Who is giving you real estate advice?

Who is giving you real estate advice?

Who is giving you real estate advice?

So you've been thinking about purchasing a home, but you're not sure if you're ready for the financial commitment. You go to a real estate agent or read a book by some guru who supposedly made a bunch of money in real estate investing. In either case, you get the same advice: "Buying a house is great for everyone! You should buy the house right away!"

Not so fast. Keep in mind that these guys make their money in real estate, so it's in their best interest to convince you that purchasing a home is the best thing you can do with your money. Before you make your move and invest your money for the long-term, make sure you are considering your own financial circumstances and not blindly following the boilerplate advice.

Some people, for example, have made the mistake of purchasing real estate because they were told the value of the home would always go up. After the financial crisis of 2008, we know that real estate prices do not always go up, but too many people have learned the hard way. It is far too easy to get caught up in the excitement and frenzy of popular investing models and purchase a home without really considering the long-term ramifications.

One man, for instance, purchased the home because he was told it would be beneficial for income tax purposes. Even though he was considering going back to school (and moving away to another state), he thought he had to move quickly to maximize his investment potential and purchase a home right away. A couple of years went by, and it was time for this man to return to school which required him to sell the house as he did not want to maintain the property any longer. He also needed to get back his investment so he could pay for his schooling.

The problem is, like we said before, that real estate values do not always go up. In this case, the value of his house fell by about 10%. When you consider the cost of closing and other real estate transaction fees, he ended up losing his initial down payment (or most of it). So much for the great investment, right?

The point is that there are many factors you need to consider before making your purchase. Take a long hard look at your financial numbers and make sure you are ready for a long-term commitment. If you are purchasing your first residential home, you need to get your affairs in order by reducing credit card debt and establishing an emergency savings fund (and perhaps even opening a retirement account and purchasing disability insurance). This is simply to keep you from getting overwhelmed in case your budget is tight after you take on the mortgage.

If you are more interested in purchasing a house as an investment, keep in mind that success in real estate investing is usually a long-term model.

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