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From the Ground Up

The Baby Boomers are moving up. Because there are so many of them, and because interest rates have been so favorable, the so-called “move-up” market has been as hot as a Mississippi August for the past few years. The immediate future looks just as bright. In this column we will examine five things to consider for those moving up.

The first thing to take into account is size of the new house. Most people think that moving up means buying a larger house, but for some it can mean a smaller sized house that is more modern or has more desirable features.

For some it might mean a move to an updated house with the modern conveniences. Be sure you understand measurements when being quoted square footage. A real estate appraiser measures from outside wall to outside wall. If you are measuring from inside wall to inside wall you are going to have a different total square footage. For example, a house that measures 40 feet by 50 feet on the outside would contain 2,000 square feet. But if the exterior walls were 6 inches thick then an inside wall to inside wall measurement would be 39.5 feet by 49.5 feet, or 1,955 square feet.

There have been many disputes over square footage and it usually involves someone taking the disputed amount and multiplying by a price per square foot. Thus, if someone paid $100 per square foot, then 55 square feet becomes suddenly valuable. It should be noted that square footage usually refers to heated and cooled living area, and that other areas are deducted.

The next item for consideration is amenities. Consider this statement, “My father bought his first house 40 years ago for only $20 a square foot, so even taking into account inflation somebody is really getting rich when the same sized house is now $70 a square foot.”

What that smart-sounding person has not taken into consideration is that the typical house of today is nothing like the typical house of 40 years ago.

Then, it was not common to have central air-conditioning, a two-car carport, insulated windows, garbage disposal, double sink, two bathrooms, etc. If one were to construct the “typical” house of 1960, and factored in the inflation factor, it would be discovered that it actually costs less to build that house today. I know because I ran such a calculation not long ago.

The reason it costs less, after adjusting for inflation, is that construction techniques have improved and become more efficient. In today’s move-up houses there are computer lines, cable television lines, gas logs, two and even three car storage, higher ceilings, more energy efficient features, larger master bedroom/bathroom suites, and home offices, just to name a few.

Even though you might never use a computer, it’s probably a good idea to make sure your home is wired for today’s electronics.

Another item of importance is location. I advocate buying the neighborhood first and then buying the house. Look for the side of town where real estate values are rising. Even though many move-up buyers are empty-nesters or don’t have children, schools are an important consideration. One high-priced subdivision I’m familiar with is split down the middle by two school districts. One school district is highly rated; the other is not. Guess where the families are moving.

Financial considerations are another factor. Think about how long you’re going to stay in that new home. If it is only a short time, then I would put down as little as possible. If you plan never move again, then you should consider putting down as much as possible. If you plan to sell in the next few years and you think the value will rise faster than other investment alternatives then having a lot of money tied up in your home makes good sense. Don’t forget that your house must appreciate 6%-10% just for you to break even. That’s assuming that you will have that amount or more in closing costs when you sell your move-up house.

Even though people talk about the house as an investment, it’s much more than that because we spend so much time in our homes. Even if it depreciates and you really enjoyed living there, it was probably a good investment.

Finally, be sure to look ahead to the resale of your move-up house. Don’t get too creative with your plans and design or it will have less market appeal. Try to think about what the market is going to want when you sell.

All of this requires a fair amount of research. Without question a Realtor active in the local market is your best source of information about the real estate market in your town. Many people think they can save money by not using a real estate professional. Studies show that is not the case. As far as listing one’s home for sale, I have a degree in real estate and I wouldn’t try to sell my own house myself.

Good luck as you move on up.

Phil Hardwick’s column appears regularly in the Mississippi Business Journal. His e-mail address is hardwickp@aol.com.

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