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Archive for November, 2007
So You Want To Be A Real Estate Investor? - Part 1
November 26th, 2007 categories: Columbus, Local Communities, Real Estate News
With all of the press about the Columbus real estate market, foreclosures, mortgage crises, etc., it is no wonder many folks are jumping on the bandwagon to take advantage of opportunities a down market often provides.
In my humble opinion, real estate is a great investment, especially in a market where properties may be purchased at truly “wholesale” prices. If you are new to the world of investing in real estate, however, there are a number of things you should consider and understand before diving in.
For the sake of this post we will discuss the concept many “flippers” are focused on, which is purchasing and renovating properties to re-sell at a profit. Part 2 of this post will focus on acquisition of income producing rental properties.
I use the term “flipping” cautiously as it can have negative connotations tied to scams involving fraudulent lenders and appraisers over valuing properties and taking advantage of Buyers. Here it simply refers to buying a property below market, making improvements and selling for a profit.
A few rules to live by if this is where you are headed:
- You make your money when you purchase, not when you sell. Be certain you are getting a good value.
- Be conservative. It is better to overestimate improvement costs and underestimate sale price. Doing the opposite can have a bleak outcome.
- Know your numbers. Many beginners simply subtract their purchase price and improvements from the ultimate sale price and assume this is profit. Please do not forget costs such as utilities, insurance(very expensive on vacant homes), mortgage payments, taxes, Realtor fees, if any, and a line item for miscellaneous, just to be safe.
- Determine an acceptable profit margin and stick to it. If the numbers do not work, look for another property. This should not be an emotional process.
- Be comfortable with some level of risk and do not rely on the home selling to stay afloat financially. If you do this right, you should not lose money but there are many factors involved and surprises do come up. If you project a 3 month sale and it takes 6 months, your profit margin may look very different than you anticipated.
The ideas above should offer a good starting point, but be sure to do your research and know your limitations. If you are a good carpenter, but have little or no free time, maybe it is best to hire out the carpentry and budget for this. Often times people overestimate how much they can accomplish on their own and end up blowing their budget when they call in professionals.
Typically, the quicker a home is ready for the market the better, as you minimize any carry costs. Never, however, sacrifice quality for speed as you will lose in the end. Do things the right way and do not cut corners. I have seen many a home sit on the market due to an investor’s shoddy workmanship and “discount” materials.
| Discussion: 1 Comment »
What is Your Home Worth in Today’s Market?
November 5th, 2007 categories: About Realtors, Columbus, Local Communities, Real Estate Professionals
Whatever the market conditions at a given time in a certain area, Home Sellers (or those considering selling) always have to address the age old question of how to price their home.
Realtors, friends and neighbors, family and maybe even the mailman weigh in on what the right price is to affect a sale. I have a secret for you……None of these people determine the selling price for your home, it is always determined by a ready, willing and able Buyer.
Below are a few factors Sellers often consider which have little or no bearing on the ultimate sale price.
- What they paid for their home
- The cost to rebuild their home today
- What they would like to net from the sale of their home
- What they need to be able to afford their new home
- What they need to recover the cost of renovations and improvements
- What their friend, neighbor or co-worker says their home is worth
When we as Realtors assist Sellers with pricing a home we rely on data generated through a Comparative Market Analysis(CMA). A CMA uses recent sales, homes currently for sale, homes in contract or pending sale, and homes which were on the market but failed to sell. Especially during a shifting market, it is critical that the most recent data available is used to establish a pricing strategy.
In my opinion, a Realtor’s job is to properly educate Sellers such that they can price their home properly given current market conditions. We as Real Estate Professionals help analyze the data and pinpoint trends and strategies. Choosing the price is up to the Seller.
Never choose a Realtor based on the list price they suggest as they have little control over the final sale price. A good Realtor will always decline an overpriced listing knowing it is in no one’s best interest to waste time and money chasing unrealistic expectations. Choose a Realtor with experience, a system for getting your home sold, and an approach and personality you feel will best represent your objectives.
A few pitfalls to avoid include:
- Pricing with “room for negotiation”
- Setting the price high because “we can always come down”
- Ignoring deferred maintenance or needed upgrades which impact sale price
It is normal that we are proud of our homes, have a financial and emotional investment in them, and see them as desirable. It is important, however, when selling that we take a step back and really look at the situation objectively through a Buyer’s eyes.
Especially in today’s market:
- Get input from a professional on pricing strategies
- Make sure your home is in top showing condition
- Get moving!
Related must reads: Photos to Sell Your Home, Do You Really Want to Sell?
| Discussion: 3 Comments »
How Spooky is the Columbus Real Estate Market?
November 2nd, 2007 categories: Columbus, Financing, Local Communities, Real Estate News
This was the scene outside our house on Wednesday evening as we participated in the annual trick or treat ritual. I must say the creature I created scared his share of kids, thanks particularly to the loudspeaker and microphone which allowed me to act as his voice. It was a great time and I am sure kept some of the smaller children up that night long past their bedtimes. It was, as I had hoped, pretty scary.
But talk about scary, what’s up with the housing market? If you relied solely on the media to fill you in, you might think we are hurtling towards the end of the world and all of our homes will be worth nothing soon. Not so, I say!
Recently I wrote about a Forbes article selecting Columbus as the 3rd most stable housing market in the country. For me, this came as no surprise as Columbus has historically exhibited stability in terms of economy, housing and jobs without the wild home price fluctuations seen in some of the most troubled markets.
The table above showcases statistics for September 2006 vs. 2007 as well as year to date statistics vs. the same period last year. These are figures generated by the Columbus Board of Realtors. I will acknowledge that these are not what we would hope to see in a thriving market. At the same time, it could be much worse. Though total listings sold are down, so is the number of new listings which have entered the market.
As for a dramatic crash in home values, we have seen only 1.6% decrease in average sale price year to date. I fully believe this is indicative of a correction brought on largely by poor lending practices and people overextending themselves. As with any correction, it will take time, however it will also bring with it opportunity.
For Buyers this is a wonderful time to be in the market for a home with:
- Many homes to consider
- Low interest rates
- Motivated Sellers
For Sellers, as I have said for some time now, it can be a great time to sell if you condition your home properly and are realistic about price.
As far as what is to come, I think most real estate practitioners would agree the somewhat sluggish conditions we have been experiencing will not go away over night. But don’t scream and don’t shiver with fright. It’s just not that spooky!
Markets go up and markets go down. Be glad Columbus isn’t primed for the swings other markets see. Take what you read in the paper and see on TV with a grain of salt and if Buying or Selling is in your future, find a good real estate professional and learn the truth about the market as it relates to your objectives.
Related Must Reads: Columbus Housing Market, Buying a Home in Columbus
| Discussion: 1 Comment »
