I am completing this column very early on Labor Day and probably should have finished it on Saturday, but there are times in your life when you need to recharge your battery on a regular basis and I made this weekend the time. We all need a bit of a rest from what we have all gone through the last 17 months during the Covid-19 pandemic and now the current Delta Variant uptick around the U.S.
Real estate is still doing well based on the last three months’ statistics noted in last week’s column and I expect it to still do quite well right through 2022 unless something drastically and radically changes with interest rates causing demand to cool off further.
Some buyers are becoming a bit “gun shy,” however, with the price increases that have been occurring over the last year or two. There have been changes over the last three months where some are totally abandoning the market either to wait, which is a huge mistake on their part, or those who have left New York state and other large urban areas altogether, where prices have spiked way beyond what they think they can afford.
But have you really determined whether or not waiting would be in your best interests financially? If not, sit down and go through the process or call me and I would be more than happy to ascertain if waiting really is better or worse for you and your family. However, for a majority, waiting will not be in their best financial interests over the long term, but will actually in most cases cause a reduction in their “wealth-producing” over their lifetime.
I have realized that being financially educated when it comes to purchasing real estate or any other type of investment is one area that is the weakest segment of so many consumers’ lack of knowledge. Having a basic understanding of financing and return on investment (ROI) as well as being updated with what is happening in the world on a day-to-day basis is not always consistently followed and that will affect one’s investment.
Short-term decisions can many times affect long-term outcomes. As an example, buying an investment property is much different than purchasing your primary residential home where you will be bringing up your family and hopefully building roots within your community. You always want an ROI on your investment properties, but many view their homes as an investment property and also as a piggy bank, which in reality it really isn’t.
If you aren’t earning at least a penny more than it costs you each and every month, then it can’t be considered an investment property. When you consider all the interest payments and whatever you may have done to repair and upgrade your home over the years as well as appreciation in value, then when you subtract all your costs from your eventual sale price, minus lawyer’s, broker’s, transfer, potential capital gains fees, etc. then you can determine whether you earned any money in the end.
Those who have purchased 20 to 50 years ago will most likely end up with a tidy sum of money and maybe a windfall, just based on the land value alone, but that will solely depend on its location and values in that area as well as the total costs of ownership. But this also is predicated and dependent upon many variables, such as refinancing, dipping into and using equity over the years for purchasing other “no value,” “no wealth building” items, like a car, boat, vacations, other non-essentials and in the end what you end up with and receive at the closing table. Short and long-term planning is ultimately the only way to minimize the downside and maximize the upside when purchasing your home or investment properties.
My professional and personal opinion is your home should never be used as a piggybank as many had during the run-up in prices from 2006-2008 and depleted whatever equity they may have had as the market imploded and then they had nothing to show. As the market slowed, inventory increased, banks retreated from lending and things collapsed first in the stock market and then in the housing market in September 2008.
Millions had negative equity, where their homes were worth less than the amount of their mortgage owed (a term known as being underwater) and either tried to do a mortgage remodification to lower interest rates for a certain amount of time and in many cases up to six years (but payments not made were tacked on to the end of the loan), stopped paying altogether to wait for foreclosure to occur or just walked away from their homes.
Today we have what is called “a bubble in pricing” and this could end tragically if and when interest rates increase, which should not be until next year, but then again nothing is guaranteed, except “birth, taxes, if you earn any money, and death” as everything else is negotiable. If your plan is to be in your home until your children are out of college and beyond or until you retire, then purchasing now and locking in our historic 50-year low mortgage rates would be a prudent plan to consider and not wait.
Lastly, no one can determine your future and if your specific type of business is solid and your job is somewhat secure, then buying (and selling) now will be to your financial advantage but only you (not me) can make that determination when considering selling, buying or investing.
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: [email protected]