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The Alchemist (05/06/2007)
By Al Thomas
Should I buy that house now?

Everyone wants to own his own home. That is very understandable.

At this moment let's assume you don't have a house.

We all know that at this moment in time the housing bubble has a leak and is deflating. There are approximately 2,500,000 vacant single family homes available which amounts to more than a 7-month supply or about 3% of U.S. homes , more than 77 million. A few areas remain strong, but many see prices declining in double digits. This may be temporary.

Does that mean it is a good time to buy? Is there real value in owning? Of course, every real estate broker will say ‘yes' and tell you that you have to buy "now" before prices go up again. You must do the numbers to see if that is right. Use this formula: PITI=R

PITI is the combination of Principle, Interest, Taxes and Insurance. These figures are all available; your real estate agent has them. Be sure you verify each number. Not that he would lie, but mistakes do happen.

Your mortgage payment will include both principle and interest unless you might be foolish enough to get one of those interest only deals. Don't.

The county tax appraiser or whatever they call him in your district knows the taxes are for every piece of property. A phone call will do it.

Insurance will vary greatly depending upon where the house is. You must have it because you can't get a mortgage without it. Call a couple of local agents and they will give you an idea right away.

Here is an actual example of the above. This person is currently renting and the owner wants to sell it to her. For $140,000. We did the numbers and it would cost each month approximately $1,400. Maybe a little less, but close. Her rent is $900. Would you buy?

The smart thing to do is save that $500 difference in a savings account for the next 2 years to accumulate $12,000 (plus interest) which will be a good sum for a down payment on this or some other house. The real estate market may become softer or go higher and who knows what will be available at that time. Until the PITI is equal to or less than rent for a comparable abode do NOT buy. It will make no difference whether home market prices go down or up this simple formula makes it absolutely clear whether the buyer is getting a good deal. The smart prospective purchaser will save the difference which will accumulate much faster than the principle in any mortgage payment.

A short cut to figure the monthly cost of owning is about 1% of the home cost each month. In other words a $200,000 house is going to take $2,000/month to maintain. If you can't afford it don't buy.

Continue to rent until you can buy for less or equal to rental.

Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter at www.mutualfundmagic.com to discover why he's the man that Wall Street does not want you to know. Copyright 2007 All rights reserved

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