How to Avoid a $300,000 Regret

Written by Posted On Monday, 22 May 2017 08:47

Ever spent $300,000 you regret?  Don’t do that. 

A home is the most expensive purchase most of us will ever make.  Despite the enormity of situation most purchases end with some level of regret.  Don’t let it be an expensive lesson.  To combat this I’ve created a simple but thorough list of strategies to avoid buyer’s remorse.  There are 3 ways:

1.  Make a needs and wants list.

Translation: know what you need before you start looking.  The best way to determine what you need is to look at what you do daily.  Do you need to move to a different neighborhood to cut down on transportation time, or do you just like the look of homes in that area?  Do you need more space for a growing family or do you just want a larger house to keep up with friends?   Understand what is driving your decision to buy and you’ll understand needs vs wants.  Do you need a larger kitchen because you like to entertain or because you saw a nice Viking range on Pinterest.  Here are a couple key questions to define what you need in a home:

Do you need a new house? – There should be a one sentence reason to justify the purchase. 

What is your price range?

How many bedrooms and bathrooms do you need?

How much area do you need inside?  Outside?

What do you need in the kitchen/dining areas?

How large of a living area do you need?  Do you need multiple living areas?

How much time/effort/money are you willing to spend if the house you want isn’t perfect? 

Be honest with your skills and budget.  Let’s say you want new wood flooring and you want to install it yourself.  Budget for a contractor to install it just in case you decide to give up after installing 10 square feet (it’s never as easy as it looks).  If you want new paint, flooring and a remodeled kitchen then a $20k budget likely won’t be enough.  You’d be surprised how many people look at material costs online and think they’ve got everything covered.  In reality they’ve got it half covered.  Want a room ½ carpeted?  You’re not in college anymore.

Only look at homes in your price range.  If you look at any homes outside your price range then you’re in clear violation of rule #1 because you don’t have a clear understanding of what you need.  This doesn’t mean be cheap or that you’ve got to find a steal.  But simply that you should have a firm price ceiling, thus avoiding potential financial difficulties.   For example, if a married couple purchases a home that requires both members to be employed at their max value to cover the mortgage then the home is too expensive.  What if someone gets laid off?  Or is in an accident or sick?  If either happen then the house payment is now a burden.  This is how the vicious cycle of foreclosure happens to most people. They over extend themselves financially and are left with few options and none are good.  By avoiding homes out of your price range you are protecting yourself and your family from financial hardship.  According to the Huffington Post 6% of home buyers wish they had borrowed less for their home.

Forget the idea of dream home.  This is marketing creation with the intention of driving home sales.  Companies use the term “dream” to romanticize the purchase of a home because they know people will spend more for their dream home.   This is capitalism at its finest but now you see right through it.  In reality it’s a place where you and your family will live.  Referring to it as a “dream” also implies an expectation of perfection.  Your house won’t be perfect regardless of budget. 

Get out your calculator.  Make sure you understand the costs of home ownership.  There are more costs than just the mortgage.  Is there an HOA and if so what is the monthly payment?  How much are utilities?  Property taxes?  Insurance?  These are all hidden costs that should be understood prior to buying a home.  “A dream home becomes a nightmare the moment you can't afford it.” – Bethany Lyttle, Forbes

Understand loan amortization.  With a conventional mortgage (5% down, 5% fixed interest, 30 year term) you will pay almost 2X the original loan amount.  And you’ll be paying more interest than principle for at least the first 15 years

2.  Don’t be desperate.

Desperation is a stinky cologne.” This is one of the most eloquent lines in the history of cinema.  Ok, that’s an exaggeration but the lesson can apply to every aspect of life.  Translation: don’t make emotional decisions.  Here are a couple ways to avoid making an emotional decision when buying a home:

Don’t try to win.  In a seller’s market like Austin there are multiple offers and times when houses sell in hours.  That’s the case with limited inventory.  As long as you understand this, you’ll be fine.  According to Brendan DeSimone of Houlihan Lawrence in competitive bidding situations, “a buyer just wants to win.”  Meaning they’ve allowed their ego into the process and are willing to break predefined rules just to be the victor.  If you encounter this please take time to evaluate the house from a different point of view.  Make sure it satisfies your needs and you aren’t overextended

Don’t allow yourself to be pressured into buying.  In 2014 I made my first steps into real estate by looking for investment property with an agent in Dallas.  I had no idea what I was doing but that’s why I had an agent right?  After seeing 3-4 homes I found one that had some potential but I wasn’t sold.  So I decided to pass.  But the agent, who I thought was acting in my best interest, was convinced this was the property for me.  We sat down at Starbucks and she said, “you need to buy this house.”  When I said no repeatedly she then told me she would tell her investor clients to buy it.  So I told her they can have it.  But I learned an important lesson that day and it’s when to run.  I never spoke to her again.  She was more concerned with making the sale than representing me.  Also, avoid unsolicited advice from friends and family unless they’re trusted experts.  Owning a home doesn’t make you an expert but try telling this to your nosey aunt.  Remember, you have the final say in the transaction so don’t allow external forces to sway your decision. 

Stop looking.  If you’ve found the one you want and have an accepted offer, stop looking.  Stop looking online too.  Buyer’s remorse is the only possible outcome if you keep looking.  Every day new houses are coming to the market and you’ll eventually suffer from analysis paralysis.  If you want to keep looking because the contract will fall through then it’s probably not the right place anyway.

Visit the house twice.  Ever had a fantastic idea at 2 am only to wake up and realize it was a complete dud?  Visiting a home twice, ideally at different times, will prevent this type of remorse.  As I mentioned above emotional states can affect our perceptions and influence our judgement.  For example, visit once in the morning and another time at sunset.

ALWAYS get your home inspected.  A certified home inspector has been in hundreds and possibly thousands of houses.  They’re going to see things your eyes will miss.  They’re going to spend hours climbing through every nook and cranny of the house.  If they don’t, fire them and get someone who will.  They should also provide a thorough report after the inspection. Read every word.  And ask questions to alleviate any uncertainties.  Don’t let unanswered questions keep you up at night. 

Acknowledge red flags.  Let’s say for example, the appraisal came in $30k less than asking price.  In simpler terms the bank is saying, loaning this amount of money is a bad idea.  Banks make thousands of loans and if they think it’s a bad idea then it probably is.  Also, if the deed isn’t clear this is a red flag.  Your title company should help you navigate through any title issues.  Same for the survey.  If they’re not answering your questions then fire them too.  Title companies are everywhere and most aren’t great.  So don’t be afraid to make a change.  If you throw a rock in most cities, you’ll hit a title company.

3.  Trust your intuition. 

Our subconscious, has more computing power than our intellect.  The hard part is listening to your inner voice amidst all the noise.  Remember your know it all aunt and the pushy agent?  They are not in the best position to make a decision for you.  But your subconscious knows exactly what you want, all you need to do is listen.   This doesn’t mean make hasty decisions but instead recognize your needs over the others.  Your aunt doesn’t have to live there.  In 2014 I trusted my intuition and didn’t buy the house.  I’ve never regretted it. 

Now go forth and buy on your terms.

 

 

Sources

http://www.huffingtonpost.com/jed-kolko/real-estate-regret_b_3102664.html

https://www.pinterest.com/vikingrange/

https://www.forbes.com/sites/forbeslifestyle/2012/08/29/how-to-decide-if-a-home-is-right-for-you/#197a86e01540

http://library.hsh.com/articles/ask-the-expert/when-will-i-begin-paying-more-principal-than-interest.html

https://www.youtube.com/watch?v=QyAgWQqL-bE 

http://www.houlihanlawrence.com/offices/Bedford

https://www.zillow.com/blog/avoid-home-buyers-remorse-120913/

http://www.logichomesolutions.com/blog/when-to-sell-your-austin-house-fast/

https://en.wikipedia.org/wiki/Analysis_paralysis

https://qz.com/880678/intuition-is-more-powerful-than-intellect/?utm_source=qzfbarchive

https://www.thebalance.com/how-to-avoid-home-buyer-s-remorse-1797771

https://www.thebalance.com/find-right-house-1798317

http://www.investopedia.com/articles/mortgage-real-estate/09/buy-house-emotion-free.asp?lgl=myfinance-layout 

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Chris McIntyre

Founder of Logic Home Solutions based in Austin, TX. 

We are local home buyers dedicated to helping people find the best result, regardless of the situation, when it comes to selling their homes.  

As investors we do deals ourselves and we broker deals for others. We love helping fellow investors acquire quality assets. If you are looking to buy or sell property we can help.

 

www.logichomesolutions.com/

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