Buying Your First Home
In the last couple of years, I warned first-home buyers that I counseled in communities south of Los Angeles, not to expect an unrealistic annual appreciation of house value. However, in each of those two years, the houses they bought increased in value by at least fifteen percent. Today they may think I was just kidding. I’m now trying to persuade people not to expect houses they buy to increase in value by one-third every two years. Some might say that is a pleasant position to be in. I say not to have unrealistic expectations. Your house will steadily increase in value. It is the best possible investment you can make in America today. It will change your life for the better. If that’s not enough, go to Las Vegas.
Buying your first home is different from any other real estate investment you will ever make. First of all, it is a commitment to yourself, and then to your partner if you have one, and finally to the community you enter. You become a person of standing and someone to reckon with, in everyone’s eyes, especially in your own and in those of your loved ones. It may sound superficial to say that owning your own home gives you a reason to live, but it actually affects most of us at this great emotional depth. You may have listened politely to people as they talked on and on excitedly about the home they just bought, which can be like listening to a couple talking about their newborn baby. It can be a lot more fun to do yourself than to hear other people talk about doing it.
Look at your situation. If you don’t own a home or have someone to support you, you presumably pay rent. As a rent payer, you don’t have to worry about real estate taxes, the boiler, broken window panes and who knows what else. Why would anybody want responsibility for all that when you can just pay rent and complain when things don’t work? Well, not all landlords satisfy tenant complaints, and there may be noisy tenants you would prefer not to live next to. But, on a financial level alone, is it so bad? The answer is yes. Suppose you pay $1,000 a month in rent for ten years with no rent increases. You pay $12,000 a year, for a total of $120,000 for ten years, and have nothing to show for it. If the building is worth $200,000 and you buy it instead of renting, at the end of ten years you have equity in half of it and have gained big tax benefits along the way. At the worst, you could sell it and thus have lived rent-free for ten years. In today’s market, you could do much better.
I’ve rounded numbers and kept the arithmetic simple to make my point clear. Paying rent is throwing money away. The longer you do it, the more money you will lose. At the end of it all, you will have nothing. And you do this so that you don’t have to worry about a broken windowpane? The hardware store knows someone who can fix these types of problems.
Some people buy their first home from a relative or friend, or hear about an available house in their neighborhood. You can’t wait for this to happen to you. You can save a lot of time and effort by going to a real estate agent. In my book Bubble Proof I tell you in detail how to find an agent and deal with one. The agent will want to know what and where you can afford to buy. Bubble Proof will describe the things you need to consider in deciding how much you can afford to pay. Be very direct with the agent about what kind of house you want and which neighborhoods you like best. A good agent will assist you in making these decisions.
I recommend making the decisions yourself before seeing an agent. Ask yourself why you are choosing to live in a particular place. If you are picking a locality because it is the only one you know, you need to explore a larger area. When you look, you will be surprised by the variety of neighborhoods in most places. In In my book Bubble Proof, we discuss what to look for in neighborhoods. The HUD Home Buying Wish List, also in Bubble Proof, may give you some ideas about the kind of house you need. Affordability of houses depends on how much you can pay monthly on a mortgage loan without causing yourself undue hardship or stress. Borrow what you can afford now, not what you expect to be able to afford at some point in the future.
At this stage, prospective first-time homebuyers can really benefit from the kind of seminars and courses that I give, either in person or on CDs and DVDs. In a brief time, such courses can change you from a lost lamb into a fairly knowledgeable house hunter. Once you get your basic needs straight in your own mind, communicate them clearly to a real estate agent. Don’t be too proud to be straightforward with your agent. Like clergy, they hear confessions all the time that are far worse than yours. In Bubble Proof, we actually follow a couple buying their first home. My two-CD, Home Buyer’s Boot Camp, will open your eyes to amazing opportunities hiding in plain view.
By the way, in my opinion, buying your first home is not the end of the road, it is just the beginning. Instead of padding in your slippers to a rocking-chair, I think it’s time to start looking around for your next real estate investment.
