A Tool For Real Estate Investors

The process of purchasing an investment property can at times seem overwhelming. Especially if it is something you've not done before or only once or twice a year. On the face of it, isn't it just like buying any other house?............No!

You actually use a different side of the brain to process the purchase of an investment property than you do when buying your own home. The motivations, concerns and thought processes are different. In fact there is a whole new language involved. Annual Operating income, Cap Rate, Gross Operating Income, and Cash on Cash are some of the words and concepts that you need to understand to make a sound investment decision. After all you could put your money in a CD, Stocks, Bonds or Mutual Funds. When considering a real estate investment you are asking yourself "Why should I put my money here? Will I do better than if I invest it in something else?"

One way to answer this question is to sit down with a potential investment and break out a piece of paper and a pencil. The upside to this method is that it takes no batteries, electricity or computer (though a calculator would be handy).

A much easier way in my opinion, is to use a software program that you load onto your computer, especially helpful if you are going to compare several properties or investments to each other.

I've come across an excellent program that does just that. It is called Star Analyzer from a company by the name of Wondering Star http://www.wanderingstar.com/

Just like any new program it does takes a few minutes to get used to the layout and the information it needs. However once you input your first potential investment it quickly becomes apparent how useful this tool is. It will allow you to input multiple potential real estate investments. It will then compare these to each other, as well as to other financial investments. It is wonderful to input once then use often. You can also play "what if" scenarios. What if I put more down. What if I charge more rent. It will also carry your investment and its returns out into the future so that you can see how much you are making in lets say ten years.

Star Analysis even comes with its own mini investment course as well as a trial period to get you settled in. I highly recommend that you check it out at http://www.wanderintstar.com/. I use it as I help investors as well as for myself.

See a demenstration: http://www.wanderingstar.com

California Home Prices May Be Moderating (October 6, 2005)

If the CALIFORNIA ASSOCIATION OF REALTORS ®' 2006 forecast proves accurate, home prices in the state will rise at less than half the rate they've gone up during each of the past four years. And that would be good news for homebuyers struggling to attain ownership there.

Only 16 percent of households could afford the median-priced home, which was $540,900 in July, according to CAR. A year ago, the median price was $461,740. In nearly a half dozen regions, only one in 10 households or fewer can afford the median-priced home, CAR says.

But based on the forecast, not all areas of the state will continue to experience the unprecedented double-digit median price increases of the past five years, says CAR Vice President and Chief Economist Leslie Appleton-Young. Some high-cost areas, especially those in the more costly coastal regions, face a potential leveling off of median price gains compared with the 10 percent gain we expect for the state as a whole."

That predicted 10 percent gain caps out at $575,500.The Golden State's perpetual supply-demand imbalance pushed home prices up 25.16 percent in the year ending in the second quarter of 2005, and 109.7 percent in the last five years, according to the Office of Federal Housing Enterprise Oversight.

In California, each year ends with an approximate 50,000 shortfall in housing units, based on the number of new households (250,000) and the number of new housing units constructed (an estimated 200,000 this year), CAR says. CAR economists say the supply-demand imbalance will continue to drive the market, but at a much moderated pace next year.

The association's annual forecast also calls for sales to fall by 2 percent. That's a switch, too. In July, sales were up 1.3 percent compared with July 2004.California's high-cost areas, including the Los Angeles, San Diego, and San Francisco Bay Area markets, could see even higher rates of constrained sales, and home price appreciation less than 10 percent, says Appleton-Young.

By Broderick Perkins for REALTOR Magazine Online

I receive this type of information from The National Association of Realtors about real estate all over the United States. I'll pass it on to you as appropriate.

Housing Stats 10/2/2005

Watching stats like these will help you determine what kind of a market you are in.
For Kitsap County Washington as of 10/02/2005

893 Active Listings
64 Homes went Pending last week
50 Average Days on Market

$271,363 Average List Price
$270,973Average Sale Price

100+% List price to sale price ratio

13.4 weeks of inventory

Learn more about Defining Your Market.

Determining a Value for Your Home

Determining a Value for Your Home

From time to time it is important to come up with a value for your home. You might be checking your insurance coverage, thinking about remodeling, taking out a home equity loan, questioning your last tax assessment or getting ready to put your home on the market.

Despite what internet marketers would have you believe it is not as easy as point and click. You need to have a real live person look at your home, look at homes currently on the market or have sold, look at current market conditions and actually put pen to paper to come up with a value. In that light there are two options; a licensed real estate appraiser or a licensed real estate agent. Each is different in what they look at and how the information can be used.

A licensed real estate appraiser will look at your home and then compare it to homes similar to yours that have sold and closed. They typically look for homes that are geographically close to yours, are similar in structure both in style/layout as well as size. The appraiser will then make adjustments to the comparables to bring them in line with the subject property to mathematically arrive at a value for your home. They do take into account current market conditions but are looking at value based on today at this moment, and back 3 months. Though you may be told differently appraisals have some flexibility based on the purpose of the appraisal. Appraisals done on your home so that you may take out a home equity loan will typically be more generous than an appraisal done as part of the sales process. A simple explanation would be that the bank is loaning money to you based on your credit and good standing and taking the equity in your home as secondary. During a home sale the value would be more primary.

I have been involved with sellers who have asked me to sell their home and have been disappointed when I’ve shared with them that their homes value is lower than the value of an appraisal that they had recently received for a home equity line of credit. There is a good article in September 2005 Consumer Reports outlining this issue.

A licensed real estate agent would be able to provide a value, or price range through a comparative market analysis (CMA) also know in some areas as a Broker Price Opinion (BPO). Though real estate agents take into account many of the things that an appraiser does they are looking at it from a little different angle. Not only is an agent looking at what happened in the past, but they are also trying to look into the future so that they can help you as the seller come up with a price that will sell your home, given the current market conditions. Real estate agents look at homes that have sold, homes that are pending as well as homes that are currently active in the market. They also take into account current inventory, absorption rates, competition in your price range, stratification of the market, list price to sale price ratio as well as interest rates.

A typical house sale or purchase will require a CMA/BPO to help you price or make an offer on your home as well as an appraisal so that a loan can be issued. Some legal situations require an appraisal instead of a CMA. Real estate agents work closely with appraisers so should you need one just give your agent a call.

Updating you on the current value of your home is one of the many services your real estate agent can provide.

Housing Stats 9/26/2005

Watching stats like these will help you determine what kind of a market you are in.
For Kitsap County Washington as of 9/26/2005

873 Active Listings
69 Homes went Pending last week
50 Average Days on Market

$270,637 Average List Price
$269,978 Average Sale Price

100% List price to sale price ratio

12.6 weeks of inventory

Learn more about Defining Your Market.

Real Estate Agent Designations…. Alphabet soup or substance?

You are thinking about buying or selling a home. You’ve interviewed several agents and have noticed that a couple have a series of letters after their name like; GRI, CRS, CRB, AB, ABR, SRES, ASP or E-Pro. What does this jumble of letters mean and does it make a difference to me as a consumer? The answer in short is……yes!

As a licensed real estate agent in the state of Washington, an agent has to have completed and passed a 60 clock hour course and then have passed the state exam. Additionally once an agent is licensed they are required to complete another 60 clock hours of education for their first renewal and for subsequent 2 year renewals must complete 30 clock hours of education. An agent can continue their career indefinably by meeting these basic minimum requirements.

The agent who has one or more designations after their name has gone the extra mile to learn more about our industry. They have gone above and beyond the basic minimum requirements. Theoretically now they should be able to use this additional knowledge and education to help you accomplish your goals of buying or selling real property. Of course this is dependent on the person and is why I highly recommend that you interview several agents before making a choice if you have not already established a relationship with an agent that you are confident in.

For a full list of all of the designations please go to:

http://www.realtor.org/runivers.nsf/pages/designation?OpenDocument

Fix it before you List it!

Thinking about listing your home for sale? Do a walk through with your agent a week or two before the list date. We spend a lot of time talking about “Staging” your home for sale, but what about repairs?

Generate a list of things in your house that need fixed, repaired or replaced before you put it on the market, here’s why:

1. Potential buyers will guess high for the repair, usually 3 times higher than actual cost. They will then try to reduce the price by that inflated amount.


2. When the home is inspected it will show up on the inspection report which here again calls into question cost of repair plus one more task that you as the seller may have to accomplish prior to closing.


3. When the appraiser comes out the needed repair will only call for closer scrutiny. Example: moss on the roof. A perfectly good roof may be called into question only because the moss on it drew the appraiser’s attention to it, thus forcing him to call for an additional roof inspection.

The goal is not to try to hide anything, rather to address items that are likely to be brought into question and may jeopardize a good offer or at least slow down the closing.

Regarding disclosure, you are typically better off to disclose any issues up front. Buyers will typically feel short changed or taken advantage of if they learn of a pre-existing problem late in the transaction. Most states have a property disclosure statement that needs to be provided by the seller. Filling one out fully and honestly will protect you as the seller by reducing legal issues down the road with the buyer. Talk with your agent or your real estate attorney for specifics in your area.
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Tomorrows Generation of Home Buyers are Here Today!!

Who are they? They are the Echo Boomers or X Gen. They were born between 1982 and 1995. They are between the ages of 10 and 23. They are the children of the Baby Boom crowd.

This group of 80 million have never known a time without a computer. They are more tech savvy then any previous generation. Much of their lives revolve around what their parents would consider gadgets, and doodads their grandparents never would have dreamed of. (Fortunately a few did or we would not have them today.)

This group will affect what a house looks like, how it functions, how we build them and how we sell them. In order to serve the Echos a typically older crowd of real estate professionals will have to change how they work, how they meet and how they communicate with their new buyers.

Wired houses....video, audio, security, networking and of course high speed internet.

Speaking of high speed, this generation wants quick and constant input. Prompt returned e-mails, updated photos, daily updates on their transactions. Their consumer pressure and improved electronic communication will decrease the time it takes to buy a home. What is now a 4 to 6 week process will become condensed into a 1 to 3 week transaction.

They are more likely to find and choose their Realtor from a web page, because their friend sent them an IM or through a Blog.

The home they choose will have been viewed from every angle without having even visited the house. They will have viewed virtual tours, a photo walk thru and downloaded pictures from space. They will know who bought it, when and for how much via information available on the internet.

Their offer will jump from electron to electron over miles of wire as it makes its way between buyer, seller, agents, lenders, appraisers, title and escrow....and these buyers would have it no other way.

Real Estate Statistics for Kitsap County Washington

Watching stats like these will help you determine what kind of a market you are in.
For Kitsap County Washington as of 9/11/2005
812 Active Listings
79 Homes went Pending last week
51 Average Days on Market

$266,052 Average List Price
$265,489 Average Sale Price

100% List price to sale price ratio

Learn more about Defining Your Market.

Our Economy, Interest Rates and The Housing Market

There has been a lot of guess work going on about our housing market, how it will be effected by interest rates, the economy, gas/oil prices and now the affect Hurricane Katrina and the devastation of the Gulf Coast.

Situation Analysis:
1) Interest rates have continued to stay low and have gone down over the past few weeks.
2) There are more people buying houses today then ever before. Many Baby Boomers own homes and are now buying second homes.
3) The Echo Generation, children of baby boomers, are now reaching home buying age with the leading edge now being 23 years old.
4) Oil prices are higher then they have ever been before.
5) Our nations economy is under a great deal of stress due to the war in Iraq and now recovery from Hurricane Katrina.

Since there is no way that one person can be an expert in all of these areas I look to people whose opinion I trust. In this area it would be David Lereah, Chief Economist for the National Association of Realtors.

David Lereah, NAR’s chief economist, said Tuesday that shortages of building materials, made worse by the need to rebuild in areas hit by Katrina, will increase construction costs.

“Given the general tight inventory of homes available for sale across the country, rebuilding in the region of the Gulf Coast will place additional pressure on overall home prices,” Lereah says. “As displaced residents try to get back on their feet in new locations, home sales have spiked -- along with rental demand -- in regions surrounding the disaster zone.”

In addition, mortgage rates are likely to rise more slowly as the national economy absorbs the hurricane's $100 billion-plus blow, keeping sales brisk, Lereah said.

Lereah boosted his estimates of new and existing home sales for the year, seeing records for both. He said resales of previously owned homes should climb 3.4 percent to 7.02 million units in 2005, up from last month's estimate of 6.98 million for the year. New home sales should increase 6.7 percent to 1.28 million, up from his prior forecast of 1.26 million.

I've had the opportunity to meet David at functions hosted by The Washington Association of Realtors. He is a pretty sharp guy whose job it is to track this stuff. If you see him quoted in news articles take note.

Remember.......Much of the world would love to have the option to buy or sell a home but they can not. Americans have the greatest home ownership opportunity in the world!!!!!!
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Are You Thinking About Becoming A Real Estate Agent?

Becoming a real estate agent is just like starting your own business, however most do not approach it with that mind-set.
8 or 9 out of 10 agents don't make it their first year.
10% of the agents make 90% of the money.

Having said that, real estate is one of the more exciting and rewarding businesses you can get into provided you come in with your eyes wide open. See The Three Bridges discussion in my web site.

Ask lots of questions of friends who are agents, talk with local brokers.

Read books about getting into real estate.

Start saving your money so that you have start up capital to start your new business.

Stay tuned to this Blog for more information about becoming an agent and tips for new agents.

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If your house is not selling - A Rule of Thumb

Even in a Sellers market you will find that there are some houses that just don't sell. It can be the price, the condition or the terms......bottom line....it always comes back to price.
A rule of thumb I've taught my agents for years:
> If you are getting no showings, thus no offers you are more than 5% high.
> If you are getting showings, but no offers than you are 3 - 5% high.
> If you are priced right you will get both showings and offers.