Before purchasing my house, I owned two condos. My experience with home ownership has always been positive financially. Due to the financial crisis in 2008 and the ensuing housing downturn I worked with sellers who were selling short and then banks on their foreclosure sales. So, I’m well aware that the home ownership experience is not always unicorns, lollipops and rainbows.
That being said, for all those people who lost money and their homes after the mortgage meltdown, on the other side of those transactions were people who bought the distressed homes and then made money off the financial misery. It was actually kind of a sick thing to witness first hand and even be a stakeholder in.
There are winners and losers in all markets, so how do you become a winner in the housing market?
1) Don’t take on a mortgage you can’t afford. Some lenders will allow you a debt to income ratio of 50% but they prefer to see below 36%. 30% is most advisable. The difference between 30 and 50 is huge! Life is expensive, and the lower your debt to income ratio the better. Buyers need to be realistic about what they can afford, and how much mortgage, property tax and insurance payments they can handle comfortably.
2) Don’t take on a house you can’t afford. Beware the money pit! It’s okay to buy a crappy house if you are going to fix it up and you’ve got the money, but you need to know what you are getting into before you sign on the deed of trust. It’s also okay to buy a crappy house that you only plan to minimally maintain, as long as it’s in a nice area and you are happy there. A shack by the beach comes to mind.
3) Plan on spending money on your new home. When I bought my house I knew it needed a new roof, a drainage system, new water pipes, and on and on and on. I made a long list of everything I needed to do with the house. I’ve worked my way through much of it, including the afore mentioned issues, but there are still plenty of places I can and will spend money on the property when the time is right. The key is to set your priorities and pace yourself for the long haul.
4) Pull the trigger and make it happen! In my nearly two decades of selling real estate I’ve seen too many buyers get priced out of the market. When the time is right you need to go for it, not sit on the sidelines and wait for another house or make a non-competitive offer. Buyers who wait too long to make the decisive and deciding move often face higher prices as time goes on. 2024 may well be one of those years where we see buyers getting priced out of the market.
5) Plan on owning the home for at least five years, preferably ten or more. Anything less than five is a short term investment, and by nature those are more risky. The longer you stay in the house, the more equity you build and the more likelihood the property value will increase.
2024 is most likely going to be another challenging year for buyers, as the mortgage interest rates drop and the buyer pool becomes more crowded and competitive. Buying a house isn’t easy. Don’t be deterred though. Remember it’s almost always better to pay your mortgage, rather than someone else’s.