3 myths of conventional real estate wisdom

Some money moves make more sense in today's economy

By Inman News Feed
Add Comment Add Comment | Comments: 1 | Posted Oct. 5, 2011

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Some money moves make more sense in today's economy

Tara-Nicholle Nelson
Inman News™

Whether you've rented your whole life or own a portfolio of properties, you've undoubtedly heard the real estate saying, "Location, location, location," which simply means that a home's value is highly dependent upon, well, its location!

The timeless truth of this saying is beyond dispute, even in tough times like these for the housing market. The recessionary fates and foreclosure rates of an individual housing market are highly dependent upon the economic and employment prospects of that market, and even the desirability of an individual neighborhood or lot.

However, there are some other age-old pieces of real estate wisdom that haven't stood the test of time as well as the location adage. Here are three pieces of conventional real estate wisdom that are due for a refresh.

1. Paying off your mortgage is bad. At the top of the market, many an infomercial pusher espoused borrowing against your home to buy more homes, creating an empire. While that worked for some, for awhile, you can see how that turned out.

But even now, traditional and conservative financial advisers still say that paying off your mortgage is not the best use of cash, as your mortgage interest is tax deductible, and the better use of the funds is to invest them for growth.

For folks who can and are inclined to pay their homes off, though, this rule is off-target. Paying off your home is less about making the most assertive financial move possible, and more about creating security, fixing a low set of living expenses, and hedging against economic and job market uncertainty.

The best practice in today's economy is to make money moves that create maximum sustainability and minimum stress; if that means paying your mortgage off, then do it.

2. Don't upgrade your house beyond the level of neighboring homes. Real estate insiders have long observed that buyers are hesitant to pay a premium to buy the best house on an otherwise modest block. And I've seen this in full effect, especially when the so-called best house is a three-story castle that has been expanded all the way to the fences, complete with turrets, spotlights and cherub statuary, on a street of one-story ranchers.

Customizing a home with bizarre features, beyond all reason, does make it harder to sell later. But adding features and upgrades that make your life in your home mirror your dream life, or create the comfort and lifestyle your family craves? If you can afford it without draining your home of equity or going into consumer debt, go for it, especially if you plan to be in the property over the long term.

It's your home, not just another financial asset, and one of the major advantages of ownership is your ability to create a comfortable, personalized habitat for your life.

Don't necessarily expect to get back your investment in upgrades dollar for dollar, and do avoid making bizarre customizations (hot tub in the living room, anyone?) unless you're OK with reversing them when you do list the place for sale, but don't hold back on creating a custom home experience for your family and your lifestyle because you heard it's a bad investment.

3. The bigger the agent's car/diamond/hair, the more successful she must be. The real estate industry is a-changing. More than 90 percent of homebuyers start their house hunt on the Internet. And that makes it much harder to tell at a glance who has the stuff to be successful at the endeavor of helping you buy or sell a home.

An agent who drives a Toyota and lacks Kardashian-style bling might even be more likely to have the technology skills it takes to market and sell your home in the Web-centric home marketplace, and to communicate with you via email, text and Facebook message -- pick your poison -- than the flashiest agent in town. Also, the agents who can hang in there and persevere on tough or small deals on today's market are often the ones who have manageable expenses of their own.

When picking an agent, disregard your agent's car, shoes and accoutrements (except maybe their tech tools: laptops, tablets and phones are important tools for them to have and use, prolifically).

So what does matter? Her track record of helping buyers or sellers similarly situated to you (e.g., her list-to-sale-price ratio or history of success at getting bank approval on short sales, if you're selling a home, or her ability to close deals on bank-owned properties, if you're buying).

Check prospective agents out by getting referrals from people you know that rave about their agent, checking online real estate forums to see if the agent is participating in online conversations about homes in your area, and asking for references from recent clients who can vouch for the agent's skills.

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