Is Now a Good Time to Buy a Utah County Property?
Picking when to purchase your next Utah County property is always tricky. If people had the ability to accurately forecast the housing, or any other market, they would be trillionaires. Instead of trying to guess if prices are going to go up or down, we’ve developed an investment model that has worked well for the agents at W² Realtors. This strategy is based off the idea that real estate will always appreciate in the long run, so instead of trying to predict outside factors, its better to base decisions according to your own financial situation.
1. Debt to Cash Flow Evaluation
You never want to place all your eggs in one basket. Countless individuals have lost everything when they thought they had the golden tip on an investment opportunity. No matter how good the market looks, things can always change in an instant. That’s why we strongly recommend only playing with money when you are less than 33% with your debt to cash flow ratio.
The cash flow to debt ratio is a formula investors have been using for years. It compares the cash flow that a business or household generates to the total debt owed by the entity. The cashflow to debt ratio can be realized by making a few simple calculations. Simply divide cash flow produced annually by the total debt.
The ratio is expressed as a percentage, but can expressed in years by dividing 1 by the ratio. This tells how many years it would take the household or business to pay off all of its debt it it were to devote all cashflow from operations to pay off the sum.
43 percent debt to income ratio is an important number because that’s usually the highest amount of debt you can have and still qualify for a standard mortgage. Once you start to push higher than the mid 40’s you’re going to have to put down extra collateral or get beat up on the interest rate of the loan. That’s why we recommend only making significant investments when your around 33% or less.
2. Enough Savings to Survive a Catastrophe
Its always important to have a nest egg set aside before making a significant investment. We always recommend planning on something really bad happening to make sure you have a contingency plan in place.
I’ve seen countless examples of a dual income families making huge property investments. These couples anticipate having two income streams for the foreseeable future. Unfortunately, the one thing they didn’t plan on is the wife’s employer going belly up, and the job market being soft in her industry. I have seen families in this situation lose their homes and have to foreclose. That’s why it’s always smart to hope for the best but plan for the worst.
We recommend having at least 10% of the value of the home your purchasing set aside in cash. That money needs to be what’s left after all closing costs and the new downpayment. This should be rainy day funds that are available if something unplanned happens to your sources of income.
3. Stable Marital and Business Relationships
This could be the most important recommendation on our list. Its never wise to make significant financial investments when your marital situation is in jeopardy. First, these kind of problems can be some of the most serious a person has to deal with in a lifetime. People tend to act in an irrational why when there could be a divorce or infidelity scandal on the horizon. This could influence their ability to make sound financial decisions. Second, you never know the way things are going to shakeup after a split. Purchasing a massive investment property that will be managed by two different parties after a divorce is never a good idea.
If you are in business with a partner, we recommend taking the same steps as evaluating your relationship with a husband or wife. Make sure you fully trust the person, and are on the same page as far as business goals. The last thing you want to do is further complicate a business situation with another investment if things are’t going in the right direction.
We recommend making a sound companionship inventory between you and your significant other or business partner before making any large investments. Be honest with yourself about how things are going and if this decision is right for both parties.
Making sound real estate investments is important for the youngest family to the largest corporation. Just looking out outside factors to base your decisions is a mistake countless individuals have made. If you follow our guide and first look at your own, unique financial situation, you will surly be on a better track.
Here at W² Realtors, we have some of the best real estate agents in Utah. If you are looking for advice on making a real estate investment or need help selling a property, we would love to help.