Real Estate Q&A
We have been living in the Grand Valley since 2002 and still live in the home we purchased when we moved here from Nebraska. We rode the values up and have now ridden the values back down, but we have outgrown our current home and see an opportunity to move up while interest rates and values remain somewhat low. We are in a good position with our current home loan and have few concerns about getting it sold, however we may keep it for our first rental property. We have been discussing new construction as compared to an existing home and which would provide our biggest bang for the buck now, but also as prices begin to rise. What are your thoughts?
— George and Lyn, Grand Junction
George and Lyn,
It sounds like you guys are well positioned and I would agree that now is a wonderful time to purchase, especially if you are outgrowing your current home. I also think it is a great idea to keep your current home and have it as a rental property, as I am a fan of having some real estate holdings in your personal financial portfolio. This is an increasingly popular option that many are considering and taking advantage of as they move up in market. While I think it is a great idea, I would also recommend you speak with a property manager to make sure that the rent you are expecting is in line with the market.
Let me first say, location and not age will likely determine the lion’s share of your home’s equity performance over the years. Remember, location is the No. 1 factor in a home’s value performance. That being said, I am a big fan of new construction, especially right now, because land values are down and building prices are still fairly reasonable. In my mind, new construction will typically appreciate faster than the existing older homes, if for no other reason than they are new and are less likely to need much maintenance attention over the first 10-15 years. The best thing about new construction, you can build it just the way you want it. You do not have to settle for someone else’s idea of how it should have been. You can make your new home fit you just the way you want it to fit. Generally, new construction will have the latest features that are preferred by buyers and not have the functional obsolescence of some of their older competition, plus they are built to today’s standards and codes which include many safety and energy benefits.
New construction is not the panacea. You must also consider the hidden costs of new construction, like window coverings, landscaping, fences, just to name a few. Although your newly constructed home may have only cost $275,000, you can probably add an additional $25,000 for the hidden costs you will incur after closing. Five to 10 percent is a good rule of thumb for those costs. Also, keep in mind, newer may not always be better. Not all homes are constructed equally and some of the older homes are wonderfully built homes with great quality.
I also love existing homes, as I own a 36-year-old home myself. What I love so much is the character many of the older homes have that I could not afford in a new home. Some of the functional obsolescence I label as character and feel — and I love that aspect of older homes. One nice thing about older homes and neighborhoods; you can see how they have aged. Buying a new home in a new neighborhood is like having a baby, but buying an older home in an established neighborhood is like seeing them as an adult and what kind of person they have become. It is nice to see the maturity of older homes and neighborhoods and they provide a certain feel you can not get in a new community. You will most likely have more repairs and nuances in an older home that you will not have in a new home, but generally you don’t pay as much for used as you do new, thus some added expenses are to be expected.
Old or new homes will prove to go up and down in value as the market moves up or down and your choice should be based not only on which one will provide the best bang for the buck, but also which one will provide you with the type of environment in which you wish to live. Don’t forget that the location of your new or existing home is probably going to be your largest financial driver and the years go by. Go for the one that feels like the right one, if it is new or old, my bet is you will love it; and loving where you live is the most important thing you will look back on.
The Kimbrough Team,
RE/MAX 4000, Inc