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1. Relying on The News for Direction
If you want to know the latest about Levi whatshisname and Bristol Palin. News is the way to go.
Mainstream media are helpful for many things--what's happening in your community, events shaking the world, who's hot who's not or if you want to know if it's going to be sunny tomorrow.
They are not to be relied upon for real estate advice.
I have observed this trend for the last five years. Back In late 2005, I don't remember anyone in the big news centers talking about the falling existing home sales. If they mentioned it, they never got their hands dirty. Nobody wanted to be a 'gloom and doomer' and hurt anybody's feelings.
This continued until the first quarter of 2007. Perhaps the reason why they haven't been effective is they rarely do their own in-depth research. Instead they call industry experts (cnbc seems to like this setup), usually a broker or an owner of a company in the industry and asks for their feedback--that's the equivalent of asking your barber if you need a haircut.
What You Can Do: Talk to your local university real estate research guy. You can find his name through the small business development center. If in Reno, call the center for Regional Studies, University of Nevada Reno (775) 784-1771 or Email: firstname.lastname@example.org.
Or you can google e.g 'San Francisco Supply and Demand', ' San Francisco median home price'. Find a local expert. And make sure he is one.
”You cannot give what you don't have” my mother used to say.
2. Looking at Homes Before Getting Pre-Approved. Test-driving the Mercedes
...when you were in the market for a corolla.
Car dealers practice this. Realtors shouldn't.
Avoid looking at houses if you haven't been pre-approved. This will help you in two ways: You'll know what you can afford. Perhaps you thought you can only buy a $150,000 home when in reality you can go up as much as $180,000. Usually, it's the other way around. You will save your wife a lot of time and heartache by looking at homes close to what you were approved for.
What You Can Do: As a rule of grandma's thumb when buying something—conservative is usually better. And it's very hard, I know, believe me I've been there. Especially if the numbers say you can 'afford' it.
"We are consumed by desires to buy things we don't need, with money we don't have, to impress people we don't like"
- Patrick Morley
3. Listening To Rich Dad--only
Ladies and gentlemen thank you very much for reading. Have a good day. and the preacher is left with empty chairs.
'I had two fathers, a rich one and a poor one...' this is how the New York Times Bestseller for 260 weeks starts.
Like many, I read his book seven years ago. Call me corny but I was a fan of Robert Kiyosaki's preachings.
Scores of people devoured Rich Dad Poor Dad and even before turning page 206 was on their way to buying two homes for 'cashflow' to retire by the time they turn 45. Don't laugh, because that is exactly what happened to thousands of would-be investors. Including the author of this article.
The good: opened my eyes to the rat race. The idea of buying income generating assets, Not liabilities ('doodads', e.g boats). Tax avoidance vs. tax evasion. Robert's crusade for financial literacy in our schools. Good storytelling.
The bad: Focused too much on borrowed money--“other people's money”. Made investing in real estate sound too deceptively easy. Does not give a complete picture in his investment strategies--makes it sound overly simple. To be fair, his other books tell more about pitfalls and specific strategies (but I wonder how many people go on to read the other books after being divinely inspired by the first?).
But I have to say that he was one of the three people who warned me about the incoming real estate crash way back in early 2006.
Conclusion: Read it to be encouraged. But know this is just the beginning.
What You Can Do: Get investment advice from the left (wise, successful and old people--grandparents, friends etc.) and to the right (Kiyosaki etc., avoid Mr. Trump though).
'Make everything as simple as possible, but not simpler'
4. Being Clueless On the Market
Understanding your market can put you ahead not by $4,000 or $45,000 or even $100,000 but as much as $155,000. Or if you choose not to heed, pick $155,000 from your pocket.
My client April (not her real name) was strongly advised (with graphs to show her) to sell her house in August of 2007. She waited till the market got 'better'. We could have sold it at $305,000. Now, it's worth $150,000
We go to the doctor for an X-ray before an operation. Nurse asks us 200 questions. We buy a $1,300 Flat screen TV and we do two hours of research on the internet.
We should do the same when buying a house. Ask questions. Be inquisitive (e.g what part of Reno has the most demand? Which area is holding up best in value?).
You'll be very delighted to know that it's not hard to find the answers to these questions.
Some people avoid the real estate statistics game because professionals make it sound like biochemistry. It's not. Like basketball and courtship (roses, rocks and romance), stick to the fundamentals; Median price, supply and demand.
Don't rely on your agent's opinion on the market. We are merely messengers to what the market is saying--the cupido for you and the market's romantic bliss—based on hard facts and easy to understand graphs, of course.
They say that all markets are local. That a struggling real estate market in Reno may not ring true for Dallas.
It's true. But push it a bit more. Effective agents--like good lawyers, search for loopholes---”hyper local”. Meaning, they can find out that Reno's home prices might be falling at 10% a year but homes in South Reno under $250,000 are stabilizing because of brisk demand. Stuff like that.
Also, be nice to your agent when inquiring. Try not to come off as knowing more than them. Their last name is not Einstein, but their job is to find answers to your questions. But you need to ask--this is the biggest investment you'll ever make in your life.
What You Can Do: Learn the median home price trend for your city and area (go back two years or more if possible). Supply and demand (at least two years).
“Advertising people who ignore research are as dangerous as generals who ignore decodes of enemy signals.”
-David Ogilvy, (Inspiration for the hit show 'Mad Men').
5. Not Paying Attention to HOA Fees
HOA (Homeowner Association Fees) fees can vary widely in price, from as little as $25 (sometimes $0) to as much as $300 or more a month.
These fees raise your monthly housing budget.
For example, condos in Reno have higher fees ($200) than houses ($30). Exclusive communities tend to have higher HOA's. Somersett is a popular exclusive community in Northwest Reno but many people are turned off by the $220 HOA fees.
Things you may want to know:
- HOA are not negotiable. Expect to pay them on a monthly basis.
- HOA fees will likely change over time.
- Learn the HOA rules: Know what's allowed and what's not (e.g white picket fence).
- Make sure the home you want to buy is not already out of compliance with HOA rules Buying into an existing problem can be a headache.
- Consider your temperament. One of the major benefits of homeownership is the ability to customize and alter the property to suit your needs, but HOA rules can really interfere with this.
- Find out what the monthly dues cover. Will you still have to pay extra for garbage pickup? Is cable included? Compare dues for the complex or neighborhood you are considering to the average dues in the area. Keep in mind that you will have to pay for recreational facilities whether you use them or not.
- There's no cap on almost all HOA.
- HOA are not regulated.
The good side of HOA: The services covered under HOA fees may include: lawn and landscape maintenance (for your property, common grounds or both), snow removal, community amenities, such as swimming pools and tennis courts, security services, trash removal and utility fees, just to name a few.
Sources: denverpost.com & frankelrealtygroup.com
“Be thankful we're not getting all the government we're paying for"
- Will Rogers
6. Not Computing for Property Taxes
This is tricky because you will not know how much it is until the home is already yours. But a good rule of thumb is newer homes cost a lot more.
In Reno, a 2005 built home may cost $3,000 - $4,500+ / year in taxes. On the other hand, a 1970 built house costs $800-$1,300.
Things you may want to know:
- Property taxes vary from city to city and are affected by both local and state tax laws.
- Property taxes reflect the changes happening in the city. If the city is experiencing high growth and the increased infrastructure and city service needs that go with it, property taxes may be assessed and raised annually. If the city is not experiencing growth, taxes may remain unchanged for years.
- Make sure you get what you pay for. If you're paying big money on taxes make sure that it goes back to you by having good schools, infrastructure etc.
What You Can Do: If you're buying a new home (you won't know the taxes until home is yours), find similar homes in the area (price, age and size). Note: this will only give you an estimate. If you're buying an existing home, the agent will be able to give you the last payment the previous owners were paying.
“The art of taxation consists in so plucking the goose as to obtain the largest amount of feather with the least amount of hissing.”
-Jean Baptiste Colbert
7. Hiring a 'YES' Agent
Lastly, hire an agent that will guide you to all that we've been talking about and more.
Like marriage, I think it's vital to have a love-hate relationship with your beloved agent. It's more fun and profitable that way. There will be ups and downs, and you shouldn't avoid it. Why? Because a good agent won't always tickle your ears—they might need some scrubbing once in a while. And vice-versa.
Effective agents are passionate agents. A good agent are like Jim Stockedale (Vietnam POW) “confront the brutal facts but never lose hope that in the end you wil prevail.”
“It is difficult to get a man to understand something when his salary depends upon his not understanding it”
-(hopefully not one of my clients)
**You can read more of Joe's idiosyncrisies at his Reno Real Estate Blog