Guest Post by Leonard Baron MBA, CPA, San Diego State University Lecturer | Tuesday May 17, 2011
So, you’re ready to enter the real estate market and you want a “Buying a House Checklist” to help you make better purchasing decisions. Smart.
You know that these are some of the largest decisions you will make in your lifetime, and they will have significant financial impacts on you for years to come. You also know that independent, unbiased information will be the most useful in helping you make smart, and safe purchasing decisions.
Unbiased Home Buying Information Does Exist
This independent information does exist, and the framework for making smart choices has not changed over the years. What has changed is the ability for the average real estate buyer to have the tools needed to do their homework, which is also called doing your “due diligence.”
One of the main decisions you’ll face is whether you should you even buy real estate in the first place, and what issues you should consider in the ultimate decision. Impacting your course of action are several key factors:
- How long you plan to own the property,
- Whether it is the right area and type of property for you;
- And how to determine the financial picture, so you can make sure you can afford the house and still pay all your other bills.
Don’t Buy A House Just to Trade Up In a Year or Two
For example, the old adage of buying a property to earn some equity, and then trade up in a few years really doesn’t apply in the current marketplace.
Experienced buyers know what the novice does not…. that the transaction costs on the buy and the sell wipe out any hope for equity gain if the property is not held for a minimum of five years.
Hence, if a buyer isn’t sure they are going to own the property a long time, they will most likely do better by renting and leaving all the expensive issues of ownership with their landlord. The truth is, renting is not necessarily throwing away money, but short term ownership typically does result in throwing money away!
When Buying a Home, Be Aware of the True Tax Effects
Other issues that a buyer would want to know relate to the true income tax impacts of real estate ownership, and whether or not a buyer will really get any tax benefits. Said another way, it’s important to understand the basics on how taxes work so you can make correct and better decisions. There is a Buying a House Checklist that you can download for free that covers this, and many other critical issues that an informed buyer should understand before they buy.
For example, further items to consider include:
- HOA financial analysis to lower the risk of higher HOA fees or special assessments,
- Property condition and inspection issues to help you understand the true costs of property rehabilitations and avoid potential money pits
- Title insurance and reviewing a plat or survey so you are sure you are getting what you believe you are getting and issues do not crop up after you close escrow
- Property and liability insurance so that if your house is damaged or you are sued, you have insurance coverage in place
- Many other items and issues that you should consider and think about when purchasing real estate.
Taking the time to use some unbiased information to help you make smarter choices can reduce the risk of something going wrong on your purchase, and hopefully lead to a smart and safe long term real estate experience.
You can download and review the Due Diligence Buying a Home Checklist from Leonard Baron’s website at no charge and with no log in required, under Chapter 1 at professorbaron.com.
Don’t skimp on protecting yourself on your largest purchase. Take the time, energy and effort to consider the real and significant issues with real estate ownership, and significantly lower your risks by making prudent choices that will last for years.
Leonard P. Baron, MBA, CPA, is a real estate lecturer at San Diego State University and author of Real Estate Ownership, Investment and Due Diligence 101 - A Smarter Way to Buy Real Estate.
Leonard is a long term residential real estate owner. He buys investment properties now, he does commercial real estate investment consulting at LPBServicesLLC.com – and he loves kicking the tires on a good piece of dirt!
You can find more information at ProfessorBaron.com.
Like what you've read? We pack some of our best insider know-how and savviest strategies into our free weekly emails.
Subscribe today and let us help you live a healthy, happy financial life.