Cold Weather

And here I almost fell for Punxsutawny Phil’s prediction of an early Spring this year!  I guess it just goes to show you that weather people and weather creatures of all species are never 100% accurate.

Knowing this to be the case, my motto is: Always be prepared.  And although my intention is not to terrify anyone, I’m going to share a couple of experiences I’ve had with winter property issues, and to some of you they may come across sounding more like horror stories than anything else…

Back in the 1980’s, I had a listing on an unique cottage on the Ocean Drive.  It was a lovely site, an historic property overlooking the marshes near Cherry Creek. 

Shortly after the holidays, which is when real estate typically slows way down and sellers sneak away to St. Barth’s, I received an unexpected request to see the house.  I say unexpected, because this was right after a major blizzard!  But I drove out to the house, parked on the road (didn’t even bother with the driveway due to the 2+ feet of snow that had yet to be plowed),  and trudged up,  key in hand, to get inside and turn the heat up for the showing.

As I got closer to the door, however, I noticed something a little out of the ordinary; there was water running under the door and over the sill! “Oh, &*%$!” I thought.  I opened the door, only to discover that the radiator next to the door had cracked open, and a huge chunk of cast iron was sitting on the floor, with water spraying everywhere! The front foyer had become its own winter water park, with a lake spanning the hardwood entry and streams of water cascading downward to the sunken living room and onto the owner’s favorite Persian rug.

I headed to the basement, only to discover that it was full of water too!  Feeling like an intrepid explorer on a spelunking expedition, I waded and groped my way through the murky darkness until I found the shutoff valve and turned it hard to the right.

Back upstairs, when the potential buyers and their agent arrived, I politely informed them of the situation and suggested that they might want to come back another time.  I then got back in my car, my feet frigid as my pant legs froze over, drove back to my office on Bellevue, and made the calls to notify the owner and the oil company to check the furnace.  (Just to clarify for some of my younger readers who may be confused as to why I had to drive two miles to get to a phone: don’t be afraid, but yes, there was once a time before cell phones even existed… Terrifying, I know. And yet somehow, we survived!)  It turned out that the oil company hadn’t been able to deliver because the driveway was unplowed (!) and the owner had simply assumed everything would be fine because they had an “auto fill” contract!

Ah, memories…

Here’s another one! An investor who bought the parish house from a local church was from out of town, and he was unfamiliar with our New England winters.  According to the gossip at the time, he figured that he could close the property up and let it sit until it was ready for development.  He remained blissfully oblivious that his property had a problem until he received a water bill for tens of thousands of dollars!  The heat had been off and the household pipes had frozen, thawed, and then filled the basement with water, and it was running out the windows and in a babbling brook down the hill towards Thames Street!

Needless to say, New England weather poses challenges for real estate owners.  Early in the cold season, you should have your heating system cleaned and checked, arrange for automatic fuel delivery, and leave the thermostat no lower than 55 degrees – especially if you are going to leave town for any period of time.  Make sure that you also make arrangements to have your drive plowed, walk cleared and have someone check the property regularly while you’re gone.  This is especially important in case there is a power outage that lasts more than a few hours in very cold weather; your property manager will need to shut off the water and drain the pipes.

There are a number of reputable property management firms in the area that, for a small fee, will be more than happy to look after your home while you are away.  Hire a firm or have a friend who knows your plumber, electrician, and handyman check your house regularly, so that you can bask in the sun without worrying about coming home to Loch Ness.

Setting the Stage!

One of my daughters is really into reality TV shows about fixing things up, whether it’s wardrobes, antiques, hoarded homes – sometimes even relationships! There appears to be a strong demand in the U.S. for more and more of these types of shows (given how much they’ve been proliferating), and I suspect it’s because people really enjoy watching a “diamond in the rough” being transformed into its full, shining potential in an hour or less.

Following this trend, there have been a few TV shows geared specifically towards staging one’s home in order to make it as desirable as possible for potential buyers. On Encarta’s World Dictionary online, “staging” is defined as: beautifying a home for sale: cleaning, repairing, and updating the decor and furnishings of an older home to make it more attractive when shown to potential buyers. The TV show will bring in a professional stager who will gently show the befuddled homeowners the errors of their previous ways and make suggestions for the aforementioned beautification.

The conclusion of the half-hour or hour-long show will always make it seem as if it was the staging alone that really “sealed the deal” and brought the house to close. You might wonder, is that for real? Can a little feng shui, Febreeze, and soft lighting really make that much of a difference?

This answer is yes, it can. It can make a much bigger difference than you think, in terms of both the salability of the house and in its perceived value – which then translates to bigger bucks for you, the seller!

 As a follow-up to my December 3^rd blog post about pricing your house correctly for the market, I am going to give you some specific tips on how to stage your home to make it more appealing to buyers. For help with this, I turned to Karen Heagle in my office, a certified (and highly knowledgeable) home stager.

Here are Karen’s “tricks of the trade” for staging:

The way you live in a home and the way you stage a home are two different things. Once your house goes on the market, it becomes a product.  You wouldn’t think of selling your car without getting it showroom ready, so here’s what you should do with your house:

• Clear any clutter and additional furniture, and if you are moving, start packing.  "If you can't see it, you can’t sell it" should be the rule of thumb here.
• To increase curb appeal, a clutter-free exterior is important as well.
• Put away your collections - they become distractions for buyers and are not for sale anyway.
• Reduce the number of family photos.  The buyers need to be able to picture themselves living there. That’s tougher for them to do when they’re surrounded by pictures of Junior splashing in the bathtub or getting rides from Fido on the living room floor.
• Be sensitive to odors: "If you can smell it, you can't sell it." This is especially true for pet odors! I can guarantee that your buyers will not feel the same emotional connection to Mister Fuzzysnout that you do, nor will they appreciate his shedding habits.
• Watch out for wall colors. I’m all in favor of letting your kids express themselves creatively, but while your Goth teenager might have insisted that black walls were essential to his happiness, your buyers probably won’t feel the same way. When in doubt, paint it out – neutral tones are best for creating that “blank canvas” feel, which allows the buyer to project their own personal future hopes onto the property. The same goes for overwhelming wallpapers.
• Pay attention to unfinished projects such as the rail around your deck, missing hardware, loose doorknobs, broken windows, etc. These give buyers the sense that they are buying an unending list of things that need to be fixed. Who wants that? Take the time and get it done. You’ll thank yourself later.
• In general, look at the house with a buyer’s eyes... and remember, you only get one chance to make a first impression!

If all of this sounds a bit daunting, you might want to consider hiring an accredited staging professional with a trained eye – this will take a lot of the guesswork out of it!

You want to be able to sell your property as quickly and for as much money as possible.  For this reason, it is important to spend the time getting your property ready for showings.  An experienced Realtor can give you a good idea about which items need your attention and what you can skip in staging your home as appealingly as possible.

Is Now a Good Time to Invest in Real Estate?

A condominium sold just the other day in Newport for $185,000. It had originally been listed for $350,000 and is assessed for $305,700. 

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Did I catch your attention? Is this exactly the type of investment you’ve been scanning the real estate ads for?

There are plenty of enticing opportunities available in the wake of the 2008 market crash. But how do you know if real estate investing is right for you, and what types of concerns and criteria should you be familiar with before you take the proverbial plunge into rental property ownership?  In this blog, I will seek to provide information to help you decide your level of readiness for such a venture, and also address some concerns you should be aware of before you buy.

First, although I’m sure most of you are already familiar with how stock investing works, I’m going to quickly go over some basic “Investment 101” points in order to illustrate a few differences between investing in stocks and investing in real estate.

The Basics: Stocks vs. Real Estate

When you purchase stock as an investment, you purchase a share in a company that pays dividends or income on a quarterly basis.  The returns may not be high, but hopefully you chose a stock that will appreciate in value so you can see two types of return on your investment: dividends and appreciation.  Investment real estate works similarly in some ways.  You take some money and purchase a property that will bring you an income stream (rental income).  But unlike stocks, which ask nothing of you after your initial investment, real estate demands that you keep an eye on it – or pay someone else to do so.  Stocks don’t break down.  They don’t leak, rust, chip, or stain.  They don’t need mowing and plowing and routine maintenance.  They don’t complain about rental increases and the other stock’s yappy dog or high heels clacking overhead… et cetera, et cetera.

On the other hand, you can improve your property and thereby increase its value, which is something you can’t do with a stock.  A stock is a stock is a stock, and you probably have little direct influence over its worth, the way you do with your property.

Some Things to be Aware of Before You Buy

When buying investment property, I urge people to exercise caution.  You should definitely have structural/mechanical and radon/ hazardous materials inspections included as part of your purchase agreement. 

Make sure that:

• You are buying in a neighborhood that is attractive to renters
• The apartments are not in violation of the housing code
• The apartments are legal and registered with the city
• That apartments built prior to 1978 have current lead-safe certificates

Additionally, you may want to consider those things that need attention right off the bat – usually maintenance items that were deferred by the previous owner:

• Roof condition
• Foundation/ masonry condition
• Heating and plumbing maintenance and repairs.
• Kitchen appliances, counters, cabinets, floor coverings
• Bathrooms
• Paint and wallpaper condition

These expenses should be mentally added to your purchase price. 

If everything seems to be a go at that point, then you need to think about the care and feeding of your new investment ‘pet.’  I usually sit down and create a maintenance and repair plan and schedule. There is a lot to think about when you choose to take on an investment property, and you’ll be better able to anticipate future costs if you adopt a forward-thinking approach.  

Financials

Critical to the whole process is whether this purchase makes financial sense for you.  Meet with your accountant and do a cash flow analysis for the next few years.  Make sure that you factor in vacancies, repairs and maintenance, inflation, as well as the commissions you will pay for finding tenants.

There can be significant tax advantages to owning investment property.  Under President Reagan, when Congress decided to rein in some tax code abuses, it categorized rental property income as “passive.”  At the time, this characterization struck me as a wild misnomer.  Owning investment property is probably one of the most hands-on endeavors you’ll ever take on!

If you choose a good property in a good rental neighborhood and are able to do some repairs and improvements on your own, then owning residential real estate investment property can be very rewarding.  I know plenty of people who have been able to retire on the income that their properties throw off once they’ve finally paid down their mortgages.

There’s also another pretty clear benefit to owning real estate instead of stock: real estate is something tangible.  Even if the market goes down the tubes and your house is declared “worthless,” at least you can still live in it!  The floors and walls and roof are still standing to provide you with shelter.  The same cannot be said of a devalued stock certificate.

Commercial Investments: Good Idea / Bad Idea?

Investing in commercial real estate, by which I mean office buildings, retail stores, strip malls, destination malls, and industrial space, has its own set of advantages and drawbacks.  When you buy larger commercial properties (shopping centers, office building, etc.), part of the process includes a period of due diligence.  This is a time period, usually 30 - 60 days, where you can explore all the ins and outs of the property and have a number of thorough (and often costly) inspections. 

Commercial leases tend to be long term – sometimes decades – and the leases have built in escalators to allow for increased expenses in taxes, insurance, inflation, and annual building maintenance.  These are called “triple net” leases.  While the leases can be long term, the waiting period to find a replacement tenant can be painfully long as well.  For this reason, a commercial investor needs to have deep pockets.  If you want to get into commercial real estate investment, you need to be familiar with the culture and leasing specifics around each kind of commercial investment, or hire a property manager who has this expertise.

Because of the length of time that it takes to pay off a mortgage, a friend of mine once jokingly referred to real estate investing as a “dead man’s game.” But if you work hard to find the right investment property and invest within your means, I can assure you that this will not be the case!

What did the 2010 Real Estate Market look like?

At the end of each year, around the same time I’m working on those tedious tax preparations, I compile all the real estate sales data from Newport County and the bordering towns so that I can see the last year’s effect on the local market.

I had a hunch that 2010 would be different from its predecessors, and it turned out I was right.  When I took a look at the pages of analyses coming off my printer, I noticed a number of significant changes on Aquidneck Island in the last year.  According to the MLS records for all types of property being sold, both average and median sale prices are up slightly over last year.  The number of properties sold has inched up as well.  When I look at number of properties sold each year, it’s clear that the low point occurred in 2008, but the low price point seems to have occurred in 2009, which makes sense.  Sellers lower their prices after their property hasn’t received significant activity in a while.

There was also a change in the type of property that sold.  Single-family homes, which have always been our best seller, dropped a bit from 365 sales in 2009 to 360 sales in 2010.  At the same time, the number of condominium sales, which has slipped severely since its high in 2003, has risen almost 25% over last year’s number and is almost back to 2007 levels.  Multifamily homes, a very popular commodity in 2009, dropped 13 properties this last year

While any analysis or chart is just a snapshot of past reality up to a certain date, it is fun to imagine that it can give us insights into the future of the market.  What it can do is show us where we have been and what current market looks like.

I have additional graphs, which divide the market into price ranges: properties sold below $400k, in the $400k to $1 million range, and above $1 million.  These are the multicolor area charts below.  From the chart, “Aquidneck Island Number of Sales Distributed by Price”, it is clear that the number sold under $400k has dropped, while the middle range has taken up the slack.  An interesting view of the market is the comparison of this chart with the chart that follows showing the total dollars spent on the purchases in each category of home: the “Aquidneck Island Sales Dollar Distribution by Price.” In this chart, you can see that buyers in the middle and high categories spent almost the same amount of total dollars on their purchases and were only exceeded a little by the total dollars spent on properties sold for under $400,000.

To sum things up, we reached a marked sales bottom in 2008 and have moved up since then and we may have reached our low price point in 2009.  The middle part of the market that really took a hit in 2008 has reentered the game in the last year.  Condominiums are being recognized as a great value due to the pricing pressure they have felt in last couple of years, and sales reflect that. 

All in all, I suspect that 2010 will continue this trend.  In light of these indicated price increases (however slight), I would say that if you are thinking of buying a new home or investment property don’t wait!

Investment Real Estate vs. Home Ownership

“Owning your home is a smart investment.”

I hear people say those words all the time, and whenever I do, I think that whoever came up with that phrase didn’t really know what they were talking about.  A distinction needs to be drawn between investing in real property and home ownership. They are not the same thing!

A young acquaintance who analyses bonds for a living mentioned a discussion he’d had with his father recently.  Being a father myself, my ears perked up.  He said that his father was investing in gold.  I said, “What’s the problem with that?  Plenty of people invest in gold.”  He said that gold is not an investment because it doesn’t throw off an income stream; rather, it’s a hedge against inflation.  It occurs to me that owning your home might fall into the same category, with one major exception.  If you want to exchange gold for currency or another investment, it is a fairly easy matter.  If you want to exchange your home’s equity, it’s a much more cumbersome process.  You either need to sell it and find somewhere else to live, or refinance it and take on additional debt.

Investment is defined as: the investing of money or capital in order to gain profitable returns as interest, income, or appreciation in value.   The important part here is “in order to gain profitable returns.”  The only way to see a return on your home as an investment is when your home is liquidated, i.e. sold.  (If you mortgage or remortgage your home you can get cash out, but at a premium that must be paid back with interest.)

Case in point: a few years ago, some people were convinced that it was okay to purchase more home than they could afford because they viewed their home not only as shelter, but as an investment.  It seemed as if all property was constantly increasing in value, and that they would have a home that was always worth more than what they paid for it.  I think we’re all well aware of the consequences of that type of thinking! 

Most homes fall into the expense category; they usually are not income generators.  When you take out a home mortgage, you are paying both the interest to the bank plus some of the “principal” or cost of your house.  Over 20-30 years you will pay this amount fully, and by that point, your home will have a lot of equity.  So in a sense, your house is your “live-in” piggy bank, your mortgage as the savings mechanism that causes you to build equity.  During the time you’re paying it down, you have to earn money to pay taxes, insurance, utilities, repairs, and interest. Buying a home only really pays when you are able to retire your mortgage.  Then your cost of living goes down – but you still have to pay to live.

There is one situation that fits the “home as an investment” criteria.  Some people – often young people – will buy and live in a multi-family homes.  This makes the property more affordable, because the rental income is counted as additional income for their loan qualification.  Instead of buying a $150,000 single family home, they might be able to purchase a $250,000 two-family home.  Ideally, in a rising market, the rents rise and pay more of the home’s expenses, and the property appreciates in value.  Additionally, since the loan they are paying is larger, their equity grows at a faster rate.  Of course the downside to this is that in a declining market, rents can go down and ownership costs can increase.  This is why it is important to make sure that you plan and save so that you can handle the “rainy day” cash flow if things go wrong such as your mortgage rate or taxes increase, your water heater dies or your rents go down.

Over the long run, values and rents typically increase in good areas.  The first home my wife and I bought was a two-family home.  The rent we received on our first floor, one-bedroom apartment ended up paying most of our costs after a few years of ownership, which made our living expenses more affordable.  We also put a lot of ‘sweat equity’ into that home and increased its rental value.

This is an example of how your home can also be an investment.  Multifamily homes  bring with them the burdens of being a landlord, but they can really pay off in the long run.

HAPPY NEW YEAR TO OUR “AT HOME IN NEWPORT” READERS!!

Newport County - Where are We Headed?

A lot of you are no doubt wondering these days, "What is going on with the real estate sales in Newport County?" Where is the market headed?   Let's take a look.

I update a spreadsheet each week that looks back at the last 6 months' worth of sales data in Newport County, on Aquidneck Island, and in each of the towns separately.   I then graph these figures, which include all types of properties (single and multifamily as well as condominiums, land and commercial).   I've been doing this since the end of 2007, when it became obvious that the market was changing dramatically. Above is a graph of that weekly activity in Newport County since October of 2007.
 
In real estate, marketed properties are split into three categories: those that are currently on the market (Listings: the Blue Line), those that are under contract and awaiting close (Pendings: the Fuchsia Line), and those that have closed their contracts (Solds: the Yellow Line).  In my charts, each of the "Solds" points represents the prior six months of sales.  You can even look at my chart as representing the future (Listings), present (Pendings) and past (Solds) of the real estate business, much like an Ebenezer Scrooge story with a real estate bent. How appropriate at this time of year!

Let's look at some of the highlights: 
The Blue Line (Listings) shows that people tend to list their homes more in the summer months because of Newport's appeal as a seasonal resort and retirement destination.

If you look at the Fuchsia Line (Pendings), you can see a similar cycle that peaks in the spring around May and June.  You can also see the upward blip caused by the Obama homebuyer tax credit in October 2009.

With the Yellow Line (6 months' worth of Solds), you can see the number of sales clearly descending from their giddy highs from pre-2007, back when even the lowliest cottage was marketed at close to half a million dollars. The peaks and valleys echo the Fuchsia Line (Pendings) three months later, which is the time it usually takes to close on a property. If you average things out, the market appears to be quite even, steadily maintaining a historically low - but consistent - level of activity. 

What's also worth noting is that the height and depth of the seasonal peaks and valleys seems to be lessening, i.e. lower peaks and shallower lows.  This is an indication that buyers are looking year-round instead of just in the summer; there is a pent-up demand for good homes at the right price, and buyers are waiting to pounce if they see an attractive property.  I see some going even within the first week of listing.
The number of listings is far outpacing absorption by the market.  Using 1300 as an approximate average number of listings and 300 as the approximate average six months' sales, we currently have over two years' worth of inventory on the market in Newport County.

As I mentioned in my first post about the Newport County Market, the overall number of sales is staying consistently level year over year, not trending up or down, but listings are more affordable now because of low interest rates and substantially reduced prices.  According to the National Association of Realtors, the nationwide affordability index is better than ever, with qualifying incomes for a median priced home dropping from $52,992 in 2007 to $33,744 in October of this year.

Although our properties may require higher qualifying incomes, the increased bang for the buyer's buck holds true here as well.  If the current economy has hit you badly, you may not be in the market. But if you're looking to buy, you may not find a better time!

HAPPY HOLIDAYS TO EVERYONE AT HOME IN NEWPORT COUNTY!!

Choosing a Realtor to Help You Price it Right

 Is anybody out there a fan of the show “Antiques Roadshow?” Have you ever dreamed about showing up at one of those tables with some knick knack you’d had sitting on your shelf forever, only to be told it’s worth thousands and thousands of dollars? How would you feel, then, if a real estate agent came along and told you that your house was worth more than the market could bring you? Pretty great, right?

I wouldn’t be so sure…

Although it might sound great, believing this news - and making decisions based on it - can unfortunately lead you into trouble. Pricing your house is the most important part of listing your property, and pricing appropriately in a Buyer’s Market is critical if you want it to sell.

Here are some risks when overpricing your home:

Time is money – especially when it comes to marketing.  For every month your home remains unsold, you’re paying taxes, mortgage, insurance, heat, electric, and water bills, which in some cases can add up to thousands of dollars a month.  Sometimes, if you’ve already moved, you’re paying the expenses on two houses!  Even if you can get a higher price by waiting out the market, these holding costs mean that you usually end up netting less money than you would have if you’d sold right away at a reduced price.

The longer the house sits on the market, the more it will appear overpriced to buyers and their agents. This may be just a matter of perception, but it has proven true time after time.  Just like tired old merchandise, the house can develop a sense of being  “shopworn,” and price reductions later are not as effective as hitting the market at the right price initially.  Also, considering the market is still declining, the price you can get now will most likely be higher than the price you can get in six months.  So if you price too high, you can end up making reductions and still not sell because you’re chasing the market down! 

This may not sound encouraging, but it’s the reality of the current market. Accepting the facts will enable you to make smart decisions and probably save yourself a lot of heartache and money. It is important to get ahead of the curve.  Buyers right now are very particular about the houses they are buying, and they’re afraid of paying too much.  Make sure that you look at how your house will fit into the market alongside the current competition.  When prices are going up, it makes sense to price your home above the market, but when they’re going down, the opposite is true: you should price below the market.  This is because the comparable sales you are using to price your home are based on houses that went off the market some time ago - in some cases, more than six months!

Straightening up and preparing your home for showing after showing can be extremely wearing, stressful, frustrating, and otherwise draining.  If your house is overpriced, you will have to go through that many more showings before you get an offer.

Make sure that your realtor’s CMA (Comparative Market Analysis) makes sense to you.  Are the comparable properties the agent chooses in the same (or similar) neighborhoods, and are they the same general size as your house?  Are the comparables on lots of the same size, with similar amenities such as water views and a garage?  Make sure that you look at what buyers are paying for homes like yours, and not just what other homes (which have sat on the market for the last year) are asking.  Make sure that your realtor is experienced in creating CMA’s and has up-to-date data regarding the market and which way it’s heading.  Don’t be fooled by an agent who, while trying to compete for your listing, tells you what they think you want to hear, rather than giving you a true assessment of the market and what your house is really worth.  Some agents might even give you a higher price to get the listing, hoping that you will bring your price down once it has been on the market a while. As you’ve noted by now, this strategy is not in your best interests.

Your house will receive the most attention during the first few weeks it is listed.  There may be a pent up demand for a house like yours, and several buyers may be looking for such a property at your price point.  Don’t miss out on a possible multiple bid situation by pricing your property too high to start.  Remember, too, that your first offer is often the best offer you’ll get.

When you are comfortable that your property is priced close to the price that it will sell for (usually within 10% of your asking price), make sure that your house is in good order for showings.  More on this later…