Do you live in the house?
Is this is a second, third or ninth house that you bought
as an investment or your primary residence? While most
people make a healthy profit when they sell if they
stay in the home after a couple of years, practically
speaking that should take a back seat to having a good
place for you and your family to live.
An investment home
is a totally different proposition. This time, you want
to look strictly at the dollars and cents. Can you afford
to make the loan payments if rates increase? Do you
have fixed-rate financing or will you have to try to
predict how rate increases could affect your payments?
How long have you had the house? Can you
make the payments comfortably or are you stretched to
the max? Were you able to get a conventional loan or
a product that could leave you vulnerable if the value
of the property decreases? Do you have a lot of equity
to act as a cushion against possible decreases in value?
Can you afford to keep making payments if the house
stands empty for a few months or if a tenant gets behind
"Investor-prospectors are the ones
that will be more susceptible to a drop," says
Guttentag agrees that devaluated home
prices could be a real problem for speculators, especially
if they are financing a large portion of the purchase
price with an adjustable-rate mortgage or an interest-only
loan and counting on turning the property fairly quickly.
"They're the ones who are going to get hurt, and
the lenders who financed them are going to be hurt,"
You also want to look at the reason behind
any potential or perceived value drop. If fewer people
are buying homes in your area, and you can rent your
property at a good price, your home may never sit vacant.
But if your area is becoming a ghost town because jobs
are leaving the area, that could mean you need to sell.
And the more houses you have, the more
complicated it can get. "The more leveraged you
are, the worse your position," says Mike Schenk,
vice president of economics and statistics for the Credit
Union National Association.
Are you banking on making money from equity
or rent? And if the numbers no longer work, what's your
Someone buying a home "primarily
for investment purposes in 2006 may be disappointed,"
says Retsinas. "But if you're living there, you
can probably ride out the cycle. The dividend is the
bed you sleep in at night."
Dratch is a freelance writer based in Atlanta.