It has been an incredibly strong summer for real estate. Any perceived slow down is likely related to the DC Metro Area’s real estate “seasonality”. Here is the latest…
Prices are going up. If you needed further proof that the DC Metro Area’s real estate market is a red hot seller’s market…check out this list, and notice how Northern Virginia leads the way in the least amount of days on market before a contract is ratified….
Here is a little more detail on what we are experiencing in Northern Virginia…
Are you thinking about purchasing a home, and taking advantage of the low interest rates and the buyer’s market? Bad news. That “buyer’s market” ship may have sailed.
When you are thinking about buying you are likely in one of these four scenarios:
1. You are renting, and you have scrimped and saved for a down payment on a property.
2. You own a property currently, and you want to sell it for a profit [Contact Me!] and purchase another one utilizing the equity from the sale of your current property and some money you have saved.
3. You own a property currently, and you owe more than it is worth so you have decided to become a reluctant landlord or sell it [Contact Me!] for a loss bringing funds to the closing table (hopefully not a lot of funds). And then purchase another property.
4. You want to buy but own a property currently that is worth less than you could sell it for, so you have decided to stay put until home values increase enough to sell.
Congrats if you fall into condition #1, #2, or #3!!! But I have some bad news, most people are still in condition #4. And that fact is affecting everyone who is wanting to buy. Inventory is extremely low because people are staying put. Frankly, most people just can’t stomach condition #3. Therefore inventory is in short supply and it is definitely NOT meeting demand. And particularly in Northern Virginia it has become a seller’s market and home prices are steadily (albeit slowly) increasing. In fact, I just won a multiple offer situation (5 offers) for one of my buyer clients, and the home was listed just above recent comparables.
I personally do not see the supply increasing much over the summer. Expect it to remain a seller’s market in the Northern Virginia real estate market. Feel free to contact me and I can give you the information you need to make a logical decision on buying. It’s possible the ship has NOT sailed for your situation, but remember if you choose to buy…it’s an aggressive market. Be prepared for that. Here is last month’s report on the market…
So you own a home. You have watched the interest rates fall over time compared to when you bought your home, and now you want to put a little cash back in your pocket on a monthly basis. Because you are smart and realize low interest rates are powerful, you call up a few lenders, and decide to pull the trigger on refinancing your mortgage. The only thing standing in your way is a
minor MAJOR hurdle called the appraisal. A lot is riding on what one human being (who will spend less than 30 minutes in your house) says your house is worth.
But I have something uncomfortable to tell you. If your house does not appraise on a refinance, it is probably your fault. Over the next few paragraphs I am going to lay out some secrets and tips on how to increase your odds of receiving a “satisfactory” appraisal. And how not to get snake bit by….
So here we go, 5 Tips to Getting Past the Dreaded Appraisal…
1. Utilize a Real Estate Professional
Before even speaking to a lender call
me a licensed Real Estate Agent. Have them run a comparable analysis on your property to determine a price/value range for your property. You should get an estimate on the market value of your home from a local Real Estate Professional. 99% of them will do it for free. Compare the results of that analysis against how much you owe to ensure you are comfortably at the target loan-to-value or loan amount you are shooting for on the refinance. If the estimate is within 5-7% in either direction then I think the risk in pushing forward is worth it. But your job is not done in preparing for the appraisal.
Warning: If you skip this step and solely rely on Zillow, Realtor.com, or Trulia then I will have ZERO SYMPATHY for you if your appraisal comes back “unsatisfactory”. You have been warned.
2. Document your upgrades
It is important to document your upgrades, especially the high value ones (kitchens, bathrooms, and additions). But do not get your hopes up about ALL your upgrades. Just because you dropped $30k finishing the basement, or $15k on a new deck does NOT mean the appraiser is going to reciprocate with dollar for dollar returns on your appraisal. In fact in a lot of cases you will only see 50% return on that investment. BUT you should definitely document all the things you have done since purchasing the home. You will see why in a minute (i.e. Tip #4).
3. Push for a Local Appraiser
If your appraiser is not from within a 10-15 mile radius of your home, then your chances of having a “bad” appraisal increases significantly. Ask the lender and then double check with the appraiser when he/she calls to ensure that they are local. If they are NOT local then push hard with your lender to have a different appraiser come out. It may or may not be possible, but you should be a bit pushy about it.
4. Create a Take Away Packet for the Appraiser
So you took all this time and effort to have a Real Estate Professional evaluate the value of your home, and you have documented all your upgrades. You would be insane NOT to share this information with the appraiser. Bold move? Yes. But it’s the single most important thing you can do. Write a one-page “slick sheet” on your property. Give details about the neighborhood, the schools, the shopping…basically anything that would make your property desirable. Then put that information together with a plot of your property, the comparable properties given to you by the Real Estate Professional, and the upgrades you have done to the property. Put it in a manila envelope and hand it to the appraiser when they walk in.
5. Clean Your House
For the love of all things good in this world, please clean your house prior to the appraiser arriving. Make it easy for the appraiser to like your house. Remember they are people too, although they try to pride themselves on being robotic they ultimately will find themselves thinking, “Would I live here?” Don’t have the time to clean? Hire someone!!! It’ll be the best $200 you ever spent. And if you get the refinance the cost will be worth it and likely recouped in short order. You have to have the house super clean.
So that’s it! 5 solid Secrets/Tips to clearing the appraisal process. I firmly believe if you follow through on these you will significantly increase your chances of successfully refinancing and lowering your monthly payment.
Listen! This post is aimed squarely at the under 30 crowd who think real estate investing is for the
old seasoned rich folks out there. Don’t worry (or get mad at me) if you are 30+, the “young at heart” will likely benefit from some of the information in this piece too. I probably should have written this post before I wrote “Reluctant Landlords” but if you own a property currently you should finish this post and then go and read “Reluctant Landlords”.
The biggest complaint I hear is that it’s too tough to get into owning real estate, especially with prices in the Washington DC Metro Area, that there are just too many challenges. Trust me I know about challenges. I turned 33 years old this past weekend. I’m balding, 2o pounds heavier than I was in college, my joints crack and pop, and I even wake up sore after a good night sleep. (But don’t judge me. I can still drain a solid mid-range jumper, run a 5k, and my wife says I look distinguished with my shaved melon.)
Probably the best way to get past the disadvantages is to identify them and then discard them. So here we go!
Buying Real Estate is Hard for the Young because…
They have no money – Let’s be honest. In America, we don’t adequately teach personal finance. Young people have more debt than ever (student loan, consumer, car, etc.), they don’t save enough (emergency fund, general savings, etc.), and they don’t invest enough (401k, IRAs, real estate, etc.). And let’s face it, the young have to start somewhere and don’t make nearly as much money in salary as someone with 15-20 years of job experience.
They haven’t done it before and neither have their friends - I don’t have many friends that read my blog. It’s ok, I know they still care about me. They just don’t care or think much about real estate and real estate investing. I imagine the same is true for most young people out there. Until someone in their social group buys a house, many don’t even contemplate it.
They have smelly credit - All those credit card applications for free college t-shirts often take their toll over time. We are a plastic driven nation who continually carry balances on our credit cards. And unfortunately the average young person couldn’t guess within 100 points their FICO Score or even have the fondest idea on how to increase it. Legally you can get a FREE credit report, but there are a lot of impostors. AnnualCreditReport.com is the only legit, no hassle site.
Going out is important, You Only Live Once - Being social as a young person is vital. Don’t believe me? Might want to Google the acronym “YOLO”. It’s pretty much this generations mantra. With all that “living” who has time to focus on boring things like real estate.
Young People Should Leverage Resources….
Technology - The amount of free data and resources out there is astonishing. The internet is a fantastic place, and the young are typically proficient at using it. Leveraging the web and mobile applications can greatly counter balance the lack of experience.
Drive - Those of us with one or more children realize that we had a ton of free time when we were young and childless. Focus some of that free time on an end goal. “Drive” can be used to counter the lack of funds (get a 2nd part time job, work harder for bonuses, etc) and “drive” can be used to establish mentoring relationships in real estate.
Their Age - Here is a secret the young don’t always realize. Show some interest and ask good questions and you’ll be amazed at how the
old experienced will assist you in reaching your goals. People inherently want to help those who ask for it. Finding a mentor is surprisingly easy. So find someone with an investment property and ask questions. You’ll learn a ton over just a 20 minute conversation.
The Professionals - If you have reached this point in the post then you must have some interest. I mean you have read nearly 670 words on the subject. It might be time to engage a professional or two. Obviously as a licensed real estate agent/broker and True North Realty’s owner, I can help answer any questions you might have about the process of buying real estate (and would be ecstatic to do so). But to help decide whether it’s feasible or not based on your financial situation, you need to talk to a lender. That can be intimidating. Need a lender who isn’t going to shame you for your lack of knowledge or use industry terms that will only confuse you? Feel free to call my dear friend Ros Cohen at Presidential Mortgage and tell her I sent you. Even if you live outside of the DC Area you can utilize Ros.
Lending is definitely tougher to get then it was 5-7 years ago. But 3.5% down payment options still exist, and if you qualify, options offered by organizations such as VHDA exist and offer 100% financing (no down payment). Trust me young people. You CAN do this!!!
The Purchasing Options…
As I see it, there are probably only two realistic methods for a young person to cut their teeth in real estate investing. And they both have one thing in common, you will HAVE to live at the property.
1. Small Multi-family/Multi-person property - Purchase a multi-bedroom property and have roommates pay a chunk of your mortgage (I have no clue why more young people do NOT do this). It’s a no-brainer. Many young people (especially in large cities) have to have roommates anyway. Why not leverage that? The other option is to purchase a duplex (or a higher number of units) property and rent out the other units. This is a little tougher, but still plausible.
2. The Live-In Flip - Here’s a tip. If you live in your investment there are no excessive holding costs. You have to live somewhere right? So find a Realtor (preferably me) and get an entry level property that needs some work and that is in a decent resale area. Move in and get to work. Paint, lay new flooring, hang cabinets, etc. If construction ain’t your “thang” then get a part-time job and/or utilize savings to have someone do the work for you. You could take 7 months or 7 years to sell it but regardless, you’ll make a profit. As long as you utilized a fixed mortgage, you will have a predictable payment and you may even be able to move out and rent the property as a cash flow positive rental investment.
What is NEXT?!?!..
So I’ve given you an outline. But it is NOT enough. Just as if I gave you blueprints to build a house, you couldn’t do it on your own. So you have made it this far. Maybe I peaked your interest…contact me, lets talk more about it and see if this is something that really makes sense for you and your personal situation.
Lastly, if you want to purchase a cash flow positive rental property…I can assist in planning that as well. I have some fantastic informational resources to start that knowledge gathering.
Northern Virginia in particular has some of the highest household incomes in the country, and that is primarily due to it’s proximity to the nation’s capital. There is no doubt there is a direct correlation between the economy and the real estate market. And as the real estate market improves around the country including Northern Virginia, a huge question mark looms on the horizon for the Washington DC Metro Area.
Sequestration are a series of automatic cuts that trims nearly $85billion out of the US budget. For most of the country there will likely be little to no affect on their day to day lives, but there is no doubt that these cuts will have an affect on the Northern Virginia economy. Government contractors could be laid off and Federal employees could be furloughed. In true political fashion Congress and the President will likely kick the can further down the road
As you will hear in the video below the market has been improving, inventory is low, low interest rates are keeping buyers in the market…these pressures are floating the market upward (ever so slightly). But one has to wonder how much this is affecting the current market. If politicians draw this out then the market is likely to continue increasing ever so slightly. But if Sequestration results in prolonged furloughs and contractor cuts then the market could take a turn downward.
Sequestration is the anchor on the entire Washington Metro area, but for now it is on a very small set of wheels.
In my last blog post I discussed the not-so-endangered-specie called “the reluctant landlord“. In that post I wrote about the merits of utilizing real estate as part of one’s long term invest plan (even if unintended at first) and people are leveraging the power of low mortgage interest rates in the market right now to buy another property.
I wanted to take this opportunity to share with everyone what I recently read in a Northern Virginia publication. I knew Northern Virginia had a few counties that were represented on the Top 10 Richest Counties in America list, but I did not realize how well represented. Check it out…
I was chatting with a past client and friend recently about the real estate business, and he mentioned how he enjoyed my last post…”The power of low mortgage interest rates“. We then transitioned into a discussion about refinancing, finishing basements, and our current investment properties. I quickly realized that he and his wife had a very similar story to me and my wife. So that discussion spawned the term “Reluctant Landlord(s)”. The overall real estate market crash has created a whole tribe of people that I like to call “Reluctant Landlords”.
A reluctant landlord is someone who had zero intention of owning a a rental property but due to market conditions has chosen to rent the property versus selling it at a loss.
Every circumstance is different, but many owners purchased their starter properties (small single families, condos, townhouses, etc.) within 5-10% of the peak market only to see their home’s value quickly drop 25-30% when the bubble burst. Then over the last 4-5 years while some people have been forced to sell at a loss, short sale, or foreclose these
crazy folks have stuck it out and actually chosen to leverage themselves even more by buying a second property while their current one is underwater. There are some benefits (perceived and real) to doing this:
- You are not selling a property for a loss (no one wants to do that).
- Having a rental property has tax benefits. Please seek the advice of a tax professional to maximize this benefit. Maybe even talk to my friends at IgotTaxes.com.
- Real Estate as an investment:
- Owning real estate is a great way to diversify your investment portfolio. Most investment gurus will tell you that their are three rock solid ways to accumulate wealth: paper assets (stocks, bonds, etc.), owning your own business, and real estate.
- If you think about it. You may have bought at the peak, but by hanging onto the property and purchasing another one at a lower price point (due to market decreases) is sort of like hedging your original investment and allows you to recover the “value” over time.
If you are interested in becoming a reluctant landlord, or maybe you want to become a not so reluctant rental property owner then I have a couple resources for you…
- Read “HOLD: How to find, buy, and rent houses for wealth“. It’s fantastic! It is easy to read and covers all the benefits to rental properties.
- Talk to a lender. Whether you are getting approved to purchase a new home that you are going to live in OR an investment property, it is vitally important to do some preliminary work to see if you can even qualify for another mortgage.
- Call a Realtor (preferably someone at True North Realty) to talk about the current rental market, the overall real estate market, and desirable neighborhoods.
Mortgage interest rates are historically low. This has been the mantra for a few years now. In 2009, rates were in the 5% range. Most people never imagined interest rates into the 4% range, but it happened in 2010 and then again and 2011. Rates haven’t seen the 5′s since, and in fact since 1st quarter 2012 rates haven’t been above 4.0%. Rates are planted squarely in the mid 3% range, and new home buyers and people refinancing have taken advantage all year. Everyone realizes lower rates means less of a lower payment. But most consumers likely do not realize how “powerful” interest rates really are.
The average home sales price in Northern Virginia is often between $375k and $425k, and a $2,000 a month mortgage is quite common. The chart below shows how much impact interest rates have on buying power (I did some rounding, and these calculations do NOT take into account insurance or property taxes).
So what’s the take away for you? Well it depends on your situation and what you are trying to do. Obviously based on rates alone it is a fantastic time to buy or refinance. But current rates is only one data point in making a life decision. If you have questions/concerns or are considering a change in your current mortgage situation (whether a refinance or a home sale/purchase) feel free to give me a call or email. I would be happy to help you make a logical decision that is right for you and your family.
Happy Holidays Everyone!!! Be safe, and here’s to a fantastic 2013!!!
Some folks have given me grief for not posting in a while. So here we go, here’s the skinny on the end of the summer and a preview for the Fall/Winter months. The market did well over the Summer, increasing across the board. Demand stayed steady while inventory remained relatively low.
This Fall/Winter is a lot more of the same. Mortgage rates are still great, people are refinancing like crazy (if they have the equity). The national economy is relatively flat, but the unemployment rate in the Washington Metro DC area specifically remains low. The greatest driver in the Real Estate market is the time of year right now. The DC area naturally slows down in the winter months as people settle in for the holidays and do not sell their homes while their children are in the school year. Buyer’s are still out there so quality properties priced appropriately are selling at a decent clip. And overall the inventory is low. This supply and demand scenario is keeping prices steady month over month.
Here is some additional information based on the current state of the market with a lot of year over year statistics…
Interest Rates!!!! Rates are saving us. The market is slowing as usual for the fall (compared to the summer) but the summer uptick is hanging on slightly longer than recent past years. Interest rates are low, inventory is low, and when listing go on the market they are going under contract in an average of 22 days!!! The buyers are still out there.
National economic uncertainty is still a major concern, but the Northern Virginia employment market is strong and the demand for homes is constant. I expect things to cool a bit more as we move into the cooler months BUT this summer was a great period for real estate as home values definitely saw increases.
The story for the last few months has more or less been the same…“Demand and pending contracts are up…inventory is still low.” The market is doing great in the DC area, but it would be doing even better if the national economy on a whole wasn’t so uncertain.
The hot buzz word in the DC area is “sequestration”. In 2013 the federal budget is slated to be cut by 8.5-10% due to the Budget Control Act of 2011. Lots of people are talking about the effects of sequestration on Northern Virginia. At this point the effects are clearly unknown, with no one seeming to understand how or when the cuts will be made. One thing is clear…
The summer 2012 Northern Virginia Real Estate Market is not seemingly bothered by it. Inventory is the lowest it’s been in the month of June in 5 years. The number of new listings coming on the market in June was the lowest it’s been in 10 years. Couple that with about average demand, and you actually have a rising market. The average sales price for June was $410k, highest it’s been since 2007.
I believe you will see some upticks in inventory as people take advantage of the increased sales prices. Low interest rates also make it appealing to sell and buy this summer. But don’t just take my word for it…
Raise your hand if you have a programmable thermostat. ::watches some hands go up::
How many of you actually program it? ::watches most of the hands drop quickly::
Both homes that my wife and I have owned have had the standard thermostats. Nothing fancy and no programming capability. I often wondered how much money I was wasting. And this was especially true when I got my first $300+ power bill in our new home. So when a friend mentioned a “self” programming/”self” learning thermostat called “Nest”…I was interested. How interested? I googled it at lunch and the wife purchased two units (we have two systems in our home) that day.
I won’t bore you with the particulars but here’s the skinny. Nest was designed from a user perspective, and is very space aged looking. It is very iPod like in it’s design, go figure it was designed by two ex-Apple engineers. Basically, Nest learns your habits after you spend a few days adjusting it like a normal thermostat. It incorporates motions sensors that knows when you are home, allows you to set a min and a max temperatures, it learns your patterns, learns your likes and dislikes, and basically takes care of the temperature for you. What’s “cool” is…Nest gives you a monthly report and you can easily compare it to your power bill and see how it’s doing.
The monthly report is not even close to the best part though. Nest plugs into your wifi; therefore, you can access your thermostat away from home. Have a smart phone? Get the Nest App for your iPhone or Droid. Adjust the thermostat while you are away to maximize your energy savings.
So we are only a few days into using our Nest Thermostats, but here is what the online interface looks like and how we run our systems…
We have two systems. “Downstairs” actually runs the majority of the house. “Master Bedroom” only runs the Master Bedroom addition. It’s the beginning of July so we have the A/C blasting. Before Nest we kept the “Downstairs” unit at between 75 and 77 consistently, and we kept the “Master Bedroom” unit at 75 (we like to sleep in a cool room). And like most people we never adjusted them throughout the day.
Now with Nest we are operating a little differently. During the day we keep the “Master Bedroom” warmer and in a matter of two days of adjusting the unit upstairs to 75 at night, Nest has learned to adjust it down for us. Basically the “Master Bedroom” unit is rarely turning on the system during the day because it is set at 81 degrees, and it makes it cool just in time for bed. Booya!!!
“Downstairs” more or less stays around 75, except Nest has learned (and been taught) to allow the temperature to go up a bit while we are away. Remember it has motion sensors, it knows when we are gone. Pretty awesome!
A few other features:
1. You can flip to “away” before you leave on vacation or you can just do it after realizing you are going to be away the majority of the day (just use the app).
2. The system tells you when you have adjusted it within a high efficiency range (see green leaf).
3. Installation is pretty simple and even before purchasing you can use Nest’s Compatibility Wizard to figure out if your current system is compatible with Nest. I installed both my units in under an hour (20-25 minutes a piece).
In a follow up post I will let you know if I think it’s actually saving us some money. It’s got some work ahead of it. Each unit retails for $250. Yikes!
Over the last few months I have been blogging on and off to build up content. I wanted to take this opportunity to introduce my real estate blog to a wider audience. I think the content that I have done so far is a pretty good representation of what I am going to try and do in the future as well.
To Summarize: My interests lie in entrepreneurship, the real estate market, and living an authentic life that builds solid relationships both in life and at work.
Here are links to a few of my most recent posts: