Buying in a rising market
Although when buying in a rising market it is almost impossible to pay too much for a house, there are a lot of other things to consider besides price. This is because any overpayment you might make will quickly be eaten up by the rising value. In a rising market you will be tempted to buy the biggest house you can afford with the smallest down payment. From strictly an investment point of view, this is a fine idea.
In a falling market, prices are irrational. Prices are not lowered by sellers to meet the demand in the market. Inventories become longer but buyers believe that the price is the price and that becomes the price. There is more room to negotiate in a falling market. It’s been a while since we’ve had a falling market. I wonder if any of us will know what to do.
The social and psychological power of a house is huge. A large house with an expansive kitchen, a vaulted living room ceiling and an enormous master bedroom with a gigantic ensuite is a statement about yourself to yourself, your family and your neighbors. Great for the self esteem as long as you can afford it. Many people who buy houses with vaulted ceilings and huge masters would rather have larger kids rooms and a secluded family room after a few years. Don’t be fooled by the power of the house; that’s all I’m saying.
Debt will keep you poor. If you buy a house you can’t really afford, you are going to have to cut your spending somewhere else. If you think the rising value of your house is going to cover the trip to Mexico you put your credit card, it won’t.
Falling in Love
People who sell and build houses know that falling in love with a house is a bad reason to make the biggest investment of their lives. A house is an investment and a place to live. It is the only significant investment that has two functions. There are better investments like stocks and gold and there are other significant investments that lose their value much quicker, like cars and boats. Having said that, falling in love with a house is a great reason to buy it as a home (not an investment). Make sense?
Buying your first house is (one of) the biggest decisions you will ever make. You are going to be under a lot of emotional pressure. You’re going to get a lot of advice from family, friends and others. Take your time. Know what you’re getting into. Try to think clearly, logically. Fools rush in.
If you’re selling without an agent, good luck. There will be a lot of lessons to be learnt. I hope you are strong emotionally and have time and patience for negotiations, false promises, short notices, critical comments…all the stuff that comes with selling a house.
If you’re buying without an agent, get yourself an agent. When you visit an open house, the agent you meet works for the sellers. It is his or her responsibility to the seller to get the best possible price for the house. He works for the seller, not for you. If you don’t like the house but like the agent, tell him you are looking for an agent and he will help find a house for you, making all the arrangements for viewing, share market value information and prepare contracts and negotiate with the seller agent on your behalf.
You’re likely not going to be able to flip your house in nine months for a big profit. I love watching the house flipping shows on TV. They are drama. They are fiction. They are over in half an hour.