3 Common Questions From Locals About the Raleigh Real Estate Market
Real estate values in Raleigh have undoubtedly been on fire in recent years. As a financial advisor in the area, my team gets a lot of questions from clients regarding their real estate needs, investments and planning around second homes or rentals.
The following are perspectives and tips we share with our clients when they ask about buying their first house, purchasing a vacation property and deciding what to do after inheriting their family property.
Question #1: What should I be thinking about before buying a home in the Raleigh real estate market?
Buying a home for the first time in some U.S. markets, and especially in the Raleigh real estate market, is becoming increasingly challenging. In competitive housing markets, the supply of available homes is tight, which means sellers often have the upper hand. Additionally, home prices are rising above what is typically considered their fair value.
If you are contending with a seller’s market, here are four tips to help avoid overpaying for your first home:
1. Do Your Homework
Before you are ready to become a homebuyer, study the Raleigh real estate market. Check out the neighborhoods you like and attend open houses. Get a feel for what’s currently available and price ranges for various types of homes.
Pay attention to the cost of your list of “must-haves” – whether it’s a finished deck, a certain type of hardware or hardwood floors throughout. Getting every item on your list may not be realistic for your price range, so be prepared to re-evaluate after seeing a few options.
2. Set A Budget and Stick With It
It can be tempting to go over budget in a highly competitive market. However, doing so can have ripple effects on your cash flow. Be realistic about the price range that works for you. Review your monthly budget and figure out what you can afford in terms of monthly payments (for principal, interest, property taxes and insurance) on the home. Know what you have available for a down payment and determine the price range of houses that fits your budget.
3. Find A Reputable Realtor®
Look for a quality Realtor® who can help you feel confident throughout the process. A good Realtor® should take the time to truly understand what you are looking for in a home, the neighborhoods you prefer and your price range. They should also be familiar with the current state of the housing market where you want to live and suggest strategies to make your offer attractive.
4. Find Ways To Appeal To Sellers
To keep the price within your reach, consider ways to sweeten your offer. This could include agreeing to a faster closing period, offering to pay closing costs, or, if you are able, making a cash purchase (no mortgage process required). Even writing a letter to the sellers detailing why you want the home could make your offer stand out.
Question #2: Can I afford a vacation property?
We’re a few hours away from the beach and mountains here in Raleigh, so it’s common to consider a second home for vacations or weekend getaways. While owning a second home may make sense for a variety of reasons, it’s a major decision that can impact one’s financial situation for years to come. If you’re contemplating a second home at your favorite vacation spot, here are some things to consider.
1. How You Intend To Use The Home
If you envision the home as a second family space, be sure it’s truly a good fit for your lifestyle. If you are still working and can only use it for a couple of weeks per year, the expense and upkeep may be hard to justify – unless it provides the vacation escape of your dreams.
Alternatively, if you are imagining it as a rental property for a long-term resident or short-term renters, there are other considerations. Is it reasonable to assume that the potential income generated makes it a good investment, especially when considering other costs? Or are you looking at the home as a property that needs improvement, but one that you can eventually sell for a profit after you put some work into it?
2. Your Financial Ability To Carry A Second Mortgage
If you need to take out a second mortgage to make the purchase, will it create any risks for your monthly cash flow, either now or in the future? This question is particularly relevant if you already have a mortgage on your primary residence, or are close to or in retirement.
Taking on debt will carry a degree of risk regardless of your financial position, so you need to feel confident that it will not be a stretch for you. If you can afford to pay cash for the property, the question is whether that is the most effective use of your available funds compared to investing it in other ways.
3. Your Readiness To Take On The Extra Expenses
Beyond the initial purchase and mortgage, prepare to duplicate other expenses you already have with your current home – utilities, furnishings, maintenance and improvements. If the second home is far away from your current one, consider the cost of hiring professionals to help with managing and renting the property.
4. How The Purchase Fits With Your Overall Financial Plan
Perhaps the most critical question is what your purchase means from a comprehensive financial planning perspective. Does it fit your overall strategy and help you achieve your primary goals — or at least not prevent you from achieving them?
Question #3: I inherited a house, what should I do with it?
If you stand to inherit a property, such as a family home or vacation condo, the gift presents a critical financial decision: whether to sell, rent or keep the home. Oftentimes, this decision is handled while dealing with the loss of a loved one. Spend time thinking about how the property may fit into your lifestyle and financial picture. When the time comes, taking the following three actions can help inform your choice:
1. Set Up An Appraisal To Learn The Home’s Value
Hire a professional appraiser who can determine the fair market value of the property on the date you assumed ownership. Having a solid idea of the value can not only help you decide whether to sell or keep the home, but it can establish a cost basis should you decide to sell it in the future.
2. Calculate The Cost To Maintain The Home
Mortgage payments, annual property taxes and utility bills will be your responsibility. Factoring in other regular expenses, such as yard maintenance, snow removal and housekeeping can give you a realistic picture of what it will take financially to keep the home. Also, check with your attorney to ensure there are no tax liens or other assessments on the property.
3. Determine Your Ability and Desire To Maintain The Home
Do you have the time to handle the upkeep? Additionally, think about how you’ll manage the property in retirement if you’re unable to perform maintenance tasks yourself.
Additional Things to Consider
As you work through these actions, here are some additional considerations that come with the decision to sell, rent or keep the home:
Parting ways with a family home can be emotional – even when you know doing so is the right decision. Give yourself time to prepare the home for sale. This way you can sort through your loved one’s belongings and find closure at your own pace.
When the time is right, a cleaning company, home staging services and a Realtor® can help you put the property on the market. If you make a profit on the sale, apply the money toward your financial goals. The extra sum can help make your goals of retirement, college tuition for grandkids or estate plans a reality. Selling the home has tax implications that vary by state, so talk to a tax professional for guidance.
If renting the home is appealing to you, research what the rental market is like in your area. Determine if a reasonable monthly rental price provides enough cash flow to cover upkeep costs.
Hiring a management company to clean, make minor home repairs or manage the rental process may be appealing, particularly if the property is miles away from your primary residence. Additional tax considerations may apply depending on the number of days you use the home versus rent the space to others. Consult a tax professional to understand if and how your tax situation may change.
The ability to continue family traditions, have a future retirement space or a vacation getaway may make keeping the home the right decision for you. If you’re sharing ownership with a sibling or another family member, decide how you will split the financial and maintenance responsibilities.
If you inherit the home outright, the choices are yours to make. However, communicating your intentions with others may help alleviate tension, especially if the home has sentimental value to your family.
Raleigh real estate has been on a tremendous trajectory over the past few years, so take time to critically think about how to integrate your real estate decisions into your financial plan. Your future self will thank you.
A Note From The Author:
Russ Emrath, CFP®, CRPC®, APMA®, MBA is a Financial Advisor with Inspired Capital, a private wealth advisory practice of Ameriprise Financial Services, Inc. in Raleigh, NC. He specializes in fee-based financial planning and asset management strategies and has been in practice for 11 years. To contact him, email firstname.lastname@example.org, call 919.227.3195 or visit his team website at www.inspiredcapitaladvisors.com. His office is located at 3600 Glenwood Ave, Suite 130, Raleigh, NC 27612.