September 24, 2014
by Michelle Perry Higgins
There are three things that you must do before entering into any real-estate transaction regardless of the current situation in the real-estate market. According to recent statistics from the U.S. Census Bureau, 66.9% of all households in the U.S. live in owner-occupied housing. For most Americans, this is our largest purchase and it requires a well- thought-out plan. Review the following issues before you take action.
1. Time horizon and investment goals: First, as with any investment, you must identify your time horizon. For example, if you are a purchaser, do you plan to flip the house within a year? If so, you must believe the market will move higher in that time frame. Have you evaluated the risks that might prevent this from happening? Or, on the other hand, will this be your retirement home allowing you to endure real-estate cycles without worrying about short-term fluctuations. Understanding your expectations about the property, along with liquidity needs, will help you evaluate if the property is right for you.
2. Impacts on your financial plan: How does this transaction affect your financial plan? I always go back to the drawing board with my clients to ensure the home purchase works in their plan. Can you clearly afford the mortgage, property tax, insurance and home maintenance? Will you have to reduce your living expenses to purchase this home? If so, how much? If you lost your job, could you still afford this home? Will this transaction change your retirement date? On the other hand, if you were to sell now at a high price, what would you intend to do with the cash? Would you plan to move to a less expensive area and pay all cash so that you don’t have a mortgage?
3. Professional assistance: A good real-estate agent with extensive experience in your area is worth the expense of the commission. Do your due diligence in finding an agent that you trust who has your best interests at heart. Your real-estate agent should have a firm grip on your neighborhood’s market activity so that they can provide comparable market analysis, inventory statistics and a solid recommendation on the timing of the purchase or sale.