Homeownership as the American Dream

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Homeownership as the American Dream

Table of Contents

Home Search
Asking Price and Sellers History
Sellers Investment and Annual Yield
Payments for the Home
Appreciation of Property and Investment Prognosis
Conclusion
References

Purchasing a home is often challenging as buyers can encounter many unforeseen issues, especially if they do not research the market, the seller, or the propertys history. Moreover, real estate is not only a place for living it is also an investment opportunity. Thus, it is vital for one to calculate the underlying costs of buying, repairing, and potentially reselling the home in the future. The following analysis is conducted on a home in Saline, Michigan. After a short description of the house, the paper identifies the current and previous asking prices, the sellers investment yield, down payment, and other necessary costs. Finally, the appreciation of property is completed to show whether the home will bring the owner any value in 10 years.

Home Search

The search for a suitable home was conducted with several factors in mind. The propertys location had to be in Washtenaw County, MI, preferably in or near Saline. Next, I looked for a one-family home with more than two bedrooms and one bathroom to accommodate my family. After researching houses on several websites, I chose a 4-bedroom, 2.5-bath house built in 1989 (Decapua, 2020). This propertys size is 2,152 square feet; it has a garage for two cars, a patio, a spa tub in one of the bathrooms, a spacious backyard, and a brick fireplace. While the houses history of 31 years reveals some outdated design, the style is simple and reserved, which can be easily updated if needed.

Asking Price and Sellers History

Currently, the asking price for the chosen home is $319,900 (Decapua, 2020). According to the public record, it was sold four times, with the latest sale being completed at $293,700 in July 2019 (Decapua, 2020). The house was listed again in March 2020, but it is still on sale as of this day. Thus, the seller has been the owner of this property for approximately 15 months. It seems that the house has been refurbished rather recently, but it is unclear whether the last buyer has spent any money on repairs. Thus, one can estimate the sellers investment yield only based on the two price points for the home.

Sellers Investment and Annual Yield

The difference in the previous ($293,700) and current ($319,900) price points is apparent. If the sale is completed at a price listed by the current owner, they would have made around $26,200 from owning the house. Estimating that the owner has had the place for 15 months, their annual yield is about 7.08%. This is a relatively high increase from the previous price, acknowledging the fact that the house has been in the last buyers possession for a year and several months. Nevertheless, reviewing the houses history, it becomes apparent that the current seller engaged in price negotiation or waited for the house to be revalued, as the starting price for the previous listing was $325,000 higher than the current selling point (Decapua, 2020). This implies that, with time, the last buyer may also update the listing, which would diminish their potential yield.

Payments for the Home

In the United States, a down payment for a home can vary and often depends on the location, the buyers benefits, and the sellers requirements. In general, the prospective owner can expect to pay from 3.5% to 20% of the overall price (Bian et al., 2018). A larger down payment has several advantages, including better interest rates and better or no private mortgage insurance. Thus, the calculation will be performed using the best possible scenario. If I were to make the down payment of 20%, I would need $63,980. Thus, I would be left with 80% ($255,920) to pay monthly for the mortgage duration.

In addition to the mortgage payments, I can expect to have closing costs. These payments include a variety of fees for document processing, property appraisal and inspection, attorney services, insurance, taxes, and title insurance. Generally, closing costs range between 2% and 5% of the total property price (Bian et al., 2018). Some of the fees depend on the houses state, while others are linked to the location and the firm hired to perform the service. The first possible type of closing cost is property-related fees, which include a fee for home appraisal and inspection. Here, the buyer determines whether the house is worth as much as its asking price. Assessment is vital for mortgages supported by the government, but it is also useful to know whether the house is in good condition. Overall, as noted above, the sum of all closing fees for the chosen home will range between $6,398 and $15,995.

Analyzing the propertys photos, the house and the surrounding territory seem to be in good condition. However, these pictures do not guarantee that the home will not have any problems with its plumbing, heating, or electricity. One of the obvious repairs that I would like to do is flooring. Currently, the majority of rooms have carpeting while this type of flooring is comfortable for bedrooms, it may cause problems in the dining area, office, living room, and laundry room.

Thus, I will include potential reflooring fees into the final costs for the house. According to Lerner (2019), hardwood floors are a great investment, as they are long-lasting, and they increase the price of the estate for a potential future sale. The national average for installing hardwood flooring is about $4,500; one can expect to pay between $6 and $12 per square foot (Home Advisor, 2020). I would estimate that one-fourth of the total living area needs to be refloored, approximately 540 square feet. Thus, I may pay anywhere from $3,240 to $6,480 for new hardwood floors in select rooms.

Appreciation of Property and Investment Prognosis

Looking at the houses history, one may see that its price increased in the 30 years of its existence. One may also project that the price will increase. According to (Slagter, 2019), prices in Michigan and Washtenaw country, in particular, will stabilize, and the housing market will grow steadily. The appreciation rates are estimated to be at 4.8% (Slagter, 2019). Using this data and the homes current asking price, the prognosis is that the house will cost about $511,242 in 10 years, showing a positive investment and a gain of $191,342, excluding additional fees. With the addition of closing costs, repairs, and mortgage fees, the houses investment opportunity is still high.

Conclusion

The process of choosing a house, whether it is for renting or living, involves careful investigation and calculation. The history of the house and the local real estate market can signify whether the property is worth buying. The selected home in Saline, MI, offers a great opportunity for the family to live in and have a potential investment. With the asking price of $319,900, one can expect to put a down payment of $63,980, have closing costs between 6,398 and $15,995, and pay between $3,240 to $6,480 for hardwood flooring. In 10 years, with an appreciation rate of 4.8%, the house may cost $511,242, yielding a great positive result.

References

Bian, X., Lin, Z., & Liu, Y. (2018). Bargaining, mortgage financing, and housing prices. Journal of Real Estate Research, 40(3), 419-451.

Decapua, D. (2020). 6710 Robison Ln, Saline, MI, 48176. Web.

Home Advisor. (2020). Wood flooring cost. Web.

Lerner, M. (2019). Replacing carpet with hardwood floor: Which has a better resale value? Realtor. Web.

Slagter, L. (2019). The housing market should stabilize in 2019 in Washtenaw County, experts say. MLive.