It’s time for New Year’s resolutions! These tend to include losing weight, joining the gym, waking up half an hour earlier, and more. This year, why not add a real estate resolution or two to your list – and see if you can make it happen?
When it comes to real estate, it’s great to have time on your side. Good things happen when you have plenty of time. However, the procrastinator in all of us can make it tough to get started in the real estate market. The sooner you make progress on any of these resolutions, the better.
Write down what you want to achieve and work on a plan to get there. After all, if you wait until 2023, you will be one year older when you start. No matter what your age, one of these resolutions below can apply to you.
I resolve to save for a down payment on my first home
Saving for a down payment is the biggest hurdle most first-time buyers face. Research low down payment loan programs so you know how much of a down payment you actually need. Check out any available down payment grants or assistance programs that may be available locally. Figure out what you can cut in daily expenses and put into savings. Skip the daily $5 latte. Check out Colorado’s First-Time Homebuyer Savings Account (FHSA), which can help you save for a down payment: coloradorealtors.com/fhsa.
I resolve to buy my first home
Once you have the down payment ready to go, it’s time to buy your first home. Meet with a local real estate lending professional and determine a price range you can afford for a home. If the lender identifies qualifying or credit issues, work on a plan to resolve those. Get a pre-approval from the mortgage lender first before meeting with your Realtor® to see what homes are available in your price range. The homeownership rate was 65.4 in the third quarter of 2021, according to the U.S. Census Bureau. From this figure, you can see that a large percentage of people never own their own home.
The graph to the right, provided by the National Association of Realtors®, shows how much wealth was created by being a homeowner for the last, 5-, 10-, and 30-year time periods in the Denver Metro Area. Continuing to be a renter, you will miss out on the great wealth-building opportunity that homeownership offers.
I resolve to move up to my next home
As the old saying goes, “Life Happens,” which means sometimes you need a bigger house or one in a different location. If you’re expecting to search for a new home this year, contact your mortgage lending professional and your Realtor. You can learn how much you are able to spend on a new home, and whether or not you will need to sell your old home in order to buy the next one. If you can keep the old home and rent it out, you have already achieved the resolution below.
I resolve to buy my first rental property
As stated above, the national homeownership rate is 65.4% according to the U.S. Census Bureau. That means that substantially less people own their own home AND own a rental property. I could not find a statistic showing exactly how many Americans own both a primary residence and a rental at the same time, but I’m confident that it’s a pretty low percentage. However, as you can see from the graph above, owning a second property can be a significant source of wealth building.
If you are able to keep your old house as described in the last resolution, you’re on your way to fulfilling this resolution. To acquire your first rental property, you might be able to refinance your old home in order to pull cash out for a down payment on a new residence. Then you can rent the first house and use a low-down-payment, owner-occupied loan to buy the new property.
If this is not possible, check into investment property loans and get pre-approved for a loan to buy a rental property. Check to see how much down payment is required. It’s usually 20%.
Most people don’t like to own a rental because they don’t want to be a landlord. Research companies that can professionally manage your investment property. This will make you a much happier rental property owner.
I resolve to pay down my mortgage
People have different goals regarding their mortgage. Some homeowners would like their home to be free and clear when they retire. Others want to build equity to have more down payment for the next purchase. In the U.S., we are actually one of the few countries in the world with 30-year mortgages. The argument for keeping your mortgage for 30 years is that towards the end of the term, you are paying it off with cheaper, inflated dollars. There is also an argument to keep the balance high for tax deductibility and use the proceeds from a mortgage to invest in other things. If paying off your mortgage quickly is one of your goals, there are a variety of mortgage acceleration techniques that can make that happen for you. Your financial planner can help you make those decisions.
I resolve to build a real estate investment retirement plan
Somewhere I heard that we spend our youth creating wealth, then we spend our wealth creating youth. When you think about it, that is so true! With three family members living in senior communities here in Boulder, I find it amazing to see how much wealth is necessary in the latter years of life to finance housing and medical care. The nice part about owning real estate is that home values have continued to rise, and rental income has continued to go up to help support those retirement years. As stated above, many Americans do not own a home and a rental property, let alone a real estate portfolio. A real estate investment plan doesn’t have to be huge to make real estate work for you. It could be to buy a rental house every two years over the next 10 years. If you have five free and clear rental houses by the time you retire, that is an incredible nest egg to take care of you as you age.
I resolve to invest in real estate using IRA funds
It’s been possible to invest in real estate using IRA funds since 1978. Most Americans don’t know that, let alone know how to do it. Many CPAs aren’t familiar with the process either. Investing in real estate in your IRA, allows you to let real estate values and income grow tax free, helping grow your retirement account faster.
I resolve to get my estate plan in order
As I said in the beginning, there is a resolution on this list for everyone regardless of age. If you have created real estate wealth, it is important to figure out what happens when you are gone. Meet with an estate planning attorney and make your wishes known. Even the great musician, Prince, died with a $300 million estate and had no will. A little planning makes it easier on everyone!
Get time on your side
The younger you are when you start acting on any of these resolutions, the better. When I started selling real estate in 1978, Baseline Subdivision houses in Boulder were selling for under $30,000. Today, they start around $650,000. Not exactly a get-rich-quick, fix-and-flip TV story, but an undoubtedly strong investment.
Talk with your Realtor®, mortgage lending professional, and financial planner. Work out a strategy and get moving today!
By Duane Duggan. Duane is an award-winning Realtor® and author of the book Realtor for Life. He has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. For questions, email [email protected], call 303.441.5611 or visit boulderco.com.