December, 2009

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Here’s a Quick Way to Know When to Buy and When to Sell

Thursday, December 31, 2009

Time IN the market, not TIMING the market

This one’s a “freebie” for primary homeowners who know in their guts that real estate is a good investment. And, they’re right. Problem is, when they’ve built their equity and it’s time to sell, they have a decision to make: What to do with all that equity. Most folks want to move. This one’s for them.

For the investors out there, you’re not sitting on a house long enough to have to worry about when to buy and when to sell. You buy, rehab, and sell – QUICKLY! For an investor, it’s the number of deals per year that counts; not how much of a killing you’ll make on one lonely house.

Consider the following chart. It’s simplistic but simple is good. It helps you get your head around the concept.

You’re in the middle. You bought your house for $100K. It was the most you could afford at the time. Still, you would have preferred the bigger house but it would’ve cost you $200K. You were $100K short so you bought as much as you could afford at the time: Your $100,000 dollar house.

Trading Up – The Effect of Price Changes
% Up/Down Current House Bigger House Difference
+10% $133K $266K $133K
+10% $121K $242K $121K
+10% $110K $220K $110K
Bought here $100K $200K $100K
-10% $90K $180K $90K
-10% $81K $162K $81K
-10% $73K $146K $73K

The chart shows 10% price increases over some period of time. Call it a year. Pretend that each year, prices increase or decrease by 10%.

Study the Difference column. Did you notice how your dream house got further and further away the more your own house increased in value? When you first bought, you were only $100K away from owning that nice, big house. Three years later, you’re $133K away. Not good if you’re looking to trade up.

On the other hand, as your own house dropped in value, so did the big one! Three years later, your dream house is only $73K away. MUCH more affordable.

  1. If you’re trading up, falling prices is what you want.
  2. If you’re trading down, rising prices are for you.

Trading down? Same chart, flip the numbers. The difference becomes your profit.

Trading Down – The Effect of Price Changes
% Up/Down Current House Smaller House Profit
+10% $266K $133K $133K
+10% $242K $121K $121K
+10% $220K $110K $110K
Bought here $200K $100K $100K
-10% $180K $90K $90K
-10% $162K $81K $81K
-10% $146K $73K $73K

If prices haven’t moved since you bought your big $200,000 dollar house and you sold it to buy the smaller one, you’d make $100K on the deal. If you waited three years and prices went up, you’d make even more: $133K. If, on the other hand, prices dropped over three years, you’d only make $73K. But, a profit is a profit, after all.

This is very powerful knowledge. Be careful with it. These are generalities. There are many other variables to consider. Chief among them are interest rates or the “cost of money.” This was discussed at great length in Great Rates. You must also consider what your dreams are and what your current cost of living is. If you’re dreaming of a big house, go out and buy it! Life’s too short. If you need to downsize, stop paying bills you don’t have to. Buy that smaller house! Life’s too short.

Knowing when to buy and when to sell trips up many homeowners. It needn’t be overly complicated. Waiting for the absolute top and the absolute bottom of the market will trip you up. You could lose money and get hurt when you’re frozen by indecision. If the full-time professionals can’t get it right, you don’t stand a chance (Read Can’t Predict the Bottom). Instead, getting it “almost right” can be just as good.

It’s been said that more is lost by indecision than by the wrong decision. This is true in buying and selling real estate, too. Waiting to make your purchase and missing an opportunity, or holding on too long and losing money can be disasterous.

A Quick Way to Know When to Buy and When to SellConsider the face of a clock. Anything from 11 o’clock to 1 o’clock is the top of the market. Anything from 5 o’clock to 7 o’clock represents the bottom of the market. Don’t worry about hitting the exact top at 12 o’clock or the exact bottom at 6 o’clock. Be happy with buying your dream anywhere in the 11-1 o’clock or 5-7 o’clock ranges and you won’t get hurt. Where do YOU think prices are in the current cycle? Why? Leave a comment below.

Who Else Wants to Buy Real Estate as an Investment?

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Analyze the Layout of a House Like a Realtor

Tuesday, December 29, 2009

Can You Tell a Good Layout from a Bad One?

From Ranches to Colonials and everything in between, there are some common elements to the layout of a house that you need to pay attention to. Realtors® can tell good layouts from bad layouts in different home styles. Now, you can, too! Here are five common features and how they fit together.

Stairways and Hallways

You see it time and again: You open up the front door and walk right into the stairway going upstairs. Or, there’s a hallway leading into the interior. Either way, it’s a waste of space. When you come into a home, you want to feel welcome. You want a warm and inviting space. Hallways and stairs don’t it. You either have to walk around the stairs or through the hallway to get to where you’re going. Ideally, there should be some sort of foyer or other area where you can greet your guests and take their hats and coats.

Dining Room

In older homes, it used to be popular to locate the dining room in the middle of the house. This proved to be unpopular because it was inconvenient to have to walk through the dining room and around the dining room table to go from one place to another. Back then, the dining room WAS the entertainment center. Today, there are family rooms, gourmet kitchens and other entertainment areas that have become the place where the family gathers.

Bedrooms

Bedrooms should be located away from the entertainment areas. Too close, and they’re not as private as they could be. Noise from the entertainment areas will disturb those wanting a quick nap or have to get to sleep earlier than others. Adjoining bedrooms aren’t very private either. Avoid homes with doors between the bedrooms or homes that have been broken up into smaller rooms. There’s no functional reason for either of them and they’ll drive down the value of your property. It’s just wasted space where a closet or piece of furniture could have been.

Bathrooms

Ideally, there should be a bathroom on every level of the house. Failing that, a bathroom MUST be located near the entertainment area so that guests don’t have to walk into the sleeping area for their relief. Bathrooms should be big enough to be able to change your clothes comfortably in. A good rule of thumb is that you should be able to stand in the middle of the bathroom, stretch your arms out, and not be able to touch a single surface.

Windows

Don’t overlook the windows! You want larger windows and more of them. Smaller windows decrease the amount of light in the house and make you feel “closed in.” Smaller windows are less attractive and makes it more difficult to sell the house.

What’s a Good Layout for a House?

A well-designed home will have as much separation between the master bedroom and the secondary bedrooms as possible. It’ll have a central entertainment area for the family to gather in. This area will include a dining room, a family room, and a kitchen. A central hallway or other clear pathway to all parts of the house is very desirable. It allows for great traffic flow and good circulation throughout the house. Look for a balanced combination between living and entertainment areas.

You know you have a first-class home if you can get all of the above PLUS an attached garage that opens into the kitchen, a conveniently located laundry area, and as much storage space as possible.

You cannot judge the layout of a house from pictures on a Web site. The only way to do it is to get inside and see for yourself. Now that you know what your Realtor® is looking for, you’ll know what they’re talking about when they say that a house “has a good flow.”

Who Else Wants to Buy Real Estate as an Investment?

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Do You Know Why Location is So Important?

Sunday, December 27, 2009

Location: Love it or leave it

It’s been said before: “Location, location, location.” No matter how nice the house is, it will always be affected by the surrounding neighborhood. If the town decides to locate a landfill nearby, even a gold-plated mansion will suffer a big hit to its sales price. Location is important because people want to LOVE where they live. For an investor, location is important because it’s the one thing you can’t change, no matter how hard you try.

Two Local Examples

In the Merrimack Valley, Andover, Massachusetts, is considered to be one of the most prestigious towns. Next door Lawrence is thought of as a place where you buy your first home, build some equity, and then trade up to a more desirable town. Quickly.

In a city like Lawrence, homes are commodities; it’s “a house.” Investors can only compete on price when it’s time to sell. Granite countertops, stainless steel appliances and hardwood floors will only get you so far.

A rehab in Lawrence should stop when you have a solid, clean house. It should be in move-in condition. First-time buyers can’t lay out cash to make it liveable. You’ll get top dollar in Lawrence for a decent house but anything fancier won’t bring a return on your investment. You’ll just make the lucky buyer very happy.

In nearby Andover, an investor can expect premium pricing for modern upgrades. Upgrades ARE the selling point. Sure, there are more desirable areas of Andover and there are lesser areas, but the town as a whole is costly to buy into. A home in Andover that doesn’t sparkle, starts to compete with homes in other towns. The same isn’t true for homes in Lawrence.

Are You a Dreamer or an Investor?

It’s rare that border towns are at such extremes. This drives home the point that an investor MUST consider location because they can’t change it. A dreamer thinks they can pick any old house, turn it into a sparkling castle, and sell it for Andover prices. An investor takes any old house and makes it the best one on the block. And stops there.

Most homes are somewhere in the middle between Andover and Lawrence. A wise investment choice gives future buyers what they want: A spacious home on a tree-lined street, a little privacy, and a decent yard. It should be a five minute drive away from grocery shopping and ten minutes from a mall. It’ll have a low crime rate and a great school system. Everything else is gravy.

When you’re picking your middle-of-the-road investment property, start with location. Take a macro-view. Pick your city or town first, then move into the neighborhoods. Things to look for include zoning and taxes. Zoning tells you what might be built next door in the future. Taxes directly affect how affordable it’ll be.

Check out the proximity to jobs, schools, and area amenities like museums, theaters, and other entertainment spots. Most buyers today don’t want to drive all over the place to buy groceries, communte to work, or get their kids to school.

Finally, you’ll need to know about the crime rate, noise level, and traffic patterns. The better locations are all on the low side of these measurements.

When you’re making an investment that you’re going to sell for a profit, you need a location that gives them what they want: Close to everything but with some peace and quiet. You can’t change location so make it a priority.

Who Else Wants to Buy Real Estate as an Investment?

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Who Else Wants to Buy Real Estate as an Investment?

Tuesday, December 22, 2009

There are any number of places you can invest your money: Stocks, bonds, gold, mutual funds, and collectible artwork are just a few that come to mind. None of these are as emotional as investing in real estate. Everyone needs a roof over their head. And everyone can relate – on a very personal level – to the intrinsic value of a home. In the end, though, when you’re making an investment, it always comes down to buying low and selling high.

Today marks the beginning of an amazing series of articles that will give you the tools you need to make a wise investment in real estate. Topics to be covered over the next couple of weeks include:

  1. Do You Know Why Location is So Important?
  2. Analyze the Layout of a House Like a Realtor®
  3. Here’s a Quick Way to Know When to Buy and When to Sell
  4. The Secret of Sure-Fire Sweat Equity
  5. The Magic Number in Negotiations
  6. How to Flip a House Like an Investor

Buying Real Estate Low and Selling High

Buy and Hold

Real estate has always been a great investment. Over time, home prices have steadily increased even though there have been fluctuations and corrections now and then. In the classic “buy and hold” strategy, an investor buys a house during a down cycle and sells it when prices have strengthened overall.

This can be tricky but it’s not impossible. When it comes to buying and selling, you have to be right TWO times: You have to know when to buy and you have to know when to sell. You also have to know which house to bet on.

When you’re looking at which house to buy, it’s important to consider factors that you can’t change: The neighborhood and the layout of the house. Everything else, really, is a matter of maintenance or further investment.

Sweat Equity

This strategy takes a lot more work and a lot more money but it is the SUREST way to a positive return on your investment because YOU control all the variables.

With this strategy, you’ll learn how to negotiate like a pro. You’ll also learn how to approach a property like an investor. You’ll analyze the property, determine where the flaws are, and calculate what it’ll take to renovate the project to full market value.

Finally, you’ll SELL your investment to realize your profit.

Investing in real estate is not something designed for your primary residence. Your primary residence is more suited to the “buy and hold” strategy where you’ll cash out when the property no longer meets your needs. At that point, you’ll have another decision to make: what to do with the proceeds: Buy another house or bequeath the proceeds to your heirs. This is a topic for another time but you’re encouraged to ask questions by posting a comment in the box below.

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Tax Credit

Sunday, December 13, 2009

The Last of Ten Reasons Why RIGHT NOW is the Best Time for Home Buyers

The VERY popular and VERY successful government program to offer an $8,000 tax credit to first-time home buyers has been extended to April 30, 2010. It’s also been expanded to include current homeowners who are buying a new or existing home between November 7, 2009 and April 30, 2010. Current homeowners may qualify for a $6,500 dollar tax credit.

This is great news for anyone thinking of buying a home, but you have to act fast.

If you buy your new home before the end of April, Uncle Sam will cut you a check if you qualify. Realtor.org has all the info you need.

Smart buyers will consider their options when they get that check in the mail. One good idea might be investing it in a solid mutual fund. Instead of going for the instant gratification, investing the money will have it working for you year after year. It’s the gift that keeps on giving!

While it hasn’t been the case lately, the stock market has averaged a 10% annual return over time. A mutual fund is a collection of stocks providing diversification, professional money management, and easy access to your money when you need it.

If you take your $8,000 check and put it into a mutual fund that gets 10%, you’ll have a fund worth $8,800 dollars at the end of the year. You’ve just earned $800 bucks just for being patient.

An average homeowner’s insurance policy costs just under $800 dollars. If you let your money ride, you could be getting your homeowner’s insurance for free every year! Use the mortgage calculator to see what free insurance does to your monthly payments.

Mutual funds are a great investment. Real estate is a great investment, too. The key is to diversify your investments.

You’re probably already investing for retirement. When you buy your home, you’re making an investment in real estate. Now, with the homebuyer’s tax credit, you have a once-in-a-lifetime chance to start an investment for TODAY’S needs, too.

Smart buyers know that they should have a “kitty” for an emergency. Start your emergency fund today with your investment in real estate. Buy your house during the slow winter months, get the tax credit and throw it into an emergency fund. Each year, siphon off enough to pay for homeowner’s insurance and feel safe knowing that you still have $8,000 bucks left just in case.

There are other great investment choices if you don’t like mutual funds. If you have a hot stock tip or think bonds are the way to go, please start a conversation in the box below.

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Great Rates

Friday, December 11, 2009

The Ninth of Ten Reasons Why RIGHT NOW is the Best Time for Home Buyers

Interest rates today are at about 5%. They’re so low that you’ll be telling your grandkids about them! People moving into your new neightborhood will be jealous of the rate you locked in TODAY if you buy your home TODAY. Check BankRate.com for an idea of current interest rates.

Rates are being kept artificially low by government stimulus programs. The Treasury has committed to buying bonds at an accelerated pace into March, 2010. The increased demand has increased the prices of these bonds. When demand goes up, prices go up. Since yields (or rates) go up or down opposite to the price of the bond, the YIELD goes DOWN the more prices go up.

When the Treasury program of bond-buying goes away, prices of bonds are expected to drop because their demand drops. This means that rates are expected to go up. Remember: Rates move inversely to the price of the bond. Bond price up, interest rate down. And vice versa.

For more information on the Treasury’s bond-buying program and how it affects interest rates, start a conversation in the box below.

Suffice it to say, just like trying to predict where home prices are heading, it’s hard to predict what tomorrow’s interest rate will be. There’s one thing you DO know for CERTAIN, though. In six months, interest rates will be higher than where they are TODAY. If you think rates will be lower in six months, will you share your thoughts below?

Your next question is, “What does an increase in the interest rate mean to me?”

Unless you’re paying cash, you have to borrow money. When you borrow, you’re charged interest. That is the cost of money.

You know that there is a cost for everything. When you buy a loaf of bread, it costs money. When you buy a house, it costs money. If you buy something that you don’t already have, it costs money.

If you don’t have MONEY… you have to buy some – or at least borrow some until you pay it back. There’s a cost for that, too: The cost of money is the interest rate. You’re buying money at the same time you’re buying a house. The more the money costs, the less house you can afford.

If “money” costs 1% more because you’ve missed the current sale on money, you have 1% less to spend on a house. If you’re in the market for a $200,000 dollar house, you have to spend an extra $20,000 on money. This means you can only afford a house at $180,000. If you’re in the market for a $500,000 dollar house but you missed the current sale on money, you’ve lost $50,000 in buying power. You can now only afford a $450,000 house.

When rates go up, your buying power goes down. It has a serious affect on the American Dream and it’s often overlooked because it’s too difficult to figure out.

Smart buyers know the numbers, know the cost of “money,” and know what the house is going to cost. They know the TOTAL cost of the house.

When you’re in the market for money AND a house at the same time, it makes sense that you talk to an experienced Realtor®. When you engage a team of a lender AND Realtor®, you’ve got a powerful combination that can mean the difference between a no-hassle closing and one fraught with extension requests. Is that worth a conversation? Start typing below.

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Fantastic Inventory

Wednesday, December 9, 2009

The Eighth of Ten Reasons Why RIGHT NOW is the Best Time for Home Buyers

It’s no secret that times have been tough for many homeowners but their pain is your gain. There’s never been a larger selection of homes to choose from than today. There are big homes and small ones. There are fixer-uppers and homes in “mint” condition. Some are in “much sought after” locations and others are in “starter” neighborhoods. The inventory is so vast, in fact, that there is no greater need than today for the assistance of an experienced Realtor®.

Over the past three days alone, 25 new homes came on the market in just Andover, Billerica, Chelmsford, Dracut, Haverhill, Lawrence, Lowell, Merrimac, Methuen, North Andover, Tewksbury, and Tyngsborough ranging from $135,000 to $749,900 and everything in between. There was nothing special about these three days. That’s just typical flow over any three day period at this time of year.

Over that same period, 28 other homes had a price change. Which way do you think they went: Up or down?

For you, price changes are VERY IMPORTANT. As far as you’re concerned, they’re “new to the market” – YOUR market. Let’s say you set a budget of $250,000 to $300,000 for your new home. Let’s also pretend that a house was on the market at $315,000 but the owner cut their asking price by $15,000. All of a sudden, a new house shows up on your radar!

It works the other way, too. Let’s say something comes on the market at $249,900 but a bidding war erupts and the owner changes his asking price to $259,900. Same thing: a new house enters YOUR market.

In both cases, these are probably worth looking at, wouldn’t you agree? ALL buyers are looking for a steal but in an efficient market where all participants have equal knowledge, supply and demand rule the day. You can gain an edge, though, if you’re using an experienced Realtor® who’s actively working on your account.

An experienced Realtor® knows the inventory inside and out and can help you find exactly what you’re looking for with today’s computerized tools. They have personal, first-hand knowledge of what’s on the market. They’ve already visited the homes in your target market. They have tools at their disposal that can slice and dice the inventory in finer pieces than even the best national real estate Web sites. Those sites are set up to sell advertising. Realtors® earn a living by helping you find your next home.

Even during the “slow” holiday season, the flow doesn’t stop. The activity just keeps on coming and at this time of year, the buyers are sleeping. Except the smart ones. Are you one of the smart ones?

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