By Dick Thackston
Its a buyer’s market – true – but what does that mean to you if you’re a home buyer? Are you looking to get “a great deal” and tell all your friends that you bought a house from a bank for $20,000 or are you looking to buy a home that you can live in and build equity and “have a life” over a reasonable period of time? Do you have the temperament of or for being an investor or do you not have the willingness or ability to take risks and experience losses? These are all REALLY, Really important questions you need to be able to answer if you thinking you want to play in this market.
First let’s consider what’s a good deal. Certainly you can buy a house for under $50,000. Many properties are being sold for small fractions of what they last sold for or were mortgaged for at the top of the market. DO NOT BE CONFUSED ABOUT WHAT THIS MEANS! These homes are in poor condition; most were not really qualified for the mortgages they had based upon condition but one of the characteristics of the B & C lending market of a few years ago was that they did not require homes to be up to speed. The loans were made on the hope that the borrowers would fix them up or that the housing market would inflate further or more likely both.
To buy these homes now for the most part you need lots of cash: cash to buy them and cash to renovate them. You also need to know that you may be years from getting your cash back. Normally lenders will require that your ownership and repairs be “seasoned” for at least a year before they will allow a new loan. Also, you will need to know that just because you want to make certain repairs that will “make it yours” it does not mean that you will be adding significant or any value in today’s real estate market. Roof’s, septic systems, electrical work, plumbing are all things that are expected by most home buyers to be in fair or better condition when purchasing home so you don’t get extra credit for those.
What if you miscalculate on your repairs? You eat the loss. That’s why these are called investor specials you and can win or loose. I work with several teams of investors who take on these projects. They are well capitalized and they have a plan for doing the work, they have studied each property sixteen ways from Sunday and if doesn’t look like it will work exactly as they have calculated they don’t do the deal. If your plan is to buy and work on it, will you really be prepared to live in a construction site for the next three to five years? The work always takes more time and money than the average buyer expects – even in normal times – and these are not normal times – and what typically happens is that people get bored or overwhelmed and the sell at or slightly above their costs and move on because home prices have inflated. There is no expectation that home prices will be inflating anytime soon. Most experts plan on housing to stay about where it is right now for at least another three or four years. It may get worse first.
Buying the house you want may prove to be a paradox. The value of well maintained homes has not declined as much as the averages would lead you to believe. Why, you may ask, is this? Simple if people who bought their homes in the last ten years, for all the right reasons, still have their jobs, still like their neighbors aren’t dead or getting a divorce why would they sell in this market? They don’t. Remember that in our area,Central New England, unemployment is some of the lowest in the entire country – generally under 5%.
When you hear about the million houses projected to be going to foreclosure over the next year that sounds like a big number, but remember that home sales in this country have regularly topped 5 million in the last generation, so while the number of foreclosures is huge relative to all the homes that exist in this country that are privately owned, it’s a relatively small number. The truth here is that as a country we never expected to have any significant number of homes go to foreclosure.
What does that mean for you as a home buyer in this market? It means that if you want a home now you can get a good value but you need to know who you are how, much you want to spend, and how long you want to stay in a home before you think you might need to or want to sell. Prudence is certainly important and the most important aspects of buying a home in today’s world are that you plan on using it as a house not a piggy bank and know that it’s a place to live for three or more years, maybe the rest of your life, maybe a decade, maybe till the kids are out of school. You won’t make $10,000 trouble free dollars by painting the bedrooms neutral colors and selling the house in a year.