As the media reminds us on an almost daily basis, many sectors of the real estate market are in the midst of one of worst adjustments since the Great Depression. This is evidenced by the most recent California Association of Realtors (CAR) publication on existing home sales which reported a price decline in the median selling price of 35.3% from a year earlier. During the worst 12 month period during the Great Depression U.S. housing prices fell by a less dramatic 10.5%. For investors with high tolerance for risk, it may now be time to embrace the timeless proverb “buy low – sell high” and start sifting through the wreckage for bargains. And while bargains exist, they are not available universally across all locations or property types. Investors must know where to look, have proper guidance and understand the proper methods for valuation. The sectors with the most opportunity are single family residential properties (SFRs) in class B or B-minus locations of suburbs outside major metropolitan areas. Properties in many metropolitan markets have adjusted very little, while towns in extended metropolitan areas (MSAs) have deteriorated acutely.
Using the San Francisco MSA as an example, CAR statistics released for June 2008 indicate a year over year decline of 4.3% for San Francisco proper. Comparatively, the median selling price in Vallejo, California, a suburb about 30 miles outside of San Francisco, has decreased a much more dramatic 37.3% year over year. Vallejo is still accessible to San Francisco via public transportation including frequent commuter bus routes, Ferry access, casual car-pool access and BART access from the Richmond, California station. Furthermore the statistics do not fully reflect the willingness of banks and distressed sellers to negotiate on a case by case basis in these markets. As an example, one of our investors is currently purchasing a SFR in Vallejo for $104,500. In this instance the property is being acquired for a 65% discount relative to the implied valuation on June of 2007 (based on comparable sales from First American Title Company). Although this 65% discount is tantalizing it should not be a deciding factor in the decision to purchase the property.
Using a discount to market value approach is a fools approach to valuation at this point in the current environment, because it assumes that historical prices were rational. A discount to market value won’t pay the mortgage and it does not ensure that the home will be affordable to prospective buyers when an investor is ready to sell. Investors should alternatively use an income approach or an affordability approach to valuation.
For example, consider the Vallejo property discussed previously. From an income approach (assuming a 30% down-payment), the cash on cash return is about 11.6% per year and the cap rate is 9.54%. From an income standpoint this is an attractive cash yield. It handily exceeds the national average money market rate of 2.99% annual percentage rate and the 2.90% average dividend yield for S&P 500 non-zero dividend stocks. This additional return offers substantial compensation for the additional risk and management responsibilities required for this investment.
From an affordability standpoint the medium household income in the zip code is $50,030 per year. Most lender underwriting guidelines consider that 28-33% of household income is an allowable limit for housing related expenses (rent or mortgage plus taxes and insurance). Using this guideline as a benchmark, the average household in this zip code can afford $15,000 per year ($1,250 per month) toward housing related expenses. The mortgage payment for the Vallejo property will be approximately $550 plus monthly expenses of $200 (taxes, insurance, and repairs/maintenance) which is comfortably below the affordability implied limit of $1,250 per month. Assuming a 90% loan to purchase price and a 7.0% fixed rate mortgage, this property could be purchase by the median household for up to $182,000. This represents a 70% premium to the purchase price of $104,500. As a cautionary note, valuation based on affordability won’t guide market values until the mortgage market returns historical underwriting guidelines. Further details of this transaction are posted on our website http://www.unitedinvestors.com >> education center >> sample property.
Due to price crash all around the country, prices of houses have been more affordable and have shown dramatic improvements among U.S. cities. The latest Housing Opportunity Index, 53.8% of existing and new homes were sold all across the nation. This significant increase took only the first three months of the year to be made possible. These homes have been easily affordable to households with a median income of $61,500 according to the report by Wells Fargo and NAHB or the National Association of Home Builders. Compared to the first three months of the previous year, this year has improved by 44%.
Selling your house can be a challenging task nowadays. With the competitive real estate market, it is really tricky to sell property quickly, but not if you add curb appeal to your house for sale. Use these affordable home improvements tips and I’m pretty sure that you can attract more buyers!
• Declutter. Remove all unnecessary things in the house. Clean out the closets and make each room looks more spacious. “It’s the most affordable change that sellers can make when selling their abode,” says Marybeth Dennett, real estate professional with Triangle Star Realty in Durham, North Carolina.
Polish Furniture and Floors. Make your room free from dust and dirt. Make sure to convey a room with a pristine feel, and your buyer can surely not resist to your home’s charm.
• Update your lighting with modern fixtures to brighten and add warmth in your home.
• Throw away broken mirrors and replace it with a new one.
• Make a great impression! Welcome your potential buyer with a newly fresh front door.
• Remember everyone has personal style and preferences. So, keep your walls in neutral colors and remove wallpaper if needed.
If you have done all these efforts yet you were not able to sell your house within the period of time you want, it is recommended to contact cash house buyers. These legitimate companies buy houses and other properties in any condition and at any location.
There is a lot to be done when one decides to sell a house. It is more than a matter of putting that ‘for sale’ yard on your lawn or porch for passersby to see. If you want to sell at the best possible price, you have to really look into ways of making your house the best possible buy.
There are some value adding tips a person can do to make his or her home more marketable. Some are expensive, require a budget and professional help and a lot of time. Some are not so expensive, can be done on your own, and can be done in advance or as close to a month before you decide to put your house up for sale.
One such tip in the latter group is painting. Painting your house will make it look brand new and can be a budget-friendly value adding tip. Done on the inside and outside, a good paint job’s effects can be seen until at least two years later. Take a look at this to help make your home more marketable.
Investing is always a tricky thing. Unless you are sure that what you are investing will not only place you at a financial loss but will also earn for you, then it is really always a matter of choosing the best possible risk. Property investment can be a good thing. Most often than not, owning land works well for you. However, history will show that this can also drain you if you choose unwisely or if you do not plan your budgets accordingly.
When investing in property, there are some simple indicators that you can use as your guide to making a good investment. Look at the demand for prices by looking and comparing prices. Those that are higher are likely in places of higher demand. Look at taxes too. Some areas have higher taxes than others making them less palatable for investment. Also, look at school ratings. If schools in the area are rising in ranks, the area will probably become a popular place especially for families.
If you live in a condo, you might think it is impossible to have any kind of greenery around. After all, having a garden does require the space to set this up and in a condominium space is not abundant. However, there are still lots of ways to have your own pocket of greenery. All you need is some creativity, some flexibility, and the right set of expectations.
Of course, you must accept that you cannot have a full garden. So you have to choose what kind of greenery you are willing to take on. Since you live in an enclosed space, with possibly little opportunity of sun exposure, choose plants that are for indoors and are low maintenance. Then take a look at your space- do you have a balcony? If you do, you can create a plant nook there. If not, choose strategic parts of your unit to place your potted plants.
With creativity and flexibility, you can get the greenery you want in your condo.
There are some holidays in a year that are really useful for you when your goal is to sell your house. Fortunately, February is a month with a famous and popular holiday that is actually very useful. Valentine ’s Day is a day now celebrated and observed the world over. And this event can be used when marketing a home.
As any home seller would know, one way to make a home sell faster and for a better price is to market it well. This means doing the research into what sells well and appeals to buyers in your area, playing up the strengths of your property, camouflaging the weaknesses, and making the house a possible home for people who are seriously looking to buy. One way to do this is to personalize your house. Valentines provide the perfect opportunity to create ambiance through some flowers, sweet smelling candles, maybe a casual and simple present on the table. Small things like this transform a house into a home and can help to sell it.
So you are entering the New Year and eager to set everything up to perform well in the coming months. You’ve set your yearly goals and written your resolutions. You are also keen to sell your house and are eager to get back to doing this. But this is winter and it may be daunting to prepare your house for perspective buyers at this time of the year. Here are some tips for you.
Make sure your possible buyers can actually get to your house. Shovel snow and ice off driveways and walkways so your door and house is accessible. Make sure to clean your windows and drapes so that you can utilize natural light to show off your interiors. Keep temperatures warm and cozy. If possible, show your house during light hours and not when dark sets in. For a cozier and homey touch, make your house as festive as the season.
These easy tips are enough to get your house back on the marketable track during the winter months.
A lot of people who are considering buying a house are wondering whether December is a good time to buy a house. There are no hard and fast rules about when to buy a house first and foremost but there are some who say that it may not be a bad thing to purchase a home during this time of the year.
December is the time to shop for presents, to take time to spend with family and the like, but there may be some sellers who are as keen to sell their property as there are individuals who want to buy. Buying at the end of the year may be good as this may be a good time to negotiate with sellers. Those who are still entertaining buyers may be more amenable to negotiations, may be more willing to make concessions in order to close a deal.
So if you are someone who really wants to buy property before the end of the year, and you have found a house for sale with a seller also eager and willing to sell before the close of the year, then December may be the best buying month for you.
The past year has brought many changes to the Incline Village real estate market. For starters, with sales in units down 50% versus 2005 we are already seeing a lot of agents leave the business. Clearly, our local market cannot support the 350 agents who are members of our MLS when there are only 200 or so transactions taking place in the entire calendar year. The hobbyists, part-timers and others who don’t put in the effort to make real estate sales a full time job are realizing that the easy money years are over. It takes a lot of hard work and commitment to succeed in what is arguably the most competitive real estate market in the entire United States.
Despite all of the projections of doom and gloom by “experts” all over the country, the median prices for the Incline Village real estate market have held steady. Very few property owners in our community actually live and work here, so prices have no relation to local incomes. Property values here are based on supply and demand and what the most affluent people are willing to pay for any particular property. Interest rates, prevailing wages, unemployment and other factors that affect your typical urban and suburban markets have little impact on the Incline Village real estate scene and property values. So, while there may be some pockets of softness in specific condo complexes and in the multi-unit sector, overall prices for property in Incline Village are steady.
Based on current inventory levels, sell through rates and days on market, I anticipate that our market will remain in a plateau through 2007. This means a buyer’s market for the foreseeable future with prices holding steady and upward pressure only existing for the most desirable locations and highest quality homes and condos. It seems odd that unit sales were so much higher in the 2005 seller’s market and so much lower when we are in a buyer’s market. But, it’s human nature to follow the crowd. So, as much as people were in a frenzy to buy when prices were rising they are sitting on the sidelines in equal amounts while prices are in a holding pattern.
If you are a buyer, do you want to wait until prices rise again or do you want to make a purchase while it’s still a buyer’s market & you have greater negotiating leverage? We are seeing the best values go into escrow week after week, confirming the notion that there will be no price collapse in the Incline Village real estate market. Patience is good, but only too a point. I think that the operative phrase during this current buyer’s market is, “You snooze, you lose.”
Taking a look at the other top news story in 2006, two of the big firms in town merged. I don’t think clients in our market care about the size of the firm they do business with. Buyers and Sellers in Incline Village are seeking quality representation and superior customer service, not the biggest office with the most desks. As agents, we all have access to the same MLS and we all attend the same Tuesday morning meetings. It’s not the size of the office you work in, it’s the quality of support that your office provides and what each agent does to help their clients achieve their goals that makes the difference.
In summary, 2006 brought many changes to the Incline Village market but none of them turned out to be earth shattering. There will certainly be a shakeout among the marginal real estate agents and hobbyists since there is not enough sales volume to support the current number of agents in town. We are already seeing a ripple effect as the title companies and other affiliates down size to accommodate the decreased number of transactions. The ones who have benefited the most during this slower sales phase have been the contractors who do high quality remodeling. In this slow period, many property owners are doing work on their condos and homes and enjoying them more instead of putting them up for sale.
Copyright 2006 Don Kanare – All rights reserved.