My dad reads my site every day. In fact, he often sends me early morning edits involving the homonyms I’m prone to exchanging late at night when I’m posting. Last week one morning he sent me a topic for a post along with his daily rewording advice. He presented the following question to me: “How does a non-owner get on the runaway train that is today’s market?”
He was referring to the fact that in this market, with prices rising steeply, those of us who already own homes are not in too bad of a position. Yes, the prices on houses we want to buy are going up, but so is the equity in our own homes. It’s a fairly parallel equation. The big problem comes for those who don’t yet own anything. For them, what they could have bought 3 years ago for $110,000 is now up closer to $160,000 or so. And heaven help them if they’re thinking up in a higher bracket; the prices just get scarier. I’m sure my dad’s frame of mind for this question comes from my sister and brother, who are both currently non-owners, but will be in the market in the next few years. He hopes for them the same opportunities that I had back when the market was a little more reasonable.
The circumstances may seem depressing to first time buyers, but really, if you look at prices around the country, we are still in a much better position than many. We still have options down at the very low end of the spectrum. You may be down, but don’t worry, you’re definitely not out.
There are several solutions to this dilemma that I think are attractive. My advice to first time buyers who don’t have a rich uncle is:
1. Be flexible – So you work in North Scottsdale and really like the area, but the housing prices are outrageous. Who says you can’t commute a bit? Phoenix has a great system of ever-expanding freeways; take advantage of it and look in an older neighborhood in Chandler.
2. Take advantage of sweat equity – Your first home does not have to be the house you plan to raise your children and then retire in. Think of it as a jumping off point, a way to get your foot in the door. Buy something with ugly carpet, horrible wallpaper and a weedy backyard. Take two or three years and make it into something much more attractive. Install Pergo floors (which are easy and cheap to put in and available at places like IKEA and Costco), rip out that wallpaper and paint the walls a nice neutral color. Reseed the grass in the yard and plant some pretty bushes. All of these things can be done for pennies but will greatly increase the value of the home. Don’t worry that you’re not handy; invest in a good home repair book and take a crack at it. Your first house that you don’t plan to stay forever in is a great place to learn.
3.Start small – If you don’t have a family yet, grab a tiny little place that would only be good for a single. There will always be another single to sell it to and it can give you a chance to gain a bit of equity.
4. Get a roommate – It’s much smarter to buy and get a roommate, than to be the roommate. Remember that every penny they pay you actually goes to help pay off your loan, which, when you sell, goes back into your pocket. So yes, you would have to shoulder the responsibility of major repairs, but in the end, it’s a much better deal for the owner.
5. Start soon – The longer you wait, the higher the prices will rise, so get in as soon as you can!