How to make sure that your next home purchase is a smart investment – Great Vancouver Real Estate News
All home buyers ARE real estate investors, simply because no one ever buys a home with the intention of losing money.
There is no need to fear buying a home in any market, under any circumstances, if you utilize some simple to understand principles.
1. Pay attention to the TOTAL COST of your mortgage, not just the monthly payment.
Home loans are amortized. That means you have a monthly payment that is the same each month, but during the early years of a 30 year mortgage, most of your payment is interest, not principal. People are “underwater” because they are not paying down their principal fast enough. You can deal with this by making an additional, separate principal payment each month from the outset.
If you plan to pay an additional $50 each month, with a separate check designating “principal payment”, you’ll save thousands of dollars in interest, and cut years off of your mortgage. It’s one of the best ways to take advantage of those expensive, low or no down payment government insured loans, and still save money. Start pre-paying additional principal with your very first mortgage payment. If you’ve already got a mortgage, start with your next payment. It’s possible to pay off a 30 year mortgage in just a few years by throwing as much extra money as possible towards the principal.
2. When buying, use “average dollars per square foot” to help determine your offer price.
Buyers who are not knowledgable about this process, don’t worry, your agent probably won’t be either. This is a method I developed while investing in neighborhoods where the properties were built over a 100 year period, with lots of different types of houses. I’ve found that it works very well. I also teach this approach to real estate investors, some of whom happen to be real estate appraisers.
First, Have your agent pull sales comps for the neighborhood where you want to buy a home.
Using the absolute latest comparable sales available in that neighborhood, divide the sold price of each home by it’s square footage. For example: $100,000 / 1000 sq ft = $100 per sq ft. Try to do this with 3 or 4 recent sales. Then average all three of these together. Let’s say your average is $125 per square foot. Then multiply this average by the square footage of the home you are going to make an offer on:
For example: $125 sq ft X 1347 sq ft. = $168,375
Assuming the comparable sales are very recent, this is an excellent way for an investor to determine what I call the “real time market value” of the home. If the home is already priced below this figure, you’re in pretty good shape. If it’s priced higher, the asking price is too high from an investment perspective.
If you want to think even more in terms of a good investment, take the “real time market value” that you came up with, and shave another 20% or more off of that, and make that your opening offer. Yes it may get rejected, but the object of the game is to never pay more than you have to, instead of just assuming you have to pay the asking price. If the property you want to buy is a bank owned REO, I’d probably take 30% or more off the top, and subtract repair costs as well. (Hey, you want to think like an investor. You can always go up, but it’s pretty hard to go down on your offer price.)
3. For existing homeowners, appeal your property taxes if you have not already done so.
Or plan to appeal the year after you purchase your home. I’ve helped homeowners who are “underwater” shave significant amounts off of their mortgage payment by getting the property tax assessment reduced by as much as 50%. Neighborhoods hard hit by foreclosure are prime targets for this strategy.
Source: Realty Biz News
Image: memories of time
If you have any real estate questions or if you are thinking of buying or selling your home, please do not hesitate to email James Chung, Vancouver REALTOR® at [email protected] or call ( 6 0 4 ) 7 1 9 – 6 3 2 8 today!