Prior to the Real Estate correction, or should I say bust, of 2008, one of the single most important influences in deciding to buy a home has been location over price. Let’s face it, in Marin, the closer you live to the Golden Gate Bridge, the greater the demand for the home, and consequently, there is a higher price associated with the shorter commute to San Francisco.

The question is, now that the correction has happened, is location still the most important consideration?

With the recent craziness of so many distressed homes being on the market in places like the East Bay, Solano, and even Sonoma counties, it raises the question whether a fire sale mentality has swept the housing market. Thankfully, although Marin has had its share of distressed sales, most of the county remained fairly stable when you look at other parts of the state. If you examine most of the foreclosure areas carefully, most of the foreclosure activity that occurred last year and even this year was speculative; investors bought properties that were not in prime locations or areas at huge discounts from peak levels. The profitability of these investments will depend on the strength of the economic recovery. At one point it seemed like everyone wanted to buy a foreclosure or an REO, but when buyers really examined them, and had the ability to do inspections, in reality most of the wise buyers figured out they would have to put in $100,000 to $200,000 to make these properties desirable again, and then why not buy something that was in a great location at around the same ultimate cost.

Distressed properties that are fixed up still require a lot of cash outlay, and then you have to find tenants who can afford to pay the rents to cover the upfront expenses and taxes. In many cases, with the high rate of unemployment, this can be a risky situation. Although buying a cheap house can be a good strategy for investors, buyers that plan on occupying the home for the long term should not let price be the primary factor influencing their purchase. A home that won’t work for the long term is not a good deal if you want to move again in a couple of years. In fact you could lose money. As it does look like home prices may be stabilizing, they are not increasing at the tremendous rates of the 90’s and 2000’s. Just covering a move with closing costs and real estate fees could set you back more than if you would have found the right house in a great neighborhood, that stands a chance to increase in value.

Another thing to watch when lower priced homes don’t sell is incurable defects. A shared driveway, a home close to a freeway, a home that is two flights up from the garage, are all considered defects which you will never be able to solve. Remember, whatever you buy, you need to be able to resell it if you have to, and in a down market, this may be impossible unless you are willing to take a loss to sell it.

The bottom line is you really want to buy a home that will be in demand in ANY market. If you can’t find one that is in move-in condition, it’s better to find one you can afford that only needs MINOR improvements in a good location that you know will sell once you have made those improvements.

DON’T JUST BUY FOR PRICE!

Posted by:  Rick Smith