Thank you to Jeff Groon for the question on my Facebook page. Being the Director of Financial Aid at the Wharton School of Business, Jeff is a smart guy who knows the investment world and how to manage money, but even seasoned professionals need to be reminded of the perennial truths of homeownership. Never being at a loss for words, I’m happy to weigh in! LOL.
Going back as far as I can remember, there has been this image of a modest house in the post WW2 era. It shows a white picket fence, dog running in the yard, father washing the car, mother planting flowers and kids playing out back. But what was this image trying to convey? For me, it depicts the “American Dream” and represents freedom, accountability, discipline, and success. But what does that picture look like now? Has it changed?
Absolutely! Now, I will be the first to admit that our financial lives are more complicated these days. However, the idea of homeownership and its viability has not really changed, but what HAS changed is the way we approach it. Below I have outlined strategies that have worked for a very long time, but perhaps forgotten:
Additional Principal Payments
When you get a mortgage, the bank lays out a plan of repayment, but remember this: IT’S THEIR PLAN, NOT YOURS! Too many homeowners get their mortgage bill, write a check for the amount shown and go spend the rest somewhere else. (Target perhaps?) Do you make only the minimum payment on your credit card? If not, why only make the minimum payment on your mortgage? Banks make their money from people following their payment plans! I personally feel terrific when I add extra to my payment! Paying more than what you’re supposed to builds equity interest-free and shortens the life of your loan. Financial guru, Dave Ramsey, states that “your grass feels different under your feet when you’ve paid off your mortgage”. That feeling he’s talking about is FREEDOM and every additional dollar gets you that much closer! It also has an added benefit of saving you boatloads on interest! Go ahead…disappoint your bank every month by paying more than they ask!
Many homeowners get what I call “Pinterested” or “HGTV’d”. Every Saturday morning, homeowners flock to their local Home Depot to reproduce what they’ve seen online or on TV. Once complete, they stand back and congratulate themselves for their DIY project and start calculating how much they’ve increased the value of their home. Here’s the thing though: Most improvements don’t add nearly as much value to the home as homeowners think. Yes, even kitchens and baths…. To be safe, one should talk to a professional real estate agent to find out what improvements have attracted top dollar in their neighborhood. Even then, you must complete these upgrades in a manner that are desirable to as many homebuyers as possible. (Note: You can actually reduce the value of your home by doing this wrong.) If you’re itching to put money back into your home, you might wanna simply send it to your bank in the form of an added principal payment that we talked about above. An over-improved home is one of the biggest problems I see in the marketplace and leads to some tense conversations between realtors and homeowners when they go to sell.
If you decide to purchase, buyers should always think about whether their house will be attractive to a large swath of buyers in the future. Your home should appreciate in value regardless, but in a shorter term, this needs to be carefully considered. Pay special attention to this suggestion if your “thing” is high-end, exotic or specialty properties since they are the first to become undesirable in a soured market or fall out of favor with buyers in the long run. After all, if you buy a unique property, usually that means you will need a unique buyer and require patience. If the answer to this question is an educated “yes”, you are most likely on your way to making a solid real estate investment, especially if the goal is to stay put for a number of years.
KEEP IT SIMPLE. With homeownership, the “tried and true” methods of the past still work! Get in the house at a decent price, maintain it well & wisely, make necessary upgrades and pay it off early. It’s not super sexy and will require discipline, but hey…you can always rent and pay someone else’s mortgage for the rest of your life!
I would be happy to showcase your question in my next installment. Go ahead…Ask me anything or leave a comment in the section below!
Seth Lejeune – 610.804.2104 – firstname.lastname@example.org / Berkshire Hathaway – Fox & Roach
Seth is a licensed REALTOR and small business owner based in Collegeville, Pennsylvania.