On Sunday, June 6th, Chris Brogan, wrote an interesting blog post entitled “Rethink Every Assumption.” If you have not read it – and the comments that follow (including mine) – I encourage you to do so prior to continuing reading this post. Go ahead. I’ll wait…
Chris brought up some valid points in his thoughts. However, that’s all they were. He really didn’t state a strong case either for or against home ownership; it was as though he was “thinking out loud” more than anything else. And, as usual, I believe Chris employs this technique to get other people thinking. I must say, he does this very well, because he certainly got ME thinking. More accurately, he opened the door to one of my favorite subjects – Real Estate – a subject about which I am very passionate, as you should all know by now.
The Real Estate Professional Says…
As a Real Estate salesperson, and a REALTOR, I take home ownership very seriously. (I also do rental properties, so I can understand both sides of Chris’ musings). I take the time to talk to my clients, my first time buyers especially, to make sure they understand all of the nuances of the home purchase, and home ownership, experience.
So many people think that they should own a home. It is what many of us were brought up to believe is the American dream. However, in the fast paced society we live in, this might not be realistic or the right choice for many. Do you really have time to cut the lawn, which you so desperately wanted to own, or will you hire someone to do that while you work 80 hours a week? These type of things can quickly become a burden, and contentious within a family dynamic.
A Wax Ring? What? Where?
Owning a home is a commitment beyond the mortgage payments. It is arguably the greatest financial obligation of your life. Your home contains many major systems that require regular maintenance, upgrades, updates, remodeling, and replacement. Often, when I am with a client at a home inspection, I am amazed to see that people don’t even know how to keep their own homes in “working order.”
Did you know you should have your heating and cooling systems maintained annually by a qualified HVAC contractor? Do you know where your air filter is for your HVAC system? If you have an oil fired boiler, did you know that the system should be cleaned and the filter needs to be changed annually? Did you know that appliances die? Did you know that roofs leak? Did you know that toilets require wax ring changes occasionally? Did you know windows don’t last forever? The list goes on and on … and I could go on and on about it.
You would be surprised how many people aren’t prepared for the kind of repairs they may need to make to keep their home in running order. That is something that isn’t talked about when we talk about the “American Dream of Home Ownership”.
I think one of the most important responsibilities a Real Estate Professional has is the education of the client concerning the realities of home ownership. Essentially, if you can’t keep a plant alive because you are too busy to remember to water it, maybe you need to reconsider a home purchase if you don’t accept the need to actively maintain it.
Home ownership is NOT for everyone. I own my home (or rather my mortgage company does), but there are days when I think, “Wouldn’t it be nice to have a landlord to call and say ‘the dishwasher died, I need a repair person’, then a repair person shows up and have the landlord pay for it?” When I paid $16,000 to put a new roof on my house in 2008, I nearly choked on that hefty bill. I didn’t have a choice, it had to be done. (It wasn’t leaking but it IS called “preventive maintenance,” people. Waiting for a problem often costs more money than taking preventive action.)
There are lots of websites, books, and other resources to help you figure out how to buy a home, but what most people need help with is to figure out why they want to own a home. That comes down to asking yourself a number of important questions, and separating your emotional needs from the rational needs. We all need a roof over our heads, but there are a lot of different ways to have one.
Viva La Equity!
Another point that Chris brought up was about the equity in a home and that you can’t use it until you sell. That is far from the truth. I spoke to Rob Hoban at Wilmington Trust today. They lend nationally (but they only do FHA in Delaware), and they have equity lines, bridge loans, and a rainbow of products available. I have worked with Rob on many occasions and have even referred him to people in other markets.
If you own your house outright, then that money is not working for you by earning interest. And if you lose value you lose money. (Real estate always gains in the long term. You simply can’t look at the short term; you need to be in your home at least five years.) A mortgage is a great solution because it is the lowest interest rate you can get in order to borrow what is ultimately your own money.
Credit is available but, unfortunately it is not as being as freely given. In 2003, I would tell a client “It is easier to buy a home than it is to qualify for a lease in many cases.” That is not the case these days. There was something completely wrong with the way loans were given out like candy at a child’s birthday party. I was amazed as clients with $70,000 annual incomes purchased $450,000 homes and had previously had a foreclosure. Then people took on 5/1 ARM products, or the negative amortization LIBOR loans, thinking “I only have to pay the interest, so for $1800 I can buy this amazing $500,000 house…” And what happens to your equity? I never understood these kinds of products and I am really glad they are gone.
Easy credit access is the downfall of many. Consider what the generations before us did; they put down 20% to buy a house. Yes, the cost of a home was far lower and it may have been easier to do, but at the same time, they didn’t have eight credit cards maxed out with no cash in the bank. The financial crisis we’re in is a credit crisis. Even though credit card companies can be quite predatory, America was permitted by the Federal Reserve and lax government regulatory agencies to find credit solutions that were too easy and many face the consequences for it today.
The Step, Before the First Step
Before you decide to buy or rent a house, weigh your options carefully. First take a realistic look at your own financial health. Then look at all of your choices. Seek the guidance of a Real Estate professional and a financial expert as well. The more you know the less likely you will end up in a position where you are unable to make your monthly payment.
My checklist for home ownership preparedness:
1. Have at least 6 months living expenses tucked away in the bank (Mortgage, utilities, insurance, car payments, credit card payments, and groceries).
2. Understand what is involved in home ownership – seek a local class that will review major systems, and what is involved in maintenance.
3. Talk to your friends who own homes already, and ask them about their experiences.
4. Seek the counsel of real estate and financial experts.
5. Take your time and don’t rush into anything. This is an investment, and although you will “feel” the right house, don’t let that guide you completely. Make an informed and rational choice when you do buy.
I will be writing more related posts in the near future. Love to hear any questions people have, or want answered.