Real Estate Guest Series, Part 3: Jay's Thoughts
The home buying and selling process can be one of the most exciting things an individual or family can take part in. It can also be one of the most stressful and confusing. To give some insight into the current state of our local market as well as give our readers some things to consider when it's time to make the move, I asked a group of realtors to answer some of the common questions we get from our clients and friends related to the housing market.
In the first part of this three-part series, I will share some of the responses I obtained to questions related to the general market. In the second part, I will focus on the responses specifically concerning things buyers and sellers should consider when buying or selling a home. In the third part, I will offer some of my thoughts on some topics related to this enormous decision we will all likely face at one time or another.
Part 3 – My Thoughts
First, I would like to thank all of our guest Realtors who participated in the first two parts of this series. I feel they provided some extremely valuable insight into several topics buyers and sellers should think about when moving. When it comes to the general state of the housing market and tips for buyers and sellers that were covered in Part 1 and Part 2, respectively, I will leave it to the pros. When it comes to the financial side of the equation, I have a few thoughts I would like to share.
Buying v. Renting – It has long been a large part of the American Dream for people to own their own home. While I agree there are several excellent reasons to purchase a home such as building equity in your property, prepaying for living expenses in retirement, tax deductions, taking pride in ownership, etc., there are times and circumstances when renting may be a better idea. We’ve all heard the old adage that renting is synonymous with throwing money down the drain, but what about all of the costs associated with home ownership that you do not have to take on as a renter? You have to live somewhere, so don’t look at the costs of renting as a waste if that’s the position you’re in. Look at the money you would save in repairs and maintenance, transaction costs, taxes, insurance, etc., when renting v. buying, as an opportunity. How much could those savings grow if properly invested? Buying a home is something that the majority of our readers will and should do at some point, but there are situations and times when renting is best. Say it’s time to get your kids into a great school system, but the house you can afford in the area you need to be in for those schools is not what you see as your “forever home.” In that situation, it may be wise to rent until you can afford a house that you’ll want to stay in for a long time. It is not a good idea to over-buy on a house to the detriment of the other financial goals you are trying to achieve. You also do not want to settle on something you don’t want to call home if you don’t have to.
Aggressively Paying Down a Mortgage – There are a lot of folks out there that absolutely hate debt, and I can understand why…it is, after all, a 4-letter word! But debt can be your friend if used properly and responsibly. With interest rates at near historic lows, most clients we work with either have or will be able to obtain mortgage rates that are significantly below what a diversified investment portfolio should return over a long period of time (that is not a guarantee). So the question becomes, with your extra dollars, why pay off debt that costs less than the return you could likely make on those same dollars if invested? There is also compounding associated with these invested dollars. Another thing to think about is what your payment it will actually “cost” in say 10 or 20 years. Say the principal and interest portion of your monthly payment on a new mortgage today is $1,500/month. Unless you refinance, that payment will still actually cost you $1,500/month every month into the future. However, due to inflation, $1,500 will not be the same in 10 to 20 years as it is today. In 20 years, a cheeseburger will probably cost $1,500 (well, probably not that much, but you get my point).
In closing, buying or selling a home is a huge undertaking, and my advice to anyone going down this path would be to consult a financial professional to help determine how this transaction will fit into your overall financial picture, both now and in the future. Consult with a qualified realtor who can help you navigate the specifics of buying or selling a home.