buyer appeal, like houses that are too small or that are located next to a freeway. If you do buy one of these houses, make sure you get it for a good price. Keep in mind that unless you sell in a hot market, you could have difficulty selling in the future.
HOUSE HUNTING TIP: Some home buyers are so anxious to move that they will settle for less than they need. Or, they buy a home that doesn't quite work with a plan to remodel it to correct its deficiencies. This home-buying scheme is not for everyone. For example, some Oakland, Calif., homeowners purchased several years ago and subsequently completed costly renovations. They sold recently for more than they paid, but not for enough more to cover the renovation costs.
The finance markets have been in turmoil. Many mortgage companies have had to shut their doors due to fallout from the subprime lending crisis. Some of these companies left buyers in the lurch when they failed to fund loans just before closing. It might be wise to submit applications to two lenders so that you have a fallback, if necessary.
Don't skimp on inspections. Property condition has a big affect on property value. If you buy a property that has deferred maintenance, make sure you buy it for a good price. Plan to take care of correcting defects, many of which will worsen over time.
THE CLOSING: Financial planning for a home purchase should include factoring in the cost of curing deferred maintenance, as well as the cost of ongoing maintenance.
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