buying

Despite the Fears, It’s Still a Good Time to Buy a Home

September 13, 2010 By Jon Griffith Leave a Comment

The Condition of the Market

Government has a way of destroying all hopes of a successful economic cycle by creating artificial markets through incentives. The most recent example is the tax credit offered to new home owners. By giving away tax-payer dollars to buyers who wouldn’t be buyers otherwise, it creates a buying frenzy for the short-term mindset of the ever-so-common paycheck to paycheck wage-earner.

The problem you’ll find in this is that when you create imaginary markets, they become, well, imaginary. In the Phoenix market, what we’re seeing today is a slow-down in buying. We’re experiencing an increase in inventory (more homes going on the market than being sold), and that’s part of a widely known law called the Law of Supply and Demand. When supply increases and demand does not, or even worse, when demand recedes, the prices fall.

Today, we have thousands of homes that are awaiting foreclosure that aren’t even part of that inventory count. Those homes equate to increased supply. Buyers are not buying because they’re afraid that once they buy they’ll be upside down in their home. This may be true, but you must look at one important factor.

Owning Real Estate is a Long Term Prospect

Don’t buy if you aren’t prepared to own for the long haul. People who get into owning homes before they think about the fact that they may need to be there for a long time aren’t doing themselves any favors. Part of their monthly mortgage payment goes up in smoke, and the cost to sell in the future means the home needs to appreciate in value enough to cover the fees associated with selling.

This is not an argument against buying. It is an argument for “buying at the right time.”

Buying at the Right Time

Buying at the right time doesn’t mean that you’re timing the market. It doesn’t mean you’re looking at the appreciation of real estate as a means to financial independence. You’re not gambling in this world if you’re truly ready to buy. Buying at the right time means that you’re ready to buy, whether the market is up, or down. If you understand the fundamental purpose for home ownership…to build life-long wealth…then you’re ready to buy. If you have a down payment of at least 20% of the purchase price and you’re going for a loan no longer than 15 years at a fixed rate, then you’re ready to buy.

If you have to use FHA financing, you’re probably not ready to buy. Sure you may be able to weather the long haul, but without a goal of knocking out your mortgage payment faster than the amortization schedule, then you shouldn’t be buying.

When should I buy?

When you resolve to keep the home for life, creating a possibility of future passive income.
When you see that your mortgage payment will be less than rent for a comparable property. (This is a big one.)
When you have at least a 20% down payment.
When you’ve resolved to take no more than a 15-Year fixed mortgage.
When you’ve eliminated all consumer debt.
When you have no car payment.
When you have no student loan debt.

So what do I mean when I say, “it’s still a good time to buy a home?” The answer is simple. If you’re ready to buy, then it’s a good time to buy, because you’ll be holding the property for life. Not prepared to do that? Don’t buy.

Filed Under: Market Updates Tagged With: buying, home, mortgage, Right Time

Should I Buy a New Or Used Car?

March 14, 2009 By Jon Griffith 5 Comments

Used. Always used. Buying a new car is one of the worst financial decisions I have ever made.

Monthly Payment

The monthly payment is the first thing that everyone looks at when they finance a car. Why? Because they live in a cash flow mentality. In this economy, cash is king. If you don’t have it, you can’t spend it. If you can’t spend it, you can’t make it. If you can’t make it, you won’t have it, and the circle continues.

If you’re thinking about a monthly payment, and any portion of that payment is going to be paid to anyone other than yourself (in other words, the bank), then you’ve already lost the battle, because you’re headed into debt. There may be a reasonable explanation for why you’re seeking financing for something you don’t have enough cash to purchase up front, but my advice to you is to completely avoid it altogether. In order to succeed at this, you will have to radically change your idea of what you should be driving. One of the mistakes people make when they consider their monthly payment on a new or used car is how much it really is going to cost them every month. The monthly payment every month is only the financed amount, and it hides all of the other expenses you’ll incur throughout the life of the car.

Since I’m such a nice guy, I’ll go ahead and lay out my stupidity (Dave Ramsey calls what I’m about to explain a “stupid tax”) for all to see, with no holds barred.

My Stupid New Car Buying Experience

In March of 2008, I purchased a new Honda CR-V, loaded. The only feature I didn’t buy was the All Wheel Drive. Big deal. So what did my car cost? The sticker price was $27,895. Divide this by 72 and you have a monthly payment of $387.00, right? Wrong.

When you buy a new car, you have to add to it the document fee, which in my case was $368.00, sales tax, which was $2259.50, and title and registration, which was another $514.71. These are just the up front fees. Then there’s the finance charge. My loan was at 7.9%, which over a period of 72 months is $8162.47.

Add all of these up, and the price of the car goes up to $39139.68. Divide that by 72 and you have a monthly payment of $544.00. But is that the total cost of owning the car? No.

In the first year, the car depreciates roughly $4200.00, so for the first year, you’re paying $544 per month plus $4200.00 divided by the first year (12 months) or $350.00. Color me stupid, but that’s $894.00/month. Add insurance at $1200/year and that’s another $100/month. Now we’re up to $994.00/month. Fuel for me last year, as a REALTOR, was $2937.00. That’s $244.00/month.

My vehicle, which appears to be costing me only $544/month (which by the way, is ridiculous and I should be stabbed through the eye with the very pen I signed with) is actually costing me $1238/month in real money!

The following is from Edmunds.com. It shows what you can expect to be the real cost of owning a 2009 Honda CR-V.


.		Year 1	Year 2	Year 3	Year 4	Year 5	5-Year Total
.	Depreciation	$4277	$2729	$2402	$2130	$1911	$13449
.	Financing	$1801	$1455	$1082	$680	$247	$5265
.	Insurance	$1258	$1302	$1348	$1395	$1416	$6719
.	Taxes & Fees	$2439	$374	$313	$262	$220	$3608
.	Fuel	$1996	$2056	$2118	$2182	$2247	$10599
.	Maintenance	$93	$546	$359	$872	$1108	$2978
.	Repairs	$0	$0	$105	$254	$373	$732
.
.	Yearly Totals	$11864	$8462	$7727	$7775	$7522	$43350

The Used Car Buying Experience

Let’s assume that I decided way back at the beginning, that I would be satisfied with driving the half-way okay car that I had which was completely paid off and only representive a small amount of “inconvenience” in my life. No NAV, no fancy leather, no sun-roof…etc. Big deal right? Right. Now, with a paid for car, the bank is getting nothing.

At the time, my truck was worth $8000.00. That actually means that I could have moved from the truck into a car that was more conducive to showing property for the same price, or perhaps a bit less. But, I would have been able to set my sights on that newer car without losing $1238/month.

Here’s how it starts. For 10 months, I would sock away $544.00 every month in my own savings account. Hey, I was willing to pay it to the bank, so why not just pay myself? After 10 months, I have $5440.00. Now I trade my $8000.00 truck, which would still have been holding its value, in to a used car dealer for a car that costs $13,440.00 (That’s $8000.00 + $5440.00.) Not bad. Yet again, I save for 10 months an additional $5440.00 and I trade my most recent car in for another car at the price of $18,880.00. 20 months into the process I’m driving a fairly nice used car. Keep in mind, I’m never buying new cars through this process and I’m always upgrading to cars that are holding their value, like a Honda or Toyota. For another 10 months, I save an additional $5440.00 and I trade my $18,880.00 car in for a used $24,320.00 car. 30 months have gone by and I haven’t paid the bank a red cent, and every 10 months I get to upgrade to a newer car, and not only that, but the $24,000 car I’m in now, was purchased by someone else NEW just 3 years earlier for a whole lot more than $24,320. Let the first owner take the depreciation. Let’s do it again. 10 more months of saving $544/month for another $5440.00 and I’m now able to trade in for a $29,760.00 car, paid for, IN FULL!

If you’ll recall, the price of my new Honda CR-V was $27,895.00. It’s been 40 months or 3.3 years, it’s 2011, and I can actually now purchase that 2008, loaded CR-V with miles on it, for much less than its original sticker price. In fact, that car that I had to have last year, would probably cost me under $20,000 in 2011, and would have all of the same features!

This is an absolute no brainer. When you buy a new car, you lose, no matter what. If you’re in a financial position to be able to take that loss, in other words, if you have the money to blow, then you can buy a new car, but you lose. It’s a mathematical fact. Most of us do not have that money because we jump in before we look at the facts. So here’s where I am now, as a result of my impatience. I have a one-year-old car with 20K miles that’s worth about $22,000. My monthly payment is $544, but as we’ve seen, the actual cost of ownership this first year has been over $1200/month. I still owe $27,000 on the car, which is a hair under the sticker price, and the only way out is to sell it and take a note for the difference.

Instead of having a paid for Honda CR-V in 40 months, I have to get rid of it and take an $8000.00 loss, which means I’ll be paying off nothing for a while. Are you as stupid as me?

Filed Under: Featured, Featured Article, Personal Finances Tagged With: buying, car, cost, economy, money, new car

The Benefits of Ownership

February 9, 2009 By Jon Griffith Leave a Comment

Buying a home doesn’t mean all of your problems will go away. There are plenty of responsibilities that come with home ownership, but the benefits far outweigh those responsibilities.

Owning a home involves a down payment, property taxes, potential home owner’s association fees, and other various expenses that can seem at first to be a burden, but when put into perspective, are all positive aspects of home ownership.

Down Payment – the downpayment becomes part of your home’s equity, or the amount of money your home is worth above and beyond what you’ll owe on it. Equity is what you would walk away with if you sold the home. Traditionally, since homes increase in value on average by 3% – 4% annually, your downpayment is now part of that investment.
Property Taxes – Did you go to school? Are you children in school? Will they be? Education is just part of what your property taxes pay for, and as I mentioned, contrary to popular belief, purchasing a home is not the most important investment you’ll ever make.
HOA Fees – The homeowner’s association is responsible for keeping your neighborhood looking good for the purpose of retaining property values. Nobody likes a run down neighborhood. There are other benefits that you’ll learn about in their documentation (Covenants, Conditions, and Restrictions.) Remember, not every neighborhood has one.

The fact that purchasing a home involves large dollar amounts is what typically drives the would-be buyer away. But let’s face it. Most of us don’t have $100,000 sitting around in our bank account, and so we remain stuck in a pattern of believing we cannot afford to buy a home.

So what makes buying a home such a financial benefit?

Tax Deductions – When you finance a home, part of the payment you pay to the bank is interest and part of the payment is equity. During the first 20 years of a 30 year fixed mortgage, the interest portion is actually disproportionately larger than the principle payment. Under current tax regulations, you are permitted to deduct the interest payments from your income to lower your tax liability. Renting does not allow this.
Appreciation – Real estate, over time, will increase in value by an average of 3-4% annually. In some cases more, in some cases less. As your home’s value increases, your equity grows, which equates to you and your family walking down a road towards financial independence and complete freedom from the rat race.
Equity – Part of your monthly payment goes towards chipping away at the balance of your loan and becomes equity in your home. Equity is something you can recover when you sell the house, provided the value has increased. When you rent, you don’t build any equity.
Buying Power – As the equity in your home grows, so does your ability to borrow that equity to improve your home or invest in additional properties down the line. While the reason we’re in this economic crisis is because of cash mongering greed, home equity loans are a potential solution to emergencies should they arise.
Economic Stability – A 30-year fixed loan is just that, fixed. The payment never changes. Rent continually shifts from lease term to lease term and over time can increase. Buying a home ensures your payments will always be the same.
Freedom to Choose – Owning a home gives you the right to do just about whatever you want to it, from the landscaping to interior decorating, you’ll no longer be bound by the landlord’s rental agreement and you’ll have the freedom to express yourself exactly how you want. Not only that, but you’ll also have the freedom to rent your home out to someone else. Renting out your home is a great way to continue to reap all of the benefits above without having to pay for it. In fact, your renter pays for it and helps move you toward financial freedom.

When you own, you have a voice, and you gain a sense of greater community, as though you matter more to the world. I have owned my own home since I was 30. I wish I had purchased sooner because I would be way ahead of the game. Get on it today! It’s time for you to buy a home.

Filed Under: Buying A Home, Real Estate Basics Tagged With: benefits, buyers, buying, equity, ownership

Get In While the Getting Can Be Gotten

October 8, 2008 By Jon Griffith Leave a Comment

You’re renting?

The only thing that stands between you and owning a home is whether or not you have the cash flow every month to make your payments on all of your financial obligations. Set aside your worries about credit scores and focus on whether or not you can pay your bills. If you can, and you have a good job, and you can prove solid income with a low debt to income ratio, then you can buy a house. Quit listening to what the media is telling you and start consulting with those who know ( ) what’s really going on.

Does buying a house mean taking on more responsibilities? It can, but the key in these economic times is to just buy something. Buy a condo, buy a townhome, just buy something.

Dave Ramsey recently read a letter from a listener in which he stated…

Why is it that when stores put items on sale everyone runs to get the best deals, but when stocks are on sale, everyone runs for the exits?

To that Dave responds with enlightening information (as though we don’t already know this) about how stocks and real estate are on sale. They’re on sale everyone! SALE! The market reflects pricing from 2004 and the slight downward over correction we’re seeing on that pricing is normal. Over time, these prices will increase.

Pricing this low means one thing. Homes are at a bargain discount right now and you need to take advantage of that.

According to a recent article released by the National Association of Realtors, Lawrence Yun, chief economist for the NAR said the following:

“What we’re seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region,” he said. 2 “The improvement also reflects the drop in mortgage interest rates after the government takeover of Freddie Mac and Fannie Mae. It’s unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we’re hopeful most of the increase will translate into closed existing-home sales.”

Rather than shopping for a bargain while prices are low, people are retreating from any major purchase, cowering in a corner and proclaiming ridiculous statements like

“Well I hope the President has a plan to fix this…”

Guess what…fat chance. The only person who has control over your financial future is you, and if you’re smart about managing your money, you’ll start shopping for a home now, because one year from now it will cost you more to get in.

Yun also states that

Following national declines of 5 to 8 percent in 2008, home prices are projected to increase 2 to 3 percent next year.

The 30-year fixed-rate mortgage will probably average 6.1 percent in the fourth quarter and rise gradually to 6.6 percent by the end of 2009.

Now is the time to buy that single family detached home you’ve been afraid of purchasing. There are thousands available on the market, and many of them are in the extremely affordable $125,000 – $200,000 range. A mortgage of this size will cost you around $750 – $1200 /month. I would bet you’re paying that in rent and when you rent, you’re losing it all.

It’s more clean than ever. It’s time to get in while the getting can be gotten.

Call me about buying a home today. (602) 312-3262

Filed Under: Blah Blah Economy Tagged With: buying, cost, home, mortgage