We all think we can spot a great deal in a home. But a great back yard does not necessarily mean it’s a good buy. Here are the simplest ways, from a financial standpoint, to determine if purchasing that home is a good idea or not.
1.) Value. There are many ways to decide if a home is valuable or not for a certain price. Compared to competing homes in the same price range, does this house have more square footage? Is it closer to schools and public transportation? Does it contain energy efficient appliances? If you are looking to renovate it, will the price of renovation still be less than what the home would cost complete?
2.) Appreciation. By appreciation, we mean that in 20 years this property will be worth more than what it is now. It can be tricky, because many times you can get a great deal on the house because it is in a depreciating neighborhood. Maybe people are moving out to find work elsewhere, or the schools in the area have gone downhill. You want to make sure you are purchasing a home in a neighborhood that will have good things going for it for years to come.
But you’re no fortune teller. Many things could happen (a giant tornado could come by and destroy the entire neighborhood) that are completely out of your control. You can, however, do your research. Research market values from the last 10 years; have house prices been going up or down in this neighborhood? What about the crime rate? When people move in, do they generally stay for 5 years or 20? An exclusive neighborhood is often a very good one to get into when you can.
3.) Profit. Even though there are countless other reasons to buy a home (you want to settle down, the time feels right, you’re sick of renting, etc.), the financial reasons for buying a home are simple: to make a profit. So what are you going to use the house for? If you’re planning on using it as a rental property, you’ll have to look at who will be renting it in this particular neighborhood. College students make for easy renters, but some of them are often hard on a house, leaving you with many, many repairs when they move out. You’ll have to choose your tenants carefully.
And if you are planning on living in the house, how long will you be there? If you are planning on moving in the next 10 or 15 years for various reasons (to be closer to family, for a great job, just because you feel like it), you’re going to need to follow the above to tips to make sure you’ll be able to sell your home for a profit later down the line.