Your Purchase Decision
Since the purchase of a home may be the single largest purchase that you ever make, it’s crucial to think clearly about the factors affecting your purchase decision, and the many financial implications going forward.
Why do you want to buy?
Real Estate’s return-on-investment potential is unparalleled in the long-term, but you need to understand that it is not a “liquid” investment, meaning that in order to realize gains, you will have to sell, and there are fairly sizable costs associated with selling. On the other hand, while Real Estate in Texas does not exhibit the price fluctuations of the capital markets, it’s appreciation may not be as aggressive as other financial instruments. This means that, in order to rationalize in your mind about purchasing a home, it is recommended that you consider owning the asset in question for a minimum of 5 years before selling, to “make the numbers work”.
Before purchasing, ask yourself these questions:
- What exactly is prompting your desire to purchase a home? Are you simply tired of paying rent and you want to start building some equity? Are you looking for a better lifestyle, maybe getting to a better neighborhood, or be able to send your kids to a better school?
- Are you simply looking to invest, or do you want to become a landlord? Are you ready to upsize, as the family grows, or ready to downsize, as a recent empty-nester?
- Are you tired of going up and down the stairs, and ready to change to a one-story house? Or do you need a larger backyard to build a pool in the near future?
- Have you changed jobs lately and are looking to shorten your commute? Starting with a clear sense of purpose will help you make the right purchase decision.
How do you want to buy?
This may sound like a simple question, but there are really multiple ways in which you can structure the financial aspect of purchasing your home. Our best recommendation, of course, is for you to contact your CPA or financial advisor for this purpose, and to contact a reputable lender to get to know the various financing alternatives. Purchasing with all cash has some tangible benefits, but will you sacrifice other life priorities by cashing in those shares or using your 401K funds? If you are a first-time homebuyer, did you know that you may qualify for a number of downpayment assistance programs that may make your purchasing decision easier? If you already own a home, have you considered the possibility of buying without having to sell, or will you need the proceeds of your current home to finance the second transaction?
When do you want to buy?
We are asked often this question: When is the best time to buy? Our first, impulsive answer is to say “25 years ago!”. But the realistic answer is always “it depends!”. Yes, that is not a cope-out answer, it’s simply the realization that the optimal timing for a purchase decision has to be considered in the light of the totality of current life issues and also in light of future lifestyle expectations. That is a fancy way of saying that the best time to buy for each buyer will be different depending on their specific life circumstances and objectives. Although Real Estate prices are influenced by business cycles and macro-economic realities like unemployment rate, interest rates, and the like, it is our persuasion that, assuming the buyer is operating under a medium to long-term investment horizon, buying today makes perfect sense, all other factors being the same.