Facts About Buying Your Own Home
Buying a House
The one major asset that most folk leave behind them for the use of their progeny is their home – which has often been correctly dubbed their own “Little piece of heaven”. Forbes business magazine once published a list of the wealthiest people in the world. It was not surprising that a substantial chunk of these affluent people first made their big money in some form of property.
Let us establish why owning property is so distinctive as apposed to the holding of other tangibles. The ancient secret of ultimate wealth is to squirrel something away every week, and then to progressively invest it wisely.
This is precisely what happens when we decide to buy a house. We find that the initial years are experienced as a real uphill grind. But, bit-by-bit two things become quite clear. Our monthly income becomes easier to accommodate our bond payments, and the market value of our home is increasing.
Naturally, when we look at the price of housing, for a lot of people it always seems to be JUST out of their reach. Yet the average house price after the world-wide recession is yet again rising, and is expected to be doubled by the year 2030! Hard to believe? Well, just look at what has happened the average established house price in the USA since 1987.
Year Price Year Price
1987 $11 528 2000 $50 058
1989 $14 684 2003 $70 328
1993 $22 644 2006 $98 806
1997 $32 773 2010 $155 473
What can you think of that has such a consistently upward growth trend – even after the recent economic turmoil? When all this is taken into account, it is not beyond belief that the attractive prospect of a house price increasing three-fold in the next ten years is beyond the bounds of possibility.
Sure, to most folk the purchase price of a house seems daunting now, but the simple truth is that it has always been the case. So you really think that it was ANY easier for your parents to buy THEIR 1st home? Why don’t you ask them?
Guaranteed Capital Growth
What is the determinant of house prices rising as they have been illustrated in our example? First, the supply of land is not unlimited. For example, when all the land on a prime view ocean frontage is built on, there is quite simply, no more vacant land left there. It cannot simply be “created” in the way a motor car can, or baked in the loving way your mother did that delicious Apple Pie. Furthermore, its scarcity value is directly affected by location – i.e. geographical factors such as lakes and mountains.
In many modern cities the sea itself blocks development and on the other side mountains hinder it on the other. Worldwide there are a myriad of examples of this happening.
The 2nd determinant is that any new construction project is always done at today’s price of raw materials – cement, bricks and timber etc. Indeed, the construction industry is a major market indicator, a benchmark for a myriad of others, such as fencing, curtains, carpets, white goods and paint are just SOME of them. The construction industry, by and large, especially the domestic housing market, is generally very labour intensive.
It is very self-apparent that we could not have a situation therefore, where an existing house is being sold for, say, half the price of a new house. Indeed, if that WERE the case, nobody would ever buy a new house, and the construction industry would simple expire.
So, within this factor lies your and my guarantee, that, as long as salaries and prices are going up, property prices will move in parallel. So, in this way, it is the perfect hedge against the ravages of inflation.
Residential Property is Useful
The fact that residential property’s “useability index” is high should be self-evident – not needing to pay rent is a BIG plus, especially when the original bond is fully paid up. Moreover, the meeting the bond payments is not quite as painful, because by doing so you are actually investing in your OWN future, and not that of the landlord.
So, if you have a place of your own, you can then consider investing in a 2nd home, and renting it out. This strategy carries a double benefit because the rental income can contribute toward paying the bond, PLUS the value of the property itself will increase. This is known as Capital Gain.
Other tangible investments such as antiques, stamps, silver and gold do not carry this advantage.
Yet another major benefit is that when needed (say for seed capital for a new business) you can raise a loan, using your 2nd home as security – and the longer you hold this asset, the more valuable it becomes, and therefore the more cash you can raise. This is particularly important in an emergency, and with it comes peace of mind.
The next bonanza for the potential house owner is that YOU, and you alone hopefully, control it – the ultimate (both figuratively and literally) security haven for your family. It can be very stressful having to live in a house which you have rented – sometimes perhaps waiting from month-to-month in trepidation of being served notice with an eviction order. With your own home, YOU have more control of your own life and future.
The chance of loss, especially if you cover your potential losses with some sort of insurance, is very low. Every year, worldwide, millions of properties change owners. The simple fact that the ones that involve losses make the news headlines attest to their rarity.
Should you Buy or Build?
This is really a matter of personal choice – but it is generally a better idea to buy. When you buy, you are seeing the finished product at a defined cost. Moreover, you can check it out for size, related to you being able to fit in your furniture; where the electrical power points are located, security issues, and what your neighbours look like.
Again, if you are brave, and set out to design your own home, it is on the cards that the completed structure may be a disappointment, and by that time it has become very expensive to rectify. The folk who tread this path invariably end up with a pile of unexpected additional costs.
It is a given that you have to visit the building site during the construction phase, and then see that certain aspects are not what you had imagined, and then redesign it. That seemingly innocuous decision is a veritable minefield for the unwary or uninitiated. For example, say you widen the hallway – the knock-on effect could be totally unexpected – like bigger cupboards, more tiles, paint and certain fittings. Does that not scream extra dollars?
The time factor also kicks in, simply because the bigger unit takes more time to build. Coupled with unpredictable, inclement weather in a world where today this is becoming the norm. The foundations could be flooded…….and so it goes on. Oops, sorry, there is something else – much more common than you would expect – the financial stability of the building contractor and then the actual quality of his work.
Imagine the unthinkable: he goes bankrupt mid-contract, or the quality of his work, because of his sharp practice use of badly paid workers, means you have to start again, all points to it being a really good idea to double-check his previous work and all his references. Ask to SEE the work he has done, and talk to the people he has done work for in the RECENT past.
A good benchmark can be if the builder belongs to, and can prove that he is the member of a recognized association – such as the Master Builders Association, and then that association subscribes to a valid code of ethics, and that he himself subscribes to those ethics. It may be a good idea to check out your contract with him via your lawyer, even if it initially delays the work, and costs something. Better some heartburn now than later.
Buying your Own piece of land to build on
As if you didn’t have enough to consider, when buying land, you need to make sure of a number of issues, such as:
• Will your dream home fit within the apparent boundaries, always allowing for any clearance required by your local authority – and this is especially important for a corner plot
• Employing the services of a qualified Land Surveyor to determine and mark out the TRUE boundaries of your ownership and where your house fits in.
• Getting a comprehensive soil-test done (by a Geo-technician or soil engineer for example) – this can be very important, especially if the soil type is sub-standard, and the structure is double storey. This may require wider and deeper foundations. Some soils are very plastic, and cause the walls to shift, and cracks appear with the passage of time.
• The land could be dolomitic below, out of sight, and may not be suitable for ANY type of building. Dolomitic areas have led, in the past, to houses sinking completely out of sight, accompanied by a loss of life.
New or established?
Ironically, in this respect, there can be no right or wrong answer. Completely new generally means that you could be involved in costs for landscaping, establishing a new garden of plants, outside structures such as a barbecue area, and then fencing and paved pathways and a driveway. If you are the first one to build, there is always the possibility that they are your ultimate nightmare – like noise, loud music, barking dogs, running a noisy car repair business. Where do you go then…..because THAT involves yet more expense.
So…..let us BUY a house
The first hurdle to cross when you are purchasing a house is to determine your affordability range. There can be nothing more frustrating than becoming more excited about a SPECIFIC home in say, the $250 000 range, only to find that you can only slot in to something $50 000 lower. The final arbiter of your purchase decision has to be what bond the bank is prepared to grant you. This is based, for the salary earner, on a percentage of your monthly salary. This is something you would have to check out locally, as the rules vary across the globe.
Having ascertained that figure, NOW you can zero in on the location that meets YOUR specific needs, such as schooling, proximity to your place of work or business, noise factors from passing traffic (or even a highway which may seem innocuous on a Sunday is mind-blowing on a Monday). Then take into account factory pollution and noxious fumes such as Sulphur Dioxide carried in the “inversion layers” in the sky above. It can be quite informative to speak to the neighbours if you have the time and confidence to do so.
In this vein, it is a sensible idea to take a tour around the area, either walking or driving slowly. Take down some notes, especially of the Estate Agents boards, so that you can phone them up, or visit their offices to ask about comparative prices, and look at the pictures which most of them display for just that purpose.
Your actual, on-site property inspection, properly done, should include:
• Where does the sun rise and set – and how does this affect the temperatures inside specific areas of the house – generally speaking, north-facing is preferable if you want the lounge and bedrooms, located in the front of the house say, to benefit by being sunny and warm most of the day
• Where does the prevailing breeze blow, and how does it impact on any trees, and is it polluted. The trees may need trimming.
• Does your car fit into the garage.
• Do you have any special needs for your furniture, such as very wide or long tables, chairs and cupboards, and will they pass easily through the doors, or will they first have to be taken apart.
When you finally (phew) settle on a property which suits your requirements, the next step is to negotiate the purchase price. Luckily for most folk, this tricky part is done, often very professionally by the competent Estate Agent.
Your “Offer to Purchase” can routinely be done by way of a run-of-the-mill contract form which has been prepared by a competent attorney, who is familiar with this aspect. Here again, depending on their bona fides, the Estate Agent could be the party to guide you.
Beware though, many people slip up on unexpected part of a purchase contract. There could be no greater truism than making sure that you cross the t’s and dot the i’s: For example, are the currently installed curtains included? Neglecting a seemingly unimportant point like that could end with a very expensive mistake. Other items to take into account could include light fittings, TV Aerial, hot water system, barbeque fittings and pot plants.
Go into everything with your eyes WIDE open and do not be naïve – there ARE sharks lurking in murky waters! DO NOT MAKE AN OFFER TO PURCHASE unless you check out all the facts. This includes your own finances, because an abrogation of your offer WILL get you involved in potentially expensive litigation when you, on a whim change your mind.
The bottom line?
Having checked ALL your bases, and then make your decision: STICK WITH IT! There is nothing more dangerous and expensive than pussy-footing and prevarication when positivity should be your watchword.