Supply and demand is one of the biggest factors in determining property values in a given area. Simply put: if there’s a high demand for homes and a low supply, home values go up. If there’s a high supply and a low demand, home values go down. If you’re shopping for a long-term investment, then, buy in a community with a high demand and a low supply.
Rental vacancy rates often paint a very colorful picture of the local housing market
Rental vacancies can be a good way to examine the economy and housing market in a given area. Low vacancies indicate a high occupancy rate and potentially a high demand for housing in a given area. In high-demand areas, landlords raise rent regularly, and some renters are forced to relocate or buy properties to stave off rising rents. This is good news for homeowners, and rising rents often go hand-in-hand with rising property values. Therefore, low vacancies, ideally under 5 percent, are a very good thing for property values.
On the other hand, high vacancies indicate an overabundance of housing in an area. With too many vacancies, landlords are forced to cut rent to entice renters, and potential homeowners may choose to rent longer because they can rent at lower rates. With relatively low-cost housing available, home values drop as demand decreases and supply increases. Therefore, high vacancy rates over 7 to 10 percent may indicate an area where property values are on the decline.
If you want to buy for a long-term investment, it may be ok to buy in these areas because you can wait for property values to rebound, and you may be able to get a good deal when you buy. However, if you’re looking for a short-term investment which you intend to resale and upgrade to a bigger home, you want to avoid places with high vacancy rates as you may lose money on purchases and may find it difficult to sell.
If you’ve spent any length of time shopping for a home, you’ve probably already seen ads mentioning a motivated seller. What exactly is a motivated seller, and what does that mean for you as a home buyer?
A motivated seller wants to get rid of the home quickly
Simply put, a motivated seller is someone who wants to get rid of a property quickly. In some cases, this may be due to a relocation. In other cases, it may simply be a lifestyle change, or a change in financial status that’s motivating a seller to move quickly. Regardless, this can be a great opportunity for you as a buyer, because a motivated seller may have a good reason to cut a deal, and may be willing to sell a property for a great price just to move the sale along.
How to find out whether or not a seller is motivated
In many cases, a seller will tell you himself how motivated he is to sell if you simply ask. Don’t be afraid to ask why a seller is selling a property. His answer can give you important information about his willingness to strike a bargain, or even valuable information about the property itself. Real estate agents may also divulge this information, so don’t be afraid to ask.
Another strategy is to ask if the seller has a timeline in which he wants to close and vacate the property. If it’s a short timeline, the seller is likely to be more motivated than a seller who doesn’t have an immediate need to leave.
Beware of this as a marketing strategy
Some real estate agents list a motivated seller in the property ad as a way to entice buyers to look. Every buyer would ideally like to get a motivated seller, so some agents play on this desire to get a good deal just to generate interest in the property. You’re not always getting a great deal, so make sure you still do your homework, evaluate multiple properties and compare prices – even when you think you have got a motivated seller.
In today’s distressed economy, there are a lot of great home-buying deals out there for new homeowners. Prices in many areas have fallen substantially, making it a great time to buy. Interest rates are beyond favorable, so low that it’s a great time to take out a mortgage on a new home. But not all home deals are alike. When you consider buying a home, make sure you know what you’re getting. In some cases, you’re getting more than four walls and a roof; sometimes you’re buying into debt and title issues, so know what you’re getting when you find that ‘great deal.’
Beware of Title Issues
In a distressed economy, it’s not uncommon for many homeowners to take out or incur liens against their homes. Homeowners associations can file liens against the home; a court judgment could result in a lien against the home; homeowners may take out second mortgages, lines of equity and other liens.
When you’re buying a home, make sure you can get all of these liens discharged from the title. Don’t just take the homeowners’ word for it; get it in writing, and preferably get the liens discharged before you close. If you close on a property with existing liens, the liens don’t just “go away;” you could find yourself forced to pay off the liens to recover clear title on the property or to prevent having your home foreclosed against. If you are buying your new home and financing the purchase, your lender will help you with clearing any known title or lien issues.
Look for Hidden Debt
Additionally, homeowners may incur hidden debt related to the home itself. Things like unpaid taxes can add up, and you may find yourself buying a home with thousands of dollars of back-taxes outstanding. Make sure you call the local tax assessor’s office to determine whether there are any outstanding taxes, and the amount. Again, make sure you get the homeowner to pay off these taxes before you close, or consider negotiating for a credit at closing to pay the taxes off yourself. Keep in mind that most mortgage lenders typically won’t finance a home with large outstanding tax bills, either. This is yet another opportunity for assistance from your lender during the home purchase and financing process.
With more and more people adapting to today’s technological offerings, many parts of our world are going paperless. You can get bank accounts online. Credit card statements can be emailed to you. You can fill out applications online, and pay most bills online. Our world is increasingly paperless, and this can be both a blessing and a curse for the new home purchase process. Even some real estate agents are going paperless, with apps for smartphone users, websites for browsing listings and electronic brokerage agreements. So the question than becomes: What do you need to know about closing home deals in this paperless world?
Be Able to Generate Paper Copies
One of the most important things to consider if you conduct most of your life paperless is whether you can generate paper copies. While many companies are beginning to offer paperless options, most mortgage lenders today will still want to see paper copies of your records to verify things like employment, income, outstanding debt, savings account balance and bank records.
When you’re thinking about shopping for a home, make sure you can generate paper copies of your important records. If you can only access a few months online and must request other records by mail, make sure you request them well in advance and keep copies on hand. The last thing you want holding up your new home purchase deal is to be stuck waiting for a piece of paper that you could have requested early on in the home purchase process.
Keep Paper Copies for Your Records
While you’re going through the home buying process, make sure you keep paper copies of all relevant documents. When you make an offer, even if you just email it to your real estate agent, be sure to print out a copy and save it in a well-marked file. Keep a copy of the P&S, pre-approval docs, loan interest rate lock documents and any other relevant documents throughout the purchase process. You never know when your computer may succumb to a virus, stop working, be stolen or have some catastrophic accident. Keep paper copies on hand to ensure that doesn’t stop your new home deal from moving forward.
You can get a great deal on a home even if you pay fair market value: find ways to add value to your property. When you’re shopping for a home, look for a few factors that enable you to make small or inexpensive changes that can make a big difference in your property values. This can be the difference between paying a fair price for a home, and getting the deal of a lifetime.
Look for homes that would benefit from minor cosmetic changes.
Some homeowners simply don’t take the trouble to make minor cosmetic changes that would make a big difference in a property. Look for properties that would benefit from new carpet, a fresh coat of paint on the walls or some landscaping upgrades to the yard. You may be able to make these minor cosmetic changes on a low budget, but they can make a big difference in the ultimate resale appeal and value of your new home.
Make an accurate estimate of what cosmetic changes would cost.
Some projects cost more than you’d expect when you start out, so if you’re buying a home with an eye to fixing it up, make sure you make an accurate estimate of what these cosmetic changes would cost.
If you’ve got friends in construction or home improvement, find out what they’d charge for your proposed projects. Go to a home improvement store and price things out, and make sure you know how much you’d spend for your ‘minor’ projects. There’s a point when the cost outweighs the value of an upgrade, so be careful not to get into a money sink when you buy a fixer-upper.
Consider cosmetic defects as a way to get a better deal.
Most homeowners are aware of cosmetic defects to the home before they try to sell. Real estate agents advise homeowners on things they could improve, so many of your suggestions won’t come as a surprise to homeowners. See if you can get sellers to come down in price relative to the cosmetic changes you want to make. In some cases, you can use this as a bargaining chip to get an even better deal on your new home.
One of the most common questions I get from home buyers is “How much can I qualify for?” I can tell you what the maximum the lender will most likely approve you for, however, only you can determine what you can afford.
You have to understand one thing, don’t allow anyone to tell you what you can afford. You have to be able to determine that. My job is to help you to come to that figure. The reason there was a housing crisis and mortgage meltdown was due to the fact the people were getting into homes they couldn’t afford. So don’t let your friends, family, Real estate agent or lender determine what you can afford.
Before setting out to talking to a Realtor you want to sit down and figure out your finances. Sitting down with a properly trained mortgage officer can help get you on the right track.
I recommend getting a sheet of paper and writing down your monthly expenses. This includes:
- Auto payments (be sure to include gas and insurance costs)
- Any other loans such as student loans or bank loans
- Credit card payments
- Utilities (gas, electric, phone, TV & internet). Now understand that your gas and electric will most likely go up if you’re currently renting an apartment.
- Entertainment (meals outside the home, activities that cost money for your kids or yourself)
- Miscellaneous (such as savings or college tuition for kids)
Take out your pay stubs for a month and look at the net income. Add up your monthly expenses from above and subtract it out from your monthly net income. The figure you have left over will be an estimate of what can go towards your new house payment (including your taxes and insurance). Now, this is just an estimate. You still will have other expenses you need to think about, such as budgeting for vacations, home maintenance as well as unexpected emergencies.
If you go over this figure, then you’ll have to cut back on your expenses or you’ll end up living above your means. If you live above your means, you’ll end up charging your credit cards up and you’ll begin drowning in debt. Eventually, something has to give, whether you default on your credit cards or you’ll get behind on your mortgage payments.
Once we have this figure, I can work backwards to determining how much of a home this will buy you.
When you’re shopping for a property, the Spring season gives you an opportunity to truly evaluate the exterior of a property in a way that you often can’t in summer, fall and winter. While the property is free of snow, fallen leaves and lush, summer foliage, take the opportunity to evaluate the exterior and decide if it meets your needs – or whether you spot any potentially expensive problems.
Check Out the Ground
Is the ground level? Are there signs of runoff or drainage damage? Is there standing water? Drainage and runoff issues can be simple or complicated to solve. In some cases, it’s as easy as cleaning or re-routing drainage pipes from the roof. In other cases, it may require some exterior renovation, which can be quite expensive. Standing water and drainage issues aren’t just a problem because of mosquitos and damage to the property itself; they can also indicate potential problems with the home’s basement or foundation if the property isn’t graded and draining properly.
Evaluate the Exterior of the Home
Spring is often the best time of year to get a good look at the exterior of the home. In summer, the exterior may be obscured by lush foliage; and in winter, it may be obscured by snow. Take the opportunity to check areas behind bushes and trees for any deficiency in maintenance. In some cases, it may be as superficial as needing a new coat of paint, but in other cases, foliage can hide rotting or pest-infested siding or foundation.
Peruse the Landscaping
Landscaping is a relatively superficial factor in buying a home, as it’s fairly simple to change the landscaping yourself. But if you’re looking at a wide variety of similar homes, something as simple as landscaping can make a difference between the one you want to buy and the homes that you ignore.
Check out existing landscaping and decide if it meets your needs. Is it going to require more maintenance than you want to provide, or does it offer the opportunity to mold it into a form you’ll enjoy? Landscaping that requires a lot of time and attention isn’t for everyone; alternately, some people enjoy working in a garden and would be unhappy long-term in a home where the landscaping makes that impossible.