The following is a guest post from MD of Studenomics. Today he’s releasing a new eBook for 20-somethings that are trying to decide if they should buy or rent a home right now. This quick read will help you save thousands of dollars by making the right choice when it comes to this very important decision.
I find these days that most people on the internet aren’t modest at all with their accomplishments. Everyone is quick to brag about something. I don’t get that. Today I wanted to share some of my mistakes with you guys in hopes that you can learn from them. I wanted to share real estate investing mistakes that I made. These are mistakes that I don’t want anyone else out there to repeat.
I’ve always been a strong supporter of the “work hard, party harder” mantra. During college I would work full-time hours while trying to maintain an active social life and a girlfriend at the time. I enjoyed working. I especially enjoyed working if I knew I had an end goal in mind. From an early age my goal was to own property. I’m not sure why I wanted to own property. I just did. So I worked, studied, partied, and saved in hopes of being a home owner before any of my peers. I eventually did become a home owner. I also made many real estate mistakes that I hope
none of you repeat.
Below are the real estate mistakes that I unfortunately made:
Making a snap decision.
I barely conducted any research at all before I chose the condo that I wanted to buy. I don’t even think I looked at another unit. I’m embarrassed to admit this. It’s like marrying the first person that you kiss. If you plan on buying a home in the near future, I strongly suggest that you check out many different places over an extended period of time. You don’t want to make a snap decision that you’ll later regret.
Not taking the contract seriously.
Upon reviewing the contract, my lawyer informed me that the contract stated I couldn’t rent the unit out for a set amount of time. For some reason, my young and foolish self didn’t take this too seriously. I figured that there must be a way around this little issue. Well guess what? There wasn’t a way around this. I had to stick with the condo for one year. The good news is that one of my buddies offered to move in and paid rent. We ended up having the best summer ever last year. The bad news is that I didn’t the contract seriously.
Not factoring in all of the costs.
The reason I now always preach the idea of factoring in all of your costs when it comes to buying a home is because almost all first time home buyers forget to do so. We think of the usual stuff- taxes, lawyer, and moving expenses. We tend to forget a few of the other costs.
What are some little known home ownership costs that I forgot to factor in?
- Increase in consumption. With a new place you’re going to want to spend some money on getting the newest furniture and toys in there. This includes a nice flat screen TV and some slick leather sofas.
- Higher monthly expenses. When you rent your monthly cost is pretty constant. As a home owner your monthly expenses will increase depending on how much electricity you use (if electricity is included in your rent) and various other factors. You never know when you’re going to have to replace something around the home. You’re also going to have seasonal expenses that come along with yard maintenance (shoveling snow all the way to fueling your lawn mower)
- More social events. Now that you have your own place you’re going to have your buddies over and they’re going to want to come over more often. You need to factor this into your budget as a home owner.
Once you factor in the well known and the not-so well known facts of buying a piece of property, you’ll have a better understand if this is the right move for you at the moment. These expenses can be a killer if you don’t think about them in advance. Please don’t make this mistake.
Letting my emotions get in the way.
My emotions got into the way. I wanted to be a property owner at a young age so badly that I didn’t care about anything else. The euphoria of owning my own place was much greater than the reality of all of the expenses. If you let your emotions get in the way you can make some poor financial decisions when it comes to real estate. Try to be objective as much as possible when searching for homes.
Despite making all of these mistakes it seems like everything has turned out for the best in the end. I’ve been enjoying my independence with the condo, I plan on renting it out soon to travel, and from what I understand the market value has gone up greatly. I guess you could say I didn’t completely screw up. I don’t have any charts or historical data to back this up. I do know that a similar unit in my building recently just sold for much more than the original cost. This doesn’t guarantee that I can sell it for the same amount, but it ‘s a good sign that there’s demand for units in this building.
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Updated for 2017 and beyond.
I’ve made my share of real estate mistakes as well. Buying high and selling lower would be the number one (although I didn’t have much choice on the selling end). It was always engrained in me that I should own property, but today that advice should really be taken with a grain of salt. I sincerely doubt we’ll see anywhere near the appreciation our parents saw in their lifetimes and that needs to be factored into a purchase.
And I’ll second your comment about increased consumption. I don’t know what it’s like owning a condo, but as a homeowner with a yard of my own, I make weekly trips to Home Depot and spend more there than I ever imagined possible…..I really oughta by stock.
Anyway, good article, very interesting perspective….too many people immediately jump down the path of treating home ownership as the ultimate investment when in reality that’s only the case in some scenarios.
Real estate can be the ultimate investment. Just not all of the time. When you always walk in to a property purchase with the idea of treating it as a investment, you’ll be disappointed.
Looking at several places is definitely important as is knowing the area. You want to have an idea what is slated to be built in the near future as well as you don’t want a new highway running through your front yard.
By the lake here there are many “lake view” properties that lost that title when even more high rise units went up beside them. It’s always good to consider all options.
good candid article. in my experience these are the very same mistakes many real estate investors make. i made some of these myself as well. i like the point on increasing consumption, which many don’t realize. the more expensive of an asset you buy (home, car, bike, etc), the more you end up feeding into it and collaterally as well. one more thing to consider on condos – special assessments and the fact that major decisions are beyond your control, unless you are colluded with the HOA
What “killed” me in my rental real estate was that my property taxes went from $1000 a year to $4000 a year. I was living out of state and was unaware that the properties were being revalued. I could have worked with the city to get a lower value, but I missed all my opportunities.
Property taxes can definitely be a killer. The worst part is that they can hit you out of nowhere sometimes.
Also don’t forget, you job situation can change. You might have a longer commute and pay higher gas prices. Always look at worst case scenarios.
I agree. I always stress this point when I talk about real estate with friends. Actually just today I ran into someone. This person was telling me how he wanted to buy a home next year after he graduated. I asked him what he would do if he didn’t get a job right away. He didn’t really have a backup plan. I find that you always need a “when shit happens” plan.
Yes, there are a lot of costs to take into consideration when buying a house. In So Cal, the one I discovered was my water bills!
Why is the water bill so high?
The monthly expenses part is a killer. I was surprised at how much home repairs can eat into your budget when I first bought a house.
What was the most expensive repair that hit you out of nowhere?
This comes at the perfect time! I am also considering renting versus buying and I decided to wait a little longer after thinking about the additional costs versus the benefits.
Will you be renting for now?
One reason I haven’t own a property is I want to be flexible in changing my job. My job should dictate where I would live rather than my home dictating what job I do.
I wish I could go back and NOT buy a house when I was 23. It’s such a hassle, money drain, and stress producer.
Granted, there is some satisfaction that comes with owning a house, but if you’re trying to focus on building a career or business, find a place you like to rent and let the landlord handle the leaky toilets, grass, and busted gutters.
This is a good article for those looking to jump into real estate. There are a lot of things to consider, and I like the fact that you pointed out a change in behavior. That is often overlooked.
Thanks for your kind words. Did I miss anything?
My wife and I are in the process of purchasing our first home and I already see these additional expenses coming – table, chairs, sofa, bedroom suite, appliances (this house came with none), lawn mower, tools, etc etc. It’s going to cost a lot initially, but luckily, we’re ready for it!
It’s great to hear that you’re ready for it and aren’t walking into this purchase blindly. I guess it helps being immersed in the personal finance community!
I think all first time home buyer make the mistake of underestimating the cost of a home. Who knows about all these little cost until the bills come? Also, most people shouldn’t consider buying a home an investment. It’s a place to live in.
Buying real estate definitely isn’t a decision you want to rush, especially for first time home buyers. I think people also under estimate the planning, money, and stress that’s involved with home repair and remodeling. Think long and hard before buying a fixer upper. -Sydney
Great article! I totally agree with all these. Not everyone knows about the expenses tied up with buying a new house i.e. monthly bills, buying new furniture/appliances. There are so many other stuff to consider when thinking of becoming a homeowner. Thanks for sharing!
I like that you listed your mistakes.
We purchased our first home in September 2009 (27 and 29 at the time), and we looked at 19 different houses before this last one, when we immediately knew it was the one! Our poor real estate agent. Still, we are very happy here.
We have also had many unexpected costs and issues come up, so I can personally attest to that.
I didn’t factor in all the costs when buying and selling my last apartment. I came out ok but it was a shock for sure.
What shocked you the most Forest?
Well I assumed a full survey would be final. Turned out there was structural stuff they didn’t spot and hidden in their contracts made them not liable as they were advising…. So that cost me a few thousand extra.
I didn’t factor in how much it would cost me in interest holding on to the property for the extra 6 months it took to sell over what I thought it would… That set me back for sure.
@Superfrugalette @md re: property taxes and property values. Every municipality has an annual assessment process that includes a written notification of the current tax year property assessment, new tax year property assessment, assessment value appeal process and an appeal deadline. This notification is mailed to the property address unless a different mailing address is given to the property tax assessor. So, I’ll lay odds that you were notified that your property taxes were increasing, you just didn’t read the notice.
Here’s my advice to anyone interested in owning real estate: Read everything and take responsibility for knowing how outside influences (taxes, homeowners association, interest rates, etc) will impact your investment.
I do not think I had updated my residence when this transpired. I had just started a new job and found out that I was pregnant with my second child and we were living out of state.I was pretty time starved at the time. I think in hindsight you always worry about the “cash cushion” but you never consider items that are time sensitive issues…
Thanks for sharing this Betty.
Very instructive. It’s never a good idea to invest in real estate without having an adequate cash cushion and extra time for maintenance and upkeep. That said, with interest rates and prices low, this is a great time to invest! Just make sure you are financially and mentally ready. Can’t wait to check out the book!
My biggest shock when I bought a home were the home-related items I suddenly needed to buy — a lawnmower, a garden hose, even a chainsaw (long story).
Those purchases can be a killer. It’s shocking how expensive a lawn mower or a bbq can be.
Planning is an important part of any purchase. It is difficult to plan real well, if you never did it before. This is when experts and family can be very helpful. Something to remember, everyone makes mistakes including the most successful people, but they learn from their mistakes and they do not repeat them.
Such a great post! :) For us, it was our renovation costs. I of course knew that it would go over budget, but didn’t think it would be to this extent. For example, to increase our house “power” from 75AMPS to 125AMPS for our basement suite, we’ll need to pull the electricity line from the street. To do that, we may need to trim our neighbours tree (e.g. hire a tree cutter guy). It just adds up. I’ll be glad when this is all done and over with and we can finally rent out our basement!
Thanks for such an honest post. For us I think we rushed into buying a house too soon and for a bit too much money. We can afford it but I wonder if we should have started smaller. We are a bit more restricted now than I think we both like.
Thanks for the transparency. We made the mistake of buying at the height of the market. Our house is paid for, but now that we want to sell, we’re looking at losing a pretty penny. We’re hoping to make up for it on the other end when we buy our next house (after doing extensive research for the right one)!
Sometimes the greatest life lessons come through experience. Looks like you learned a lot from your experience. Thanks for sharing it with us. Nice job.
The subsidiary expenses can be killer; new furniture, “welcome taxes”, etc… but especially the furniture. It’s not just the money but also the time, especially if you end up with something defective and have to chase after returns etc…