Here are 7 essential and critical steps to
Insure proper equity gain in your home
Written by Jim A. Urban
I couldn't think of anything more appropriate to write about this month due to the good and bad of today's market and how people have handled their biggest investment, their home. This message is for homeowners to be, new homeowners, and long time homeowners. I want everyone to take special notes or at least mental notes of what I feel is the most important real estate article I have ever written. With many people loosing their homes, and many people miss handling their equity I felt this could be some really good advice. So here are the 7 essential steps:
1) Invest in a neighborhood that will hold or go up in value.
I have helped several people in the last few years that wished they had not invested in the neighborhood they did. The best cure or suggestion I can give is talk to several people you know and trust with experience in the town or part of town you are buying in. Ask them honestly where they believe is the best part of town and a good neighborhood to buy and invest in. Then after careful selection of a real estate consultant, make sure and ask him or her where they believe their best resale options are in your price range. As a veteran real estate consultant myself I rarely get asked this question. So I love to offer my suggestions to where they should or could buy that would assure them a good investment. Most people are happy to listen to my suggestions.
2) Pay at or below market value.
Once you find your home make sure and again ask your real estate consultant to determine the value buy researching the comparable sales in the area you are buying in. Even if you think you know, it is a good idea to run the comparable sales in the area. You may be surprised on what you may discover! Many times the buyer I was working with thought a price they were offering was a fair, but in reality the recent comparable homes around them were sold for less.
3) Maintain your home.
This one means to maintain your home on a regular basis, and with a reasonable amount of updating. I have seen too often homeowners go too extreme in one direction or the other. I've seen some homes where no maintenance was performed and it hurt the sale with all the fix up items it required and then some homes where homeowners over improved their homes so much that they lost money when it came time to sell. The question to ask yourself is "would you pay extra for that feature if you were going to buy back your home?" Also, keeping your home maintained is like keeping everything running smoothly on your car. You must change the oil, change the spark plugs on a regular basis. With a home you must repair or replace that furnace, replace old shingles, and fix that leaky faucet just to name a few. Find a happy median and you will see the biggest return on your investment.
4) Start your mortgage or refinance your mortgage that pays off in a shorter term than your traditional 30 year mortgage. Be careful how you refinance!
There are some really good mortgages out there right now that are certainly not the traditional. Traditional these days is meaning stay away from adjustable rate, interest only, and mortgages that really never help you pay down your mortgage and where your payments continue to rise in many cases. Right now there is a fantastic mortgage that is called the "accelerator mortgage." It pays your mortgage off in many instances in less than half of your normal 30 year mortgage with the same reasonable payments. I have a lender that you could talk to about this. Other ways to gain equity that has been used predominately in the last 20 years have been the 15 year mortgage. I have a friend that each time he refinanced he decreased the term of his loan. What he did is start with a 30 year mortgage, and when the rates dropped he refinanced to a 20 year mortgage, and when the rates dropped again he refinanced to a 15 year mortgage, and then finally the last refinance he did was a 10 year term. Each time he refinanced his payment stayed close to what it was before, but he kept decreasing his the term of his loan. My personal all time best investment was a home I personally bought in 1992, and after one year of ownership I refinanced on a 15 year mortgage. It was similar in that my payment actually only went up by $100. per month, because the rates dropped and at this point today in less than a year from now my loan will be paid off completely! Plus the home has nearly tripled in value. How often do you see this in the stock market? Lastly, be careful with mortgage companies that offer you no cost refinances by financing the costs into your mortgage.
5) Beware of the second mortgages and how they can come back to bite you.
I am not saying you should never take out a second mortgage. I am saying that if you do take out a second mortgage make sure the money is used for investment purposes only. Don't finance your home for anything that doesn't bring back more to you than you took out. I took out a second mortgage to buy another property which in turn has almost made me double what I initially borrowed. Too many people take out a second mortgage for the new boat, car, or vacation. These particular items, in my opinion, need to be saved for on the side before you dip into your equity.
6) Have patience.
Real estate is not an overnight investment. If you think about it, as far as residential, owning a home is really very personal. Many people don't even look at their home as an investment. Although we know it is, and many times it is our most valuable asset. It sometimes just takes time for you to see the return. It will happen, real estate has cycles and you just need to be patient till you hit the next up swing in the market.
7) Dedicate yourself to your vocational calling in life to sustain your biggest investment.
Owning a home is a motivator to always have passion to better yourself in your chosen vocation in life. At least it does for me. Without your regular income you will not be able to sustain your home and properly invest and maintain your biggest investment. I have had many people throughout the years say to me "Jim, we work so hard for our home, but we are ok with that because we know it is our biggest and best investment." Yes, this is true, owning a home gives us our drive and energy to wake up in the morning and say "I own this thing." Someday by staying in tune with this article you can wake up in the morning and say "I own this home and with NO Mortgage!" I vision seeing a thank you card to me thanking me for my suggestions I made to help inspire you to accomplish this wonderful goal!
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