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Mark Kniffing
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Deciding to Buy

Strategies in a Buyer’s Market

When the market is cold, you’re stronger position as a buyer than as a seller. You’ve got your pick of lots of houses for sale, at reasonable prices. But you may have trouble selling yours. To protect yourself, you might start by buying a second house, but ask the seller to make your purchase contract contingent upon selling your current home. A seller having a hard time finding a buyer is likely to accept this contingency, even though it means waiting for you to find a buyer. Be ready to give the seller plausible reasons why your home will likely sell quickly.

In case no seller is wiling to accept this contingency, however, at least make sure you can arrange financing. Talk to a mortgage broker about what you’ll qualify for. Then be ready to act quickly to put your first home on the market after going ahead with buying a second one. There’s a lot you can do ahead of time — taking care of maintenance issues, going through files for the appliance manuals and other documents you’ll give the buyer, choosing a real estate agent and possibly a home stager, and so forth.

Advantages of Buying

1. Building Equity Over Time
Unlike renters, homeowners build equity over time. On most mortgages, a portion of each monthly payment goes toward the loan’s interest. The remainder pays down its principal. (Your lender’s amortization schedule shows the exact proportions, which change over time, for each month’s payment.) Every dollar you put toward your loan’s principal represents a dollar of equity – actual ownership of the property. Once you reach 20% equity, or 80% LTV, you can tap that equity through a home equity loan or refinance your mortgage to secure a lower interest rate or longer repayment window.
You can also boost your home’s value, and thus lower your LTV, through judicious investments in home improvement.

2. Tax Benefits
Several tax benefits cater exclusively to homeowners, though not all homeowners qualify for all benefits. These are the most notable:
Homestead Exemption. Many states exempt owner-occupied homes (homesteads) from a portion of the property tax burden that would normally accrue.

Federal Tax Deductions. If you itemize your federal income taxes, you can deduct your property taxes and the interest paid on your mortgage, reducing your overall income tax burden (often substantially). This particularly benefits those in higher tax brackets.

3. Potential for Rental Income
Even if you don’t initially think of your home as an investment property, you can turn it into a source of income. This can partially or totally offset your mortgage, tax, and insurance payments on it.
The easiest way to do this is by renting out part or all of the property, provided you follow all local rental property laws. You might rent out a basement bedroom to a friend, live in one unit of a duplex and rent out the other to strangers, or purchase and move into a second home, leaving your entire property free to rent.

4. More Creative Freedom
As a homeowner, your decorating, DIY project, and home improvement choices answer to no one, provided they don’t break local building codes or violate homeowners’ association rules.

5. Sense of Belonging and Community
Since homeowners tend to stay in their homes for longer than renters, they’re more likely to put down roots in their communities. This manifests in many ways. You might join a local neighborhood association, sponsor block parties, volunteer at a nearby community center, join a school group, or align with a business improvement district. As a renter, you might not do any of those things, particularly if you know you may be moving in a year or two.