by PJ Wade
False affordability can come back to haunt you. What you can afford on paper with optimistic calculations may not be easy to live with day to day.
Whose responsibility is it to be sure that you buy a condominium, house or townhome that suits your financial present and future?
The obvious answer is the right one -- it's your responsibility. First-time and first-in-a-long-time buyers can be at a particular disadvantage as they may not have personal experience or knowledge of property ownership to help them project into the future.
The surprise may be that working with a real estate salesperson or broker entitles you to their real estate and financial knowledge and experience when you struggle to decide which home or which housing strategy is the best financial fit for you.
Explain what you'd like to accomplish through home ownership and the professional will help you achieve your goals. Buyers or sellers who are not straightforward or honest with their real estate salesperson or broker place themselves at a disadvantage. It's like asking a doctor to solve your health problem, but withholding facts pertinent to the diagnosis.
Agency Law places the legal onus on licensed professionals, not to make decisions for you, but to provide the information and expertise that will enable you to make confident buying and ownership decisions, choices that are easy to live with. Agency Law is precedent-based common law that defines the working relationship between real estate professionals and their clients and customers. Licensed real estate practitioners must place their clients' interests above all else but the law -- not a bad frame of reference for your buying decisions.
Avoiding false affordability does not always mean selecting less expensive real estate. If you want to buy property in a neighbourhood or location that is beyond your reach on paper, a real estate professional may present solutions that allow you to achieve more. For instance, rent out some or all of the property and the rental income helps pay off the mortgage. These earnings may be added to gross income in some mortgage arrangements.
Marketing Distractions
Marketing strategies for new houses and condominiums tend to concentrate on quickly building an emotional "can't you just see yourself here?" attachment. Buying decisions can be slanted toward choices of decor, lifestyle or prestige rather than being grounded in month-by-month practicalities.
Accompanying financial projections equate mortgage interest and principal payments to monthly rent to make the transition to ownership seem a financial "no-brainer." Few of these "affordability invitations" include after-move-in expenses like hikes in condominium fees, house maintenance, energy costs and property taxes. It's these and other costs of ownership that your real estate salesperson or broker can help you project beyond the purchase price to ensure you will be happy living with the financial reality of your new real estate.
Active Participation
Your contribution to your own success is important, too. Take a hard look at income security before you start visiting open houses:
- It's not how much money you can scrape together to buy, but how much you'll enjoy living with the resulting financial situation. Some buyers are happy to commit to putting everything into their new home and sacrificing to pay off the mortgage as soon as possible. Others will end up maxing out credit cards to preserve their pre-purchase lifestyle until they realize, often too late, that past priorities cannot coexist with ownership responsibilities.
- Take an honest look at what you want to invest in your real estate on a monthly basis and how secure your income is. Job loss and lay-offs are a reality even when the stock market creates new millionaires. Maintaining the financial freedom to make a career change or to return to school may also be important considerations.
- Buying based on one income or on one-and-a-half incomes, rather than a couple's maximum combined take-home pay, may offer financial "breathing space" if problems arise. Single buyers may benefit from considering layouts that enable part of the home to be rented to tenants or boarders in case a financial speed-bump arises.
- Home-based businesses offer tax deductions and advantages that can increase the amount of income available to pay off the mortgage.
- Can you team up with another generation of your family? Duplexes, triplexes and other multiple-family buildings combine separate, independent living with caring proximity. This approach to home ownership may be used to gain a foothold in a better neighbourhood, cut housing family costs or preserve personal independence.
Do you want to avoid a "house rich, cash poor" existence? Knowledge is power when buying real estate. Leverage the knowledge and experience of real estate professionals who offer their services to ensure your home is truly affordable.
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