In real estate, we think of first-time buyers as the most green among us. This includes me and any agent–we were all once new buyers. First timers are the people who totally don’t know what they don’t know! Don’t even think of remodeling until you’ve lived in your home for a spell–give it minimum six months to a year before you think of making costly changes. And, there’s more to any house than meets the eye, even if it passes inspection. Houses are as quirky as their human builders. Here are a few things to watch out for as you enter the real-estate market for the first time:
- Spending lots of money making changes before moving in. If you have lots of reserve cash, and have purchased beneath your spending potential, this is probably okay. Not great, but at least you won’t hurt yourself too badly. (See The Money Pit) The best thing you can do is live with the situation until you fully understand the impact of potential changes and how to maximize the benefits of said changes. For example, if you rush in and change the kitchen, you may not realize that the floor of the entire downstairs needs an upgrade, which is an easy add on, compared to starting a new job several months later.
- Make large purchases within the first six months after buying a home. It may sound fun to get a new refrigerator, appliances and windows, but in truth, having a cushion as you transition into home ownership is critical. Unfortunately, there are numerous unforeseen emergency expenses that a homeowner may incur: storm damage, earthquakes, fires and flood damage may all have large insurance gaps that owners have to cover before the policy kicks in. Heaven forbid one squanders reserves on non-essentials improvements.
- Cancel their home-warranty plan to soon, especially on a home that is older than thirty years. Keep that policy in place for at least the first five years, especially if you’ve moved to a new area. The main reason for this is that when moving to a new area, homeowners may not know service providers, making repairs and emergencies more challenging than necessary. However, with a home-warranty policy in place, a service call is provided at a modest fixed rate and provides a local contractor an important opportunity to gain a new client. Better safe than sorry!
- New construction on the grounds or addition to the property. Again, such large expenses may make a new buyer vulnerable to market fluctuations and local problems. They say, “You don’t know what you don’t know” for a reason. Construction and remodeling can literally unearth unexpected problems that can delay a project or add expenses. Anything that creates a risk against maintaining your main home and good credit should be avoided. If it’s not an investment property, best to act with the upmost care and deliberation to secure this important asset.
- Buying a new car to go with your new house. Again, this is simply a big-ticket item that uses cash reserves and may add to your monthly expenses. Don’t lose your house because you want to show off with a new car. A house generally earns equity and provides shelter and safety. This asset is worth the wait for a new car, especially if you can give it to the next generation.
- Sending in late payments. While this may seem sound, because it extends the amount of time the money is in your account, a homeowner could hurt their credit rating unintentionally. This can make a huge difference if you find you need to refinance or pivot because of unforeseen circumstances, which are myriad in our society. Anything from job changes, aging parents or natural disaster may require you to be agile and credit-worthy. Don’t risk losing access to borrowing by paying your bills on time.
- Buying a fixer-upper that is beyond their ability to fix. Unless one of the buyers is a contractor and knows how to fix houses, labor and building materials can get rather expensive. Best not to count on cheap DIY projects. Mostly, they don’t exist, unless you’re doing garden work and a tree house for your children. Walk around in a hardware store and price things like lumber, tile and supplies for basic remodeling. Add it up by the square foot and calculate how much it costs, not including labor. If you have enough, you must also factor in how long it takes to complete a project if you only work weekends. There’s a reason this work gets expensive: Most jobs requires a crew of two-or more people for several days if not weeks, and work like tiling, is highly skilled, unless you don’t mind crooked tiles for the next 20 years.
There’s so much about your new home you couldn’t possibly know yet. Whatever it is, live with it until you really understand your new place. This is true even if you have buckets of reserve cash on hand. A wise choice is one without regrets.
Karma Compass 