One of the questions we get asked the most in this business is, “Is this the good time to buy?” The askers are, of course, referring to the real estate market in general. Are prices on their way up or down? What is happening with interest rates? Buyers get very concerned about the macro real estate market. While the overall market is important, the better question to ask is, “Is this a good time for me to buy?”
My first response is: “How long are you planning to live at your next address?” If the answer is less than 5 years, then you probably shouldn’t buy. Real estate markets fluctuate, and when you need to move the next time, you may need to do so relatively quickly. Your best hedge against price fluctuations is to have a decent amount of equity in your property and give a reasonable amount of time for some appreciation to have taken place. Five years is the minimum, in my view, and ten is even better. If you are recently out of grad school, that’s a bad time to buy. Just landed a sweet gig at a local tech firm? Perfect. Just find that secret back way to the Google Bus stop and you’re all set!
Having a Plan B for you new home can help with this as well. Maybe you think you will only be somewhere for two or three years, but you were planning on having some rental property someday anyway. If you are ready to take on being a landlord at some point, then that will also help you hedge your bets against the vagaries of the real estate. Rental property is a great way to diversify your stock-heavy portfolio.
Second question: Do you need a tax break? Now that you’ve got that high-paying job that has given you the wherewithal to buy, I bet you’ve also noticed that you are in a magical new tax bracket called “much higher.” If you are looking for write-offs, one of the biggest and best is the Mortgage Interest Tax Deduction. You also get a deduction on your property taxes.
I have a recent client who was paying $3,600 a month for a bottom floor, two-bedroom unit in Cole Valley (cute but dark and cold). He just closed on an $875,000 house in Potrero Hill. (Yay! Sunshine!) His mortgage, taxes and insurance total about $4,600, but he will also be getting a tax benefit in the neighborhood of $1,000. So now he owns his bright, sunny house for the same monthly expense as he was paying in rent. With rents in the Bay Area on the rise, it’s worth considering if that inflated monthly payment should be going to your landlord’s retirement fund or to your own long-term retirement planning.
Next up, are you going to squeeze out or bring home any kids in the next couple of years? That’s an important time to think about moving up. Family planning is usually something that one or more spouses are not willing to leave to the whims of the real estate market. A pregnant woman is generally not one to wait for the next dip or spike in the real estate cycle. When adoptions go through, that can be entirely on their own schedule. You will either want to be prepared, or you’ll be hustling to figure things out.
This last question is so obvious that it is often missed in plain sight: Do you want to be a homeowner? Along with all the practical considerations of taxes, kids, and jobs, buying a home is a lifestyle choice. It’s a different stage of life than being a renter. You don’t have to deal with a landlord anymore, but there’s also no one to call when the toilet backs up. You are taking on something big, something new and something that will be all yours. That is both exciting and terrifying. At some point, when you are ready to buy, it will be more the former than the latter. It will be time for you to say, “This place is mine,” and have it feel overwhelming, unbelievable and, most of all, wonderful.
Taylor Sublett, a life-long Bay Area resident who now resides in the East Bay, has been selling residential real estate since 2007. He was top producer of his office for 2013 and is a tough, but fair, negotiator who likes to work out solutions that make for win-win situations. Find out by contacting him at firstname.lastname@example.org or 510-301-9569.