Buying a new home is not a decision anyone makes lightly. Firstly, because it requires a large outlay of money; second, because if you’re not clear about what you’re buying you may have to deal with unpleasant consequences in the future. When you start searching for a home, it is normal to look at superficial things that you can see or evaluate firsthand. For example: size of the property, number of rooms, offer price, whether it has a garden or terrace… However, there are other important factors that will affect the purchase of a property. And this is the case of the state of real estate market.
The real estate market changes and evolves rapidly and it is advisable to stay up to date. Not only with the situation at the national level, but also globally. While at first it may go unnoticed, it can cause you a headache in the long term. Especially if you’re a first-time homebuyer and you have allowed yourself be carried away by the beautiful house you just found!
Therefore, it is important to evaluate the situation of how the real estate market is doing before buying a house. We know that the process and situations depend on the country, but there are 8 variables you should always consider!
Property debts
When you buy a house you have to do it will all the guarantees, specially when it is an older property. That is to say, you have to make sure that the property is free of debt and confirm with the owner that all payments are up to date. Including community expenses! Therefore, don’t forget to ask for the registration of the property and analyze it in detail.
On the other hand, it is very common to believe that it is a good idea to invest in a property in debt in rising markets and wait for everything to adjust. Don’t fall for this mistake!
Replacement housing
Selling a house to acquire a better one is the most common situation of the real estate market. This is not strange if we consider that the average age of homebuyers oscillates between the 32 and 34 years, according to The Atlantic.
If you paid more for your old apartment, selling at loss doesn’t seem to be the most positive scenario. However, look at it in another way: moving to a smaller house can save you a lot of money!
In these cases, find out if there’s a tax exemption when you sell your usual home, and if you can use this money to reinvest in buying another one. For example, here in Spain when you sell a property it is considered you an income get a wealth that you must declare to Internal Revenue Department. This gain is tax free only if you invest it in the purchase of a new home.
In the same way, you also have to take into account the expenses that come from the sale and purchase of properties.
Interest rate on mortgage loans
The more money is in the market, the lower the interest rate is. If we’re facing this situation, it may seem like a good idea to apply for a mortgage. However, the trend shows that prices in general fluctuate, so it is advisable to choose a mortgage with fixed rates whenever possible.
Research what types of mortgages lenders offer (fixed, variable, mixed…) and compare interest rate. Don’t be afraid to ask as many high street banks and online lenders as you can! This way you’ll have a better idea of what is best for you. Just keep in mind that your monthly mortgage payment shouldn’t exceed the 30% of our net income. In this article we explain everything you need to know before applying for a mortgage.
Inflation rate
Inflation causes the increase of prices such as real estate ones, building materials or everyday expenses. Although logic says that house prices should rise in periods of inflation, that doesn’t always happen. If you are a homeowner and want to rent a property in times of low demand, you have two options: lower the rent and put up with lower returns, or leave it empty until the market adjusts, generating even more losses.
Therefore, the landlords include clauses in the contracts in order to adjust the value of the rent to the customer index for fixed periods. This is done especially when inflation increases considerably. In addition, governments can take measures that affect the interest rate of mortgage loans, making the access even more difficult.
In times of inflation, we recommend to invest in new building properties, especially apartments. And old house may be very attractive, but the repairing costs can be higher. Not only this: as the months go by, they can increase even more.
Profitability of home improvement
Housing options in big cities can be limited or have exorbitant promotions. That is why buying a second-hand home and remodeling it can be a great opportunity. Not only if you’re thinking of living in it, but also if you plan to rent it to get profitability.
A good renovation of a property can highly increase your home’s value. As explained by Robert Stammers in this article, homeowners have to consider the benefits they will receive from the remodeling project over any cost recovery.
Nevertheless, do an inspection of the house and ask for the certificate of habitability to ensure that it meets the basics. Compare and investigate prices of the real estate market: you can find homes with significant discounts and affordable renovation costs! Sometimes the best real estate offers are not the ones that look most appealing.
Tax deductions in the real estate market
When you buy a house, you should have very clear how the current tax deduction in your country will impact. Mind that the purchase of a property carries several taxes. Therefore, it is very important that you are aware of what these expenses are, and if you can cover them.
There are specific conditions based on your situation and the moment you bought your house. For example, Spanish homeowners who purchased a property from 2013 onwards can not deduct it from the income statement, as explained by La Vanguardia. In other words, they will not be able to enjoy any kind of tax advantage.
Revaluation of properties
Pay attention to the homes that have the capacity of revaluation, especially if you want to use your new house as an investment source. Investigate the growth prospects of the most modern, dynamic and better-equipped areas of the city. The location of the property is key!
In order to know if the offered price is correct, analyze the average values within the area and of other similar houses. The greater the offer, the greater your chances of negotiating! However, the opposite will also happen. If the real estate has fewer options, you will have to adapt to the offer without many chances to get a cheaper price.
The most common scenario is that you will sell your house to buy a better one in the future. So don’t forget to take this point into account!
Buy to rent
Choosing the right type of house for you will depend on which your goals and needs are. If you want to buy a property to rent it, it should be close to where you live. Traveling to solve unforeseen problems or repairs will entail costs. And those will be less if you don’t have to drive miles and miles to get there!
On the other hand, thinking that smaller properties are the most profitable ones is a mistake. Analyze both the most attractive types of housing in your area and the most demanded by customers.
All things considered, don’t forget to take into account the real estate market when buying a new home. It is advisable to spend time and resources on some research and have things clear before it’s too late. Not only will you avoid long-term problems, but you will also be more confident knowing that you have made the right decision!
