Part 1 of 6 of Wela's series on buying a house.
The time is finally here.
After spending all those days paying Post Properties or whomever it may be, it’s time for us to start building our own equity.
This is a huge decision, probably the biggest monetary decision that we have had to make in our life. But it’s exciting.
The thing is that we aren’t the only ones thinking this.
Our generation, millennials and the generation above us, entered the housing market at a poor time.
For some of the generation, we entered at the peak and bought into the American Dream only to quickly see that dream turn into a nightmare. Our property values slammed to the floor.
We were left wondering what this whole American Dream was about. Then for another part of the generation, we entered the work force with a boatload of debt. The idea of adding (or being able to add) the debt necessary to buy a home was unthinkable.
However, we are now six years past the worst economic crisis seen in nearly 80 years, and hopefully it will be another 80 years before we see one like it again.
Individuals’ financial situations have recovered. The focus some people have put on ridding themselves of credit card debt has allowed for them to watch their net worth increase. Now they are able to take on the purchase of a new home.
Just think about the opportunity that is currently in front of us. We have been fortunate to have the opportunity to buy homes with an interest rate that is nearly 54% lower than those that were looking to buy a home in 2000 (Source: Bankrate.com US Home Mortgage 30 Year Fixed National Average).
This fact is finally resonating with the millennials as we have seen them entering the marketplace. Redfin noted that in January 2015 new home buyers accounted for 57% of new home tours. This was the highest rate seen in many years.
Heck, in December of 2014 (typically a slow time for home buying), first time home-buyers accounted for 36.3% of the sales.
But as we head back into the market for home buying, we need to make sure we get our home buying ducks in a row. I’m not talking about your financial situation because if you are looking to buy a home those ducks should already be in a row.
These home buying ducks are a matter of what we do first. Many people want to jump right into touring homes.
Hold back for a second and do some research. Make sure you know which area you want to tour houses and don’t budge.
The location, location, location dilemma
Alright, we have all heard the three most important words when it comes to buying a home, right? “Location, location, location.”
That’s spot on, but there is a problem with that… when everyone abides by those words you tend to get large numbers of people wanting the same location. Now we have a pricing problem.
Buying a home is a simple supply and demand economics example. We only have a fixed amount of land. So, when the number of people clamoring over one specific area of homes the demand rises. The supply has remained the same and so only one thing can change to create equilibrium… price.
Sorry for getting some geeky on you there, I had to!
Think about the Brookhaven area in Atlanta. This was just a normal part of Atlanta some years back. But now it’s the hot spot. Home prices are rising out of control, and houses can’t be built quick enough in the area.
It was a prime example of a slowly growing community that caught on bit by bit to eventually be a burning flame in the sense of peoples’ desired place to live.
What we are seeing now is that the prices are way too high to warrant purchase. Now individuals are moving outside of that area. Some are looking on the edges of the city, while others are looking to completely different parts of town.
The area boomed and the people followed. That was the location to be and everyone clung to that. It pushed prices so high that it is now unattractive to many new homeowners.
Our eyes are bigger than our minds
Location may cause prices to rise so much that we get out-priced from certain areas. This happens, but we are also our own worst enemies when it comes to buying a home.
We think that we want to be in a particular location, but we quickly get pulled into different directions by these outside influences.
We start looking at houses either on Trulia or Zillow and we start to see some houses having a larger square footage. They may be just a couple miles outside of our desired location area and we start looking there.
As a buyer, we get pulled in by that bigger house. Or maybe it’s that house which has an awesome backyard, maybe a smaller than desirable kitchen, and we now want it.
Or we go and find that in this new area of town new homes are being built, and that strikes our interest because it will be a perfect house being newly built, right?! Wrong.
All of these outside influences make us move away from the number one priority that we have known from the beginning “location, location, location.”
We start to give in on location in order to get some of these other aspects of home because we are now seeing what is out there. We are beginning to change our priorities. It was easy for us to have location as a number one priority before we began looking.
That’s where the real problem lies. The inability for us to stay committed to what we know is the number one priority when buying home.
Solving the big eye problem
We could make this section very quick and simple… set a perimeter for your location and don’t stray outside that. Got it?!
But we are human. We tend to get drawn in by those houses that provide a little more for us but may be just a bit outside our location ring.
Knowing this, we have to remember some simple things.
The size of the house doesn’t necessarily make the house a great house or a bad house. Also, remember that a bigger house comes with more costs. Energy costs will likely rise. The upfront costs of furniture goes up as well because we have more area that needs to be filled.
Newer finishes shouldn’t drive our decision on the house. Main reason for this, we can always change our finishes much easier than our location. So, going with a house with slightly less desirable finishes, but in a location that is exactly what we want is a more desirable purchase.
A perfect home is not a thing. Yeah, we all want to have that perfect home to move into right away. That just isn’t the case. All homes will likely need some work, whether it’s different paint on the walls or converting carpet to hardwoods. Whatever it is, realize that this is a long term project. Even new homes aren’t perfect. We will all find things that need to be changed. Accept that and realize you can make those changes.
All of the changes that may need to be made (new finishes, improving the house aesthetics or whatever) will provide more upside to you when the house is in a desirable location. It will do more for you if you improve a house in a desirable location than to buy a house with everything you want in an undesirable location.
Let’s make it easy… A location, location, location checklist
You are going to want to go through these questions and answer them for yourself. I have provided some ideas, but answer them by yourself or with your significant other.
Then, once we have the answers, we begin to look at locations of town that meet all of these aspects. These are the things we aren’t budging on.
Because these are the aspects of our lifestyle that make us happy. These will be things that won’t diminish after the honeymoon effect of buying a home.
The size of the house will be fun for the beginning, but once we realize we have to drive an hour each way to work, the size of the house won’t matter. Or when we have to drive 30 minutes in traffic to get to the closest park.
Here we go:
- What activities do you enjoy?
- Do you like to go to the park on the weekends? Do you have dogs that need to be walked all the time? Do you take morning jogs? Do you like going out to dinner? Maybe you like to go to sporting events? Or what about hearing live music at nights with a glass of wine or a beer? Or are you a mall goer? Or a movie lover?
- What’s your personality?
- Are you a city person? Maybe a country person? Do you like trendy & modern areas? Or are you an old school type of person? Are you an outdoorsy person? Do you like yard work?
- Where do you work?
- What type of commute are you desiring? Do you want to be able to walk to work? Are you okay driving? Do you want to take public transportation? Do you work from home? How long of a commute do you want?
- Where are your friends and family living?
- Do you need to be close to your family? Or do you want to be able to hang out with your friends easily?
- What’s the education situation?
- Are you planning to send kids to private or public schools?
- This one is a bit of future looking because even if you don’t plan to have kids in this house, you want to be sure that the education isn’t a drawback for a future sale or rental situation.
Write these answers down and don’t negotiate them.
Then start identifying locations of town that meet your answers. Create boundaries on these locations, and then don’t stray from these boundaries.
Whoever is helping you with locating your house needs to be aware of these boundaries and that they are non-negotiable.
It’s go time
Now that we have an understanding of how to determine our location and that we know what our non-negotiable aspects are, we are ready to start looking.
We are now ready for the fun part of buying a home.
Remember that we want to buy a lifestyle, not just an address. If we keep that in mind then we will have a permanent honeymoon effect after purchasing a home. We won’t have to worry about buyer’s remorse.
The current landscape provides a great opportunity for buying a home. We must be sure that we position ourselves properly to make this large purchase. But once we are at that point financially, it’s about making the right decision.
Realize that given the enormity of this decision, it needs to be done over time. It shouldn’t be an impulse buy.
Remember, we are non-negotiable on the three words we know are necessary when buying a home, “location, location, location.”
And if we can’t find the house that speaks to us during the first round, be patient.
We would rather a house that allows us to live the life we want, rather than to just have a house because we want one.
Location, location, location… here is to finding that right house in the right place!