Congratulations! The journey towards owning a home can indeed be thrilling, yet arduous. From navigating through an array of houses until you find ‘the one’, to understanding the economic nuances, the journey can be overwhelming. Nevertheless, the quest of finding the perfect home – your sanctuary – amidst the ‘almost rights’, is what makes it an exhilarating ride.
To aid you through this expedition, I share three crucial considerations. Equip yourself with this knowledge and determine whether you are driving the bargain of a lifetime for your dream home or simply being hoodwinked.
1. Understand the Price to Rent (P/R) Ratio: Before setting foot on a property, I make it a point to study the P/R ratio. What is it? Simply put, it compares the cost of owning a home against the cost of renting it annually. For instance, if a house valued at $200,000 has a P/R ratio of 14, it implies that the house would fetch a monthly rent of approximately $1,190.48. While the figure may seem on the higher side unless the location is exceptional, further calculations can reveal owning the property to be profitable. With a return on buying equating to 6-8% which is just below the return from small company stocks and mutual funds (after inflation), it makes for a smart choice. And to make it easier – a P/R ratio under 15 is usually a thumbs up.
2. Guard against Scams: Deceptive practices while buying a house; that’s just a myth, right? Actually, no. Home-flipping scams are on the rise. Houses are deliberately overvalued for sale to unsuspecting buyers. The recent dip in property prices unfortunately fuelled this malpractice as some individuals found an opportunity to profit manifold. While real estate professionals and those well-versed with the economic workings can spot such deceitful plots, an ordinary, enthusiastic home buyer often becomes an easy prey. Therefore, thorough research is paramount, especially when dealing with independent owners or small-time real estate agents.
3. Comparing Houses: Here is a straightforward way to discern if a deal is worth grabbing. Refer to the list of other similar properties in the area provided by your real estate agent. Although sometimes it might be overlooked, it remains a valuable tool. It discloses the pricing trends considering factors like additional space, views or upgrades the house possesses. It serves as a benchmark while assessing the value of a house.
With a multitude of elements to consider while choosing a house, recall these three financial aspects to ensure you haven’t overlooked anything. Here’s to hoping that your quest for a perfect home culminates in a deal you’ve always yearned for.
