How Much is Too Much to Fix up Your House?

by M. Anthony Carr

As with any resale product, the person trying to sell said product will usually try to make the product look as new as possible to ensure the highest profit available. In reviewing many of the homes on the market today, however, some sellers don't get that notion.

Don't make the mistake of the seller who, knowing full well that buyers were coming by, not only failed to do a fresh clean up, but also left his underwear on the exercise bike, a pan of crusty macaroni and cheese on the stove and debris throughout the yard.
There are some task items any seller should consider when selling a house. Even if you decide to sell "as is," a little soap and water could put a few more bucks in your pocket. With that in mind, let's look at what sellers should look at doing with any house they want to put on the market; what to do when you want to get a little more money; and how to compete with the Joneses when looking to prepare your home for sale.

Any House

All homes going on the market should receive a deep cleaning. This is the cleaning that you do when … well, you would never do it unless you're selling your house (or you're just an absolute neatnik. This involves scrubbing every cranny of the house. Nothing goes unscrubbed. I would suggest bringing in a professional group to get this done and plan on spending a couple hundred bucks (maybe more) to get the house ready for your new buyer.

Next, declutter the house. Go ahead and rent a huge storage unit and fill it up. Plan this with a bunch of pre-made boxes that have lids you can tape shut and label. Take extra kid's toys to charity. Donate all clothes that are even a bit too tight or out of date. Remove excess furniture (or even cover with matching covers).

Repair and paint where needed. As with most homes that have been lived in, that would be all of them. Walk through a new construction home to see what you're up against and then go and make yours look as best you can on your budget.

Landscaping. Thankfully, mulch and flowering plants don't really cost a lot of money for those who are just sprucing up. Before going out and paying for a designer-created landscaping job, start with the local garden center and get some free advice on how to spruce up on a budget. Fresh, flowering plants (even in fall and winter) can make the house look oh-so much better.

Even if you're selling as-is, the above four tips are a must. Next is where we spend a little more money.

Redecorating
Renewed color. Giving your house a makeover doesn't have to cost you a second mortgage. The first item to consider for rehab is your color selection. While the traditional advice is "go vanilla," professionally selected colors (not too bold) can make a "nice" house into a "wow" house.

Flooring is one of the best moderately priced upgrades a seller can install to make a huge difference. While I like the concept of "choose-your-own-carpet" offers in home listings, think about what else it's saying: "We're too cheap to fix up the house now, so we'll let you walk through our tattered, stained carpeting and let you get it installed the weekend after we leave." Like I said, make your house a "wow" by making that first great impression with new carpet.

Replacing dated items. Sometimes replacing certain items in the house is really more like maintaining your home instead of upgrading it. Items like windows, doors, light fixtures, faucets, door hardware, etc., need upgrading and replacing periodically. A walk down the light aisle at your favorite hardware store reveals this could be done on a budget. Nevertheless, there's nothing more gross looking than a brass light fixture that's chipping and rusting.

Keeping up with the Joneses

At some point you have to look at what the neighbors are doing and keep up or you'll lose out. If everyone in the neighborhood is ripping out the old and installing the new (kitchen, bath, carpet, doors, etc.) then you may be forced to do the same thing long before you're thinking of putting your home on the market. My wife and I are facing that right now with the kitchen. It's starting to show its age, which means before we put the house on the market in a few years, if I want the best buyer (or any buyer for that matter) the kitchen cabinets need an upgrade.

Redo, Remodel, Relax

As you look around the house, making your list of things to change before putting the house on the market, remember to create some time to enjoy your new digs before selling the place. If a sale is on your horizon and you must redo the landscaping before putting the house on the market -- do it early so you can drive home to the professionally designed flowerbeds and floral creations a few months or years before selling it to someone else.

While you want to repair, paint, remodel and add on to your house because it adds value to your home, every homeowner should especially do it because they want to enjoy the changes as well.

Published: October 20, 2006

How to Tell Where Your Market's Headed

by M. Anthony Carr

I've had several friends come up to me in the last few weeks and ask: "Is this a good time to sell my house?" or "Is this a good time to buy a house?" Let me preface my 700-word answer with this: If nobody panics, we'll all get out of this alive.

Many readers have accused me of being too optimistic on the real estate market. What they see as optimistic is actually an attitude steeped in the belief that you can make money in real estate in any market, you just have to know how to operate when the market's moving up, leveling off, or cooling down.

When prices are up -- sell. When prices are leveling or dropping -- buy (or sell). When rents are moving up, don't play Mr. Charity, raise your rents. When you enter this field of real estate as a wealth-building business investment, that's exactly how you have to treat it -- like a business.

When the market shifts, that's okay if you're looking at the market as a way of making money and building wealth. So last week when I read some reports from federal agencies that appreciation had slowed, I didn't panic with many of the market prognosticators, I just shifted my business plan. Real estate investors and property owners can make money in any market, you just have to be wise on the market and be flexible on how much profit you want to make.

Consumers are definitely confused on whether they should buy a piece of property when many numbers are pointing at a housing market that is slipping in prices. Today's tip is to approach it from a non-emotional business perspective. Watch these segments of the economy in your local area to determine if you should buy in your market:

A - The local economy

What's happening? Are jobs growing? Are businesses opening? Are current businesses investing in themselves? What are the economists saying in your area? Research this data by a simple Google or Yahoo search of "economic report." Through that search, the astute investor will find out where economists are predicting growth in suburban business centers and where the jobs are coming and going.

Forget what you're hearing nationally and look for the growth on the local level -- where you want to buy a house. Just like politics, real estate is local, which moves us to B.

B - The local real estate market

What's happening? Are prices booming, leveling or slipping? This has to be researched on various levels. Start on the state level, drill it down to your county and then get a granular look at the zip code and community level.

These numbers can easily be found through your local Realtor association. For a list from across the country, start at Realtor.com and click the links to local real estate associations at the bottom of the page. Most local associations (definitely state groups) keep a public area on their web pages with local statistics on the number of homes sold, sales prices and year-to-year appreciation.

Look up government information as well on job growth, economic plans and forecasts. If the state and county governments are playing their role appropriately, they're creating jobs AND allowing development of housing to house the workers who come along for those jobs.

If they haven't come up with the latter, then you might have a good investment opportunity on your hands. More jobs and fewer houses spell lower supply and high demand, meaning equity growth and high rents.

And don't forget the rental market. Is it growing? Are there a lot of vacancies? How much are the rents going up? Down? If rents are up, then you may be able to cover your monthly expenses. If they're dropping, it could be because the location is down economically or because housing is so affordable (but appreciating) that renters are getting out of the rent track and buying a house instead.

C - The financial market

This market is actually the only real estate component that is usually measured on a national basis. It's all about the cost of money and most interest rates are within a basis point or two from each other nationwide. Currently, they are still historically low (under 7 percent) which can be had for 1 or less points.

If you find that A is chugging along, B is still affordable and C is also affordable -- then buy, buy, buy. A strong economy with a growing real estate market and strong rates, means you can buy a house for relatively little money down as an investor, put a renter in the house and obtain it with cheap money that the rent will pay for.

If you find you're in a positive A situation, but B is unaffordable and C is still affordable, then you may need to wait or jump in the flow before B gets even more unaffordable.
If A is great, B is leveling and C is still affordable, and A looks like it's going to keep growing -- then buy while you can, because B is going to move up right after the break.

Finally, get a team together to help you analyze the data you've just researched. Are the prices trending upward? (And is that really a good thing right now?) Or are the prices dipping, meaning I should get in while I can because the jobs are coming? Work with your agent, lender and accountant to figure how the market can help you with your wealth-building goals.

Published: October 13, 2006

Sellers Sitting on Large Sums of Equity Dollars

by M. Anthony Carr

Many sellers in today's market are bemoaning the fact that prices have stabilized or are falling in their communities. While year-over-year numbers regionally and nationwide have demonstrated strong appreciation, the latest month-to-month declines in some markets have made headlines and struck fear in the hearts of homeowners everywhere.

Despite very robust long-term housing appreciation, many observers of the market and prognosticators write scary reports about how appreciation has slowed, prices have dipped, etc.

Stories from the field go something like this: The seller won't accept a $150,000 lower offer on his $1.2 million listing because he's already dropped it $200,000 from his original asking price. When asked how much he bought the house for 15 years earlier, he answers, "That has no bearing on my situation now."

The real answer is that the seller actually bought the house for around $400,000 15 years ago and believes the roughly $600,000 gain on the property is not enough -- since last year the same type home sold for $1.4 million.

My dear sellers, sell in the market you're in, not the one you wish it could be. This particular seller's story (and stubborn attitude) could be blocking a great opportunity for him to take advantage of the current market instead of the market taking advantage of him.

The mindset goes something like this: "I've already lost $200,000, why would I give up another $150,000 to sell my house?" If we're going to talk about how much has been lost (on paper) and how much as been gained (once you sell the house), then let's look at the real cash gain on the above property. In just a moment you'll see how many homeowners are sitting on more than 1,000 percent gain in their homes -- they just haven't realized it yet (nor will they) until the house is sold.

Let's use the above example. The homeowner bought the house for $400,000 and is standing in front of a $1,050,000 offer that could net him more than $600,000 if he signs the bottom line. So what's his gain?

At an initial glance, it looks like his house has grown in value by 162 percent, thus he's gained a 162 percent return on investment, right? Actually, while the asset has grown by 162 percent, his return on the investment of his actual dollars is much higher.
Here are the assumptions:

Purchase price: $400,000
Down payment: $40,000
Mortgage amount: $360,000
Sales price: $1,050,000
Cost of sale: 8 percent (commission, closing costs, seller subsidy, etc.)
Net gain: $606,000

With the above numbers, his $40,000 investment several years ago has resulted in a net gain of 1,515 percent. That's right -- one thousand-five hundred-fifteen percent.

My question to the seller is: "How much is enough?"

According to the Office of Federal Enterprise Housing Oversight reports that the average quarter over quarter appreciation (for 2Q 2006) for housing was more than 10 percent over the same period a year ago. Of course, the report itself and the media jumped on the statement of, "The quarterly rate reflects a sharp decline of more than one percentage point from the previous quarter and is the lowest rate of appreciation since the fourth quarter of 1999."

Now, that sells newspapers and gets the "email this article" link a hefty workout. What wasn't reported everywhere is that the average appreciation nationally has been 298.85 percent since 1980. In the last five years, the nationwide average has been 56.49 percent in appreciation. Where it really comes down to a level of importance is what has happened in your state or community. For instance, in my home state of Virginia, the 26-year appreciation has been 360.29 percent; the 5-year appreciation has been 83.38 percent.

Now let's look at the latest appreciation/depreciation in my marketplace -- down about 1 percent compared to the same month a year ago. Ouch. That smarts. (I will point out though, that also in my market area, sellers have been overpricing to the tune of 13 percent higher than their counterparts from last year, while they are selling at 5 percent less than asking price. It's not so much a loss in "value" as it has been an overpricing of the inventory.)

Regardless of price, the basic investment strategies still apply here -- buy low, sell high. It's just all relative. If the seller thinks he's "losing" tens of thousands of dollars because 1) that's what the houses were selling for last year; and/or 2) that's how much he's had to reduce the asking price, then he has a long emotional row to hoe.
On the other hand, the seller could look at the numbers calculated above and start dancing all the way to the bank with his ROI of 1,515 percent. So, again I ask, "How much is enough?"

The biggest challenge a seller has to face in today's market isn't the market, it's actually the person he's looking at in the mirror.

Published: October 6, 2006

Prices, Interest Rates Make Up 20/20 Real Estate Vision

by M. Anthony Carr

Many real estate prognosticators have been worrying about the slowing of the appreciation rates across real estate markets nationwide, scaring many buyers out of the market. The Office of Federal Housing Enterprise Oversite released its 2nd quarter figures on average housing prices this month and many market watchers jumped on the "dropping prices" bandwagon.

The astute buyer, however, watches the prices and the interest rates adjustments together and then makes an offer at the optimal time to get the best house for the best price and terms.

Headlined "House Price Appreciation Slows," the OFHEO report showed that prices nationally are not dropping, rather the rate of growth has slowed. On average, the houses in the 2nd quarter were 10 percent more valuable over the same period last year. So consumers and economists have on their worry hats about the future. Understandably, none of us like to see an investment stop growing; however, for the buyers, this slow in appreciation is good news.

I've always held on to the belief that there's not a lot you can do about the future, so you have to live and make decisions based on the facts you have today. The reality about real estate, is that sometimes you have to buy when your life situation dictates it, not when the "price is right." However, for buyers who have been on the sidelines, the time may be right to hit the iron of making an offer, so to speak.

Have you been watching the interest rates lately? Bankrate.com has its average 30-year fixed rate at 6.4 percent -- a drop of 3 basis points in one week and the lowest level all year. In addition, for those willing to pay more points, you could get a rate under the 6 percent threshold. Meanwhile, if the prices in your area are about to flatten before beginning their next cycle upward, and you MUST buy now, your waiting may have paid off -- if you jump over the fence of indecision and get a contract written now.

Earlier this year, rates were standing at 6.8 percent. The drop of 4 basis points since then could save a shopper hundreds or thousands of dollars per year on a home mortgage, depending on the loan amount.
At 6.4 percent, the principal/interest payment on each $100,000 borrowed is $625.51 -- that's about $25 less per month than when the interest rate was at 6.8 percent a couple months ago.

Thus on a $400,000 loan amount, your payment would now be $100 less per month -- that's a savings of $1,200 per year (more than $6,000 over the next five years) if, and this is the big IF, you get off the fence, lock in your loan and make an offer on that house you've been waiting on.

Watching the interest rates as well as housing prices in your market is the 20/20 Vision of the real estate market. Look to the future. Buy when prices are stable with a low interest rate and then hold on for the ride. According to some forecasters, this month may be the month buyers should get off the dime.

The Financial Forecast Center, a market research group in Houston that monitors and forecasts indexes, interest rates and various other market data, predicts the average national interest rate will climb beyond the highest rate this year to 6.97 percent by January 2007.

If that's the case, that money mentioned above will then cost a buyer $663.29 per month for every $100,000 borrowed. For a $400,000 mortgage, that would then be over $1,800 per year more in monthly payments for the same amount of money (assuming your favorite house is still available and that the price hasn't gone up again).

If you're waiting for prices to hit bottom, it could happen while you wait or you could create your own "bottom" price by making an offer now before interest rates start their upward climb once again. Get the house you want for the price you want at today's interest rate.

Published: September 29, 2006

Lifestyle Choices Affect Bottom Line

Realty Times: Lifestyle Choices Affect Bottom Line


September 22, 2006

by M. Anthony Carr

When it comes to eventually moving into that dream home you've always wanted, keep in mind that many of the choices we make on a house are really driven by lifestyle desires, rather than lifestyle needs.

More bedrooms means more time to clean, more expensive to repaint and carpet/floor in the future. The bigger the house and the larger the lot, the more you're going to pay for it both in time and financial resources. The main three decision factors are larger lot, more space and more stuff. Each of these come with a price tag.

Larger Lot:
Depending on the acreage, this is going to cost the owner in regards to acquisition, monthly payment, and upkeep. First is the acquisition. Larger lot means larger price, thus larger down payment and monthly payment. In metropolitan areas, the closer in to the epicenter of town, the more the extra space is going to cost you. If you decide to get it cheaper by moving out of town, then you'll be paying more for gas and be losing the ever elusive minutes of your life.

A friend of mine is dying for a couple of acres. He's moving into the area from a community where houses with 2 acres are common and they are within minutes of the job centers. No problem. In this market, however, it means possibly driving 30 miles or more for what he's looking for. It also means a longer commute -- upwards to 90 minutes -- in morning and evening rush hour. If that's 30 minutes longer per day than what he does now, that's 2.5 hours per week longer on the road -- folks that's 125 hours per year just on the road to work and back per year than living closer in. (That's three weeks worth of working hours.)

The larger lot also means more upkeep. If you have teenagers, maybe it's not your problem, you think with a wry grin. Nevertheless, the larger lot that is cleared off and landscaped will take longer to mow, require more gas and possibly even more equipment. In addition, there's the landscaping (mulch, et. al.) that you may not have needed to fret about before.

(In my household, come mulch time, forget bags -- we order it by the truckload now. We didn't even get a larger lot; just decided to "add" a few flower beds -- now each spring costs more for mulch.)

Even in a wooded lot, you'll now have to start watching the trees that border your house. A neighbor told me before he was moving that he was spending about $500 per year taking down trees that were threatening his house. Once he did move, the new owners had a tree fall on their home within a few weeks, causing damage to the roof and patio.

More space:
For most move up buyers, this is the No. 1 reason they are shopping for a home. The 3-bedroom townhouse isn't cutting it for the growing family and it's time for a yard. Let's get the 4th bedroom, or 4th bedroom with a "bonus" room in the basement.

More space creates more expenses for paint, accessories, flooring, etc., every time the room is repainted, remodeled, etc. It's no rocket science calculation to see that the 1,800 square foot home is going to be cheaper to care for than the 2,800 square foot home. Remember, percentage wise, we're talking 55 percent more home – which will interpret into 55 percent more flooring cost, 55 percent more paint, 55 percent more utilities, etc. When purchasing, don't forget to ask the owner for a rundown of monthly or annual expenses for upkeep of the property. (Most likely, it will be an estimate, but a good indicator of your true costs of the property.)

More stuff:
Don't forget that once you get a larger place, it usually is compounded with a decision to replace older furnishings or purchase new furnishings to put into your new areas. Movecentral.com's latest home moving survey revealed that:
57 percent of owners and 37 percent of renters bought furniture within the 12 weeks surrounding their move; owners spent an average of $3,500 and renters spent $1,220.

55 percent of moving homeowners purchase at least one appliance when they move, and 57 percent of homeowners buy furniture.

35 percent of owners and 40 percent of renters bought bedding; of these individuals, 72 percent did so within three after their move. Owners spent an average of $420 and renters $240.

As you're contemplating your next move, be sure to add in to all your calculations the new costs of living in your new castle.