Real Estate as a Wealth-Building Tool: A Starter Guide for Women

A woman doesn’t have to be married, or even feel as though money is effortless, before purchasing a home. Renting is totally fine, too. Rent versus buy is complicated, and owning a home is not the right answer for every person at every stage of life. But if you are curious about owning your own space someday, these are some of the things worth thinking through first.

What is equity?

Equity is how much your home is worth minus what you owe. If you own it outright, equity equals the home’s value. If you have a mortgage, your equity increases as you pay down the principal and as your home appreciates. Your equity decreases if housing prices fall or if you take out a loan using your equity.

The first years of paying off a mortgage are mostly interest, so your equity doesn’t grow as quickly. Ask your lender for an amortization schedule for different time frames so you can see the principal you’ll owe at different points.

Not all houses appreciate equally, not even in the same city. Look into the history of appreciation or depreciation, location, condition, homeowners association finances if applicable, insurance costs, and the supply of similar homes.

Real estate can be an illiquid investment since you’ll need to pay costs to access the money from your equity, such as the cost of a loan or the cost of selling. Using the home as collateral for a loan can also come with interest and other risks.

Many people point to home equity as one of the greatest sources of wealth, but equity can be harder to come by than you think. Neglected maintenance can chip away at it. It is less liquid, meaning you have to sell your home, or use it as collateral for a loan, in order to get at your equity. Track it regularly so you understand whether you’re making progress, but remember that equity is not the whole picture.

Look at all of your finances, not just the mortgage

A home is primarily a place to live. Make sure you’re taking all costs into account: the house payment, property taxes, insurance, homeowners association dues, maintenance, closing costs, and the work you already know the home will need.

Make sure you’ll be okay with those costs. Can you afford them if housing doesn’t appreciate? Can you still save for retirement, pay other bills, take care of an unexpected veterinary or medical bill, and save for home repairs? Can you comfortably and sustainably own a home with the budget and income you have?

Before you start looking around, know what you can afford. Get your credit reports, pull together documentation of income, and pay down expensive debts. Meet with a lender to see what kinds of loans are available and what steps you could take to strengthen your file. Ask for an amortization schedule, and talk through what happens when rates go up. Don’t let anyone convince you that you need to buy right away.

Remember that the down payment you make affects your monthly payment, mortgage insurance premiums, cash needed to close, and savings you’ll need to have after you close. Think about your goal for savings and emergency funds, and work backward.

Make sure you’re diligent about budgeting once you move in, so you’re not blindsided by unexpected expenses. Look at your amortization schedule to see how much of your payment goes to principal versus interest. Do an annual check-in, paying attention to your home’s value, loan balances, home improvement projects you want to tackle, taxes, insurance, and association costs.

Think honestly about how long you may stay

Try not to feel like you have to buy a home right away if you’re not sure. Selling soon after purchase could leave you losing money, especially once closing costs are included. It is okay to wait, save, strengthen your file, and ask your lender what steps you could take if you aren’t ready now.

Is this a temporary or semi-permanent move for you? Are you still figuring out your career, relationships, location, or finances? Renting may be the best option if you’re still figuring things out.

Timing a purchase is tricky. You’ll never find the perfect interest rate, housing price, inventory level, and tax bill all at once. Renting is a totally acceptable choice for many people. Think about how long you want to stay in an area before committing to a purchase, whether you like being able to uproot easily, and whether you’ll be okay with the lack of liquidity of a home.

Separate your needs from your wants

Everyone’s situation is different; there’s no one-size-fits-all answer. A starter home doesn’t have to check all the boxes. Maybe it is in a less-than-perfect neighborhood, a slightly too-small space, or has unfinished areas you would rather decorate differently. Think about what your needs are versus your wants.

Some needs might be an affordable and sustainable payment, a desirable area, a reasonable commute, space you enjoy being in, and savings to tide you over after the purchase. Wants might include picture-perfect kitchens and bathrooms, a neighborhood with tons of restaurants, a larger yard, or newer appliances. Knowing the difference can save you from overspending or passing up the right home.

Consider the future. Will you want to stay in the neighborhood? Are there plans for construction nearby? What’s the financial health of the association? What kind of fees or assessments could you face? What’s the housing supply in the area? What are your future plans for space, career, finances, and family?

If you’re looking at condos, dig into the financials of the association. Healthy associations make it easier for buyers to get approved for financing and can save headaches and money for owners. Read the association minutes, ask about planned projects, and make sure you understand the fees and assessments that may be coming.

Work with professionals you trust

Work with people who will stay within your budget. Your agent shouldn’t encourage you to stretch. Your lender shouldn’t tell you that you have to buy a house or make you feel like you’re being pressured. Ask around, read reviews, check credentials, and find people who seem to have your best interest at heart.

Get a sense of an agent’s personality, how much experience she has, and how responsive she is. Hire an inspector with good reviews, because this person’s job is to tell you what’s wrong and potentially save you thousands of dollars. Ask for referrals. If you’re looking at condos, make sure the people advising you understand association finances and the effect those records can have on financing.

Factor in the hidden costs of ownership

Your budget is more than your monthly payment. It includes association dues, anticipated home improvements, increased taxes, insurance, and so on. Get quotes on insurance. Dig into association minutes and get estimates on a roof or other projects you know you’re going to want to do.

Don’t assume that a lower purchase price is going to save you money down the road. The house that needs a new roof, kitchen renovation, or special assessment may be more expensive in the long run than the pricier home that was move-in ready.

Sometimes it’s important to make improvements that make financial sense, while other times it is perfectly reasonable to make changes just because you like them, such as paint or carpet. Do a gut-check with your partner if necessary to make sure you’re on the same page about how much to spend. Your home is where you live, so make sure it makes sense financially without robbing you of enjoying your own space.

Buying on one income

How Do I Buy a Home on One Income? Buying on one income, which happens more frequently than you might think, particularly with single women, doesn’t really change the math, per se, but it may change your risk tolerance, and for good reason: with just one paycheck, when life happens, there’s no other income to fall back on. For this reason, when I work with solo homebuyers, I budget not only for the monthly payment, but also a cushion. I help homebuyers to figure out what their comfortable number is. Lenders will happily tell you what you can spend based on debt-to-income ratios and other qualifying items, but it’s in the end up to you to decide what lower payment will give you some peace of mind. With my one income clients, I often suggest purchasing a condominium, provided there is a well-run condo association, so they won’t get bogged down with maintenance issues (not that I don’t suggest condos to other folks, but as a single homeowner, you’ll be grateful that somebody else is in charge of fixing the roof, for instance). Unless you want to maintain a big lawn and deal with all manner of homeowner headaches, a condo can save you a lot of grief (and money) down the line. There are always surprises in a house, the water heater dies in the first year or the dishwasher starts leaking, so it’s best to have savings set aside before you buy. Lastly, as a solo buyer, I would have a dialogue with your mortgage lender about what would happen to your escrow payment if taxes or insurance go up. There may be a payment shock down the line and you’d never want to get blindsided by an increase in your mortgage payment that wasn’t budgeted. By being cognizant of all of these items and planning accordingly, a solo buyer will be on her way to building her nest egg with confidence.

Condos, townhomes and houses: what each one asks of you

One factor we talk about with our buyers that is important is how long you are thinking of remaining in your home. Another important question is how much time/physical work do you want to be responsible for. A condominium means sharing walls, abiding by the rules of your condo association, paying condo association dues (which can go up), etc. Your association will be responsible for the common areas and exterior of the building, but remember, if the roof needs replaced or another major expense is in order, it is highly possible there could be a special assessment. So your building’s finances are your finances. Some of our buyers prefer the reduced maintenance items with a condominium especially if they think they may be here just a few years. Townhomes are sort of the step in between a condominium and house. You typically have your own entrance, your own roof, maybe even a small yard but there is still an association to take care of certain maintenance items. It’s nice to have more privacy and yet not be responsible for all maintenance items. With a house you have the privacy and can do as you please, but are responsible for it all, from roof repairs to fixing that pesky sprinkler. Houses do take some elbow grease but for some it’s also an opportunity to sweat equity. Whichever option you choose, don’t just consider purchase price but think about how much time you will be spending in maintaining your home. Some other items specific to homes here in South Florida regardless of what you are buying, you need to be conscious of age of roof and insurance. If you are considering a house (not condo or townhome), also be mindful of whether it is in the flood zone or not as that could impact your insurance.

The paperwork that protects you

It’s possible to lose your greatest asset by failing to properly keep records pertaining to it. Read your closing disclosure, all of it, even the parts that appear to be boiler plate. Those numbers will be easy for you to ignore, but they’re very important. After closing, make sure you keep your closing documents, your title insurance policy, survey and inspection report all together. Put them in a file/folder. Keep receipts for improvements (they’re important when it’s time to sell because of tax implications). If it’s your primary residence, review the homestead exemption process and make sure you file (more tax savings for you after closing.). Know who’s in charge of taking care of the property in case of an emergency I’m not being morbid; I’ve seen estates stall when nobody knew where the will or the deed was. Keep the declarations page of your homeowners insurance policy easy to access and revisit your coverage options at renewal. Coverage needs and pricing fluctuates and you don’t want to be surprised if you actually have to use your policy. Keep any important paperwork relating to any of this information updated. Protect your assets. Homeownership is a great way to build wealth.

Keep the big picture in view

So while considering how much house you can afford based on the monthly payment, take a step back and look at all of the money going into your home. Can you still save/invest enough after the purchase? Remember, wealth isn’t just all tied up into four walls. Wealth is having options and opportunities. It’s breathing room financially and peace of mind. Buying a home affects your entire financial picture. So look at all pieces of your finances, the home, savings/investments/retirement, other goals, etc. The house is just a house. It’s where you live. The right house for you and your budget will give you breathing room financially and in your lifestyle and put you in an even better position to enjoy your house. Let your house fit into your life and not the other way around.