Knowing When it's Time to Buy

In the Hamptons and other second home markets, being here is a lifestyle decision. I think of it as a luxury discretionary item -- a home in the Hamptons is not where you will live, work, and educate your children. It’s a decision about where you want to vacation and if you buy instead of rent, it’s also a decision about asset allocation.

So usually, I tell people, it’s time to buy when you can and want to. The purchase of a primary residence is more about need and shelter. There is a bit more opportunity to time a purchase of a second home than there is a primary. I say bit because even if you are fortunate enough to be shopping in a “buyer’s” market, the realized value is not achieved until you sell. The benefit to purchasers in such a market is greater inventory. Right now is an especially good time to buy because there are many choices and record low mortgage rates.

There are wrong reasons to buy a house, like to save a relationship or to adopt a lifestyle you can’t afford. There are also extenuating reasons, like perhaps the advice of your accountant, who wants to find another way for you to leverage assets, or buy an investment you can live in.

That doesn’t mean anyone can just pick up and buy a new house. Most potential buyers will want to have two things:

1. The money to buy it, or the knowledge that you would qualify for a loan. It’s smart to start out by talking to a financial advisor, whether that’s your mortgage broker or your accountant, to find out how much you can afford and what your borrowing power is. In New York, you can get prequalified for a mortgage, but it isn’t underwritten and isn’t a guarantee you’ll get that loan. 

2. A house you love. I tell folks when they find a house they love and think they can’t live without, and they can afford it, that’s the time to buy. People who spend too much time deliberating generally are not happy with any decision they make, so it doesn’t matter how long it’s going to take them to make it -- their choice isn’t going to be any more satisfactory. If you doubt yourself after three weeks of deliberating, you’ll probably doubt yourself after six months of deliberating. If you love it and you can afford it, buy it.

If you’ve been renting, bear in mind that you can rent a much more expensive house than you can afford to buy. (This goes back to the idea that some buyers choose a house to take on a lifestyle they can’t afford -- which is, again, not a great reason to buy.)

Think of the rental value as a function of the sale price. A $1 million house, for example, could rent for $50,000 for the season. Renting, you’re ahead of the game because to own the house would cost you a lot more than $50,000 a year when you factor in mortgage payments, decorating, utilities, taxes, insurance, and other expenses. A number of people who have rented $10 million houses for $500,000 a year may not have the cash or borrowing power to buy that $10 million house -- they may be able to purchase a $5 million house, and that can be a hard lifestyle adjustment to make. 

Once you know what you can afford, it’s time to call a broker. Most people who come to me have already looked on the internet, maybe have read local papers, may have gone to open houses, and will generally have a pretty good idea of what’s available in their price range. Websites are great tools, but photos and copy are designed to highlight only the best features of a listing. A real estate professional will introduce reality to the process and will be able to guide you to properties you have not yet considered.

An agent who knows your budget, style, and location preferences will be on the lookout for you.

What you want may not be available when you start looking, but if you have someone looking for you, you will get to know of and see new properties even before they hit the web. 

© 2016 Diane Saatchi