The Beginning of the End?

Is it the beginning of the end for the U.S. real estate downturn? Mark Zandi, Chief Economist from Moody’s Economy.com certainly seems to think so (CNN interview aired earlier this week). This discussion comes on the heels of the NAR report stating that existing home sales have actually improved from January to February 2008, but the median price is more than 8% down vs. last year. Methinks that inflection point is happening right now, because prices are finally low enough for people to get back into the market.

Zandi points to this latest increase in sales as the point where homes are starting to stabilize, putting us at the beginning of the end of the downturn, a process he still predicts to be very long. Home sellers are now “capitulating”, lowering listing prices to be in line with the market, and making the deals more attractive for the buyers. Additionally, the mortgage rates are low enough to stimulate homebuying activity. Finally, after decades of home prices outpacing salary growth, homeowners can somewhat afford to get back into the game. According to Zandi, “prices have been declining for two years. I think we’ll see another year worth of declines. We are down 10 to 13 percent from their peak. I think they’ll decline another 5 to 10 percent between now and the spring ‘09 selling season. So it’s not over. We’ve got a ways to go. “

So here you go. There is one good year left of rock-bottom housing prices, after which they should continue to climb back up. We as investors haven’t had an opportunity like this in several decades, to get into a property at a price low enough to produce positive cash flow. This is an opportunity not to be missed. I would like to re-emphasize from my recent blog post, that this real estate environment is a perfect time to acquire a property that you hold for the long term and rent out, and not designed for a short-term flip.

Great Health Solution for Self-Employed / Entrepreneurs

As a self-employed entrepreneur, I currently do not have health insurance (I am working on a solution, no worries). I got a little sick a couple of weeks ago and needed some medical attention.  So I did a search on the web to find an alternative to a doctor’s visit.  I pretty much knew what the issue was, and just needed to confirm with a test and get a prescription.  But I didn’t feel like paying an arm and a leg for a 10-minute visit.  I also didn’t feel like sitting in a free clinic waiting for service all day.

My research turned up this wonderful place called the Minute Clinic.  They are basically little mini-offices staffed with nurse practitioners.  The services that they provide are, of course, limited.  But if you just need a quick, cheap visit for a common cold, flu, strep throat, and some others, this is the place!  It is, indeed, very affordable for someone without insurance.  Each visit is $59, and there may be a nominal charge for extra diagnostic tests. For example, a test for strep is $10.  So the whole visit comes out to a whopping $69!  And they even take insurance, if you have it.

This little facility lives up to its name for sure. It was the fastest doctor’s visit I ever had.  There was nobody in line in front of me; I just signed in, and my name got called within a couple of minutes.  Which is always great when you are sick and are running a fever.  You just want to go in and right back out, and back home to cuddle up with a cup of soup.

Just as impressive as the speed and the price was the sign-in process.  You go up to an automated touch-screen kiosk.  You fill out your name, address, and some other data points, click on a couple of allergies and ailments, and you are done.  When you are done, it tells you your place in line.  When you are called into the office, all the information you filled out gets transferred to the nurse’s computer.   What a great use of technology! No messy paperwork or anything of the sort!  I have never seen this in a doctor’s office.   I was truly impressed.  The only drawback is the sparsity of these facilities.  They are located inside select CVS stores, and I had to drive 30 minutes just to get to the nearest facility.  I am sure their plans include building this facility out to be placed inside more pharmacies.

In this day and age, with skyrocketing healthcare costs and broken insurance systems, it’s great to see someone creating an easy, affordable solution to the problem.  Minute Clinic is not a cure-all, but rather a beginning, a baby step. This baby step is definitely in the right direction.

Top 10 Ways to Sell Your Rehab

Selling a house in today’s market is not for the faint of heart.  But if you are one of those investors who loves to buy shabby houses with lots of problems and rehab them into beautiful homes and sell to retail buyers, these quick pointers ought to help.

1. Price to  sell
2. Market and advertise the heck out of it
3. Hire a super-duper agent
4. Consider curb appeal
5. Be frugal, don’t overimprove
6. Instead avoid deferred maintenance
7. Don’t forget the driveway
8. Keep with neighborhood style and current style
9. Have open houses 
10. Staging is key

1.  Cash is king

Setting the right price is key to selling your house quickly and maximizing your profit.  Price is more  important than ever in today’s market, which is characterized by inventory that just keeps stockpiling. But each house has that magic selling point at which it becomes more attractive than the competition.

The trick is to price it well from the beginning instead of starting high and dropping the price. Most people selling property, even in today’s market, have an unrealistic expectation of the selling price.  Research has found that houses whose prices had been changed sell for less than homes whose prices had never been revised. The longer a house sits on the market, the more it becomes stigmatized in the minds of buyers–and the harder it is to sell.

So you must do your research.  Study comps (check out online resources like zillow.com and trulia.com), ask a few realtors whom you trust and who are real experts on the local market. Figure out what your competition is charging.

2. Become a marketer

Marketing and advertising are super important right now. You must capture the buyers’ attention. Place lots of ads in the paper and on the web, as well as post your property on sites like realtor.com, zillow.com, etc.  Whatever everyone else is doing, do more of it.  Put signs in the yard and around the community, talk to everyone you know, leave flyers around the places that your target demographic may frequent: bars, cafes, restaurants, grocery stores, gyms.  Figure out the profile of the buyer.  Is your house in a “B neighborhood”?  Then your target market may be someone moving up from a “C neighborhood”, because finally the price is right.  Leave some flyers around some of those neighborhoods. Are you targeting renters?  Leave some business cards on the premises (but don’t break any laws or upset the landlords).   Join local investment clubs and send notices through them.  And don’t forget about Facebook and other online venues where your target demographic may hang out.

3. Hire a super-duper agent

 Yes, you may need to hire a realtor with a proven track record for success.  In a market where houses are selling like hotcakes, you may get away with selling it yourself. But today, you must pull out all the stops.  Make sure that the realtor can get the job done, ask your investor friends for referrals.  You want to partner up with someone who understands real estate investors and what your objectives are vs. a homeowner.  And pay them.  Pay them more than your competition would.  Guess whose property they will show first?

4. Don’t curb your enthusiasm

To be competitive, you must also make sure your property is easy on the eyes.  Be sure your home isn’t an eyesore on the outside. At the very least, buyers visiting your home will expect a decent paint job. If the body of your house is in good shape, you may just need to touch up the trim. In addition to being attractive, a quality paint job (two topcoats) also protects against destructive effects of moisture, mildew, and the effects of the sun.

Clean up your yard as well; it’s one of the first thing potential buyers see before entering your home. Depending on the condition of the yard, you may also opt for some landscaping.  But don’t go nuts; the NAR recommends that you spend no more than 1 or 2 percent of your home’s value on sprucing up landscaping before you sell.  And if the season is right for blooms, place flowerpots around the entry and in the patio.

5. Be frugal, don’t overimprove

As you rehab the property, make it look updated, but don’t sink all of your budget into a state-of-the art kitchen and bathroom. I recently read (the source escapes me now), much to my surprise, that kitchens and bathrooms remodels, long considered the most profitable improvements to undertake, may return only 50 percent to 75 percent at sale–and only if you sell a year after the project is completed.

Making too many changes is a game of diminishing returns. Think twice before adding expensive upgrades, and ask yourself if it’s a ”must-have” or a  ”nice-to-have.”  Sticking to a frugal rehab budget will enable you to price competitively, pay your realtor well, and make a nice profit as well.  So avoid expensive appliances and state-of-the-art systems. Even swimming pools can decrease resale value, as they cost a lot to insure and maintain, and many buyers don’t want the hassle.

6. Deal with deferred maintenance 

Rather, spend your rehab budget on items that will protect the home from deterioration and damage, such as roof replacement, plumbing and electrical upgrades. These items will help preserve the property’s value, and you will be able to score bonus points with the buyer by showing them proof of recently completed work. Brand new equipment and warranties that are in place on move-in day will make the buyer feel secure about this significant of a purchase

7.  It’s not your asphalt’s fault

If the driveway hasn’t been resurfaced in a while and doesn’t have major cracks, go ahead and reseal it.  Just pick up some asphalt resealer and a spreader at the nearest hardware store. It’s a quick and cheap way to make it appear more attractive.

8. Don’t “One-Up” the Joneses  

Make sure your house fits in with the rest of the neighborhood.  You’ll get the biggest bang for your buck by keeping up with the Joneses, not by going them one better.  So don’t add a third story on the house if all the other houses only have two.  On the flip-side, if most houses have three baths and yours has only one and a half, adding a new bathroom will boost the value of your home. The same goes for bedrooms.

Also, remember to update your house’s overall style, if it looks like it’s stuck in the 70s or the 80s.  But avoid making it too trendy to where the buyer will anticipate changing everything the very next year.   Stick with the basics; simple white or beige walls provide potential homeowners with a clean slate on which they can envision their own personal touches.

9.  Open your house to an open house

Hold open houses.  A picture is worth a thousand words, but a house that the buyer can touch and feel is worth a thousand pictures. Make sure that your open houses are well-attended, even if you have to invite your friends and fellow real estate investors to make it seem fuller.  If a homebuyer sees many other potential buyers in the room (i.e. their competition), she will be more likely to pounce on this great property.

10.  All the world is a stage.

Let’s face it, home buying is an emotional experience.  Some of your buyers may be buying their first home.  Make them feel at home, appeal to their senses and emotions. Transport them to a happy time in the near future when they have already purchased the house and are moving in.  When you hold open houses, stage the house: make it look inviting and ready for move-in. Furnish it to make it look like a home, and not just a house, but avoid cluttering up the property.  Clutter can make a room seem smaller than it is.  You can rent furniture for the duration of your open house.  There are even special companies that you may hire that specialize in staging. 

 

A bright, tidy home will sell a lot faster than a dingy one.  So open up the curtains, show off the fresh paint job, turn on the lights.  Hang guest towels in the bathroom, set the dinner table with the best china, and place fresh flowers in an attractive vase. Appeal to the potential buyer’s sense of smell as well. Clean carpets and drapes. Light scented candles.  To make it seem more homey and to make your buyers salivate (literally), bake something right before the open house.  You will be able to put out the muffins / cakes / whatever else you make to treat your visitors, as well as fill the house with the smell of freshly baked goods.  Yum!

Rents in Manhattan

In one of my recent blogposts I discussed the effect of Wall Street’s troubles on demand of rentals as well as for-sale properties.  Per this Fox News report,  rents for 1- and 2-bedroom apartments have already started dropping in Manhattan, while price of studios went up.  This, I believe, points to lessened demand for larger, more expensive housing units, and an increased demand for smaller, less expensive units.  As I discussed in my previous post, many Wall Streeters and other NYC employees may be opting to reduce their lifestyle in the light of general economic malaise / recession, and very possible layoffs.

So if 1-bedroom units decrease in price, and studios increase in price, they just may become equal in price over time.  At which point, renters will move back into 1-bedroom apartments.  To all my renters, I say, get a short term lease for a 1-bedroom (if, in fact, there are deals out there), and go back out hunting for even better deals in 3-6 months.  If they started to drop, I think they will continue to do so.  And then, once you believe the rental market is at the bottom (largely depending on how this recession scenario plays out), lock yourself into a nice permanent low-priced lease (well, low-priced in Manhattan terms, that is).

To all my landlords, current and aspiring… Rack up on low-priced properties over the next year.  There are a ton of foreclosures. There are also a ton of non-foreclosures that have been on the market for quite some time (I think the average is 11 months nationally and 2 months in Manhattan, but don’t quote me on that).  So if you are buying on the island, I would wait until Manhattaners become more desperate to sell, as they are everywhere else.  Even though rents may be decreasing in Manhattan, they will surely go back up: the cultural, intellectual and financial appeal of the Big Apple is hard to beat).  Nationally, rents are up quite a bit, driven by increased demand (because people still have to live somewhere after they lose their homes, and foreclosures are only going up).  So now being a landlord makes more sense than ever: buy cheap, hold for a while, realize appreciation and rent out for cash in your pocket monthly. Perhaps we will see a similar trend towards smaller and cheaper apartments nationally.  So picking up some of those would be good  now.   But also don’t forget that you are buying for the long term, and rents will keep increasing over the years, while your mortgage will stay the same. Which means…  cash flow!!  A good and diversified assortment of properties will keep you well-covered, should demand swing towards smaller units, back to larger units, and whichever way it chooses to go.

Happy renting and landlording!

Humor and Real Estate: Forget the Bear! Forget the credit crunch. This little girl will devastate the NYC real estate market.

With the loom and gloom of current events about our beloved real estate market and economy at large, we could use some humor. I found this great video while reading real estate blogs, The Real Estate Bloggers post, to be specific. We can always count on Steven Colbert to infuse some humor into the otherwise grim world of real estate of 2008.

Blame the little girl!

(Ooooops, for some reason I can’t get the embedded video to work any longer. In the meantime, while I look into it, please click on this link to watch the video. It’s worth it, I promise!)

The Bear, the Condo and the Luxury Rental

No blog post of today would be complete without a reference to the Bear Stearns buyout last night. (JPMorgan had purchased the crumbling financial giant at $2.00 per share, even though it was trading at $4.81 per share right before). This is an astounding event, which brings the already-started carnage of Wall Street appear more and more real. Bear Stearns is a financial giant, a symbol of strength and longevity! And it was brought to its knees by the panic in the credit markets. Things just got a lot more scary and a lot more real. How many other banks will tumble? If the huge Bear was laying growling on its side, what about the smaller banks??

All of this made me wonder about the impact that Wall Street turmoil would have on the City of New York and especially its real estate. Just yesterday afternoon, my boyfriend and I were discussing the current downturn in real estate, and how Manhattan has been largely spared so far (even though property prices have appreciated quite steadily over the years, they still appear steady today, as there is no inventory oversupply). We attempted to answer the following questions: “Is Manhattan headed southward eventually, as business prospects all over the country deteriorate? As we slip further into recession, will Manhattan become an undesirable place to be, as jobs are cut but cost of living takes a while to head south? How long will it take Manhattan real estate prices (sales as well as rentals) to catch up to reality? The very rich will be largely unaffected, most likely. But what about the rest of Manhattan and the other boroughs? Will there be a time in the near future when people will afford to buy / lock in lower rents in Manhattan? Should we head to Florida until this shakes out and then come back and pick up some Manhattan real estate?” We were trying to understand Manhattan real estate cycles, which are a unique animal, very unlike the rest of the country, due to very skewed supply/demand relationships.

Funny thing, the Bear Stearns announcement comes on the heels of this discussion. In my mind the debacle is symbolic of the Wall Street troubles, which are only just starting. During this massacre, what will happen to a city, whose wealth is so closely intertwined with the wealth of Wall Street? So far, it’s been mostly decreases in bonuses on the Street, with some layoffs. But many more layoffs are near. As Bear Stearn employees get laid off, followed by other banks’ employees, what will happen? Will these folks downgrade to cheaper apartments, or will they move to the ‘burbs? Already there was a guy hawking cheaper apartments in front of Bear Stearns today! Will the Street employees sell their Manhattan condos, while prices are still high, and demand from foreign buyers is still strong in Manhattan? Will they rent after they sell? Will they rent in the city or in the ‘burbs? Or will they rent in the other boroughs and Jersey City / Hoboken across the river? And speaking of foreign investors… If New Yorkers’ demand for NYC real estate cools, will the foreign demand be enough to keep it afloat?

As I ponder real estate issues, I read other blogs and articles. So I had come across this video while reading Curbed. An interesting watch, as it gives views for both sides of the coin: Wall St affecting Manhattan real estate vs. not affecting. Arguments are presented by Dolly Lenz of Prudential Douglas Elliman, that the Wall St problems are already built-in to the real estate market, as bonus cuts were anticipated. Hmmm… A collapse of a major financial giant was built-in? The panic that is sure to ensue as a result was built in? I have a hard time believing that all of this will have no impact on the city’s economy and well-being. If much of the City’s growth and economic strength has been driven by Wall Street, wouldn’t it make sense for the Street to take down the City’s real estate premiums? Seems like Dolly is practicing the “hide your head in the sand and enter into denial” approach.

But then again… real estate prices, just like all prices, are a product of supply and demand. And since Manhattan is an island, we can’t build out and increase the supply, except for building upwards. So supply is somewhat fixed. Demand will mostly likely cool down (for rentals and retail sales), due to all the factors discussed above. But will it cool to the levels where it equals supply? Will it cool equally for rentals and sales?

Several major banks are releasing their earnings tomorrow. What gets released tomorrow will help guide my understanding and will help me confirm / rebuff the “many more Bears” theory.

The Art of Real Estate

I love running. In fact, I am training for the NYC half-marathon this July (wish me luck getting selected by the lottery). I also love cool-looking buildings. What is the connection between these two seemingly unrelated facts? When I run, I love looking at buildings and getting to know neighborhoods on foot. Running gives you an advantage, because you get to cover more ground than when walking. I absolutely love taking new streets as I run and checking out buildings, new and old, and fully breathing in each neighborhood’s character. I live and work out of downtown Jersey City (Hamilton park), where there are a ton of little neighborhoods, all with a distinct personality. I am still pretty new here, and the weather is only now starting to be a bit more fit for outside runs (except for tonight), so I am aggressively canvassing the neighborhoods.

I was running by this very cool building yesterday on 2nd st. and Luis Munoz Blvd (see picture). It looks like an updated spin on a old industrial building. And although residential industrial-looking loft buildings are anything but a new concept, lofts captivate my attention like nothing else. This building is gleaming and new, but fits into the local landscape.

The condo market is a bit overbuilt on the riverfront, so when I see new buildings going up, I wonder how these units will get sold, especially in this market. I looked at a couple of units a year ago (I didn’t live in Jersey City then) to turn in to luxury rentals, but the financials didn’t make sense. Would be interesting to see how these riverfront properties have fared in this market, and if the financials make sense for an investor (I guess I have some investigating to do). The Waldo Lofts, however, stand distinctly apart from the other new construction.

This building stayed on my mind and I had to do some research. This building sits in the Powerhouse Arts District, which is set a couple of blocks inland, between riverfront and historic downtown where I live. I always wondered why it was called that. Digging around uncovered a New York Times Article that talked about the project in May of 2006, before it opened in September of 2006. Turns out that the Powerhouse Arts District (PAD, as I will now refer to it – I hope I get to be the first one to coin it!) is an 8-block warehouse district, currently being redeveloped as an artist-centric district. The basic premise is that a thriving artist community is good for the neighborhood and for real estate, as it raises the “coolness factor” and yuppies start to move in to be close to the artists. Usually this movement develops on its own, but in the PAD example, artists are being enticed to move and congregate around a particular area. Apparently, there is a fairly large artist community in Jersey City already.

Waldo lofts took this approach to new heights and installed industrial features into its brand new lofts, as well as set aside seven of its lofts to be sold below market value to artists who are certified by the city’s Arts Commission (this is actually required by regulation in every arts district building).

As I checked out the NY Times Real Estate section today, I came across another such endeavor in Dumbo (Down Under Manhattan Bridge Overpass in Brooklyn, for those not from around here). Two Trees Management, a father-and-son team of developers, owns 3 million square feet of real estate in Dumbo, are subsidizing rents for artists and art organizations, and have attracted over 1,000 of them. Like the PAD effort, this is designed to add value to the neighborhood, based on the basic assumption that yuppies follow artists. Unfortunately for the artists, this seems like a temporary offering: after the area gets sufficiently gentrified, these rents can no longer be guaranteed to the artists. So if the artist doesn’t mind moving, initiatives like these help him/her afford city living, amongst pricey real estate. I should have studied urban planning / development!

Update: Turns out, other people have used the PAD abbreviation. So I didn’t get to coin the term. Oh well… Better luck next time!

Focus is good for a tough market

A colleague has shared the following blogpost by Seth Godin with me. Even though it talks about how to stand out from the crowd as a real estate agent, I found it quite applicable for us, investors, as well. Especially in this tough real estate market, when sellers abound and the battle for buyers’ attention is only getting fiercer. How will you stand out as an investor wholesaling your property, flipping your property, or even trying to get your property rented. It’s through focus, says Seth. Become a super-expert in what you do: specialize in a zip code, in a particular property type, in a particular investing strategy. Possibilities are endless really, in creating a niche that is yours and only yours. Become that person that everyone will think of when they think of, say, a short sale, a lease-option, etc. Raise your visibility by giving talks, seminars, blogging. Seth gives a great idea in his post: have relevant clubs and organizations meet in your office. That’s one other way to become the hub and the absolute authority. Simply awesome! In short… Get creative. Do what others aren’t doing. And become an expert.

At the risk of sounding unoriginal… Use the current technologies to help you. Get out in the blogosphere. Get on Facebook. Get on Meetup. It amazes me how few real estate investors I know are on Facebook. Think about it.. If you are renting your apartments to the 20-somethings and 30-somethings, that’s where they are. So you have to be there too. And it’s a great way to spread your message very quickly and virally. (And besides, Facebook is no longer for folks under 35). Become the blogging / Facebook expert of lease-options in zip code 12345.

Here is to your wealth in 2008!