Looking to buy your first house? Congratulations! Whether in the market for an investment property or a primary residence, purchasing a home is a huge step and should not be taken lightly.
Being prepared and having a financial plan will ensure you secure the best price and have a positive homeownership experience! Here are some basic things to consider before moving forward.
Real-Estate Investment Approach
More and more first-time homebuyers are using methods like BRRRR (Buy, Rehab, Rent, Refinance, Repeat) to secure the best price for their home. This real estate investment approach encourages the purchase of semi-distressed properties at a low price and fixing it up to build equity that you can use now or in the future.
Having a good amount of equity in your home will help you unlock several financial benefits.
Consider this strategy if building long-term wealth is important to you.
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Hiring a Real Estate Agent
A Real Estate Agent or Realtor helps clients purchase, rent or sell properties and can save you time and money. Realtors have extensive experience and can advise you market conditions. finding a lender, negotiating offers and finding an Attorney.
The seller will usually pay the Realtors commission which means that, if you’re buying a property, you have access to their services for FREE!
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Property Value
Renting is usually cheaper than owning a home. Buying a house gives you ownership, privacy, and home equity, but it's expensive regarding repairs, taxes, interest, and insurance.
Purchasing a house below fair market value can help ease the financial burden and is an intelligent move, whether it's an investment or a primary residence.
The equity in a home can be used for anything, from home repairs, to medical expenses. Having equity also offers immediate protection against a drop in the housing market.
During your search, consider buying off-season and keep your eyes open for properties with "personal distress" vs. "property distress." These property owners must sell quickly due to their financial circumstances (layoff, divorce, etc.) and offer you a great opportunity to buy with minimal renovation expenses.
Personal distressed properties are hard to find but offer the highest profit margin.
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Location
Every city has distinct neighborhoods with their personalities. It's essential to consider the appeal of potential homes and how those homes will appreciate or depreciate over time. Research the neighborhood's safety rating, school district, nearby parks, and walking paths.
Avoid buying in areas with too many houses for sale, empty storefronts, and where surrounding homes are not well-maintained.
If you plan to use the house as an investment property, avoid areas with Home Owners Association (HOA) which have strict requirements and can make renting difficult.
Financial Considerations
Applying for a mortgage? The first few questions you need to answer are the home type and use. Your home classification has a bearing on the mortgage requirements and property taxes.
You have many options, single-family, condominiums, townhomes, and small multi-families.
Small multi-families (2-4 units) give you an opportunity to earn rental income while living on the property but may not be right for you if you want some distance from your tenants. Consider your budget and lifestyle to decide what kind of home is right for you.
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Property Condition
Buying a home that needs repairs can be an expensive ordeal. Luckily, you can uncover the mystery of any home by hiring a professional home inspector and a licensed contractor.
A home inspector observes properties to ensure they are up to code and safe to inhabit. Each home inspection comes with a written report that can be used to gather quotes from contractors.
Use a guide, like the 70% rule, to determine how much you should budget for renovations. The 70% states the most you should pay for a home is 70% of the "After Repair Value” (ARV).
After-repair value (ARV) ✕ .70 − Estimated repair costs = Maximum buying price
If you are a newbie, avoid buying a property that needs major construction. Building permit are often expensive, time-consuming, and frustrating.
Minor repairs like painting, flooring, plastering, installing new cabinets, replacing plumbing fixtures, do not need a permit and can make a huge impact on the look and feel of the home.
Your goal should be to achieve the highest repair value possible without over-improving the property.
Buying a home is one of the most significant financial decisions you'll make in your lifetime. Going into it prepared will improve the chances of your home appraising at the highest dollar amount.
Are you ready to take the next step into homeownership? Our "Brief Guide to Get a Mortgage for Your First House" will show you how mortgages work and how interest rates affect your monthly payments.
