Purchasing a home will likely be the biggest expenditure of your life. You’ve got to get your credit in pristine condition before a bank will loan you money at a reasonable rate. You need to have a long-term game plan for your career. And you need a liquid buffer just in case your game plan turns sour.
To prevent buyer’s remorse on your largest purchase, here are some things homebuyers need, but often forget to consider when purchasing a home:
- A marble
- A needle
- A calm mind
You need a marble to test if the floors are level. You’ll be surprised how uneven floors can get after years of settling, especially for old houses. To fix deflections and uneven floors can cost a fortune, especially if there is foundation issues.
You need a needle to poke around at potentially wet sheetrock and cracks. Water damage is the most common type of damage a home experiences. Leaks can come from anywhere, including the roof, the wood trim above the ceiling, and from your toil pipes above your living room.
You need a calm mind that is willing to walk away from a house, especially in a real estate market where prices are at all time highs. Do not start falling in love with the property because there is always another one that’ll pop up. There is always plenty to choose from at any given time. Don’t listen to the media or realtors who make you believe in home inventory scarcity.
Do The Math Before Purchase
Always run the numbers before buying a house. Figure out a worst case, base case, and blue sky scenario to make sure you can still comfortably afford the house whatever happens. Make sure you plan to own the home for at least 10 years.
If the home costs less than 5X your gross income with 20% down and a 10% cash buffer, you’re probably going to be fine in the long run. If you’re putting down 3% because that’s all you can afford, then you might be in trouble. Here’s what happens if you buy property at the top of the market like I did.
Personally, I’m sick of being a landlord and sold one rental home in 2017 and reinvested $550,000 of the proceeds in real estate crowdfunding. Valuations in the heartland are so much cheaper with much higher net rental yields. It feels so much better earning income passively!
As a new father, I cannot be more thankful that I still get to invest in one of my favorite asset classes without having to deal with unruly tenants and maintenance issues. My family can still get to live in our favorite place, San Francisco as well.
I recommend investing in trends. And the trend of investing in heartland real estate will be here for a while. No longer is it necessary to live in an expensive and congest city to make money. That’s what technology is for.
Check out Fundrise, my favorite real estate crowdfunding platform. It’s free to sign up and explore commercial real estate properties that were once only available to ultra high net worth individuals or institutional investors.