Single Girl Power Growing Influence in Real Estate

Ladies, take note, you've begun taking a larger role in the area of homeownership over the last few years, according to a new study from the Joint Center for Housing Studies at Harvard University.

"Not only are unmarried women a large segment of the home buying population," says Rachel Bogardus Drew, the author of the report, "but they are fast-growing, too, increasing their share of home buyers by 50 percent in eight years. The value of their home purchases over a 3-plus year period totaled more than $550 billion ... ."

The study is as much a report on the sociological changes in our country as on the buying practices of women. The continued breakdown of the family has pushed women to start fending for themselves, financially, instead of waiting for the combination of salaries with a mate to purchase a home.

"Two out of three female buyers were previously married, though that share drops significantly for younger buyers," Ms. Drew points out. "They also have lower incomes than unmarried men and married home buyers, but are less apt to finance their home purchase."

Still, the overwhelming buying segment is made up of married couples at 63 percent, but now unmarried women are the second highest buying group (at least when looking at marital status) at 20 percent in the last three years. Unmarried men make up 17 percent of the buying pool.

The demographics paint an admirable picture of the group, being older than their unmarried male counterparts, and facing many obstacles, demonstrating their determination to get in the real estate ownership circle. They also have lower incomes and many of them are buying with children in tow (30 percent).

Financially, they've demonstrated that even with lower incomes, homeownership is available. At $37,000, their median income is 11 percent less than single men, but account for why they are less likely than married couples to live in single family homes -- however, the majority of them were move up buyers in the last three years. They are plodding along with wealth growth, taking a patient path to building their net worth by buying low, selling when the market grows and moving into a larger, more expensive dwelling.

The growth of this demographic has not gone unnoticed, as both for-profit and not-for-profit entities have begun initiatives to help women in their quest for homeownership. One of the groups was the Women's Mortgage Industry Network (WMIN), which was launched four years ago and is sponsored by Freddie Mac. The group's goals include engaging "the mortgage industry and non-financial service providers in a targeted education and counseling campaign that it believes will help close the gap in homeownership rates," according to information from www.FreddieMac.com.

One of the most interesting points of this report was one of the buying options Ms. Drew uncovered in her report of single women, purchasing in a co-housing community.
"Co-housing communities, though relatively small in number -- about 50 in the U.S. -- are an attractive choice for women who want the privacy of their own home with the benefit of a supportive, surrounding community. These communities typically consist of 12 to 42 self-sufficient private dwelling units, but also include a common kitchen/dining space where meals are shared as well as communal outdoor space. Other arrangements help to pair single mothers looking for a shared living situation," she writes.

"By pooling incomes single mothers can often afford to buy a more desirable home, and by living together they can share household tasks and childcare, which can free up valuable time. Living with someone can also provide critical emotional support and help make single parenting less exhausting and lonely."

Obviously, this is a growing segment of the real estate industry and will continue it's upward trend with the aging of the baby boom generation and the natural selection of women living an average seven years longer than men.

Published: August 18, 2006

Do Brokers Compete or Hold a Monopoly?

There's a lot of press these days on how much real estate agents are charging to sell houses. The House Subcommittee on Housing and Community held a hearing a couple weeks ago on residential brokerage services, where groups like the Consumer Federation of America (CFA) and American Homeowners Grassroots Alliance bemoaned the current commission-only business of real estate agents across the country.

To hear the CFA's take on these independent contractors (who have no job security, biweekly pay check, benefits, vacation/sick leave or traditional company support), they are all totally overpaid and consumers are being fleeced by a "fixed" commission rate that's being protected by the industry at large.

Obviously, I know a lot of real estate agents. Some are doing very well financially, on the other hand -- with the current state of the market -- some are looking to get out of the business. Most agents I know make a good living, but nothing extravagant. They draw in about the regional median income, but do not have the benefits that come with a full-time job. In fact, they have to pay for all their expenses – everything from paper clips to expensive advertising and marketing.

They get to pay for all of this, because they're taking a risk to make an above-average income. You won't see too many of them defending the latest commission charges these days because many markets across the country are off by as much as 30 to 40 percent. Instead, they are out looking for business. They're trying to get sellers to price right and buyers to get off the fence; meanwhile, the mortgage is due, the kids still want to eat and they have to market clients' properties with no guarantee of getting paid for it.

Mr. Stephen Brobeck, executive director of the CFA, calls the current residential brokerage system "a cockamamie system that restricts competition and consumer choice," in his testimony on July 25, 2006. Much was said in his testimony, thus I'll limit my response to the part where he calls on the real estate industry to be regulated like a utility -- you know, the power and gas companies.

What's really scary is that he is saying this in front of some pretty influential and powerful people in this country who may not really understand how a real estate agent makes his or her money.

Yes, they get paid on commission. And when you look at the average price of a house in the Washington, D.C. market, it makes some in Congress wag their heads at how much each agent must be walking away with from the settlement table.

Well, let's work in real numbers. Last year, the local MLS reported the D.C. area real estate market created roughly $44 billion in sales. The average commission, according to Real Trends, an industry watchdog group, stands at 5.1 percent (not the 6 to 7 percent touted in Mr. Brobeck's testimony). At that rate, with a commission split of 50/50 between brokers and their 30,000 agents, the average commission income would be roughly $37,400 each.

To be totally upfront (something I didn't see portrayed in some of the testimonies I read) the 80/20 rule can be applied in real estate -- except I would surmise it's more like a 70/30 rule: about 70 percent of the sales are done by 30 percent of the agents. Thus, you have some very successful agents on the top, and the rest are digging around for the remaining commission dollars.

A lot of money exchanges hands in this business, being divided between a lot of people. So while the dollar amounts sound expensive, they really only create an average income compared to any other industry in the region. But here's the catch -- agents only collect their pay if they are successful.

They only collect their split of the 5.1 percent commission if the transaction actually goes through. There's no reward for second place. If the agent gets the listing, spends her own money up front to market it, charges all her gas to her credit card, then she hopes to get paid back once the sale goes through … if the sale goes through.

Unlike other professions where the attorney gets paid even if his client goes to jail, or the surgeon gets paid even if his patient dies -- the real estate agent only gets paid the commission when the house sells. There's no paycheck for failure in real estate.

Published: August 11, 2006

Vacation Investors: Keep Up or Get Out

I wouldn't say that I'm frothing at the mouth right now while sitting in my vacation rental, but I'm getting close. My bride and I just spent breakfast making a list of why we'll never rent this unit again at one of my favorite beach communities.

I've rented several properties here in the past -- that's why I'm back this year. But this time has been pretty irritating. Not a disaster, mind you. We're still enjoying the beachfront pool club with tennis courts, Olympic swimming and private beach privileges that come with the $2,000 per week rental (after taxes, fees and insurance), as well as the views of a lake with plenty of turtles, cranes and various water fowl.

It's just that when I plop down that much money on a beach rental I have a certain expectation. You know, like there would be remotes for the 5 televisions, 2 VCRs and 4 DVD players that actually work. (And this is just getting started.) Unit L35 is quickly becoming a unit I'll never rent again.

There are two management components to investment property that every investor must take into mind. First is the investor track. Secondly there is a management company track.
Under the investor track, the individual investor has certain responsibilities, such as providing the furnishings, keeping the property in generally good order (painting, carpet, decking, etc.). The property management group is the one that joins the investor to keep the property in daily working order for all the visitors that will pay to stay at the home.

First let's deal with the investor track. A vacation rental can be a cash cow if you set it up right. Purchase with enough cash down so that the rents coming in not only pay your monthly costs (mortgage, insurance, property management fees, etc.), but you also have enough cash at the end of the month to save up for maintenance and upgrades of the unit over the years.

When investing in vacation rentals, keep in mind it's as if you're setting up your own little hotel. The rental not only includes the dwelling, but also all the stuff -- furniture, linens, kitchen utensils, and items needed on a daily basis. It also includes the niceties, i.e., DVD players, hot tubs, bicycles, gas grills, etc.

In residential investing, you only have to make one renter happy all year. In vacation rentals, depending on the length of the season, you could have dozens you have to satisfy in hopes that they will want to come back again and again. Thus, don't be cheap. Cooking wares from the local dollar store will not last long. After the first few uses, they'll look like what they are cheap.

Purchasing electronics on the same basis is really a disaster. While you may not want the top of the line in home entertainment, the cheapest components will break down very quickly. Remember, you are renting to people who are on vacation. They will most likely be watching several movies per week. The $49 component will break down (like the unit in my daughter's room, which has damaged up one of her DVDs).

This brings me to the property management track. Once we walked into the house, we discovered in two days various problems with the property and service of the management team:

• Mildew spewed out of the Jacuzzi on its first use
• Missing light bulbs throughout
• A hot tub that comes on by itself and won't shut off without unplugging it
• The garbage disposal was jammed and had to be cleaned of seashells and pebbles to get it to work.
• Out of the eight remotes in the house, only two work. I've had to purchase batteries for them only to find out some of them still don't work.
• The garage is full of debris
• The outside shower had to be cleaned of pine needles, leaves and twigs before anyone could use it
• The gas grill is a mess (okay, maybe now I'm getting picky, because what gas grill ISN'T a mess?). But the igniter doesn't work and I've purchased a lighter to ignite it for grilling tonight.

The owner next door bemoaned that there used to be two separate companies employed for cleaning and inspecting the properties -- now there's one that cleans and then sends its own crew in afterward to inspect. This may be why the cleaning crew put rugs in the washer and left us note to please move it to the dryer.

If you're going to get in the real estate investment game you must show that you care about the property. Besides, if you don't care how it looks when you're renting it out, then why should the vacationers care to come back?

Published: August 4, 2006

Normal Market Produces Buyer Opportunity

by M. Anthony Carr

Buyers scurry, afraid of buying at the height of the market. So why aren't builders running scared? Because the underlying principles of a good market remain sound in the midst of the market fears. While nationally, the industry has cooled to "more sustainable levels," according to the National Association of Home Builders, "The Bureau of Labor Statistics reports strong job gains in many of the fastest-growing states, with 37 states exceeding their pre-recession peak levels of employment in 2005."

The group recently released a mid-year housing report on its real estate trends website, HousingEconomics.com. A cooling of the market this year will still result in the third highest level of housing starts in the last few years.

That's why you keep seeing building projects going up. Definitely, not as many houses are being constructed in 2006 as last year, but the NAHB report points to several positive market growth indicators in various regions across the country.

Job growth is continuing upward. Unemployment is dropping. Businesses continue to expand and economists across the country continue to estimate that the need for more housing will stretch beyond the current inventory surplus.

The National Association of Realtors still is holding to 2006 being another very strong year -- the third highest on record. NAHB members are still bull on the housing market. What we're seeing in '06, it seems, is a transition year. For buyers who have no choice but to buy because of social or lifestyle reasons (birth of new baby, marriage, retirement, in-laws moving in, new job, relocation, etc.) they will buy now and unwittingly pick up a great deal.

For buyers who are too skittish about the market, they will miss a financial boosting opportunity. In markets where it has normalized (D.C., Miami, Chicago, Phoenix) buyers who buy based on rock-hard solid economic evidence, will be excited in a few years that they bought a house low and now stand to earn a handsome profit a few years later.

Ask anyone in the D.C. area if they would have bought property in 1990 (the last time the market took a time out) and held it to today. They would grin.

At that time the average home price was about $179,000, prices were dropping and the job market was faltering. Today, housing prices are up over last year by 4 percent, employment is up nearly 64,000 jobs compared to a year ago and the job market is still chugging along in the D.C. area. Home sales have leveled off and rentals are skyrocketing. I smell opportunity.

We have 20 percent more jobs headed this way in the next four years over the last four years -- that would be 256,000 jobs. While other areas may not be as robust, they are still growing. If the new employees don't buy houses, they'll rent and that's causing pressure on rents as they begin growing nationally at a double-digit rate for some areas.

M/PF YieldStar, a real estate market intelligence firm, estimates that 2006 and 2007 will be boom years for rental markets and multi-family housing starts. Occupancy rates surpassed an average 95 percent mark in the 4th quarter of 2005 for the 57 metropolitan areas the group tracks.

The real item to watch for buyers is the interest rates. As buyers keep waiting for prices to "bottom out," their buying power evaporates with the ever growing interest rates. Just a year ago, a household with an income of $100,000 could afford a $450,000 price range. Today, that same income is now dropped to about $394,000 simply because of the interest rate power. Current rates stand around 6.8 percent nationally and experts are talking about hitting the 7 percent mark before the end of the year.

In addition, as the jobs keep growing, the rentals will disappear and pent up demand will nearly burst forth in another few months. Buyers -- pull out your checkbooks and get on board now while the market has leveled. There's a reason they call it a "buyers" market.
Why aren't the builders fearful? With the job growth, you have to live somewhere, and workers will live in either one of their new units to purchase or one of the new units to rent.

Published: July 28, 2006

Picking and Choosing the Next Real Estate Boom Area

Everyone's looking for the next real estate rush -- the place where people will be able to buy at $100,000 and sell for $200,000 in six months. So I get emails about whether one town is a better place to buy over another. Is it time to buy or sell waterfront property? Is land the next boom market for real estate?

The answer, simply, to all the above is "yes." Yes, if all the parameters that support a growing economy are in place and about to move forward. Yes, if the investment meets your goals on your budget at this time. Yes, if you have the proper financing in place to create a positive cash flow or find a property that is moving up in value at a clip higher than inflation.

Real estate, unlike stocks or bonds, is a good investment any time … you just have to know where to buy. Like the old adage goes: location, location, location. The location is key and depends on the economic picture of that location at the time. Wouldn't you have loved to have bought a house in the D.C. market, for instance, seven years ago? Any property would have done you proud. The whole market grew at 153 percent in that period of time. Thus, location and timing were key, all based on the advent of the latest economic boom, coupled with an affordable, but low supply of adequate housing.

So where can you find that formula now? Start looking at smaller markets where federal spending or private investing is moving upward. For the start-up investor, look around your state first. And then use the following points as a guide on whether it's a good time to buy:
Low housing prices. Where do the prices stand as compared to the potential for rental income?

If a rental unit can be purchased so that the monthly rent covers the mortgage and tax payments, then this makes for a good start on the investment road. While many would-be investors look at the asset growth of an investment, they should really be looking at the net rental income instead. If you can make 8 to 12 percent annual return on the value of a home in rental income, that is a good investment indeed.

To find housing prices, start with a web search such as, "springfield virginia housing prices," or whatever community you're researching.

Stable economy. What's happening on the state and local basis. Again, begin your search by finding the state/local economic development authority. You'll be looking for economic growth as compared to the U.S. economy and how it's headed as compared to the past few years. Look for economic forecasts, charts, employment/unemployment data, etc. Pour over these with a fine tooth comb to find out if the community where you want to invest is moving upward, headed down, etc.

New jobs/plants/federal spending planned. In the above searches for the current economic picture, look for what's happening as far as growth. Are new corporations moving in to the market? Are current companies expanding their facilities? Are there job cuts or job growth? If you see indications that growth is on the way, get your check book out and start looking for an investor mortgage. But make sure you check one more thing.

Rental vacancy rate. Okay, the housing prices are within your budget and the economy is stable; heck, it's even about to grow. Great. How's the rental inventory? Is there a lot of it? Is there too much of it? The vacancy rate let's you know how long your property will be on the market and how much rental income you'll be able to pull in each month. Will you have a positive or negative cash flow each month?

Once you have these points in your plan covered, you're now ready to start looking at property. Get together your real estate team (agent, lender, insurance agent, contractor, etc.) and hit the road to building wealth.

Published: July 21, 2006