Exciting news in the Vazza household. My wife and I purchased our first condo here in San Diego. Buying a property is equal parts exhilarating and daunting. I’ve helped dozens of clients go through the purchase process themselves, and am glad to have cut my teeth and gained the experience first hand. Buying a home is typically one of the largest financial decisions we make, and a decision that is made infrequently. Therefore, for both first time home buyers as well as those of you thinking about your next purchase, the next few weeks of blog posts will all be geared toward real estate and the major questions surrounding the decision.
Where to start?
Living in San Diego, we’ve gotten used to the regular complaints about high housing prices. Being new to the area, I wanted to learn more about the local market and understand what may be driving the increase in prices.
I decided to attend a free seminar offered through Meetup.com that focused on real estate in San Diego. I was somewhat skeptical, but the meeting received high ratings and positive feedback, so I thought it would be a great place to start. Admission was free, with the promise of pizza and beer – not exactly a hard sell.
Fortunately, the meeting lived up to the reviews. The agent, Patrick Kappel, did a fantastic job. He spoke my language right from the start beginning his presentation with, “When it comes to real estate, what you are really buying into is not the property, but the local economy around said property.” He is involved with the local planning boards and proceeded to present 40 minutes of data on the San Diego economy, including demographics and employment trends, home price trends, major development projects, and even significant naval relocation plans.
Data. Data. Data.
There are two sources of return from real estate. The long-term appreciation of the property over time, and the potential income from renting the property out. San Diego real estate has traditionally earned its return equally from appreciation and cap rate (rental income). About 4.5% of long-term appreciation and roughly 4.5% as the average cap rate. Your market may be different, and it is imperative to do your due diligence and understand what factors will be driving your potential returns and how the local market’s economy will impact those factors. Start your search by attending some local seminars! Meetups exist all over the country and the same opportunity awaits you. Take the time to find someone focused on educating, not just selling, and learn about your own local market.
It is highly unlikely you will pick the “perfect” time to buy. Patrick’s data driven presentation made us feel very comfortable that the drivers of our local economy are trending positive. Could the market take a dip in the short term? Of course this is possible. But, over the long-term, we feel optimistic about the condo’s potential and that all started by taking the initiative to be better informed about the area. Even if you have lived there for years, it is still worth the effort to find out about new initiatives taking place you might not be familiar with. Be sure to tap into the expertise that exists in your area as you begin this adventure.
What comes next?
Don’t jump right to the agent at this point. That will come later.
Once you’ve done your due diligence on the local market, it is time to talk to a financial planner. How does a house fit into your plans and budget? How much house can you afford? How will you pay for it?
Likely through a mortgage. With your financial plan built, it’s time to talk to the lender.
The conversation I had with our lender and all you need to know about the mortgage process is up next week!