Once a Year, Evaluate Your Real Estate Status
From my Preferred Client newsletter, I wanted to share this
article:
Once a Year, Evaluate Your Real Estate
Status
Given that Real Estate is often described as the ideal long-term investment, you might think it doesn’t need to be examined on a yearly basis. However, as with any portfolio item, it is wise to regularly examine the value of your Real Estate as it is likely the largest investment you have made. After regular and thorough reviews, you will be positioned to maximize future returns or withstand unforeseen difficulties.
Something to Consider
Whether your mortgage takes up much of your income, or has been paid down enough to give you leverage to make further investments, the following “evaluation exercise” should help clarify your current status and future options. The idea is to define your objectives and the variables that can affect your ability to reach them. Then you will be able to establish the true value of your Real Estate and its relative security. This analysis will help determine your ability to withstand unforeseen change, or to create more income through accumulated equity. By giving careful consideration to your financial status once a year, you can ensure your money is being used as effectively as possible in order to help you reach your financial objectives.
1. Define Your Goals
o Clarify your short-term and long-term objectives, noting if they have changed over time.
o List how you will manage your spending, savings and/or investment dollars to meet your objectives.
o Determine how you can adjust your goals, or your methods to reach them, as necessary.
2. Identify the Variables
o Consider large-scale factors that affect the economy (eg. Interest rates and crude oil prices).
o List regional factors that affect the Real Estate market such as municipal planning, development, employment, population, taxation, etc.
o Assess your personal and family status (health, income reliability, cash flow, savings, expenses, etc.).
3. Compare All Factors in Combination
(eg. Income up/market down, or market up/costs up)
o List how you will optimize the “status quo” if nothing changes significantly in the next year.
o Consider ways to leverage improving situations and respond to unplanned opportunities.
o Imagine several “worst case scenarios” and identify how you can best protect your assets under those conditions.
4. Ask Tough Questions
o How recession-proof or inflation-proof are you?
o If you decided to sell, how easy or difficult would it be?
o What really matters to you about your current neighbourhood and home – and what about your next home?
o Is your current home saleable in its current condition and at what price?
Many “external” issues can directly affect your financial decisions. For example, if interest rates rise sharply, it could reduce demand for entry-level homes, but would likely increase the value of rental properties. Similarly, if crude oil prices increase, Real Estate demand may soften in some suburban “commuter” markets, yet heighten in urban areas with major employment and public transportation systems.
Although the decision to buy or sell Real Estate is often
driven by personal factors (eg. family or career choices), it is wise to plan
as far ahead as possible, so that you’ll be prepared when outside changes and
variances affect the value of your assets. You will be able to react quickly
and astutely, and adjust your plans as needed.
If you wish, you may call me anytime for a professional opinion about some of the variables in
question, and for assistance in determining your Real Estate prognosis for the
short and long term. We can assess your situation, review your options, and look
for the best opportunities that arise in support of your plans and objectives.
You will find that when you evaluate your Real Estate status, you will have a
higher sense of security and flexibility.
I look forward to hearing from you!
~ Patz