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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: TheStockFairy who wrote (2732)	6/14/2002 5:26:34 AM
From: Tradelite	Read Replies (2) \| Respond to of 306849

<<Personally, I have a problem with forking over a huge chunk of my income and neglecting other investments such as retirement accounts for the sake of a roof over my head.>> Can understand that line of thinking, but would suggest potential buyers think more long-term and take into account what's happened to real estate in this country, with or without Fannie/Freddie, government intervention, easy credit, rising incomes.....etc. There is some real economic truth to "buying the largest and most expensive home you can afford" (I did it and really stretched to do so, but don't necessarily recommend this to others and seldom have seen my own clients even attempt to do this--just depends on location, personal preferences and needs). There is always a middle ground somewhere----how about buying something that only stretches you a little? Here are the potential long-range scenarios of the buying decision.... If you buy the most expensive house you can afford, you can take hefty tax deductions on the mortgage interest---freeing up money to put into other investments, such as retirement accounts. If you buy the cheapest house you can afford and then sell it 20 years later, you will make X dollars. However, if you buy the most expensive house you can afford or something in-between, you just might find that property has appreciated far more than the little house you could have bought more easily at the time, and you will pocket triple-X dollars when you sell it--because presumably the most expensive house was in a better location or of better quality, but again this just depends..... In addition, if your personal income rises over those years, you will find your originally very expensive and burdensome house payments now look pretty cheap. You locked them in at low interest rates many years ago and had to make some life-style sacrifices in the early years, but no one can raise your monthly payments by any huge amount in the future, except the local tax assessor (which you can deduct from your tax liability) and of course your property insurance company. When you're old and tired and retired, you KNOW how much your living costs will be in the house you own, and you have the added advantage of cashing in those gains if you need the money. You also already own a house that probably is big enough to accommodate visiting children and grandchildren if that is your goal, or you can sell it for enough money to buy a smaller but prestigiously located retirement home on a golf course somewhere. The question some might want to ask themselves is.....Will that little house which can be bought for very little money be sufficient to meet the family's long-term needs??? It's expensive to keep turning over real estate and "move up" or "down" each time the whim strikes. For myself, the best investment was to live "poor" in a costly house for about 10 years, before the house payments began to shrink due to inflation and the value of the house began to rise. Some other things to think about before buying.... If you have to leave an area because of a job transfer or whatever, how rentable and for how much remt is the littler house you want to buy? It's possible that if you have to leave an area, you could rent out the more expensive house at a more favorable price and to a better tenant, who could be making the mortgage payments for you and taking better care of the house and who could sign a longer-term lease. There's nothing worse than short-term tenants, in my opinion--you have to paint the house each time they leave and then prepare for new tenants. Would be better to rent to some corporate empployee on a two- or three-year lease who wants a really nice house, schools, and location for his family. Again, it all depends on location and what's going on in the areas you want to live in. One good rule of thumb for any home buyer is to look at the schools in the area where you want to buy. In a bad market, less-than-the-best schools will really hurt real estate values and the ability to sell quickly. Some people would actually say you are buying schools, not a house, when you make an investment in a home. This is rendered as food for thought only.....not necessarily gospel.