(The following is a guest post)
Involvement in the real estate market is to some extent a passage into adulthood; at some point you move out on your own, rent a place for awhile, and once your career and finances are in order, you try to enter into the frightening world of home ownership. For others real estate is about investment and generating wealth. For both types of people, there are pitfalls to be avoided with research and wise decision making. I’ve prepared three tips for newer property owners, and while some of the ideas covered are obvious, some others might be new even to the experienced.
Buy only what you can afford
In other words, make sure your finances are in order and don’t make spur of the moment decisions that cost you tens of thousands of dollars. For most of us, a home is far and away the only “big” asset in our portfolios, making up a substantial portion of your net worth (and your debt load), for most of your life. Make a reality based decision. Examine your finances, determine the carrying costs you can afford, make a budget, and stick to it. New families are particularly guilty of making this mistake, as they often make desperate decisions when purchasing a home in a desirable area, engaging in bidding wars that cost years of mortgage payments or turning to subprime lenders to finance an unrealistic purchase.
Don’t buy damaged goods
Or if you do, know what you’re getting into and make sure you get a discounted rate. On that note, don’t be fooled by reality TV shows on home renovation flipping. Those shows are heavily edited and slickly produced. The reality is that it takes expertise in picking the right property at the right price, a team of competent builders who can work around existing construction, and a little bit of luck to make money in that business. Home warranties are a definite plus, especially on older properties. A crack in the foundation or a defective septic tank can cost thousands of dollars to repair.
Additional third party certifications are your friend
Environmental certifications like LEED are highly regarded and shown to save long term maintenance and energy costs in a building. Even if such a piece of property comes at a premium, if your energy bills are cheaper, then you can afford a higher carrying cost. In the end, paying off a mortgage and increasing equity is very much preferable to throwing it at a hydro company. For example, if you live in Montreal, the cost of owning an older building in the city core goes beyond the mortgage, but sometimes poor insulation and additional maintenance costs, which might not be factored into a home buying budget but cost you tears later. The higher costs associated with some Montreal condos turn many buyers off but they are often more financially realistic (and better investments) than less efficient buildings, especially if they are LEED certified.
Just some ideas to consider here. Keep them in mind, but since these are fairly general points, know the ins and outs of your own local real estate market as well.