7 Rules of Home Buying

Attention all prospective home buyers! The following are 7 incredibly powerful rules on buying a house. While most of my trainings focus on investing in real estate, this one is geared towards those who are looking to buy a home to live in. And these are not the typical tips or advice you would read about because these insights come from literally thousands of home purchases that I have personally observed over the years. This real world wisdom will help you make a much more informed and much better house buying decision. Here are Freedom Mentor Phil Pustejovsky's 7 rules of home buying...

If you or a friend or family member are buying a home, what I'm about to share with you is critical, so please heed this wisdom. I have friends and family who didn't follow some of these rules and they ended up regretting it. I have spent a lifetime working with motivated sellers. As a professional real estate investor, I've dealt with thousands of them either directly or indirectly. I know exactly what puts them in difficult situations. Some of it is completely outside of their control, but sometimes it's because they broke one of these seven sacred rules.

7 Rules of Home Buying

Rule #1: Choose Wisely

Buying a home can be like going to jail. It can be a whole lot easier to get in than to get out. You may think this is extreme, buy it's for real. I have seen the kind of pain that a home can cause someone when they want to get out of it and can't get out.

For example, a spouse that gets a job transfer, but the wife and kids are stuck at the old home. The spouse is out at their new position and they're separated for months, sometimes years. I've seen the kind of stress that a home can cause, so you must choose wisely. Choosing wisely is going to permeate through the rest of these rules, because remember, it's a lot easier to get in than to get out.

Rule #2: Be Patient

It sounds simple, but it can be difficult to follow in real life. That's because there's so many forces at play driving you to make a home buying decision now. Whether it's the marketing being thrown at you from mortgage brokers, real estate agents and builders or just our human nature. We want things now. The problem is a home buying decision is such an enormous decision. If you make the wrong one, like we talked about in rule number one, it can feel like going to prison. For this reason, you must make it wisely and that requires patience.

An example of this would be if you are a being transferred through a job to a new area that you're not familiar with. I recommend you apply what I call the one-year rent rule. Rather than buy a home right away, which is what most people do, you need to rent for a year. You need to do this because there are a lot of things you don't know about the area, your job, and about the situation.

The One Year Rent Rule

When I lived in Nashville, some friends of mine gave me a call. They were transferring from Colorado to Nashville and asked if I would help them with buying a home. I told them to wait and rent for a year. They pushed back because they wanted to be homeowners and felt that renting was throwing away money for a year.

I said, "No, you don't understand. In the long run, home ownership is the winner. However, this is a new transition for you. You've never lived in Nashville and don't know exactly where the traffic patterns are. You don't know where you want to be or even how the job's going to work out. Be patient and rent for a year. Then spend that time looking for the exact area that you want to live in."

Wait and Get to Know the Area

They didn't take my advice and I didn't represent them as an agent. They bought a home and here's what happened. It didn't work out well because they bought in 2007 and by 2008, we had a real estate collapse. Also, because of traffic patterns, her work commute, which should have been a twenty minute drive, ended up taking forty-five minutes. They ended up not liking the area as much because it wasn't close to new friends and some of their activities.

They made the wrong home buying decision because they weren't patient. Instead what ended up happening was they were stuck in the home and they couldn't resell. It wasn't until about six months ago that they finally resold their home. That's how long it took to recover from that, and it was like a prison for them. The bottom line is you need to be patient.

Wait for What You Want

Even if you are not moving to a new area, but within an area that you are familiar with, you also need to be patient. Don't settle for anything but what you really want. Don't make the fatal assumption that if you don't see it now, it's never going to show up. There will be new things that come along.

My mother-in-law and father-in-law had a specific vision of what they wanted. When we were looking it wasn't available at their price point. I said, "Let's just be very patient here. We'll do everything we can do to get the word out and see if we can find the deal." Two and a half years later, in a booming market, the perfect deal came up. It was priced way too low. We had a full price offer in within an hour of it hitting the MLS, and they got the deal.  So, don't buy into the garbage that if it's not available now it will never be. Be patient and wait for the right deal.

Rule #3: Five Year Minimum

It's a better deal financially to rent in the short term over home ownership. I have a great video on this subject called Should You Own or Rent Your Own Home. What I share in there is that in the long term home ownership really wins big. Five years is a good cut off point. This is because even in a healthy real estate market, you have the commissions and closing cost that you must pay when you resell. Those usually eat up any appreciation in the first two to three years. Since renting tends to be a better deal financially, you need another couple years to outpace renting. That's how I get to the five-year mark.

Now, this is deceptively difficult to follow because statistics have proven that Americans tend to stay in the same home for five years or less on average. That means that on average you're probably going to stay in the home you're living in for less than five years. That's a problem because renting would be a better deal. However, if you are certain you're going to be there at least five years, now you're in the strike zone. Then it is better to be a homeowner and not to be a renter.

Rule #4: Don't Build New

Building new used to make sense, but it's not 1950 anymore. Don't do it because over time more and more building codes are accumulating. Today in 2019 there are so many different rules and regulations, it makes building new difficult and much more expensive than it should be.

Don’t Build New Residential

There was a vacant two-and-a-half-acre lot next to a property that I owned. Someone bought the property and built a home on it. Through that process they found out just how big of a nightmare that can be. They discovered a new flood zone code, requiring a certain size of foundation depending on how close the house was going to be to a flood zone. This led to them spending $65,000 more than they budgeted. That included both the cost of the work as well as materials and dirt to raise the house up high enough to meet the new code. They ended up moving in about six or seven months later than what they wanted. When I asked if they would ever go through a build again, they said, "No, never again."

Don’t Build New Commercial

Even if you're a business owner looking for an additional commercial property for your business, always buy existing. The reason is because existing structures were permitted and approved with earlier codes. As we get later into the future, we get more onerous codes. Buying existing is really all about the government making it difficult to build new these days.

Rule #5: No Brand New Areas

What I’m referring to here is buying a home in a subdivision that is currently being built out, or is in a region of town where there's several subdivisions being built. It is very common for people do this, and it's highly risky. Let me explain why.

When you buy a newly built home, in a subdivision where other homes are still being built, you're going to compete with the builder if you ever need to sell. That may not be today or tomorrow, but if you're in an area where there's a lot of building going on, you will compete against a builder who will beat you every time. Even if the subdivision you bought a home in has been fully finished out, they might put another subdivision right next door. We've done a ton of deals as investors in this scenario. The homeowner bought the property, then two years later they need to get out and they can't because they can't list it low enough to compete with the builder.

Buying in New Areas Can Lead to Lost Opportunities

I had a family member recently, who I begged not to buy brand new in a growing subdivision. To my frustration, he still did it. It was a newly built home, and he was able to do some custom upgrades. This is always a sucker play because they always cost way too much. You never get your money back out when you go to resell. A couple of years later, his spouse unexpectedly gets a great job opportunity, and it requires them to move. He thinks that that he doesn’t have to worry about resale because his subdivision is finished and his house has upgrades.

However, right across from his subdivision they're building 2,000 homes that he has to compete with. He tried to compete and he lost. He's still living there and she didn't get a chance to take on that great job opportunity, all because she is in prison. They didn't choose wisely. Don’t buy in brand new areas.

Exceptions to the Rule

Now some of you may be wondering what to do if these are the only homes available to you. I have a great video if you want to know more about the real estate in your local area. It's called 3 Factors to Better Understand Your Local Real Estate Market. You may want to dive into that and learn a little bit more about what your area is doing. It could be possible that you could get away with this if it's the last home in a newly built subdivision and there's no more new subdivisions being built.

However, that is extremely rare. I think you're much safer buying in a older established neighbourhood. There you have a sprinkling of different aged houses and you aren't competing with the builder if you ever need to sell. It's better to be in a position where if you didn't live there for five years you could get out and not lose money. The way you're going to do that is but in an older established neighbourhood.

Rule #6: Buy Below Your Means

Houses are so much more expensive than you think they are. It's all the expenses you have not calculated that are going to hit you, like appliances that go out when you least want them to. Being a homeowner is far more expensive than being a renter. Therefore, you need to buy below your means.

Tips to Buying Below Your Means:
  • If you have a larger down payment, it's better to go with a smaller down payment and keep the rest as an emergency fund if you don't already have one. You must prepare for the worst when you're a homeowner because the worst may hit you.
  • When buying a home, connect with a mortgage professional as early in the process as possible. Learn what you can afford and compare that to what you are already spending on a weekly and monthly basis. This will allow you to figure out what you can handle and know exactly what your means are. You want to go into the home buying process confident that you know the top limit of what you can buy for.
  • I know in some areas to afford anything even remotely near your means requires you to push it to the highest level. My advice is to rent and then continue building up your income, build up your assets, and then go buy a property that fits your needs. Do not buy above your means because then you put yourself right back in prison again. You will end up owning a home where your entire paycheck is going to your mortgage, taxes, insurance and maintenance and all the other things that go with home ownership.
  • Be aware of homeowner associations, those can be a real killer. I have a video on that. Beware of owning real estate with a homeowner association because that can also crush your means. Just wait until they decide to tell everybody in the neighborhood that you need to pay an extra $4,000 because they need redo the sewer system.

Buy below your means and that will make a huge impact on what happens down the road, because you're not stressing all the time just so you could live in that slightly bigger brand new built home in that brand new subdivision that's ultimately just a bad idea.

Rule #7: Know Thyself

Know exactly what you want in your dream home. Know what you're looking for, and then you can go about the process of finding that. I've got a great video on How to Get a Great Deal on Your Dream Home. In that video I share with you this technique that I've applied in my own personal life and I teach my friends and family to do. It only works if you know exactly what you're looking for, and you must be patient because it can take some time. You need to look at a lot of houses.

If your married, you need to go back and forth and come to some understanding of exactly what you're looking for. Decide what is mandatory, be open and flexible to making sure that you get what you absolutely need and then don't worry about the things that you don't absolutely need.

Consider Properties That Need Some Work

With such a lack of inventory at the more affordable housing price points look at houses that need a little bit of cosmetic work. There's a great loan program that will make money available to do the renovations after you close. This may mean you don't move in the day you close, but then you have a remodeled home done the way you wanted. This all boils down to knowing thyself. You need to know exactly what you're looking for, and then you can go after it and get it.

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  1. Julina Dolcer says

    Hi I would like to invest in real estate. Please help me. Thanks.

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