Yesterday, a counterpoint frequent-visitor asked me, by commenting on my Is the Blame Game best played solitaire? article,
So tell me, should one buy a home in Phoenix right now if they know they have to sell it within three years?
To which I replied
Now is certainly a good time to buy in Phoenix… We’re enjoying a buyer’s market, which as you know means there are more sellers than buyers, and interest rates are still relatively low, as low as they’ve been since April, and at just over 6%, they’re in the zone of what we’ve come to expect over the past five years. I’m not talking about creative financing… I’m looking at 30-year fixed rates, which are actually too conservative for the typical home buyer, who doesn’t plan to live in the same house for 30 years.
If you’re going into an investment with the thought that you’ll have to sell it in three years, I’ll suggest that you talk the investment over, whether it be an investment in real estate, stocks, bonds, fine art, etc., with your financial advisor. And then, if you are satisfied that you can afford to invest in anything that doesn’t have a guaranteed return, that is if you can afford to take on some risk, I will be honored to help you find a home that is likely to appreciate over the next three years, where you should end up selling for a profit after costs. (And, you weren’t paying rent over those three years.) Of course, whenever you consider investments, there’s always risk – risk of being too aggressive or risk of being too conservative then kicking yourself down the road because you didn’t take advantage of that golden opportunity…
But in real life most people don’t buy their homes knowing going in that they’ll have to sell in three years. Most people buy homes with plans to, well, make homes of them.
Today, Free The Drones points to CNN’s Asset Allocator calculator, which — to no one’s surprise — puts the minimum time frame to cash out in the 3 – 5 year range. I suspect/hope that Ms. CarefulWithNumbers is truly careful enough with her own numbers, when planning for her own future, that she already knew this answer, and tossed me the hypothesis only to bait me. But, this is an important point: If you are buying real estate as an investment, look at this calculator and realize that real estate, like most investments, is a long-term investment. If you’re buying a home to live in, however, the investment factor, while a very real and important one, usually takes a back seat to picturing yourself and your loved ones in your very own castle, be it ever so humble. No place like it.
Technorati Tags: arizona, arizona real estate, phoenix, phoenix real estate, investment, investing
Todd Tarson says:
There are two different kind of buying clients.
One wants a home to live in and call their own. They want a big living room to put the entertainment center in with the new fangled tv to catch all the NFL games on Sunday’s (actually thats me but I know of other people who do such things).
The other wants to make money in a future transaction. I call them investors. I yield to investors when I transact for them. They make the decisions based on what they know of the market and their best guess of what the market has in store for them in the future.
My point is that I never tell either client that a particular home or property is a good investment. I do point out features that fit their criteria, to where I can lend my expertise. But to call a property a good investment never comes out of my mouth when I’m wearing my realtor hat.
I do my best to conjure up an image to the buyer by saying that this would be a fine place for a couple of beers watching football on the weekends, or that with some touching up here or there the value of the home could be increased to match whatever improvements might be needed.
The conversation is “what are the reasons that would lead you to buy THIS property?” Then the key is to listen and identify a property that fits whatever criteria that is.
It’s a softening market compared to 04 and 05, yeah we get that, but it’s not a reason to panic. It’s simply a reason to be mindful of the current conditions and adjust accordingly.
August 8, 2006 — 4:45 pm
Cathleen Collins says:
Precisely, Todd. Thanks for adding your two-cents. As Realtors, our job is to help our clients satisfy their real estate goals, whatever they define those to be. We are agents who facilitate a process and add value while doing so.
August 8, 2006 — 5:34 pm
sold 2004, now renting: says:
Actually, no. You are not in agreement. What Todd said and what Cathleen said are not the same.
Todd said: “My point is that I never tell either client that a particular home or property is a good investment. I do point out features that fit their criteria, to where I can lend my expertise. But to call a property a good investment never comes out of my mouth when I’m wearing my realtor hat.”
Cathleen said: “Now is certainly a good time to buy in Phoenix.”
Todd is defining the role of the realtor as a matchmaker. He is matching a buyer to a house that fits his criteria, without regard to price or market conditions.
Cathleen is actually asserting that the current market conditions are favorable to the buyer. Which is another way of saying, it’s a good time to buy a house.
If Cathleen wishes to adopt Todd’s philosophy, she should amend her remarks to say: “Now may or may not be a good time to buy in Phoenix. Whenever you see a market zoom up 50% in one year, especially after several consecutive years of strong appreciation, you should be alert to the possibility of a correction. Perhaps a significant correction. So buyer beware… If, however, you have made a considered decision to buy, without my attempting to persuade you now is a ‘good time’ to buy, I will do my best to find you the right home.”
August 9, 2006 — 8:20 pm