Hello, I'm your host, Mr. Chuck. I'm a retired accountant, turn truck driver, I have reduced my debt to zero in a short matter of time, debt reduction to achieve financial freedom takes commitment, confidence determination. Thinking about buying real estate as your primary residence, there's two things you really need to know. And we'll get started in one moment. Together, we're going to explore our finances and figure out how to improve them. reduce debt increase wealth is a podcast to inform those to improve personal finances, whether it's eliminating debt or making smart investments. My real estate quote, the best investment on earth is Earth. By Louis Glickman, that is still true today. So if you're looking to get started in investing, and I know, we're talking about real estate here, but real estate is really an investment. Your primary residence, the place that you purchase to buy, is a long term investment. Maybe you're only planning on living in that particular home for five to 10 years, maybe you're planning to move to a different location through work. Maybe you're planning to upgrade to a larger home, or a different area of town. But right now you cannot afford it. So by buying your first resonance, you're making your first investment. And you get to live there. If you do everything correctly, it will go up in value, it will give you a larger downpayment for your next home. And it will give you some better Credit on Your credit score. Assuming you make your mortgage payments on time, every month. Back when I was in my 20s that was normal way to buy real estate, you would buy a starter home, a smaller home less expensive, maybe in a general area you want it to be then after a certain amount of time. I really didn't set a certain amount of time because I was single, I didn't really care. But I looked at the value of the home, what do they sell them for? Once that first home, got to a certain price, then I was looking to sell it cash in on my gain, so to speak, and buy a larger home. And generally the same area, the same school district around the same city, those type of things. But what are the two most important things you need to know? And then the number one that any real estate agent will tell you location, location, location. The other thing you need to know is what is that property actually worth? the selling price is what the seller has listed or the listed price is what the seller is listed the home for is what the seller would like to get. An offer price is what a willing buyer offers to the seller. And then the actual selling price is what the home actually sells for. Those are the three major definition listed price what the seller wants, offer price what the buyer offers, selling price, what it actually sells for could be three different numbers. And that would be common.So that's what we're going to talk about is how do you determine what is a good location and what's not a bad location and that varies forever. Buddy. And then we're going to talk about one at least one way, how to value the home, how to figure out what it's really worth. And remember, even if you have your own real estate agent working for you, helping you find that home to purchase, remember who pays their fees the seller does. Even though they tell you they're working for you keep in the back of your mind that they're working for that seller more than a working for you. The goal is to try to get you to pay as much as possible for a home. So if you know the value of that home, before you go look at it, and then you can make some adjustments. That better offer for you, you can make Okay, let's get into the meat of the program, which is location. Well, location is an important factor. Don't let it be the only thing that you use to decide where or what to purchase. Remember, our long term goal here is to buy low and sell high because real estate is investing. I have an article here encyclopedia.com the five factors of a good location by terrorists struck. And number one, a good location can significantly different things to different people, of course, but there are objective factors that determine a home's value. Depending on your personal needs and preferences. You may not be able to buy a home with all these factors. And that's okay. After all a home is much more than just an investment. However, the next time you're shopping for a new property keep the following factors in mind. One center ality whether you choose to live in a city or town were undoubtedly affect how much you pay for your home. Land is an infinite commodity. So cities like San Francisco that are highly developed and don't have a lot of room for additional growth tend to have higher prices than cities that have too much room to expand. Some of these community have a large number of homes that are uninhabited, and areas that have fallen into disrepair. We're gonna talk more about that a little bit. And most cases is urban sprawl occurs as a result of population growth. According to the US Bureau of census data on urbanized areas, when the sprawling cities experience a population Exodus, it's the outlying areas that tend to suffer the most severe declines in property value. This is part of how location impacts the fundamental economic tenet of supply and demand. There's some really good points there. The uninhabited areas that fall into disrepair could be opportunity to buy at a lower price. And then number two neighborhood, the neighborhood that appeals to you will largely be a matter of personal choice. However, a truly great neighborhood will have a few key factors in common accessibility, appearance and amenities. Your neighborhood may also dictate the size a lot on what your house is built. In terms of accessibility, you should look for a neighborhood that is situated near a city's major transit routes. And that has more than one point of entry. commuting to and from work is a big part of many people's day. So a house with easy access to roads and public transportation will be more desirable than one that is tucked away and can only be accessed by one route. They appear appearance of the neighborhood is also input important. large trees quality landscaping and nearby parks or community spaces. To be desirable, you can also judge the property earlier in the neighborhood based on how long homes in that area stay on the market. If turnover is quick, you're not the only one who thinks is a desirable place to live. And don't forget safety. a neighborhood that has low crime rate and is inviting and safe place to be outdoors. And commute communicate with neighbors is the type of place where most people want to live. Three development, it's just not the personal minis that matter. The future ones as well. Plans for new schools, hospital public transportation, and other civic infrastructures can dramatically improve property values in the area. commercial development can also improve property values. When you shopping for a home try to find out whether any new public, commercial or residential developments are planned. And consider how these additions might affect the desirability of the surrounding areas and have a warning a property's close proximity to a fire station hospitals school or community center can low its value because of traffic and noise. For a lot location, he also needs to take in consideration where the house is actually located. In this instance, there are a few things you should keep in mind as you conduct your search. At the house, you want the buyers right on a busy road or very near a highway, he probably can get it for a lower price, but it will also be more difficult to sell later on. The same may hold true for houses that stand next to or back into commercial property, such as grocery store or gas station, or houses on streets that get an unusual amount of parking traffic and parked cars, such as those near large churches or community centers. A house with wonderful views or near a body of water is likely to be more valuable both now and when it comes time to sell. That also goes for homes located on golf courses. Fire that house itself. There's one aspect of house hunting that tends to surprise people. Let's say you narrowed your choices to two homes stand side by side in a great neighborhood. One needs repairs and update but has a huge lot. The other is in tip top shape but sits on a lot half the size of the fixer upper. The prices of the two homes are similar. Which do you choose in most cases that house in need of repairs is the better investment. The reason your house is a depreciating assets. The lot on the other hand where my team is value are likely appreciate relative to the house. If you bulldoze both house, the larger lot would sell for more. So if you can choose a bigger, better shape, or better situated lot over a nicer house, the less attractive house can always be updated, added on to or replaced all together, but the lot can't be changed. And then the bottom line location isn't entirely subjective. And in fact is based on a fairly static set of criteria. When you set out to shop for a new home, make sure that neighborhood isn't just desirable to you that has objective qualities such as attractive and amenities, safe streets and good schools will help to ensure your investment appreciates in value over time. I want to go back and talk about the areas and disrepair and maybe vacant homes or marry areas that are near the neighborhood that you're interested in. That are lower price. Are they in the same school district? Are they in the same city or is it maybe a different city right next door? You got to look at the factors Why are those house selling for less? Are the homes smaller? Are the homes older? Or maybe the people live in there are older senior citizens. Maybe the out uptake of the outside of their homes is not being done because the resonance are unable to do it. Maybe they don't have the budget to pay somebody to mow their yard and keep But looking great, maybe a home's need to be upgraded and remodeled on the inside. If they're in a neighborhood that has a larger lot, they could be worth more in the future. If they have mature trees, they're definitely worth more today. So don't be afraid to look at homes and an area surrounding what you're interested in. There may be reasons, maybe today, they're selling for a lesser price. But five years from now, as the older people pass away, or move away, and younger people move into those neighborhoods, and remodel the homes and take care of the outside, the value of those homes will go up. So keep that in mind. By recognizing opportunity before everybody else does, you can get a better deal when looking for a home. Location is everything in real estate, almost. You need to take other factors into consideration. Also, what are your needs? Do you have five daughters, maybe you need three bathrooms. Maybe you have somebody in your family that's handicapped, maybe you need some ramps. Maybe the home may not have ramps. But does it have space to install the ramps. So your needs is also just as important as the location. But don't go overboard. When you're deciding location. There may be other properties nearby at a lesser price that could go up in value just as much as the home in a neighborhood that you may be desiring. And this article makes a good point, the size of the lot is important. When I started looking for my second home that I'm still living in. I looked in all kinds of neighborhoods and a lot of the newer neighborhoods had small lots. The developer is thinking people don't want to take care of the bow in the yard and the outside. I grew up kind of in the country, and my parents had acreage, I know how much trouble it is to take care of all that. But yet, I still wanted a larger life because I want to be able to at least have a small garden, which I do. So that was my need. So I looked in a neighborhood was a larger lots. And that's where I am today. This neighborhood 25 years later, is just as desirable as it was when I bought here. And I've been living rent free when I sell this house all the money I've put in his house plus some I will get back. So my home as a real estate investment has paid off. Make sure yours does also. Now we're going to go on to how do you determine the value of a home other than just taking the word of the real estate agent? What is the property really worth? And I'm only talking about residential real estate that you're buying to move into the link you can find in my show notes. It's from lending home calm Property Valuation for real estate investors. In this article covers all the methods of valuing real estate. I'm only going to cover one of those methods. Before I start there, there's some definitions you need to know. And one is price. Price is what a buyer actually pays. Cost is what it would cost to build a replacement. today. fair market value is what a stranger with theoretically be willing to pay for home based on today's demand for similar housing. the asking price is what the seller is asking for that home. the asking price is not necessary the value of the home. The value, the home is a arm's length transaction between a willing buyer and a willing seller. and the value that they agree that it's worth. The bank or the lending institution will have the property appraised. They make sure what the buyer is paying is close to what they think the property may be worth. One of those methods that's used is called comparable sales. That's where you take the approach of looking in that same neighborhood within a distance, relative distance, say half mile, maybe that same subdivision and you look for homes that have sold when recently recently been within the last three months or six months. And this is real estate appraisal method one the sales comparison approach approach. You can find this information on your own I live in Ohio, you can go to the county auditor's website. If you know the house you're interested in, let's say it's a split level, four bedroom, two full baths, two car garage, you go in that same area, that same subdivision and find homes that have sold that are split level, four bedroom, two full baths, two car garage. And what do they sell for you list them all down? Personally, I would throw out the highest selling price and the lowest selling price. Take the remaining add them together and figure out on average and that's a ballpark number. The highest selling price is we got to think why did it sell so much more than all these other ones. Maybe it was completely remodeled on the inside new kitchens new bathroom, new carpet, new drapes, new deck out back everything. Why did the house sold for so less to the less is the lowest selling price. Maybe that was a sale within a family. Maybe a parent sold that home to a son or daughter and they got a sweetheart deal. That parent may just want it to get enough money to downsize and buy and pay for a smaller home and move somewhere nearby. Of course, you have to identify property selling just next door within the last few months. More often, appraisers must simply find the most similar properties they can such as near as possible and selling as recently as possible. There are a few factors that the appraisers must account for when reviewing comparable sales, home size, lot size, home aging condition, home amenities, location, desirability proximity to the house in question, the closer the better date of sale, the more recent the more accurate. The only thing you need to be aware when using this method. If you have a lot of flippers flippers being people that go in and buy a home low, remodel it and sell it high. You see those shows on TV all the time. If you have an area that the flippers are buying cheap and selling high, they're driving up the prices of those homes. I know a few years ago man I think it was in the at the local town where I live here. There was a couple of them that got in trouble because they were selling between each other and they were driving up the price. One would buy it and do some remodeling and sell it to another flipper who would not do nothing. Hold on to it maybe a couple months sell it for a higher price to another flipper. And then that person would maybe rent it for a while and then sell it to somebody, but they were driving up the price by buying and selling between flippers, and that was arbitrarily inflating the prices of the homes for that area. That is the method that I always use. And then the next step, once I have a general idea of the home, I'm interested in market value. And the market value being the comparable sales of similar homes in that general area. As the article says, The closer the better, the most recent a better indication of the prices. Then when I go back and look at that home as second time, now, I've yet to make an offer. Then I'm looking at the home a second time, I got a flashlight, I got a pen, I got a tablet, what what my strategy is, is define as much things as I can wrong with the home. I look for watermarks on the ceiling, if they were stupid enough not to repaint the ceiling, say 10 years ago, the roof leaked and they got a new roof. But they never repaint it to ceiling as a watermark. I'm going to assume that roof is still leaking. And that roof may need replace. Well, an average truth is gonna cost you five to 10 grand, depending on the size of the home. So I write possible new roof. I look at the age of the hot water heater if it's more than six or seven years old, hot water heater needs replaced. Well, that's five $600 nowadays, maybe closer to 1000. I just look for things I look under the cabinet to see what does the pipes look like? Is there any drips water stains down there and the cabinet's maybe there was a leak years ago, maybe there's a current leak. Or even worse, is there a bucket sitting on it or catching the water? Well, now I got to do a little bit of plumbing repair. So I write that down. And I go through the home home and I do this I go in the basement, I look at the walls of the basement. Are there any watermark stains on the wall where maybe got flooded? Are there any cracks in the wall is the wall being pushed in by the ground outside. If it's not flush, it's being pushed in. Those are major expenses, you write that down. And maybe if I find enough wrong with it, I'll just decide not to buy it because it's going to take too much money to fix it. Maybe I have another house in mind that I go look at that might be in a little bit better condition. So I write all this stuff down. And this say it's the house I'm going to buy. My next step is is to estimate how much is gonna cost to fix all this stuff. So I do a little spreadsheet because I was an accountant. I one selling price. And I put that out couple columns, you know, to the right, then I list problems. And then I list them all down. And then I put my estimated value. I add all those up and I subtract it from the sales price. Then I think well, how desirable is his neighborhood? Is that a reasonable offer? Or is it too low? Is the house going to go up in value quickly or will be long term. And that's what I use to make my first offer and generally I go low, you can always go up in price on an offer. You can never go down and price on an offer. Then I submit that and I get with my real estate agent and we talk about it. At this point, you have to convince that agent that that offer is a valid number. And you convince them why it's a valid valid number and you show them that spreadsheet. These are all the things. Here's what's gonna cost me I estimate the fix and then generally little on the low side. Here's what my cost is gonna be to repair all this stuff. And here's my offer. They're gonna want a higher price, and they're gonna try it at To go a little higher. And I always said, This is my first offer, they don't like it, they can reject it, I can make another offer. And most likely, they will make a counteroffer. And they'll come down some. And if they come down some on your first offer, now, you know they're willing to negotiate. And that's why it's important to have a real estate agent because they can tell you things like, how long it's been on the market. Why are they selling? Are they desperate to sell? In my case, this was a divorce. The wife was still living here. And I don't think she could afford it. And it was way too much house for her. So she then it's been was on the market for a long time for this neighborhood. So she was willing to deal and that's what I did. And I got I came up a lot. But I also came down a lot. I think the original sales price asking price was like, and this was 25 years ago. I think it was somewhere like 125,000. My first offer was like 87, five, then she came down. And then I came up, and it ended up just a little over 100,000. So I got close to $30,000 knocked off as $30,000 that I didn't have to pay for that more than covered the cost of everything that was wrong with this home. Course living here 25 years I have battery issues, but that's beside the point. Then the article also goes in other ways to value your home and mostly is designed for the investor. Another he can figure out its cost method. How much would it cost to buy the land, how much it costs to replace the home if you build a brand new one. And then the neighborhood how desirables the neighborhood and the factor that kind of stuff in and you look at the existing property. And because that would be a brand new home. So then you got to bring that number down some to match the existing property as far as the condition it's in. It's in great, excellent condition, is it an average condition is it in poor condition. And then you have an income capitalization capitalization approach, where it's based on the ability of the property to generate revenue, which is not good for refer the home that you're buying, because you're not gonna generate revenue with it, you're just gonna live there. And it goes up in value. And that's the good thing. And I'll be right back in a few moments with my final thoughts. If you listen to this podcast using an apple podcast app, please rate and review this podcast for all your non Apple users. You can download iTunes on a Windows machine and go to the upper left hand corner, select podcast, do a search, reduce debt, increase wealth, he can subscribe to the podcast. And you can also rate and review the podcast. I appreciate any feedback that I get. Well, location is an important factor to consider when looking for a residential property. Don't let it be the only thing you consider. There's other factors such as what are your needs for the home? Do you need a three bedroom four bath? Do you need a four bedroom two bath? Would you like to have a one car garage or a two car garage? Don't be afraid to look in other neighborhoods close by if they're still in the same school district that is a good school district. An older neighborhood that may be appearing to be rundown may be a good buy. That's where the real estate agent can help you. They should know the area and the type of people living in the area and they can help you determine. Also, don't just pay what the seller is asking. Is it really worth that? It could be worth more or it could be worth less. I have always operated under the assumption that the buyer is asking x he never offer more. I don't care if there's 10 people Looking at that home, I do the same thing, no matter what I consider the location, I considered the condition of the home, I consider what could be wrong with the home, I considered the surrounding area. Maybe there's nine other people willing to pay $30,000 more for that. I'm not the highest I ever go is the sailing price, the asking price, because that's all the seller really wants. And the real estate agent, they came to the conclusion, that was a good price. So that's a good price for them. Why isn't a good price for me? I'm not going to compete for a home and go into debt when I can avoid it. One last thing, how much can you afford? Based on your budget? What's your income and what's 28 to 35% of that. That's what your mortgage payment should be no more. Plus, you're gonna have real estate taxes and home insurance. To add to that, and then you're gonna have some maintenance costs, and maybe some remodel costs. You can use your real estate refund to help with some of the remodeling. That was interest rate so low, you may not get a tax break. You need to consult your tax advisor and get a general idea how much your taxes is going to be reduced and won't help your state and local bid will help you on your federal taxes. So keep all that in mind and good luck and searching for your new home.