(get sneak previews of posts by following my Tweets: @franklyrealty)
A Brilliant marketing executive came up with the idea of promoting the “Starter Home” (not to be confused with the “starter wife”). Buy a small home or condo… stay in it for two to four years, use the increase in value, “equity,” and buy a bigger a house.
Problem is an assumption was made: Maryland home prices will go up! And why not? Real estate went like 60 years without 1 annual drop nationwide. It was a no brainer. But when people don’t think, bad things happen.
If prices don’t go up, homebuyers are stuck. I know a ton of friends that are underwater and can’t upgrade. Not only do you need prices to go up enough to pay for a larger down payment, you have to overcome those damn Realtor fees (sure you could sell it yourself, but read my “Save $20,000” FSBO post).
So prices have come down. Now what? Many reply “But prices are down, so they can only go up!” Yeah right. Not to scare you, but it can always go down.” I’m not talking nuclear bomb .000001% chance, I’m talking real human chance.
So, what is the answer? I really don’t know. I just wanted to people to be aware. Here are some possible solutions.
- For those that are now considering buying (should you hurry for the tax credit?):
- RENT (Watch my 2007 Don’t Buy Video). Yeah, just lie to your friends that say “so do you own this place?” It is none of their business. I’ve always thought that asking that is kinda like asking “what’s your salary?” Renting is still much cheaper than buying (usually). Save money and maybe buy a bigger home you can stay in for 7-10 years.
- Buy now, but truly understand this is real and risky. (And those that say “I’ll just rent if I need to move out,” that doesn’t work so well).
- S T R E T C H . As painful as it may be, it might be less risky to skip the starter home and find a place you can stay in for a longer period. Sure I make less money (assuming you buy both the starter house and the next house with me) but you get to skip a set of Realtor Fees and avoid the “if it goes down we can’t move” risk. See my older post Buy Bigger! You’re Only Borrowing It Until You Sell It!
Disclosure (or is it a “disclaimer,” sorry bad insider Realtor joke). Don’t be silly and overextend into the danger zone. However, 95% of my clients consider themselves to be “Ultra Conservative” with money. Yet versus what the national average, or what a bank says they can buy, they aren’t. For example, the bank might approve $800,000 for a 30 year fixed, but they want to remain conservative and buy a $600k home. I’m just playing devil’s advocate. That buying a shorter term home might be more risky and more expensive in the long run.
For those that already bought a few years ago and feel STUCK.
- Take a loss. This might not be possible for some, and sure it is painful, but don’t forget you are likely buying “UP.” So sure you are selling your place for a $30,000 loss, but hopefully you are buying a place that is $60k-$80k less than a few years ago. It all washes out.
- RENT AND RENT. Seems obvious, but when I mention it to the “stuck,” it is like a light goes off (or is it “on”). Can’t take that loss, then rent out your place, and move into (rent) a bigger place. The difference per month is just what it costs to get a bigger place.
- RENT OUT and BUY. I call this the DOUBLE DOWN. I really don’t like this option. WAAAAYYY too risky in my opinion (but I’m not buying the house, you are). This is where a buyer is underwater on their house, and they don’t want to sell it. They instead want to buy ANOTHER house, thus owning two houses. This doubles, or triples, their real estate exposure. Because “things can’t get any lower than this!” Again I warn people about taking this route.
So, still want to buy that 1 bedroom condo or townhouse? Great! Not a problem. At least you are more informed and not following any brainwashing or peer pressure. And sure I’ll help you. I love working with informed buyers. Nope, never too busy for you (video).
For those that have been asking for an update on my AU Law School studies. Things are going great. Moved to the day program, taking Cyberlaw, Trademark and a few others.
Here is another video from my recent Africa trip. Sandboarding video while talking about the “POPCORN” Agent (make sure you subscribe so you don’t miss that post)
Written by Frank- Broker FranklyRealty.com