A new home is first, and foremost, a place for you and your family to live and enjoy. It should be comfortable, meet your needs and be something that you can take pride in. It also represents a very large investment. In many cases a home is the single largest investment that a person/couple will ever make. With this in mind, it only makes sense to ensure that your purchase of a home also represents a sound and secure investment value for your hard earned money.
Here are a few things to consider in order to make the most of your financial investment
First, decide whether home ownership is even right for you at this stage in your life
Home ownership is a major commitment, and as we will see later, it is best viewed within the context of a long-term investment. Frequent moves will eat into your equity with additional transaction costs in the form of real-estate commissions, transfer taxes, moving costs, and so on. For people who are unsettled about their future, and may be expecting to move in the near future, home ownership may not be best for them. Of course, life is never 100% certain, especially within the dynamic economic environment of the past several years, and delaying a purchase too long also carries a risk, in terms of lost time in the market, and missing the benefit of the current low interest rates. So the required level of certainty is really a personal judgement, but one that needs to be considered.
Decide what the most important attributes of a new home are for you.
Some people want an estate. For them a large expanse of land may provide them with the feeling of independence they desire. Others seek a more contemporary lifestyle – something that involves less commuting and smaller homes that in turn require less upkeep, freeing time to pursue different activities. Regardless, it is important to understand what suits your personality and what will truly make you happy. Given the long-term nature of a real-estate investment it is important to understand your core values in order to avoid costly mistakes chasing fads and/or whims.
Carefully consider where you want to live.
Perhaps the number one consideration related to home value and resale is, location. Not only are urban locations more valuable than suburban locations, prices in urban locations are more stable and generally do better during volatile times. In a report on the American home purchasing market in January of this year Zillow http://zillow.mediaroom.com/2016-01-29-As-Trends-Shift-Urban-Home-Values-Outpace-Those-in-the-Suburbs reported that;
“Urban home values are outpacing the value of homes in the suburbs in most top-tier metros, as city life gains popularity”
But its not just current trends that provide pricing support for urban homes over their suburban counterparts. Straight forward supply and demand economics ensure that more scarce urban properties will provide greater price support than the virtually unlimited supply of homes does for prices in suburban neighbourhoods.
Determine whether you want a new home, or if resale will do.
New homes offer at least three important advantages that need to be understood. First, new homes incorporate the latest building codes and technology. For example; older homes were usually framed with 2×4 lumber, limiting the amount of insulation, and resulting energy efficiency of these homes. Recent building codes have, however, gone beyond simple energy efficiency and also address healthy home issues. Consider a recent building code change that requires integrated HRV units in order to better manage indoor air quality and reduce the risk of mould and mildew. These new requirements contribute to healthier, as well as more energy efficient homes, that will add to your savings and well being over the longer term. New homes also eliminate the need to spend time and money on costly maintenance in the short and medium term. You avoid having to invest in furnace replacements, or upgrades as well as roofing, windows, and other home maintenance until well into the future.
Certainly don’t undertake a purchase beyond your financial means, but also, make sure that you don’t get caught up in a customization frenzy. Doing so can result in too much money being spent on features that don’t add value to the investment, and ironically, often don’t even add pleasure to the experience of your home ownership. As builders, we often encounter clients who understandably want to create the house of their dreams. In their enthusiasm, however, they often fixate on details that consume more time, energy and money than they are worth. From an investment perspective, it is important to prioritize within the context of features that have a proven impact on resale value and to set a firm budget in the process. It is amazing how, upgrades and other changes can get out of hand and really add surprising amounts to the total cost. Last year the Ottawa Citizen published an article on home upgrades that added the most to a home’s resale value. They also provided some other related advice worth noting;
“If you have a yen for the exotic, exercise it with your furnishings, not your house.”
In other words, take care not to over personalize the design and finishes to such an extent that you severely limit the future market for your home. Finally, avoid the somewhat dated trend towards McMansion homes. Large homes generally are not designed with efficiency in mind, and result in a lot of wasted space that adds to the purchase and furnishing costs as well as operating costs such as heating, air conditioning, lighting and taxes – none of which contribute to the value of the home.
Deal with a builder that you trust and is noted for fine finishes.
Again, you don’t want them to build in over-the-top finishes, but you want quality. Quality finishes speak volumes about the value of a home, and in fact the National Association of Realtors reported that brick siding, for example, adds 6% to the resale value of a home over a similar home with high-end vinyl siding! So avoid builders and homes that are in the habit of finishing the majority of all their homes in vinyl siding, or cheap flooring. It likely also says something of how the bones of the home were put together. Check out details that you can, like caulking. This is one area that many builders do the minimum of what is required, because it is a detail that most buyers won’t notice, and the results of poor workmanship won’t likely surface until after the warranty period is over. We take a very different perspective. In fact, after our homes are completed we do another round of caulking to ensure everything is properly sealed to keep moisture and bugs out of your house. It is an important detail that only costs us time, but it will mean a lot to the purchaser several years in the future.
Avoid condominium towers.
I know that this is a strong statement. There may be reasons that purchasing a condominium works best for you, but from a purely financial investment perspective, they are generally less desirable than a freehold home. Condominium towers suffer from high costs associated with the common areas and services. When you then include the lack of effective control over these costs and related ‘assessments’ this can represent a a significant financial risk for the unit holder. On the flip side, these towers also demonstrate weaker value appreciation after 10 years, and their marketability suffers in the face of new, more contemporary and desirable condominium towers. When you consider that the supposed care free living associated with condos is actually not so ‘care free’, freehold ownership can become much more appealing, even for retirees and young singles.
Buy for the long term.
We often overlook the transaction costs associated with the purchase and sale of a home, but they are substantial. It’s not just the 5% in real-estate broker fees to consider. There are numerous other costs that you have to incur directly, or indirectly, when you sale and purchase another house. These include legal fees, home inspection costs, property transfer taxes, mortgage related fees, moving costs, etc. And this doesn’t even account for the enormous amount of personal time that the whole process consumes. The bottom line is that; more frequent transactions will incur substantial costs that will erode any gains from appreciation that may otherwise have resulted. Purchasing a home that will be able to accommodate foreseeable life changes is important to avoiding the need to move and can greatly improve the performance of the investment in your home. With this in mind, spend time in the neighbourhood before committing to it. Find out about the local amenities, and wander the community on different days and times, in order to learn if you could see yourself living there. What is the community like? Is it friendly? How is the street traffic at different times? Can you easily walk to parks and shopping? How frequent is public tranist? These are all important considerations to determining if this house will meet your needs now and in the future. In this way, you may avoid mistakes that will require another move in the future. It is relatively easy to make modifications to a thoughtfully designed house, but not to change a neighbourhood.
Determine whether or not you need a real-estate broker.
Certainly avoiding the use of an agent can save money and improve the performance of your investment, but doing so, is not for everyone. If you are uncertain about exactly what you want, or you are unfamiliar with real-estate and related transactions and don’t wish to invest the time to educate yourself, then engaging a real-estate agent is a good investment. They don’t come cheap, but then, solid professional advice seldom does, and more importantly, a good agent can save you a lot of money and potential heart ache. If you decide that you need an agent, make sure that you invest the time to find a good agent with a solid reputation. One that will work hard for you and earn the substation fees that you will be paying – either directly, or indirectly, for their services.
Look for builders that offer a Tarion warranty.
New homes have the advantage of avoiding expensive maintenance costs for decades to come. If, however, the new home has a build or material flaw, it could prove very costly. A Tarion warranty (paid for by the builder) insures against those potential problems, that can happen even in a high quality build. Don’t consider a new home that doesn’t include this warranty. The financial risk is just too great.
Do not purchase the most expensive home in the neighbourhood.
This will limit appreciation, and is one reason why Urbanlux homes always makes an effort to provide the highest value homes in the community. You may notice, that our homes are sized and priced a little less than comparable new properties in the communities. This provides the owner with greater appreciation potential and more rapid resale in the future.