How to Bubble-Proof Your Home

Here's a piece from David Bach, author of The Automatic Millionaire Homeowner (see my review of The Automatic Millionaire Homeowner here), on how to bubble-proof your house. His thoughts:

1. Make sure your mortgage is affordable. Don't buy a house you can't afford. According to SMR Research, more than 70 percent of all homebuyers borrowed over 80 percent of the purchase price in 2004. One in three homebuyers took adjustable rate or interest-only mortgages. And in 2005, we saw a shockingly high number of purchasers -- 48.2 percent --buy homes with no money down.

2. Think local. In the end, your real estate market is the only one that matters. Nationally, average home prices can fluctuate as much as 50 percent. But, it's more important to know what your home or condo is worth in the city, neighborhood, or even building where you live.

3. Get the facts. There are a handful of key facts you should know about your market. What's the housing inventory? Which homes are selling well? How long are homes sitting on the market? A good real estate agent who specializes in your area should be able to answer these questions quickly.

4. Forget trying to flip a house. Buying a new condo or building in a hot market and hoping to flip it for a quick profit can be risky. You may flop instead. A few months or years later when the housing markets cool, you could find yourself in a bind, unable to sell. We're already seeing signs of a condo slowdown in markets like Florida and Las Vegas.

5. In most cases, time cures all. Over the long haul, areas that go bust generally come back. Still, every area has its bleak periods that can seem endless -- even in great cities.

Just a couple of thoughts:

1. This is generally good advice and is similar to my formula for buying a house.

2. I like how David is adamant about getting an affordable mortgage in this piece. He didn't seem to recommend this so strongly in The Automatic Millionaire Homeowner -- and I wish he had.

And if you want some more info on real estate/housing, see these links:

• Six Ways to Cut Mortgage Costs
• Selling a House: Location's Important but so is Price, Price, Price
• Why Homeowners Get Rich and Renters Stay Poor

FMF recommends Emigrant Direct.

Comments

[LAMoneyGuy]

I used to think pretty highly of Mr. Bach, but after his last two Yahoo articles, I have changed my mind. This last one was simply a follow up for the incredibly irresponsible article that he wrote the first time around, "Homeowners get rich and renters stay poor." In it, he basically said that you should absolutely buy a house now! He give a hypothetical of someone paying $1500 in rent, vs. buying that house for $200k and paying $1500 in mortgage. Show me where that is possible without interest only, or neg-am type loans! Certainly not in any of the bubble cities that he plans to visit in his upcoming tour.