If I could go back in time and teach myself about real estate…
Do you ever wish you could talk to the younger version of yourself and tell them something that would change their (your) life to make it better? Maybe I’ve been watching too much science fiction but the thought has occurred to me a few times. I decided that in addition to telling myself which people to not waste your time and feelings on, which lottery ticket to buy, which horse to bet on and which stock to invest in I would also want to tell them some of the most important things I have learned about real estate I have learned over the years.
Of course, time travel not being a reality as proven by Stephen Hawking’s party for time travellers which wasn’t exactly well attended, I suppose I have to find some other way of making use of what I’ve learned. The next best thing is for me to do is try to pass such info on to other people in my own time so that they can benefit even if it less exciting than meeting up with past me and discussing things over a pint.
These points will echo much of what I’ve already written on this blog because info like this is really what this blog is all about and also because most of the lessons are not that time specific but rather fundamental real estate stratgies. The broader changes in real estate markets move something like the seasons. They cycle. They do it slower and the time frame is pretty nebulous but the pattern is there and good strategies take this into account.
Buy real estate as soon and as young as you can afford to.
No sooner, no later. You will need to start saving as soon as you can. Don’t worry about all the people on TV, in the newspapers or in your family who are convinced that the whole thing is going to go down the tubes in a couple of months. There are always people saying that at any given time regardless of what the real estate market is doing. Always. The reverse is true too, don’t get overly excited about the idea of it shooting up super fast and being able to sell the thing for a huge profit. That may happen but no one definitely knows when it will, how much it will go up or how long it will take. All we really know is that it will go up in value over time faster than inflation, but it takes years. This is where someone chimes in with “Oh, but the bubble in 2007 and 2008….” Well, although there was some ripple effect that went around the world, the dramatic stuff mostly happened in the US and a few other places but not so much here because we had more conservative regulations in place in regard to borrowing/lending. We had a slowdown, sure but calling it a ‘bubble’ would be going too far in my opinion. Ultimately you are way better off in the long run buying something modest and staying in it than renting. That is, if you can afford the place and don’t take shortcuts on maintenance.
In my case, I nearly bought a house with a suite near the university in 2003. I knew enough about real estate at the time to deem it a good idea but it wasn’t until I became a Realtor shortly thereafter that I realized that I had missed out on a life changing opportunity. I’d probably be about $200,000 richer by now had I gone through with it… and that’s a conservative estimate. Oops.
Learn how to DIY certain things but if you have any doubt about whether you’re doing it right hire a pro.
I have attended many home inspections over the years and of course I’ve been in many many homes. It is really common for people to bite off more than they can chew with the DIY and they often make long term maintenance more difficult and expensive because they were trying to cut costs on labour and materials in the short term. Like everything else, home maintenance is a matter of balancing various factors and considering how much money is on the line with your home’s condition it pays to be attentive to it. This may seems like an obvious statement and so it should, but wow do I often see people costing themselves thousands and thousands of dollars as a result of trying to cut corners to save a few hundred. Really, I think it just comes down to not knowing the difference.
The most extreme case I’ve seen was probably a house where the same person had been doing improper DIY for about 30 years. Every door knob was on backwards or didn’t line up with the door frame quite right somehow, every bit of trim didn’t quite fit, the paint in every section was unevenly brushed on and was overlapping onto adjoining areas that are intended to be a different colour (like where the wall meet the ceiling) cabinets in the kitchen were crooked… and there was more but I don’t remember all the details because after initial fascination with the myriad of deficiencies and how they might have been created I evnetually felt it made more sense to just leave. After all, I’m not going to knowingly bring a Buyer into a place like that. There are other more sane houses to take my Buyers to. When I first arrived I was shocked at how low the price was, probably about $75,000 than I would have expected for size, type and location but when I left I wondered if it was low enough. I wasn’t sure if it was worth tearing down to the studs and doing a complete reno or if it would be easier to tear it down and start from scratch. I tell this anectdote like it was the only time I’ve had such thoughts while looking at a property. Not at all. This one was just the most elaborate and amazing I can remember.
Understand your finances.
At very least, talk to a Mortgage Broker before you start dreaming about what kind of property you want. Beyond that, it is worth understanding the nature of interest rates and how they affect what your long terms bills will be and how much principle vs. interest is being paid. Keep in mind that your property value goes up in the long term too, though it may fluctuate short term. If you’re smart and ambitious you’ll plan to rent out your first home rather than sell. It makes growth slower at first but in the long term you’re better off financially. You just have to deal with tenants. Some are fine and some are diptwits.
I don’t really have any wild anecdotes for things I’ve seen up close for this one because I prep my clients early on. The first thing I ask of every Buyer is whether they are pre approved for a mortgage before we even have a serious talk about buying. If I didn’t I would be not only wasting my time but also that of my clients, other Realtors, their clients, staff at my office… the list goes on. Having a general plan that is comfortable for you to pull off is well… rather important. That’s an obvious statement. That said, knowing what is and isn’t feasible is not so obvious and a matter of planning. The hardest part to plan for is your income as that sometimes changes but talking to a Mortgage Broker and a Financial Planner is only going to open your eyes to what the realistic possibilities are.
These are the fundamentals of knowing which homes are worthwhile and how to get one. Maybe this seems like too much reading and research. Think of how hard you have worked in the past to pass an exam or just finish a work day. This is less work and will affect your life far more financially than any of that.