WHY Would I Suggest a $50k House to Somebody That Can Afford $200k??

We’ve all been there.  You just got on a plane and the stewardess starts telling you where the emergency exits are and that your seat cushion doubles as a floatation device.  You’re thinking “BLAH BLAH BLAH lady, just give me my bag of honey roasted nuts!”  Although I don’t put on a skirt and have a demonstration for it, I like to bring up “The Exit Plan” with clients before they buy.

In the past, nobody really thought about the exit plan.  We all just assumed our house would keep appreciating and real estate was a bar of gold that you could live in.  I’ve seen so many sellers over the past few years whose house has become a noose.  I don’t want that to happen to my people.  It is always important to pick a house with decent resale potential, not pay too much for it, and to not over improve it.

Here’s a story about a recent deal:

My client is a young dude with his whole life/career ahead of him.  Pre-approved for $200k.  Likes the downtown scene and old houses.  We’ve looked at several that he liked.  I liked them too, but my concern was that this dude could get offered his dream job several states away in the not so distant future.  I didn’t want him to get stuck with a house that would be hard to sell.  We made an offer on one, but the seller wasn’t living in reality.  I got to thinking that I didn’t see too much difference between the houses at the top of his budget and those at the bottom.  So what do I do?  I take a guy that can buy up to $200k to look at a $50k house.  (Somewhere there is a realtor reading this right now that thinks I am  nuts for leaving so much commission on the table!)

Why would I do that?  For starters, I am older than this guy, and I know life has a way of changing on you……fast.  Plus I knoooooooow how expensive it can be to maintain any house, especially an old one.  I didn’t want him to ever be in a position where he couldn’t take that dream job, or not be able to save some cash for emergencies and all.  Bottom line, I was watching out for him.  We talked about all that, and fortunately he thought buying below his means was a good idea…..especially when there wasn’t that much difference between a $150k house downtown and a $50k house.

His mortgage is now going to be cheaper than most people’s car payment.  He got a house he likes, and likes even better the position he’s in.  If he needs to sell and  it takes a long time, making that payment isn’t going to put him in a bind.  Plus, it is on a street where there is a lot of redevelopment going on.  Lots of restaurants and bars just 3 blocks down his street.  If he stays long enough, there is a good chance that he’ll be able to make some money on it.

That’s why you always need an exit plan, cause one day, you will sell whatever house you are about to buy!

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