Are you thinking about buying your first home, or even renting a new apartment? If either is the case, do you need to get a long-term game plan?
It’s an awesome time to buy a home, but most people don’t really have a game plan. They need somewhere to live, and push ahead. Without any idea, many renters and homebuyers are negatively impacting their immediate finances by not looking at the bigger picture. No coach leads their team onto the field with only one play in the book. They don’t just rush on, think about the first play and decide they’ll figure the rest out after that. Neither do they expect to play the same play and same team forever. If one thing is for sure in sports, real estate, and life, it is that things are going to change.
Short Term Thinking
Whether it is renting or buying a home, many people are sabotaged by their short-term approach. Too many people pigeonhole themselves buy resulting to the following mindsets:
- “I’m just going to keep renting because I don’t know if I’ll qualify for a loan”
- “I’ll keep renting because it seems cheaper”
- “I’ll rent a little while longer until I save more money to buy my dream home”
- “I’m going to hold out till I find the perfect house, because I’ll live there forever”
Have you actually done the math? It doesn’t justify these responses. Have you checked how much cheaper it is to buy right now than it is to rent? Have you added up all of the tax breaks associated with buying a home? That could be many thousands of dollars a year. All of that money could be saved to upgrade later.
Yet, waiting to buy the perfect house is often one of the worst traps, especially if you are 40 or younger. Properties typically go up in price. Interest rates go up too. Within a couple of years, that perfect house could easily cost you several hundred thousand dollars more. How fast are you saving? Unless you buy a home that appreciates at the same rate, that dream home will just get further out of reach.
The Big Picture Housing Game Plan
Have you ever sat down and taken five minutes to sketch out your housing needs? It may sound crazy, but it is essential, and so few people actually do it. Taken seriously, it will give you a whole new perspective on buying a home.
Don’t panic. This doesn’t have to take more than a few minutes; maybe an hour tops. When all is said and done, you can pick out a home that will really do your finances and life justice.
What it really comes down to is considering your housing needs over time. The typical housing life cycle goes something like this:
- Grow up at home
- Go off to student housing
- Get an apartment
- Buy a start home
- Move up
- Move up
- Move up
The typical household moves around every five years or so. There are a few more move ups or sideways moves for most. This doesn’t account for divorces or those relocating for work.
What it Means
What does it mean for you? For most, the biggest change is that your first home doesn’t have to be perfect, or your dream home. It shouldn’t stretch you financially. It should be a financial tool and stepping stone to get to the next level. Many middle homes may do the same. They may need to be a little nicer and bigger to keep the spouse happy and to accommodate a growing family, but you probably aren’t going to stay there forever. It’s great to have that dream house for the kids to come home to for a good 20 years, maybe even 30. However, odds are you won’t stay there too long. Houses get old, styles change, and neighborhoods change too.
You’ll probably downsize. You may pay cash with your equity, end up using a reverse mortgage, or use retirement funds to pay for a house if you have saved enough.
For most, it changes the dynamics of the home search. You don’t have to have your dream house today, and you don’t have to buy the most expensive house on the market. You just need one to put a roof over your head, one that will be comfortable in payments, and grow in value so that you can enjoy that dream home comfortably later.
Want to Get to the Next Level Faster?
Still stuck on not affording that house you want? Anything is almost better than renting for right now. You might qualify for a lot more, and pay a lot less than you think. It never hurts to ask, but how about speeding up the process by buying a small duplex or triplex? Let your renters in the other units pay for your home.