In William Shakespeare’s play, Hamlet, written in 1600, Hamlet asks the question TO BE OR NOT TO BE, as he questions the meaning of life. If Hamlet lived in Freeport, Grand Bahama, some 400 years after asking that famous soliloquy question, he might now ask a classic real estate question: TO BUY OR NOT TO BUY?
For most people, deciding to purchase a home is the largest financial decision of their lifetime. Before making the jump into home ownership, potential home buyers should consider the “soft” lifestyle issues as well as the “hard” financial ones. In Rotary, we have the 4 way test. Is it the truth? Is it fair for all concerned? Will it build good will and better friendships? Will it be beneficial for all concerned?, and in Real estate we have four financial and lifestyle questions to consider when determining if buying a home is the right decision for you:
- Do you have a steady income? At or near the top of every potential homebuyer’s mind is whether or not they can afford to buy a home right now. Buying a home remains a sound financial decision for those with documented income and a good credit history, and a steady income can provide a strong backbone for the initial down payment and future mortgage payments. Don’t hesitate to speak with your real estate broker to determine all the “other” costs of home ownership such as insurance, pool maintenance, power, cable, water, gardener, general upkeep etc etc. Your real estate broker can help you answer and uncover questions about the cost of home ownership. Make sure you are know what your monthly operating costs will be including your other living costs so you can budget properly. Don’t fool yourself.
- Do you plan to stay in a home for an extended period of time? With proper planning, a home purchase has historically proven to be one of the strongest investments one can make. Along those lines, it’s imperative to understand that investing in a home is much different than investing in a stock portfolio. Homes typically appreciate in value over time while the owner builds his or her equity through monthly mortgage payments. If you anticipate staying in a home for only one or two years, it doesn’t necessarily mean buying is not for you, but you are less likely to see a significant financial return on your investment. Based on the current market and our closing costs you should be prepared for a long term investment otherwise it does not make sense. Remember that you will be responsible for ½ the government stamp tax ( 2% to 5% based on the price) and your legal fees of approximately 2.5%. So when you buy it could cost you 7.5% in closing costs and when you sell it can cost you up to 13% so you have to factor that in your calculations.
- Do you plan to sell a house in order to buy a house? Your local real estate agents can help you understand current local market conditions and will help you make smart decisions when listing a home on the market. If you do not currently own a home that needs to be sold prior to purchasing a new one, now is a particularly smart time to buy. Even though local banks are more thorough in their approval process, mortgage financing is still widely available for those with a steady income and solid credit. High inventories and low interest rates give first-time homebuyers a tremendous amount of opportunity and flexibility in our market. Remember, 1st time Bahamian buyers can get an exemption on the government stamp tax. You still have to pay it but you will get it back from the government.
- How do your other options compare? For renters, calculating month-to-month housing expenses is as easy as inquiring about the monthly rent and average utilities. The calculation gets a bit more complicated when considering the monthly cost of owning a home. A real estate professional can help you understand a range of financial considerations from annual service charges, to hurricane insurance, to property taxes if you buy out of the “bonded area”. And in 2015, we might be faced with property taxes like Nassau. And soon we have to see how VAT (Value Added Tax) factors into the Real Estate equation.
There is no one right decision when it comes to renting versus buying a home. Each individual should take the time to look at their personal and financial situation to decide what will work best for their needs and lifestyle. To Buy or Not to Buy — that is the question.
Until next time,
|James Sarles, President & Broker|
Coldwell Banker James Sarles Realty