Author Topic: What makes your home fluctuate in value and how to predict future equaity?  (Read 1917 times)

Kaplin261

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Example A
2000 Sqft home
Purchased in 2002 for $200,000
Sold in 2012 for $300,000

Example B
2000 sqft home
Purchased in 2002 $200,0000
Sold in 2012 $240,000

Let's say both homes were baought and sold at fair market value and taken care of the same. What are possible factors that made House A appreciate more?
« Last Edit: July 17, 2015, 09:49:34 AM by Kaplin261 »

forummm

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Significant renovations. Whims of homebuyer fancy. Changes in school districts. Gentrification. Who knows.

The point is that you can't really predict what's going to happen very well.

Kaplin261

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Significant renovations. Whims of homebuyer fancy. Changes in school districts. Gentrification. Who knows.

The point is that you can't really predict what's going to happen very well.

What about things you can predict or know are happening soon like a new high school that has been approved,or library, a new subdivision that will build 500 houses has been approved.

I know its not a guarantee but wouldn't I want to invest in a home that has a higher chance of going up in value?

ShoulderThingThatGoesUp

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Aesthetics
Bank sales
Calcium on basement walls
Dog park opens nearby
Elementary school takes a downward turn
Fallen branches in the backyard
Great restaurant opens within walking distances
Hospital within earshot opens a heliport
Insurance decides one is risky
Juliet balconies
Kangaroo decals in the nursery
Lead paint
Mildew smell
Noise pollution
Oversized for neighborhood
Panic in the market
Questionable municipal finances
Renovated houses coming on the market
Sandbox in the backyard makes it look unkempt
Tall house build next door
Ugly paint
Views
White carpet looking dingy
Xeroxed home/cookie-cutter
Yellowed vinyl
Zingers about the neighborhood becoming popular local chatter

forummm

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Significant renovations. Whims of homebuyer fancy. Changes in school districts. Gentrification. Who knows.

The point is that you can't really predict what's going to happen very well.

What about things you can predict or know are happening soon like a new high school that has been approved,or library, a new subdivision that will build 500 houses has been approved.

I know its not a guarantee but wouldn't I want to invest in a home that has a higher chance of going up in value?

Are you the only person who knows about this information? If not, then why wouldn't that information be incorporated into the price of the house already? If you are willing to pay more to buy that house because of your belief that its future value will be higher relative to other houses, then wouldn't other buyers have the same willingness to pay more? Wouldn't the homeowner want to take the best offer--and probably have priced that information into their asking price already--especially since neighboring houses are also going to increase in value if this new amenity is known about?

Kaplin261

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There is a county that has a bad school rating because its over crowded and outdated, for years parents have been moving away to better county's that have better schools and selling there homes cheaper then market value. This would make values drop.

The same county just approved a new school and will split the county making half the kids go to the old school and the other half going to the new school. The school will open in 4 years. Wouldn't it be a safe bet that the homes in the district for the new school would go up?

Rezdent

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Significant renovations. Whims of homebuyer fancy. Changes in school districts. Gentrification. Who knows.

The point is that you can't really predict what's going to happen very well.

(Snip)

I know its not a guarantee but wouldn't I want to invest in a home that has a higher chance of going up in value?
Depends a bit on your goals.  If you are buying a "forever" home to FIRE, you may want something that holds steady and doesn't appreciate a lot.  Rising home values will increase some running costs such as local taxes and insurance rates.  Retired people often get squeezed and eventually priced out of their homes in hot markets.  Yes, they also cash the equity but the costs of buying, selling, and relocating often cancel out the appreciation.

Bob W

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There is an old truism that you make your money going in on real estate --- meaning you want to buy a home at a very good price both in terms of market timing and relative to similar properties.   

It also helps to have some basic renovation skills.

Buy a run down home in a good neighborhood at a good price.   Do the paint,  yard, HVAC,  tile,  updated baths,  hardwood etc... Do all the work yourself.

Most people forget the ginger bread and curb appeal aspect of homes.  Generally people decide to buy a house within 5 seconds of pulling up to it.   So have the best manicured lawn,  very nice landscaping and a bit of gingerbread on the house.   Don't forget the front porch swing.   

Unfortunately,  I am picking up the vibe that homes are now in the overpriced level in many of the big cities at this time.    Of course you may not want to wait for a correction to purchase.   Just be aware if you buy a home now, in 10 years it may sell for what you paid or even less.

Also remember that homes are not investments for 90% of people.   Or if they are, they are money losing investments.    Your best hope would be to keep up with inflation as a general rule but even then with taxes,  upkeep,  rehabs,  interest,  and sales commission you're likely to lose money.  MMM had a 400K house that he broke even on after 7 or 8 years. 

So treat your home purchase as a place for you to live ---- buy low,  buy small,  shoot for less than 10% of your income going towards your total housing costs and you'll be fine.    Invest all that extra money that your friends are spending every month on some nice IRAs and 401Ks and in 10 years you'll be ready to retire on the islands while your house poor friends are still struggling to pay their homes off. 

And always remember "you don't own homes,  they own you"
Better living through math.

Kaplin261

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Significant renovations. Whims of homebuyer fancy. Changes in school districts. Gentrification. Who knows.

The point is that you can't really predict what's going to happen very well.

What about things you can predict or know are happening soon like a new high school that has been approved,or library, a new subdivision that will build 500 houses has been approved.

I know its not a guarantee but wouldn't I want to invest in a home that has a higher chance of going up in value?

Are you the only person who knows about this information? If not, then why wouldn't that information be incorporated into the price of the house already? If you are willing to pay more to buy that house because of your belief that its future value will be higher relative to other houses, then wouldn't other buyers have the same willingness to pay more? Wouldn't the homeowner want to take the best offer--and probably have priced that information into their asking price already--especially since neighboring houses are also going to increase in value if this new amenity is known about?

Most home prices are determined on comparable sales, it would take a little time before the market caught up. I don't think that it would instantly jump the home value up, but slowly over the years the homes would appreciate faster.

Kaplin261

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There is an old truism that you make your money going in on real estate --- meaning you want to buy a home at a very good price both in terms of market timing and relative to similar properties.   

It also helps to have some basic renovation skills.

Buy a run down home in a good neighborhood at a good price.   Do the paint,  yard, HVAC,  tile,  updated baths,  hardwood etc... Do all the work yourself.

Most people forget the ginger bread and curb appeal aspect of homes.  Generally people decide to buy a house within 5 seconds of pulling up to it.   So have the best manicured lawn,  very nice landscaping and a bit of gingerbread on the house.   Don't forget the front porch swing.   

Unfortunately,  I am picking up the vibe that homes are now in the overpriced level in many of the big cities at this time.    Of course you may not want to wait for a correction to purchase.   Just be aware if you buy a home now, in 10 years it may sell for what you paid or even less.

Also remember that homes are not investments for 90% of people.   Or if they are, they are money losing investments.    Your best hope would be to keep up with inflation as a general rule but even then with taxes,  upkeep,  rehabs,  interest,  and sales commission you're likely to lose money.  MMM had a 400K house that he broke even on after 7 or 8 years. 

So treat your home purchase as a place for you to live ---- buy low,  buy small,  shoot for less than 10% of your income going towards your total housing costs and you'll be fine.    Invest all that extra money that your friends are spending every month on some nice IRAs and 401Ks and in 10 years you'll be ready to retire on the islands while your house poor friends are still struggling to pay their homes off. 

And always remember "you don't own homes,  they own you"

The home MMM sold was a rental property. I'm talking about your main residence. For most people this is the biggest investment you will ever make.

If you have children chances are your home can be downsized when they grow up and move out, putting you in a spot that you will be selling your home to buy a smaller one. Or if you retire and live in a place near your job and want to move to a spot that fits the needs of your retirement better.
« Last Edit: July 17, 2015, 10:29:03 AM by Kaplin261 »

forummm

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Significant renovations. Whims of homebuyer fancy. Changes in school districts. Gentrification. Who knows.

The point is that you can't really predict what's going to happen very well.

What about things you can predict or know are happening soon like a new high school that has been approved,or library, a new subdivision that will build 500 houses has been approved.

I know its not a guarantee but wouldn't I want to invest in a home that has a higher chance of going up in value?

Are you the only person who knows about this information? If not, then why wouldn't that information be incorporated into the price of the house already? If you are willing to pay more to buy that house because of your belief that its future value will be higher relative to other houses, then wouldn't other buyers have the same willingness to pay more? Wouldn't the homeowner want to take the best offer--and probably have priced that information into their asking price already--especially since neighboring houses are also going to increase in value if this new amenity is known about?

Most home prices are determined on comparable sales, it would take a little time before the market caught up. I don't think that it would instantly jump the home value up, but slowly over the years the homes would appreciate faster.

Could be. Housing is much less liquid than stocks. Google released some good numbers for the quarter today and its share price immediately went up about 14%. But I guess with a house most purchases are limited by what it can appraise for.

Do you think adding a new school (which will still have the same county leadership) is going to change the value of homes that dramatically?

Clean Shaven

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Location, location, location.   :-)

Every house I've bought, I've done so with the idea that I will need to sell it again someday, so it'd better be appealing to a broad spectrum of possible buyers.  To me, this means:

- Good school district
- Enough bed/bath/garage to be generally attractive -- 3/2/2 minimum, for my area, is popular.  And decent closet space.
- No weird layout/floorplan/difficult-to-change features.  Tract homes are generally well-designed to be broadly appealing, though generic.  Custom homes can get really weird.  No uber-trendy design features that will age badly.
- Not over-improved for the neighborhood
- Not immediately adjacent to anything that future buyers may dislike (and I wouldn't want either): busy intersection/ traffic noise, shopping center/parking lot, etc.  Adjacent to a park or greenbelt, however, is a positive.
- No structural damage or other damage that will be difficult and/or expensive to repair -- foundation movement, mold, flood plain, etc.


But, back to the original question of whether any of this will make a particular house increase more in value -- who knows.  It's just the best I can do with being able to re-sell in the future at a reasonable market price, whatever that may be at that time.