Avoid The Dream House Trap!

I love the Property Brothers, and a myriad of the other DIY shows on television.  However, there is a big problem.  It comes from the average homeowner not having Chip and Johana in their back pocket doing renovations at huge discounts and at the exact same time setting expectations of a home so high.  Every time I hear the words “Dream Home” I cringe, and it happens a lot.

 

There is a new infatuation with the perfect house, huge amounts of space and beautiful finishes.  I’m not sure if it is just because of too much HGTV, Flips, or just keeping up with the Jones, but we have a disconnect with wants and needs when it comes to a house in western culture.

 

 

 

When I see trends like this, it always makes me think.  I personally know plenty of people remodeling kitchens and homes with nothing wrong with them.  Yes, it is nice to have a nice home or that extra counter space, but people get used to whatever they have.  So I do what I always do, follow the money.

 

 

So many companies and people make money off of remodels, flipping homes, and people trying to have the shiniest new item.  There is a huge vested interest in this culture in getting you to want those fancy stainless steel appliances and perfectly decorated home.  Including Realtors, and all the companies feeding off of them.

 

But really? It is a want, not a need, and if you really weighed the cost, you might think that 80’s kitchen in good condition on a moderately priced home is the actual want.

 

How the Dream Home can become a trap:

 

The bigger the house you have the higher utility payments you have to make.  This over the lifetime you are in your home can really add up.  It might make it worth it to get a pull out couch instead of a spare guest room.

 

  • “Nationally, based on data from UtilityScore, people in single family homes spend a median of $2,715 annually ($226 monthly) on utilities, or $1.68 on a square foot basis, or 1.4% of the median single-family home value.”

https://www.trulia.com/blog/trends/covert-costs-utilities/

 

 

Not to mention the mortgage, maybe the flip in the area is only 20,000 more, and your thinking but I don’t want to pay for workers to upgrade it myself.

 

Let’s take a mortgage amount of 100k at a 4.5% interest, over 30 years that cost you  $182,407.  Yipes! That interest really sneaks up on you.  So what does that extra 20k cost you in the long run? A 120k mortgage at 4.5% interest over 30 years costs you  $218,888.  So that 20k extra asking prices actually is more like 36,481 and it can get a whole lot worse depending on your interest rate.

 

Did I forget to mention that property taxes and insurance are also strongly weighted off the price and size of your home.

 

And of course lets not forget your most precious asset, your time.  That is more time cleaning, landscaping, doing maintenance, or more money to pay someone else to do it for you.

 

 

Lets put it all together, I’m going to use the Tucson, AZ market because I know it well.  This is a nicer area of Tucson but by no means one of the high-end areas.

 

Note: Larger houses and more expensive homes go hand in hand when you are comparing directly in the same neighborhood.  However, when you start comparing different prices per square footage due to upgrades or different neighborhoods it can make things more complicated, older bigger homes have higher utilities and more repairs, however higher prices regardless of the condition increase price across the board with mortgages, insurance, and taxes.

 

Okay, so now can actually see the weight of this financial choice, it is time to talk about what you actually need.  That is a pretty huge amount of money for 500 sqft or a 75k difference in price.  That could be a modest retirement if it was put into the stock market or used to buy a rental property cash.

 

 

How to take charge of own decision:

 

Remember to stick to your needs.  There is a counter-culture movement going right now for tiny houses.  People are getting sick of working just so they can afford their house and cars.  While I’m not so extreme as to think that is the way to go, as I believe these homes offer very little flexibility and people burn out of them frequently.  I do have a family of five living in a 1400 sqft home, and frankly it feels spacious, we even rented a room out to a family member for a while and it still felt fine.  I do want to preface that by saying we really do enjoy each others company!

 

 

 

Minimize your losses by buying a forever home.  Ideally, financially, you will buy a home and keep it for the rest of your life.  Not too many people do this, but it is the wisest financial decision and gives you that paid off residence for retirement.  If you choose to part, like most people do at some point because you choose something that will not carry through your life, you will eat 10% of your total property price when you sell, and also lose 3% of purchase price and start the interest-heavy years of your mortgage all over again.

 

I like to look at houses in terms of flexibility.
  • Does it have rooms that could easily serve different purposes, depending on whats happening in your life?
  • If you were to move out could you rent it out and have it at least cover all costs?
  • How much of the home is rarely usable space?
  • Could I negotiate the cost of repairs at a lower price, then take my time getting to them?

 

Take your time, buying a home that is not right for will hurt you more financially than paying extra rent while searching for the one that works.  Remember choosing the wrong home can lead you to getting caught in a financial trap.

 

Find The Shoe That Fits!

 

I not saying don’t get the waterfall countertops or the huge backyard, just make sure you weigh the true value to you and know the difference between your needs and wants.  You can always upgrade when things wear out and pay cash for it so your not eating 30 years of interest on a renovation that will not last that long.

 

 

Have you ever had a dream turn in to a nightmare?

What everyone should know about being a Realtor, from one.

What everyone should know about being a realtor, salesperson, agent, houses, sales, home, tucson, az, arizona, salary, education, information, expect http://jessicacoaches.com/2017/04/what-everyone-should-know-about-being-a-realtor-from-one/

Jessica Deratany a licensed Realtor with Tierra Antigua Realty.

I love real estate.  I listen to podcasts about real estate for fun.  When I have access to cable television I will choose HGTV, Income Property is, of course, my favorite! I love touring houses, especially the really old gross ones that can be transformed into something beautiful.  I have been involved in many complete renovations and even a new build.  I have become very skilled at most things it takes to renovate a home, construction, and design.  I love negotiating a deal.

Real Estate is kinda my thing.

So, I decided to get my Real Estate Agent License, the entry requirements seemed pretty low in Arizona, and we have some of the higher requirements in the US.  Minimum of 18 years old, 90 hours of licensure course, background check, and pass a state and school.   All in for the license I was looking at under $1000, for a career with unlimited earning potential what a steal!

 

real estate agent giving couple their dream home keys

 

So I enrolled in a local quality school.  It became very clear that with a few exceptions the bulk of the course was about legality.  I enjoyed learning all of it, but there was a theme throughout the course that troubled me.  Refer out most knowledge, do not give opinions on most things to avoid fault, and full disclosure of any facts you do get. (Which most often seemed to be in a huge page that people would skim because of so much legal talk.)

 

Okay, Okay, I get it, my knowledge about anything other than real estate sales and marketing should not be used in this.  I passed the test with ease.

 

Then I started looking for a brokerage to work for.  This was very eye opening; the big companies straight up wanted half of everything I made.  This was usually till I had paid them up to some cap which in our area was around $20,000.  I also had to pay for all my consumables, marketing, insurance, MLS Access, associations, and necessities.  I managed to find a more human, charitable, local brokerage company, Tierra Antigua, which didn’t seem like my wallet was their bottom line.  So they are out there! However, it had become very clear, very fast that I was now a walking milkshake and everyone had a straw.  

 

 

 

 

It got worse.

 

I was thrust into an environment that was all about how to close.  Everyone who spoke to me, save a few, just sounded like a predator talking about the kill.  Sales is an intense world.

 

So where did that leave me? A person who wants to tell people:

  • Buy a house that makes you money, and never to buy one that would not rent for a good chunk higher than your mortgage. See: 4 Ways Real Estate Investing Could be Making You Money Right Now!
  • Selling your home is costly, and if you’re hoping to make money and not just break even or lose money in real estate, you need to hold on to that house as long as possible if there has not been significant forced appreciation (Owner fixing the house), or market appreciation. (Your neighborhood prices are skyrocketing.)
  • That the big American dream home is an unhealthy obsession and provides a lower quality of life.
  • That signing an agreement with me locks you into a decision for a period of time, and I like choice?
  • That house while pretty on the surface could be a potential nightmare, for this, this, and that reason.

 

Honestly, if my being a Realtor were our main source of income, I would have a quit a while ago and used my Real Estate Salesperson Licence for one of the other many jobs it affords; or maybe sold out and hustled?  I am not a shark, nor do I fit in with them. Perhaps, if I felt more positively towards American consumerism, it would be a better fit for me.  Right now, I keep it to help friends, family, or maybe someone who wants be told what they need to hear instead of want.  But, sadly, they do not seem in high supply.   The access to the MLS is also a great perk, as we are investors ourselves, and it is an amazing tool.

 

 

What is your experience with Realtors?  If you are one, have you experienced the same thing?