How to correctly identify your needs
In life, people generally want the biggest and most beautiful things in order to appear better to others. We can easily say that we live in a society of consumers. One of the bases of marketing is to create a need among people so that they are interested in your product and therefore purchase it.
When purchasing a home, you should complete the following important excercise to help define your actual needs. You should confirm how many bedrooms you want, do you want an office, do you really need a garage, fireplace, central air or a pool, etc…
You probably know at least one person that has purchased a property after their first visit because they were caught in the moment. However, they soon realize that they are actually missing needed space in the basement or that there is not enough room to add a second bathroom. Or, they might have realized that the home is too big and that certain rooms are not really necessary. During the visit it was a matter of, ‘Just in case we need it’. In the end, the purchase does not correspond to your real needs and becomes a bad investment.
When you start thinking about your needs, you need to consider the financial side as well. It does not make sense to purchase big and then live in the red in regards to your budget. You should be able to continue enjoying life after purchasing a home, enjoying a nice bottle of wine, taking a vacation and special treats. If you find that you are not able to do so, then purchasing a home might not correspond to your needs for the moment.
In order to correctly evaluate your financial standing, consult a financial advisor at your local financial institution. They will be able to help you determine what size of a monthly mortgage payment you can afford. You will then be able to shop for homes within the price range they have determined feasable for you. Ideally, you should look for something less than the maximum proposed so that you will have more freedom in your monthly budget and you will have liquid assets for unexpected events.
Since around 2000 the real estate market has changed from when you could purchase a home for ‘peanuts’ and less than the evaluation. The market is evolving.
What has provoked this market change? There are several different factors that can explain this new trend. For example, when there is a shortage of apartments this will then lead to an increase in rent prices. In turn, certain renters have realized that is better to buy a home and pay the same in mortgage payments as they were paying in monthly rent. Another factor involved were the low interest rates combined with high rent prices. Some buyers were able to negotiate an interest rate of 5% over 5 years with their financial institutions.
Will this latest real estate trend continue? Will this lead to consequences over the next few years? What impact will the recent inflation have on your rate of purchases? These are questions that everyone is asking themselves. In our opinion, there are negative consequences that can in turn have a positive effect on our economy. On the negative side, it is unimaginable that the market can and will continue in the same manner. For example, when you buy a home evaluated at $100,00 and you pay $200,000 including major repairs, like the roof and windows, you can’t expect to turn around and sell it at a profit.
Imagine if the interest rates rise to around 7% or 9% in 5 years, several people will not be able to pay their mortgages and will be forced to hand their keys over to the creditors. They will not be able to support this financial debt because they did not plan ahead for this particular scenario. In 5 years, those that have managed to save their money will be able to acquire these properties in foreclosure and at a good price. We hope that this scenario will not happen again as it did in the late 90’s. This is a hard lesson for those that lose their homes.
The best advice is to look ahead and plan for higher interest rates, this way you will not be caught off guard if and/or when this happens. If you do plan on purchasing a property in the next month or next few years, do not give up on your dream home. Simply be well prepared and make a purchase based on your needs and budget, otherwise it will cost your more in the end. If the property was meant be, you will get it, otherwise there is always another one waiting for you somewhere.
