Is This the Time to Buy Real Estate?

Written by Nancy Evans

Ask ten people this question and you'll likely get ten different answers. The real question is, are YOU ready to become a homeowner or a landlord?

It's really a question of affordability and the responsibilities that are a "side effect" of owning a home or becoming a landlord. Let's take a quick look at the cost of home ownership.

Please don't confuse cost with price. The amount of money you and the seller agree upon has very little to do with the ongoing costs of home ownership. The monthly and annual expenses that you take on (knowingly or unknowingly) are what we'll address here.

First, your mortgage payment. Included in this amount is the principal and interest on your loan amount. Most likely it also includes a portion that goes to cover PMI or Private Mortgage Insurance. This protects your lender--NOT YOU--should you default on your loan. This is NOT optional; it is a requirement for financing if you put less than 20% down.

Your monthly mortgage payment may or may not automatically include an amount to be set aside to pay your real estate taxes and homeowners insurance when they come due. I've seen too many people get into trouble because they assumed their taxes and insurance were included in their payment when they were not. Make sure you check and double check that the loan officer is quoting you the complete payment, not just the portion for principal and interest. If they are not included or cannot be included (some lenders refuse to escrow), make sure to set up your own budget so you have the money to pay them when they come due.

Being a homeowner comes with other expected and unexpected (to some) bills as well. You will need to pay for water, sewer and trash. These are usually collected quarterly by your city or town. In some locations, trash pickup is included in your real estate taxes.

Let's not forget heat and electric as well, since some landlords generously include this in your rent. You can obtain records of how much the previous owner paid for these utilities from the seller, the real estate agent or from the utility company. Some homes are more energy efficient than others, especially ones with newer windows and appliances.

You will also have to pay for repairs when things break--and they will, usually at the most inconvenient times. Your roof will leak in a thunderstorm, your water heater will spring a leak on a holiday weekend, or your refrigerator will die just after you went out and spent $300 on groceries. Set up and continually fund a maintenance budget so you are prepared financially to handle these events. When it comes to anything involving water, prevention is your best--and cheapest-- bet.

If you're thinking of buying a rental or investment property, you must include not only those things I mentioned but also plan to have each unit empty with no rental income for a couple months out of each year.

In short, you must be able to afford not only the mortgage payment but also the ongoing upkeep of a home or rental property. Hope for the best but plan for the worst, and you'll sleep better at night.