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There’s no doubt that we have a buyers market in real estate today. With the lending crashes and rampant foreclosures, times are tough on homeowners. But let’s look at this in realistic eyes.
Over the past months, there’s been more and more foreclosures, doom and gloom in the media about the housing market, but home buyers have to understand that this isn’t the golden carrot hanging in front of them. Many of my colleagues and I are starting to see some ridiculous offers on homes for sale. Buyers have to be aware that while yes – they want to get the best price possible – there is a realm of reason that must be present.
If you want to offer extremely low prices that probably won’t be accepted by any rational home seller, then make the offers on a bank-owned property so you don’t waste your time or the sellers time. Put yourself in the sellers position. Many sellers are taking job transfers and have to sell their home, so they can’t afford a ridiculous offer. To waste your time, the Realtors time, and the home owners time making an offer that probably won’t go through, it’s costing everyone money, gas, and time.
This is where your Realtor comes in. We can run the numbers and find a good median point to where the offer can flow into a contract. By offering a ridiculously low price, you’re not only telling the homeowner that his house isn’t very nice, but you also make them question why you want to buy it in the first place. If you’re going to buy a home to live in, you have to plan on what it’s going to be down the road. Whether you live in the house a few years before you take another job or transfer or move up, or if this your home that will last 10 to 15 years or maybe longer, real estate is a long-term commitment. Investors will risk their money in short-term investments, but homeowners should secure their money in long-term investments – just like in the stock market.
Don’t insult the seller. Don’t waste your time. None of us want to leave money on the table, but don’t kill a deal before it ever gets started.
With foreclosures on the increase (read: Rampant) right now, people who are losing their homes also have to find a place to live and are turning to rental properties to move their families. This opens a great opportunity for potential buyers with good credit and down payment money to create wealth through residential real estate investment. Whether you’re looking to have wake-up money in your retirement years or starting a college fund for your children or grandchildren, real estate in the long run is one of the best investments there is.
I shared this list with my friend Kathy who has published it on Banks.com. We’re telling a national audience about the Benefits of Residential Real Estate Investments, and I wanted you to hear about it too.
- Cash Flow. The rent provides income. A wise real estate investment will pay for itself on a monthly and annual basis, while paying the note. Your ultimate goal is to own property “free and clear,” which creates maximum cash flow.
- Leverage. You can own $150,000 worth of real estate with only 15-20% cash. You can borrow cash from one property to buy another. Your short-term goal is to use leverage to acquire a portfolio of real estate. Your long-term goal is to pay the loans off and own your properties “free and clear”
- Debt Reducation. Real estate is one of the few investments where someone else will make your payments. In essence, the tenant makes the payments and reduces your debt.
- Tax Savings. You are allowed to depreciate the house and write off your expenses in order to reduce your taxes*.
- Appreciation. Over time the value of houses and condos have risen. The average value of home has traditionally doubled in value every 15 years**.
*Consult your accountant or tax attorney to specifics related to the tax benefits of investing in real estate.
** The government Office of Federal Housing Enterprise and Oversight figures appreication rates for Metropolitan Statistical Areas around the county. Check this site to see what appreciation rates have been in your area. Using their figures, the following data shows appreciation of a $100,000 home purchased in 1982:
1982 – $100,000
5 years – $135,800
10 years – $150,100
15 years – $196,000
20 years – $243,600
25 years – $316,700
I will talk more in the future on the college saving aspect.
I received an email earlier today from a colleague at Bob Parks Realty, LLC. He gave an example of the long-term value of real estate that made a lot of sense.
In Middle Tennessee in the past 10 years, the average value of a 2000 square foot, 3-bedroom, 2-bath, 2-car garage home built in 1990 has appreciated as follows:
- 1997, $142,130
- 2002, $155,440
- 2004, $168,178
- 2006, $195,218
- 2007, $200,688
- 2008 (1st quarter), $198,300
You can see that from 2007 to 2008, home values on average depreciated about 1 percent, BUT in 10 years the home has gone up 41 percent. Clearly, real estate when you look at the long term can be one of the best investments you can make.
In a related topic, this is the first time in more than 25 years that interest rates are at a historic low at the same time the supply of homes is up. Typically if rates are low, inventory is also low and when rates are high, there are plenty of homes on the market.
I believe we are at the bottom of curve for home values and we will see home prices coming back up in the near future. If you’re sitting on the fence, in my opinion this is the perfect time to buy.
The real estate agents in our office gather weekly to review new listings, hear about changes in our forms and state law, and share ideas and lessons learned. We also review how our “sales board” has done that week – from new listings to homes that have gone into escrow.
For the past six or nine months, the board has has been fairly dismal when compared to the same time the year before. However, this week we saw a huge improvement in the market – at least four times the homes sold last week than the week before. Phones have been ringing around the office, people are in and out more (showing homes to potential buyers). We believe there’s been a turnaround in the market, despite the dire news from the media.
When I review the homes pending, I see a lot of homes that have been on the market 100 days that are now selling. If you’ve been delaying making a home purchase for prices to go down more, I believe we’ve reached bottom.
Like the rest of the nation, we saw a dip in Rutherford County’s housing market last year, but the feel among Realtors is that the market is coming back. An article in today’s Daily News Journal, a daily newspaper based in Murfreesboro, confirms the perception of agents.
Across the nation, existing home prices have declined more than 10 percent, according to Standard and Poor’s/Case-Shiller Home Price Indices. The drop represents the steepest decline since the organization’s 1988 data.
However, prices are up in Rutherford County, according to Roberts. Numbers from MTAR show the average sale price was $183,511 in February of this year compared to $180,564 in February 2007.
The national market is hinting at a recovery… our local market is already in one!
Your neighbors were great. They moved two or three years ago into the house next door that’s nearly identical to your own. They kept the lawn mowed, their dog didn’t bark too much, and they once loaned you a router to edge the new table you built. However, you learned they had some financial troubles when their mortgage jumped about $400 a month. Normally they could’ve handle the added expense, but gas prices also increased their monthly expenses by another $100 and grocery prices rose as well.
Your neighbors lost their home to foreclosure. The lender just wants enough money to pay off most of the loan regardless of what it’s worth. The house could go for $150,000, but the bank sold it for $125,00 just to get rid of it. When all is said and done, you lost your good neighbors. But you also lost 16% in your home’s value. After several years – if you stay in your home - the value will return. However, if you plan to move soon, you won’t get as much for your house as you would’ve a year ago.
According to MSNBC, foreclosures definitely hurt the neighbors.
In a study of foreclosures in Chicago in the late 1990s, Georgia Tech associate professor Dan Immergluck found that each foreclosure on an urban block lowered property values by an average of nearly 1 percent, and about 1.4 percent in low-income neighborhoods.
The silver lining is that if you sell and move to a new house, you should be able to recover the value of the home you’re selling through the savings of the one you’ll buy.
Reprinted with permission:
I’ve been reading my latest edition of U.S. News & World Report and besides politics, crime, the war, etc., I found an interview with Bill Gross, the founder of one of America’s largest bond funds management companies. His answers to questions about the housing industry were very interesting and make me even more curious about what is being discussed in the backrooms of Washington, D.C.
Mr. Gross addresses how to stop the decline in home prices and said monitory policy can help homeowners with ARM mortgages, but says it doesn’t really help people trying to sell – just those trying to buy. This is because lowering interest rates may have a short-term impact, but 30-year mortgages haven’t come down like the fed funds rate.
Mr. Gross believes it necessary for the goverment to essentially subsidize mortgages, not in a ridiculous way, but for people who have demonstrated good credit and are willing to pay on time. As far as the expense of such a program, it wouldn’t be nearly as expensive as the $150 billion stimulus package that has just passed.
“We need the FHA to provide mortgages with, as least in my opinion, a subsidized interest rate. … [for] a government agency is overseeing the list of buyers as opposed to “greedy loan originators that just ran it for a fee.”
Mr. Gross also said,
“If your house is down 20 percent, you’re not in a rosy disposition to spend money anywhere. You think you’re getting poorer by the secodn. We have to avoid that.”
Read the entire Q&A article in U.S. News and World Report here.
