Choosing a home that has value: how to make sure you profit from life's biggest investment - B.E. Guide To Homeownership—Part 2

Black Enterprise, August, 2003 by Donald Jay Korn

FIVE YEARS AGO, CHALMUS ENGLISH SR. LIVED IN A CONDO. "We had [maintenance] services there ... no snow to shovel," he recalls. So why did he go house hunting? "My wife wanted to have more room, for when the grandchildren come to visit."

English, who owns an accounting firm in Chicago, quickly discovered some of the perils of home buying. "The seller didn't live up to his promises," he says. "Appliances weren't upgraded [and] custom cabinets weren't installed." He had to invest $5,000 in repairs and upgrades after the purchase to turn the new house into a home.

Fortunately, this story has a happy ending. English, 56, and his wife, Wilma, bought their house for less than $127,000 in 1998. "Now, it's worth over $185,000, judging by sales of other homes in the neighborhood," he says. "Having a good location has helped the house gain value despite the problems we had in the beginning."

There is an old saying: The three most important things to look for when you buy real estate are location, location, and location. That's certainly true today and will be just as important tomorrow. Nevertheless, if you want to increase your chances of winding up with a home that will appreciate rather than depreciate, you also should pay attention to the following factors when shopping for your dream house:

* Choose an area that fits your lifestyle. Usually, this will be an area within driving distance from your job, but you may want to take other things into consideration. The area you choose should also be conducive to the climate and pace with which you feel comfortable. "When I was [retiring] from the Air Force, I was thinking of moving back to Texas, where I'm from," says James Lewis. "[But] my wife and children wanted to stay here in Florida, near Eglin Air Force Base, because they liked the lifestyle." As a result, Lewis, 69, wound up living in nearby Niceville, Florida.

Now, years later, lifestyle issues still make a difference for Lewis and his family. "When I bought my house 25 years ago, [having] five kids [made] living a block from the school very desirable," says Lewis. "Today, even though the kids are grown, we still like the area. It's near the post office and two blocks from our town's Main Street." That kind of convenient access to services has long-lasting value.

* Research your location thoroughly. "You want to know that you'll be moving into a dynamic, growing area where school enrollment is going up, and new businesses are opening," says Kathy Williams, a financial planner in Oklahoma City. "Pick a neighborhood where the homes have been increasing in value."

Williams says you can find information about communities on the Internet and that Websites such as MSN's House & Home (www.house andhome.msn.com), for example, give you the opportunity to research cities and specific neighborhoods. Once you've narrowed the field via online research, she suggests that you look around, personally, to assure yourself that you are not moving into a low-income, high-crime neighborhood. You may want to visit a potential community at night to determine its true character.

Beyond avoiding trouble spots, what makes a good neighborhood? "That's like asking what's pornography," says Ralph Rice, a realtor in Fort Walton Beach, Florida. "You'll know it when you see it. If you're near schools and churches, future buyers probably will look upon those as favorable features." Rice also says that unkempt lawns and nighttime noise are red flags.

Indeed, English credits his choice of neighborhood, in the South Shore area of Chicago, for his property's appreciation. "It has good access to rail and bus transportation. And I can walk to a golf course," he says. "Recently, homes in this area have become very popular."

Karen Anderson Baker, English's investment advisor, who has an office in Tinley Park, Illinois, stresses that location is paramount "They bought a house in a revitalized neighborhood," she says. "It's not far from his office, which they found appealing, and this convenient location probably will attract future buyers."

* Don't overpay for your home. If the house of your dreams is beyond your budget, be realistic. "I tell people not to pay more than two-and-a-half times their salaries for a house," says Williams. "What's more, you shouldn't spend every penny you have to buy a house. After buying, you should have an emergency fund of at least three months' expenses, in cash."

According to Baker, you should figure out what you can afford to pay and still have money left over for furniture. "Tell the agent what you can afford so you don't waste time looking at houses that aren't in the right price range," she says. There are many online calculators that can help you determine how much house you can afford. Try the GE Financial Center (www.gehomenow.com/Homebuy or Bankrate.com (www.bankrate .com/brm/calc/newhouse/calculator.asp).

* Look for features that will enhance value. You should not only look for a house you like, but one with features that will enhance its value when it's time to sell. "A house should have at least three bedrooms and two bathrooms in order to have good resale value," says Williams. "A two-car garage also is a plus."