Let’s get back to real estate. We’ll do this for two reasons. First, houses are about to enter a new phase in which buyers in almost every market of the country get the upper hand. Finally. Second, there’s obviously little appetite on this loathsome blog for posts detailing other investments. No sooner do I tell you about trusts, bonds, ETFs or preferreds than the skies over this site darken with the bodies of a million enraged, flying, doomer rodents.
Clearly I misjudged sentiment. More people would rather fear risk than sup opportunity. They’re happier being negative than positive. After all, what’s the point of earning a nice yield on your investment when the world’s about to collapse into a steaming pile of systemic rubble?
So, as I said some days ago, I give up. Forget I ever told you where to get a decent return without volatility, how portfolio balance cuts losses by two-thirds, what to pack in your TFSA, or even that I warned you about gold before it plunged $400 an ounce. I’m wasting my time. The blog vigilantes can get stuffed.
This brings me to Tony. Nice kid. Good question.
I’m like a bunch of your readers. I’m late 20’s and right now I’m renting on the Danforth, in an area my girlfriend and I would not currently (maybe ever), be able to buy. We pull in just over 100k a year and in the next 2 or 3 years would probably be interested in a house.
My question to you is simple: How do I know what a good price is?
I’m talking ME, a know-nothing guy who has 15 minutes to walk around a house and then commit to pay for it for almost the same amount of time I’ve been alive. I’m not asking about an area or a timeline. I’m asking about how do I know if it’s GOOD VALUE. If the market drops 15% some houses will be worth it and others will be not. How do I find the house that is a deal or just fair value. I’ve read that 3.3 times your salary is a good place to start, but within that price range how do I pick the good deal over the money pit?
What Tony wants to know is what nine of ten new buyers don’t even think about. Most house-horny young couples spend less time inspecting a home prior to making an offer than they do trying on jeans. They respond emotionally to decorating and appliances, and walk out completely ignorant about the electrical service, survey, heating system or the sales history of the home and demographics of the hood. Then they plunge into a bidding war or are blinded by the romantic notion of chinking long-stemmed glasses before a gas fireplace while wearing their best skin.
Even worse: buying a house which isn’t built after gazing at floor plans and counter top samples in a sales trailer with a consultant in stilettos.
So what should a prospective buyer do before even thinking about an offer? The list is a long one, but here are ten actions:
- Nothing is more important to real estate than location. So, focus more on the neighbourhood than the interior – you can always change that. Get a city house on transit or a suburban one with arterial access. Check out the neighbours – the population mix, the quality of cars in the driveways, the graffiti, the condition of yards, mean dogs. Find the nearest shopping and learn the school catchment.
- Get the property’s background, how many owners in the last decade, for example, and successive sales prices. Too much flipping is not a positive, nor is a big price jump since the last guy bought 14 months ago. Your agent can dig this up.
- Speaking of which, always have your own agent. No exceptions. Never use the guy the sellers engaged to flog the place, since you need your own advocate to negotiate the best deal and represent your interests, as well as ferret out information on comparables and history. By the way, never sign a BRA.
- Your first visit should be lengthy. Go with a notepad, and a camera. Shoot every room, the panel box, the furnace, the yard, the street. Find out if it has 100 amps or better, gas or oil or heat pump, water or forced air, block or poured foundation. Look for basement damp (don’t forget the flashlight), settling on the driveway or swales on the lot line.
- If it’s a tract house on a subdivision street, check out other properties for external basement cracks, sagging porches, dried-up window caulking or cement crumbles. Better yet, knock on a few doors and ask the guys who bought there if they’d do it again. Amazing what you can learn in an hour.
- Is there a survey? If not, stipulate the owners provide one. If they balk, move on.
- Never, ever, ever buy a house without an inspection as a condition of the offer. If you’re in a bidding war situation, shame on you. Walk. But if you have to compete, then get the inspection done first, so the offer can be clean. Spend some time finding a good inspector with recommendations and creds, not the cheapest one or your cousin who’s a part-time drywaller. Go with the dude and plan on spending four or five hours crawling around.
- Never buy a new house from plans, no matter how convincing the salesguy gets. The contract almost always gives the builder unlimited delays, substitutions and changes, while locking you up financially. If you are still dumb enough to do this, get a killer real estate lawyer to review the deal. Yes, before you sign. Duh.
- Buy the worst house on the best street, no matter what your spouse says. Stay away from corner lots. In a complex, get the end unit.
- Learn the current property taxes, as well as local tax history. Ask for copies of electric, water and heating bills. Find out the condo or strata fees. Ask about any zoning restrictions, like parking your 60-foot Winnebago in the driveway or having your motorcycle gang over for tea regularly.
- And, price. Seek motivated sellers, which usually means a stale listing or something with a little hair on it. Find out the DOM, and whether or not the place has been relisted. Get pre-approved for a mortgage. Try to have 20% down to avoid costly insurance. Make a big deposit, so you can pay less (it actually works). And wait.
There’s every reason to believe houses will be cheaper in a year in most places. Which means you can come back and read my coming posts on how to be a ruthless, mercenary, heartless, pitiless buyer.
Just don’t ask me about bonds. I’ll kill ya.