Leveraging the most from your real estate investment... Many homeowners recently have realized more financial gain from the homes they live in than they have from their stock portfolios. Thanks to several sequential years of rapidly rising home prices, homeowners in many cases have seen their net worth rise even though their stock market portfolio values declined.
Now, many experts are predicting that the rate of home price appreciation will wane as interest rates rise and the real estate market settles into a more balanced market. A balanced market is one that doesn't overwhelmingly favor either the buyer or seller.
During the first quarter of 2005, the national median existing single-family home price was up 9.7 percent from the first quarter of 2004, according to the National Association of Realtors. In a balanced market, you're more likely to find an annual home price appreciation rate in the 4 to 5 percent range.
When real estate markets change, you can actually lose money on your home if you have to sell soon after buying. This can occur even though home prices are still appreciating, but at a lower rate.
Suppose you purchased your home in its "as is" condition, and it needed a lot of work. In areas that experienced a strong seller's market, buyers often made "as is" offers in order to be competitive.
Real estate markets are cyclical, so you can't always count on home price appreciation to improve the value of your investment. You could experience several years of rapid appreciation followed by years of low or no appreciation.
HOUSE HUNTING TIP: To preserve and enhance the value of your real estate investment, it's wise to cure deferred maintenance, establish a good regime of ongoing home maintenance and make value-adding improvements to the property.
The best time to tackle deferred maintenance is as soon as possible after title to the property is transferred into your name. This may be difficult for buyers who stretched to their financial limit in order to buy. If you have no resources that you can tap immediately for home improvement projects, establish a budget and a plan to take care of necessary work over time.
It might help to ask your home inspector to prioritize the defects listed in his report in terms of how quickly repairs should be made. If you can't afford to correct all the deferred maintenance at once, at least you'll know which items to concentrate on first.
It's natural to want to spend money on making your home look pretty. But, don't make the mistake of overlooking defects that will diminish the value of your home when you sell. Even though you may have purchased your home "as is" regarding a poor drainage system or a rotted deck, a future buyer may not be willing to overlook these defects.
Serious drainage, foundation and wood pest problems should not be neglected. Some problems will become worse--and more expensive to correct--over time. Unless you're selling in a very strong seller's market, you'll probably have to subtract the cost of overlooked repairs from your equity when you sell. From an investment standpoint, it's risky to make major improvements to your home unless the infrastructure is sound.
When you do get around to making improvements to add value to your home, make sure to do your homework first. Over-improving your home for the neighborhood is likely to cost you more money than you make.
THE CLOSING: Before making a major investment in improvements, consult with a real estate professional. Find out if the changes you have in mind will actually add market value to your home.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Article courtesy of
InMan News through our agreement with Advanced Access and
PhoenixHomes.com.
