There are many factors to consider to minimize the break-even timeline on your home and climb the stairway to appreciation. Last week, we took a quick and dirty look at how to calculate how long you “should” live in your home before you sell (I say “should” with an eye roll because we know how I feel about “their” rules.). If you missed last week’s article, you can find it HERE.
This week, we are reviewing factors to shorten that timeline to break even when making a home purchase or home improvements. Even if you have been in your home for a hot minute, it can be helpful to review how the home you chose fits into this framework.
So what can you do to protect yourself and hopefully break even or even make a profit on your home?
Here are some strategies to keep in mind to speed up your break-even time frame and make home ownership a financial plus for you.
Pick the right location
This has a HUGE impact on your home’s appreciation. Think carefully about the neighborhood, street, and community where your home is situated. Is it an up and coming neighborhood? Or one moving in the opposite direction? Has it withstood the test of recent time?
When you drive the neighborhood, are the yards maintained? Are there people out and about enjoying the sunny day? (Well, let’s pretend its sunny, okay?) Are the nearby store fronts occupied or vacant? Are the basic life necessities within easy reach – groceries? the pharmacy? restaurants? childcare or schools?
It is important to consider the resale value of your home. The home’s ability to hold and increase its value is critical to crossing that break-even threshold. Picking your location is your first step to climb the stairway to appreciation!
Avoid buying the best home on the street
This type of home may never appreciate as much as you would like because of the lower value surrounding homes (which benefit from yours!). Generally, the best home in the neighborhood has its value dragged down by the homes around it.
I caveat this proclamation with a note that there are some instances where this does not apply. E.g. buying an early tear down new construction in a neighborhood that will see similar future activity. There is opportunity here if the neighborhood will continue to turnover and improve.
Hello to those people who bought a tear down in the City of Plymouth in the early- or mid-2000s. Those owners are now sitting on giant theoretical piles of money! (I’m picturing Scrooge McDuck swimming around in his vault of gold coins, and now you are, too!)
Additionally, there are times where you decide it is worth it to you to buy the best home on the street because of quality of life or other factors. This choice is just fine if it is the right one for you, as long as you are making it consciously and with your eyes wide open.
Look at appreciation values over several years
Look at the neighborhood to get a sense of its value stability and long-term patterns. Are home prices rising over time?
You can find out the average appreciation rate from your neighborhood-friendly Realtor. Real estate agents have access to lots of statistics that we can tune in to be hyper-local for your home.
We can use historical data (spreadsheets and charts, YES!!!) to help you determine if a home will help you climb the stairway to appreciation!
Avoid being house poor
You won’t want to overspend on your home since it may affect your ability to buy your next home or make other major financial decisions. You’ll build up equity faster with a smaller loan.
If you can’t put down a large down payment, consider buying a home where you can afford a smaller loan. You don’t want the bank to own more of your home than you do for a longer time than necessary if you are thinking you will want to move in a few years.
Now, remember, I give the opposite advice if you are buying your “forever, never leaving, sprinkle my ashes in the backyard” home. Get that big loan at a locked-in rate with your future discount (remember The Mathematician’s explanation?) and then do other things with the money you didn’t put into the house — i.e. retirement funds, stocks, more real estate, Corvettes (just kidding!). If interest rates drop, REFINANCE, RINSE, REPEAT.
Make improvements to the property
Find the sweet spot in making necessary and pleasing updates without overspending. You want to get some return on your investment! Kitchens and bathrooms are almost always great bang for your buck.
If you are thinking of selling in the near future, I always advise sellers to make their updates in the theme of “the most vanilla Property Brothers mass appeal”. Make your personalized touches easily changed – such as paint or accessories or funky cabinet pulls or ridiculous shower curtains. You can still love it, and so will everyone else.
Now, if you are going to be in your home for awhile and a sauna will just make your life AH-MAZING, then go ahead and get the sauna. Sometimes there is no monetary value on enjoying your home! The sauna won’t pay for itself in appreciated value, but it may pay for itself if it helps you de-stress at the end of a crappy day for the next 5-7 years! (The Mathematician is really singing this song right now, and I am starting to hum along to his tune.)
Qualify for a low interest rate
The lower your mortgage rate, the less you’ll pay toward the interest and the sooner you’ll be owning your home free and clear. This one is a throw back to having awesome credit! It’s still important! (Yep, broken record over here.)
Climbing the Stairway to Appreciation
Whether you have lived in your home a few years or a lifetime, I’d love to help you when it comes time to move.
In the meantime, I am your go-to resource for all real estate-related questions and concerns. I’m always happy to be a sounding board or sympathetic ear.
Thanks for reading about climbing the stairway to appreciation and see you next week!
NOTE: I am not a financial planner or analyst in any way, shape or form. My articles are written for enjoyment and informational purposes only. You should always seek out a certified professional for assistance with making decisions that pertain specifically to you.
