Buying Advice

Thinking outside the house

by John Rice

Ever wish somebody would tell you EXACTLY what to do to make sure you buy a house that will always be a good investment?  This is something that nobody was thinking about the past few years.  During COVID and the “Never gonna happen again” low interest rates, all houses were selling quickly and for top dollar……many sold for more than they were worth.

Here is my list of what to find in your next house.  The more of these you have, the better your chance of getting a house that will be a wise investment.  Remember, as long as there is a real estate market, people will always buy the best houses that are on the market!

LOCATION:  You hear a lot about this in Real Estate.  A good location really just means that it is convenient to SOMETHING or has a unique asset!  It can be shopping, the airport, the interstate, schools, a park…..really just anything unique or desirable.  A house probably doesn’t have a good location if you find yourself thinking, “Gee, other than being nowhere near anything, that house is great!”  A neighborhood like that will always have to sell on value since it offers nothing else.

SCHOOLS:  Buy in an area that has at least average performing schools.  People moving within Lexington seem to be fine with any decent school.  Out of town buyers always want to be in the best school district.  Look for an area that has a well rounded mix of elementary, middle and high schools.

NEIGHBORHOOD:  New is nice, but established is always better.  Pick a neighborhood that is large enough to not be negatively impacted by the surrounding ones.  Usually a cheaper larger neighborhood will bring down a smaller nicer one.  The opposite holds true too.  Kenwick used to be an inexpensive area.  It was surrounded by Fairway, Ashland Park and Bell Court.    Its location and surrounding neighborhoods started putting it on people’s radar in the 1990’s.  You also want a neighborhood that has it’s own distinct identity.  I don’t mean it has to have giant columns at the entrance with the name chiseled in stone.  Chevy Chase doesn’t have anything that says “You are now entering Chevy Chase”, but you know you are there.  That is identity.  If an area doesn’t have an identity, then it isn’t known for any of the items I am talking about here.

LOT:  Ideally, you want to have a lot that is located well within the perimeter of the neighborhood.  That insulates the impact from inferior areas that border your neighborhood.  While I am on lots, get one that is at least typical in size, shape and contour for the neighborhood.  You don’t want one that isn’t.  It will turn away a lot of buyers……unless there is another frenzy at the time you go to sell.

FLOOR PLAN:  You want a house that has a useable layout and typical sized rooms.  A tiny kitchen in a 4 bedroom house will not bring in as much money.  You’d need to price it lower than the competition or upgrade it to make somebody be willing to overlook it.  If you find yourself saying things like “If it wasn’t for______, that house would be perfect!”, then you know the person looking at houses when it is your turn to sell it will say the same thing.   In a slower market, buyers get very picky. In a fast market, everything sells.

Basically, the goal is to get a house that will be someone’s top pick when it comes time to sell.  I call this ‘Thinking Outside the House.”  Most buyers just want to find a house they like.  The reality of Real Estate is that a lot of a house’s value is determined by things outside of the house itself.

When a nice house is a bad choice

by John Rice

Some houses are just a bad choice.

I was out with a buyer this past week. We looked at several new/newer homes in neighborhoods all over town. All within a similar size and price range too.

One house in particular was on my buyer’s radar. It had a 3 car garage. He liked that. Being a car guy, so did I!

Before going to see the house, I looked at the recent sales in the neighborhood. I found that most of the houses were 1400-1600 square feet and were selling for $270-290k. While there were several lots left to build upon, my realtor red flag was raised and frantically swinging when I saw the house we were going to see was also about the size and was priced at $340k. I am probably somebody who personally would pay a premium for that third garage spot, but even I wouldn’t pay $50k more for it.

I thought perhaps the house had some other features that would make it stand out from the significantly cheaper ones that made most of the neighborhood?

Once we got there, it was clear that the third car garage was about the only difference. Upon viewing the house, I noticed that the primary bedroom was sort of small compared to other new homes in the same price range. Also, all the backyards were really small in the whole neighborhood. The location of this neighborhood was also what I would call less than Grade A.

So, what did I do? I told my buyer that I just did not see this house being worth $50k more just for the garage. I also told him that when he goes to sell it, buyers with good realtors will tell their clients the same as well as how the backyard and primary bedroom were small. Long story short, I think this particular house is always going to be harder to sell and likely won’t appreciate as much. I think this neighborhood is a fine pick though for any buyer wanting a new/newer home whose budget tops out at under $300k.

My buyer saw what I was saying and while he would love to have had that huge garage, he chose another house.

Do you really need a Buyer’s Agent?

by John Rice

YES!! YES!! YES!!

I’m seeing a lot in the news that the future of real estate might do without the role of a Buyer’s Agent.

That sort of scares me. Not because half of my work is with buyers. It scares me because buyers need an agent, almost more than sellers need a listing agent.

Having cut my teeth in the worst market in all of real estate history, I can tell you first hand that a buyer doesn’t know if they have made a mistake in picking a house, or overpaid, until they sell their home. It has been a good market for so long that I think most people think all there is to buying a house is picking the one they like…….as if it is as simple as choosing which product to buy on Amazon. One day, every buyer will become a seller. Your home may be a noose around your neck and you don’t even know it yet.

This was a common scenario for me when I was called to list a house between 2008 and 2011:

Seller calls me to list. They say they paid full price in multiple offers to get their house in 2003-2005. They assumed it would always be that way when they needed to sell. Then I have to tell them their house is worth less than they paid and they really should have called me before they bought the place. I could have saved them not only money, but a lot of time, frustration and headache.

I frequently saw where a spouse was transferred here. Their home back wherever they were from was on the market. The spouse was living in a studio apartment here until their house back home sold. The family was separated. Nobody was happy. Trust me, you don’t want to be this buyer.

This is how a Seller’s Market works: EVERYTHING sells for top dollar and fast since there aren’t many options. This is how a Buyer’s Market works: ONLY the choice, Grade A homes in Grade A neighborhoods sell fast and for top dollar. Everything else goes for less. Have a house in a less desirable school district? Have a house with an awkward floor plan? Have a house with a terrible lot (Think steep driveway, no privacy, backing to a busy road, etc)? Good luck selling in a Buyer’s Market because every buyer can get that Grade A house. You need to have a big price difference between those Grade A homes and your home to entice a buyer.

Aaaaaaaand you need a Buyer’s Agent who can tell you these things BEFORE you buy a house.

How to get $65k for a down payment

by John Rice

The starter home.

It was that first home that you really were not all that exciting about living in. Yeah, you were coming out of an apartment so it seemed liked a luxury to park in your own driveway or maybe have your own washer and dryer. But it was a place you knew you wouldn’t stay in forever. The goal was to get on what we used to call “The Property Ladder” just to start building equity. Then you’d take that equity with you to your next home, which was nicer and had more of what you really wanted.

The trend I’ve noticed lately is most first time buyers want to start off with their second home. They can’t afford it now, which is the problem. Most would rather complain about how past generations had it better than to buy a house they don’t really love, so they keep renting……as if we somehow loved living in a 1000 square foot home with only one bathroom. We didn’t, trust me!

I don’t think many of them see that the way to get to the house they really want is to start with what you can afford and build the equity. Equity is a pleasant sounding word that means your home increases in value while you sleep and part of your payment goes towards reducing the balance on the loan. Building equity is what my dad used to call “Leveraging time.” If you are young, leverage the time of your youth by building equity.

If you were to buy a boring $250k house and commit to staying there for 5 years, you would have paid down about $15k of the loan. Nice, but there is more. Let’s say your $250k house appreciates at 5% per year for each of those 5 years you are staying. Your house should be worth about $320k. At the end of those 5 years, you only owe about $235k. When you go to buy that next house, the one you really are excited to own, you’ll have about $65k to put down on it after things like some maintenance and real estate commissions.

What I love about this is that you are double dipping in the world of money. Your loan balance goes down and the value of your home goes up every month. Win-Win.

Getting a starter home is how you get to the house you really want within 5 years. Renting won’t get you there. Saving money for a larger down payment won’t get you there. Go buy a house you can afford today. Find the best one there is. Live there for 5 years. It’s what every generation did that now seems to have such nice homes.

Don’t be afraid. Just do it.

by John Rice

There is a lot of fear involved in real estate.

Fear of missing out. Fear of making the wrong decision. Fear of financial ruin. Fear of even making such a huge decision.

I see it every day.

One of the most common questions I get asked by those who are afraid of missing out or making the wrong decision is if it is a good time to buy.

I usually tell people that it is always a good time to buy if you are ready. The prices and interest rates of the past are gone. Nostalgia. The present is all you have to work with. Yesterday will always have been the best time to buy a house. Today is the second best. If you are not going to stretch yourself too far financially and you are 99% sure you will be in the house for 5 or more years, then today is when you need to buy a house. The sooner you get one, the sooner you can start building equity. The sooner it will be paid off too. The market can’t be timed. Other than the great recession, prices have historically always gone up. Trust me, one day in the distant future you will be telling young people how it was a struggle to make the $3500 payment on that $500k house you bought. They will be like “Wow, that’s what my cell phone bill is!”

Another thing I see all the time is fear of picking the wrong house. Often first time buyers or those who struggle with making a decision will want to keep looking at houses, almost as a way of not having to make a decision.

Here are some signs you might have found the perfect home for you:

  1. Your showing lasts longer than any other house you have seen. A house you are in and out of in 5 minutes is not the one. The house where the realtor is standing beside the front door after turning off all the lights and you still don’t want to leave…..well, that might be the one.
  2. You are comparing every other house you see to one, which is usually the house you didn’t want to leave in item #1.
  3. You are afraid of somebody else buying it out from under you.

When any/all of the above items happen, you’ve found your house.

I hope this helps somebody out there. I know fear is a hard thing to get past, but it is so worth it. I try to keep things simple. Really it’s all about finding a house you like, that will be a good investment and that you can afford. That’s it!