Ask Ray About Real Estate

Dear Ray,

We want to buy our first home so that we can start a family. The main concern is, what about the future of our investment? Will real estate values recover?

We don’t want to be trapped in a house, unable to sell. We cannot afford to make a mistake.

What advice do you have for first-time buyers in our situation?

— R.S.

Historically, real estate is one of the best-performing investments. Although there has been a lot of turmoil in the housing industry since 2008, buying a home is still the smartest investment you can make.

I will give you the same advice I give all my clients in the new economy: Rule No. 1: Buy your first (next) home as if you had to keep it for at least 10 years. Base all your decisions on a 10-year timeline.

Here are a few other rules:

•Location, location, location — It’s the No. 1 rule: Choose the best location possible. A home on a quiet street, close to transit, shopping and other amenities will always be a smart investment.

Buy the best house in the best location, within your budget.

•Choose a home with room to expand — A home with an unfinished basement or attic space will give you the ability to adapt the home as your needs change. You may need to add a bedroom for a new baby or create an office in the basement.

A big lot will give you space to add a detached garage with an apartment for an aging family member.

•Get a fixed-rate mortgage — Except for very rare situations, always choose a fixed-rate mortgage. If you’re staying in your home for 10 years, you don’t want to be at the mercy of fluctuating interest rates. Get a fixed-rate mortgage so that your mortgage payment will be the same in 10 years as it is today.

(A 30-year mortgage is typical, but if you can afford a slightly larger payment, you should consider a 15-year mortgage, which will be paid off in half the time.)

•Save your cash reserves; negotiate any big-ticket repairs at the time of sale — With advice from your home inspector and guidance from your Realtor, handle any big-ticket repairs upfront, during purchase negotiations. Don’t agree to buy a house that needs a roof in five years or less or an old heating system that may fail the first winter.

If you cannot negotiate to have the seller make the repair, then you may be able to decrease the sale price of the house by the amount of the repair and receive cash back at closing to pay for the work at the time of purchase.

•Seek professional help from a Realtor early in the homebuying process — Buying a home is challenging enough — don’t make the process more difficult by trying to do it yourself.

A home is the single largest purchase you will make, and you’ll encounter issues you’ve never dealt with before. Let a professional guide you.

Start by asking friends and co-workers for the name of a Realtor with whom they’ve had a good experience. Someone you know already knows a great agent who can help you.

An experienced Realtor can narrow your search, saving you many hours of wasted trips to see houses that don’t fit your needs.

Know more, get more

Knowledge is power, as the saying goes. Educating yourself about homeownership will help to ease your anxiety about buying. Start by talking with your Realtor. There is no such thing as a dumb question, so ask lots of questions.

Ask your Realtor for a referral to one or more lenders that will work with you to get you pre-approved for a mortgage. As you become more engaged in the homebuying process, you’ll begin to feel more confident.

You may want to research the financial benefits of homeownership. Owning a home provides a unique group of financial benefits. The first benefit is price appreciation.

Given that we’re coming out of the worst real estate downturn in history, you may roll your eyes at the suggestion that appreciation is the top reason to buy a home. Nevertheless, home price appreciation is the No. 1 reason to buy a home.

Home prices are already recovering in the Seattle area. Over time, you will realize a substantial increase in the value of your home. Remember this: In real estate, he/she who holds, wins. That means, hang onto real estate as long as you can. Your grandparents knew this rule.

The second-largest financial benefit of owning a home is the tax savings. You have the ability to deduct annual interest paid on your mortgage and property-tax expense from your income. The financial benefits are considerable, and most financial advisers recommend ownership over renting.

Of course, there personal benefits of homeownership that are less tangible but, in most cases, equally compelling reasons to buy a home: 

•The sense of security and peace of mind from owning your home, and putting down roots in a community;

•Freedom to improve your own space, with design, color, decoration, plants and gardens;

•The ability to adapt and upgrade your space to improve your quality of life and enhance appreciation; and

•No landlord to answer to, and having control over your home and property. 

The downturn in the housing market has created some once-in-a-lifetime opportunities for homebuyers. Lower housing prices, combined with record-low interest rates, make this the best buyer’s market in decades.

Buy wisely, hold longer and you’ll have a great homeownership experience.