Step 4: Know Where You Want to Live

Amanda has a rule of thumb when it comes to choosing where to live: You are better off buying an average house in a great neighborhood than the best house in a less desirable neighborhood. "Your home will appreciate to the homes around you," she explains. "If you're the smallest home on the block, the bigger homes will drive up the value of your investment."

Next, decide the needs of you and your family. Do you want to live close to your job? In which district do want your children to attend school? Are there parks nearby? Is there access to public transportation? If you attend services, is there a nearby church or temple? Answering these questions now will make the difference in your long-term happiness.

What to do:

• Assess your living situation for the next six years. Amanda points out that home values won't see a real period of growth for another five to seven years, which means you might not see a profit on your current investment until then. Choose a house you can live in until the market picks up.
• Assess how much space you need. Will you expand your family? Start a home-based business? If these are possibilities in the future, account for the space they'll require.
• Visit websites such as NeighborhoodScout.com and research crime rates, appreciation rates and school ratings for the areas you're considering.
• Contact the local chamber of commerce, which often provides informational packets to prospective buyers.

Step 5: Needs Versus Wants