Have you heard the grumblings about *EEK* a recession. Don't say it too loud. People get very anxious when they hear that word.
Real estate is hyper-local. Even if other cities start to deteriorate, Phoenix may not be affected or it could be worse. If there is one around the corner, hiding from it won't prepare you. I prefer to be smart & ready. Here's what I tell my buyers who don't want to find themselves with their pants down if one comes knocking...
1. Put some money down.
Aim for at least 20%. Why? Having skin in the game insulates you from a lot. Unfortunately, the biggest barrier to home ownership is the down payment. There are many would-be buyers staggering under the weight of student loans, high consumer debt & large medical insurance premiums (or debt from being under/uninsured. How do you get your foot in the door??
Get a gift... there's always:
- Good ole Bank of Mom & Dad, if you're fortunate.
- Another trusted, generous relative
- Your 401K- Did you know that 1st timers can take out up to $10K penalty free for the purchase of a new home; it's where half the down payment for my 1st home came from.
Liquidate assets: (& be sure to check with your CPA or financial advisor first!!)
- Remember that non/underperforming stock that it pains you to watch? You could ride it to the bottom or cash in & take the loss on your bottom line at tax time.
- Performing stocks are also good if you don't have to liquidate the entire performing investment.
- CDs, Mutual funds, assets that won't trigger a tax implication are usually good options; the old: car, antique, jewelry, etc. collecting dust are also good options as long as they're yours alone to sell.
Raid the "rainy day fund":
Yes, I am a realtor. I will always have a good reason to buy a property. However, if you rent, there are few reasons to not bite the bullet & own if you care about building your wealth. If my little brother who doesn't give 2 sh*ts about all the warm & fuzzies of owning a home can nearly double the value of his & walk away with a ton of profit in under 7 years, you can too. If you can't get 20% together, should you still buy? YES! Buy with 15, 10 or 5% down and know you'll have a little less risk tolerance than if you had 20%.
2. Stay awhile. Really.
I tell my buyers try to stay at least 5 years. It takes about that long to recoup the money you spend during the purchase on: closing costs, inspection costs, moving, personalizing, etc. BEFORE you cozy up to the new digs, please do your homework! Ask:
- What the neighbors/neighborhood are like- Think of the changes in Arcadia & Arcadia "Lite", McCormick Ranch, North Central Phoenix, Sunnyslope & many other areas in the last 5 years. If you aren't familiar with the area around a home you're considering, please go spend time there.
- The proximity to work, the things you enjoy doing, other obligations (i.e. kids' schools, grandma's house); There are new freeways popping up all over the Valley, but I won't recommend anyone living in Buckeye or Avondale commute to Scottsdale Airpark. You could, but how much do you really enjoy driving.
- If the house has what you NEED to be comfortable. If you work nights and there are 30 skylights in your bedroom, is that OK?? Really?! I exaggerate, but you get the picture.
- Will you enjoy being there? If dinner/Superbowl/bible study parties are your thing, but the kitchen/living area/backyard suck, how will that affect you?
- What will it cost to fix said items that don't work for your lifestyle?
3. Do some work!
Roll up your sleeves. Even if you don't know a monkey wrench from an Allen wrench, you can still pay someone or (God forbid), learn. Pretty new homes eventually get wrinkles too. A home that needs a facelift if you're a pretty good make-up artist still benefits you. Reliable, quality contractors are hard to come by when the market is good, but it's still worth the wait if you need one.
Small improvements can make a BIG impact
- Energy improvements, like new thermostats, insulation, windows, doors, etc. reduce energy bills long-term and may offer tax credits too.
Big, planned improvements (major renovations) cost a lot, but may also pay big appreciation
- You may get a big discount- in pricey areas, it's a good rule of thumb to buy the shack on the block. It's most likely to appreciate up to its neighbors.
- Get several estimates BEFORE you buy, finish inspections & close; You do NOT want to underestimate the costs.
4. Get Money Smart.
Know your loan terms and understand what they mean. "Know before you owe" was created with educating consumers. An "informed" consumer is less likely to lose his shirt... That means know your loan terms:
- Adjustable? Short term rates are OK if your timeline is in sync with it.
- Interest only? Same as above, but be even more aware of these details. In fact, unless you consider yourself financially astute (& another person would agree), avoid this option.
- Follow rate trends & refinance if you can save. True story: My jumbo mortgage interest rate when we bought our home in 2009 was 6.5%. I was actually quoted in an article about how hard it was to get these loans. Today, it's 3.625%. Our home value has nearly doubled (appreciation & improvements), but our mortgage costs only a few hundred dollars more per month, despite being ~900SF larger than when we bought.
5. Stay Market Smart.
Know what's going on around you. Pay attention to what's happening: on your block, in your subdivision, school district, city, metro, etc.
What's going on around you?
If suddenly, there's a mass exodus or influx of residents, get with the program! Are there changes to:
- If the entire block has updated their exterior and you're the last one on the block with a decrepit roof, landscaping, etc., it's time to do some work. See #3.
Is there planned development nearby? What's the community impact?
- The new Ritz Carlton project in Paradise Valley on Scottsdale Rd between Indian Bend & Lincoln will be great... in a few years. In the meantime, nearby residents are dealing with construction congestion, dust, noise, etc.
- Same for 7th St "Restaurant Row" and other areas where light-rail expansion is planned or was completed.
Are there changes to neighborhood schools?
- In Creighton Elem. School District, they have higher taxes than nearby Scottsdale Unified (SUSD) or Madison Elem. Dist. This area includes homes west of 40th St. from Lincoln Dr. to Thomas Rd. Last fall, I took a buyer to see a home in Finisterre (Paradise Valley) & another comparably sized/priced home near 32nd St & Stanford. The Finisterre home (SUSD) had taxes under $9K. The other home had taxes closer to $15K!! SUSD residents were already paying budget overrides to benefit schools. Creighton was not. When teachers got pay increases (after almost nothing for a decade) the balance went to taxpayers. Ouch!
Is there pending litigation in the community?
- It happens. Occasionally HOAs sue developers for shoddy work or other things. That can slow down sales & property values.
- I've seen it at: Bella Vista (North Scottsdale), 8 Biltmore Estates Dr., Villages North and other communities (***all years ago; I'm not aware of any pending litigation today).
Is there pending legislation?
- If your community has lots of seasonal buyers who pay big bucks for nightly seasonal rentals, with HB-2672 ("Party house" bill addressing short-term rentals) looming, if most homes on the block are AirBnB properties that may suddenly sit empty, it may not be the spot for you if you'll reside full time.
- SB-1070 (Illegal Immigration) decimated our economy years ago. I don't care where on the political spectrum you fall, the impact to Arizona tourism, the economy, schools, etc. was awful and at an awful time during the "Great Recession". The point is to do the research and know what's coming, hence the purpose of this post...
For the last 4-5 years, my advice for my buyers, whether they listened or not (most did), was seek:
- a SFR, single-level, no interior steps, in a great location/school district (YES- EVEN IF YOU HAVE NO KIDS), near a variety of: amenities, transportation, employment options. That was a mouthful, but it was viable given our changing demographics!
- I don't care how cheap that 2-story down the street is. If you can't resell it quickly and don't plan to stay where you're living for a long time, it's not a good deal at all!
- And yes a bedroom/full bath, enclosed, covered parking & some sort of outdoor living space DOES make a difference in the value of a home.
I hope that wasn't too overwhelming... When in doubt, reach out and ask me. My loyal clients know I will give an honest answer every time, even it means I don't sell them that house. I won't steer you wrong because I prefer clients for life...
Happy house hunting!