Hey, home buyers, just how stressed out are you these days?
Maybe you’ve finally come to grips with the crazy, sky’s-the-limit prices still sweeping through most major markets. Perhaps you’ve made peace with the ever-looming threat of another recession. Quite possibly you’ve even dismissed all that stuff about a coronavirus pandemic, and you’re blithely unconcerned about any aftershocks from the upcoming elections.
But when it comes to finding available homes on the market—where and when you want to buy ’em—well, that’s a challenge even the most battle-tested wannabe homeowners are struggling with these days.
And make no mistake: It is a battlefield out there. The problem is, there just aren’t enough homes on the market to satisfy all of the would-be buyers—and that causes prices to spike ever higher in many parts of the country.
Nationally, inventory plunged 13.6% in January compared with a year earlier, representing the biggest drop in more than four years. Few markets have been immune to the plunge. There are now 164,000 fewer homes on the market, the fewest number since 2012, when realtor.com® began collecting the data.
In some of the tightest markets, well-priced homes in the most sought-after locations can sell within a few hours of going up for sale. In others, there are enough properties for sale that buyers don’t need to make a split-second decision and can be choosier.
That’s why our economics team searched for the metropolitan areas where it’s easiest to buy a home—and where it’s not.
“Inventory is falling—even in the easiest markets to buy a home,” says realtor.com Chief Economist Danielle Hale. “For buyers, it means there are fewer options to choose from, they have to make quicker decisions when they’re out there shopping, and they’re probably also dealing with rising prices.”
And while this may sound like a bonanza for sellers, keep in mind that most of them are also in the market to buy a new home. So there’s that.
To come up with our findings, we looked at the number of listings per 1,000 homeowner-occupied households in the 100 largest metros in the fourth quarter of 2019. The analysis was based on the number of homes for sale relative to the local population. And we narrowed our findings to one per state for some geographic variety.
So where can buyers get a home without losing their mind, and where would they want to sign up for meditation and relaxation classes? Let’s dig into the findings—and the trends they’re showing.
At first blush, the metros with the most homes on the market may not seem like they have much in common. But many of the metros in this hodgepodge are in the South, a less expensive part of the U.S. long popular with retirees and second-home seekers. But many of the cities in our rankings have strong economies, drawing younger buyers as well.
You want to buy a home fast? Head to Florida!
Why does the Sunshine State dominate our list of easiest places to buy a house, when nationally the trends are going the other way? After all, on our unfiltered list, Florida takes six of the 20 spots with the highest inventories of homes on the market. (We limited our list to just one metro per state.)
Well, some of it is seasonal: Florida’s busy real estate season kicks off in the fall, when the Northerners and Midwesterners head south. Sunshine State sellers begin planting those “For Sale” signs in the yards and listing their homes in earnest toward the end of the year, unlike the rest of the country, which heats up in the spring and summer.
But it’s also a function of the fact that builders are currently stepping up new construction to meet the greater demands of a tsunami of retiring boomers.
Reasonably priced Cape Coral, a city with about 400 miles of canals on Florida’s southwestern coast making it popular with vacation home buyers and seniors, snagged our top spot. The area has been affected by recent hurricanes and toxic blue-green algae blooms in recent years, which may be why the area has a bit more inventory than other Florida destinations.
“It has a city-suburb feeling,” says longtime Cape Coral real estate agent Nelson Rua, of Coldwell Banker Residential Real Estate. “We have local mom and pop stores instead of big franchises, and geographically we’re very well-protected by the storms because we have these barrier islands in front of us.”
The metro’s median home list price was $325,050 in January, according to realtor.com data.
While Cape Coral inventory may seem high, at 37.9 properties per 1,000 households, it’s still falling compared with the previous year. And that’s something it has in common with all of the other Florida entries on our larger list (including Miami, Deltona, North Port, and Jacksonville). Lower mortgage interest rates have spurred more buyers to take the plunge, and inventory in Cape Coral actually plunged 22% year over year in January.
Starter and more affordable homes tend to go quick, while the more expensive ones can linger on the market, according to Brad O’Connor, chief economist of the Florida Realtors, the state’s Realtors association.
It’s just easier to find a home in beach and retirement destinations
For many of the same reasons as in Florida, it’s easier to find homes in beach and retirement destinations with strong economies, like Charleston, SC (No. 3), and Virginia Beach, VA (No. 4). South Carolina and Virginia are both tax-friendly states, appealing to those living on fixed incomes, and both have lots of good jobs and are more friendly toward builders.
Charleston has its port, Boeing and Volvo plants, and a thriving tourism industry driving the economy. And its old-world-style cobblestone streets, hanging moss, gorgeous architecture, and renowned food scene may be why buyers are coming up with the metro’s median list price of $422,500. (That’s about 29% more than the national median of $300,000.)
Real estate broker Randy Bazemore, of Century 21 Properties Plus, is seeing lots of 55-and-up buyers moving to the area as well as younger professionals working in the tech industry.
Meanwhile, Virginia Beach has one of the largest military presences in the nation with more than 86,000 active-duty personnel stationed in the area. The median list price there is $310,000.
For well-heeled retirees or second-home buyers, Honolulu (No. 10), with a median list price of $655,050, has plenty of options for sale.
Watch: The 4 Markets Where Homes Are Appreciating Fastest
New construction gives inventory a boost—at least in some places
Lack of new real estate construction in much of the country has been a big problem ever since the housing crash brought everything to a dead stop more than a decade ago. Finally things are picking up again—at least in those markets where permitting is easier, labor is cheaper, and plenty of land is available for builders to put up more homes.
Often, these places also have fewer regulations, which can hold up the process. That’s partly why Las Vegas (No. 5), Des Moines, IA (No, 8), and Houston (No. 9) made the list. Charleston, as well as many of the Florida metros, has also seen a lot of new construction.
In Des Moines, there’s new construction in the suburbs to the north and west of the city, says local associate broker Paul Walter of Re/Max Concepts. But there are also just more folks putting their existing homes up for sale. Those two reasons may be why the metro area saw a 3% bump in inventory, the only one in our top 10 to not be lower in inventory compared with the previous year.
“Homes not being underwater would be the big driver” in the increase in inventory, says Walter.
The other metros that made our top 10 were Bridgeport, CT, at No. 2. The city has more inventory as there’s less demand than in other parts of the country thanks to the state’s shaky economy and high taxes.
Get ready for a shocker: New York City came in at No. 6! That’s because its metro area is so enormous, there are homes for sale in the surrounding suburbs, exurbs, and smaller cities, including on Long Island and in upstate New York, Connecticut, New Jersey, and Pennsylvania.
Plus, while there’s basically no such thing as affordable homes for sale in Manhattan, there is a glut of luxury condos sitting on the market waiting for uber-rich buyers with millions of dollars to come around—$1.7 million studio condo, anyone?
OK, now let’s go to the dark side—the metros where you’ll have to jump on new listings the moment they hit your inbox. Get ready!
Buyers are having a tough time in tech cities
No surprise here: The tightest U.S. real estate markets are the ones with blazing hot job markets—and these days that usually means tech hubs. And these places often have pricey real estate to match their blazing economies. There’s a constant influx of new workers, all slugging it out for a very limited supply of housing.
Silicon Valley’s San Jose, CA, which had the fewest homes for sale, is also one of the most expensive markets in the country. There are just four, yes four, listings per 1,000 households. That kind of shortage explains why the median list price is just a hair under $1.1 million. If we hadn’t capped our ranking at just one metro per state, fellow astronomically pricey tech metropolis San Francisco would be close behind.
Unfortunately, not all tech workers make seven- or eight-figure salaries, causing them to search for homes farther and farther out from city centers—and their gigs.
But inventory is likely to rise, at least a little, in the coming months, says Patrick Carlisle, the chief market analyst for the San Francisco Bay Area for Compass. “This market takes a while to wake up from the holidays.”
Part of the problem is homeowners are staying in their properties longer so there isn’t much turnaround, says Carlisle. When they do move out, owners often rent out their properties and pocket the lucrative income instead of putting them on the market. And the lack of new construction is exacerbating the crunch. What is erected often skews luxury, well out of the price ranges of most buyers.
In Seattle, home of the online retailing giant Amazon.com—and No. 3 on our tightest inventory list—a simple equation is responsible for the lack of housing, according to Chris Bajuk, a local real estate agent at HomeStart Real Estate Associates.
“When people have good-paying jobs plus low interest rates, that’s fuel for the fire,” he says.
Plus, there’s not much available land for builders. The city and outlying suburbs are constrained by water, mountains, and zoning rules.
Other tech meccas on our list include Salt Lake City (No. 6), aka Silicon Slopes; Boston (No. 7), a financial, higher education, and tech center; and Washington, DC (No. 9). The real estate market in DC has exploded since Amazon announced it would be installing its second headquarters just outside of the nation’s capital, employing thousands of tech workers.
Inventory is drying up in the Rust Belt’s comeback cities
On the opposite side of the booming, ultraexpensive tech meccas are the Rust Belt cities in the Northeast and Midwest. Some of these urban meccas have been investing in their downtowns and staging comebacks, becoming more appealing to buyers and investors seeking affordable real estate without sacrificing amenities. And many folks want to get in while they still can afford to buy.
The one-time industrial hub of Buffalo, NY, which sits on the Canadian border near Niagara Falls, came in second place. If we didn’t cap our list at just one metro per state, nearby Rochester, NY, would have been next in our rankings.
Buffalo’s revitalization is attracting folks from other parts of the country, says associate real estate broker Ryan Connolly of Re/Max Plus. The Buffalo metro’s median list price was $197,950 in January—about a third less than the national median.
“We are seeing incredibly, incredibly low inventory levels,” says Connolly. The number of homes for sale fell 16% year over year in January, to 6.1 listings per 1,000 households. “It’s really frustrating for buyers.”
That’s leading to multiple offers and folks offering over the asking price on homes in good shape during the busy season. It’s so bad that about a year ago, he saw 23 offers come in on a three-bed, two-bath ranch home in a Buffalo suburb.
“It was a nice home, be we weren’t expecting that,” Connolly says.
Buyers are also clamoring for homes in Columbus, OH, which earned the fifth spot in our ranking. It’s the capital of Ohio and home to Ohio State University and its roughly 45,000 students—buoying it economically. But there simply aren’t enough homes to go around.
“When we had the recession, we didn’t build any new houses. [And] we’re still not building enough homes,” says real estate agent Jeff Cotner of Re/Max One in Pickerington, OH, a Columbus suburb. “The inventory shortage is not going to go anywhere for a while.”
In order to qualify for certain mortgage and loan products, a minimum credit score is essential. Even if your score is sufficient to qualify, you might find the rates being offered will be lower than if you had a higher score.
Having worked with thousands of personal credit histories over the years, we have developed some strategies that sometimes give you that much needed quick score boost—sort of like jumper cables for credit!
Here are a few scenarios this might help with:
You are being pre-approved for a mortgage, but your bank or broker remark your score is too low and you don’t qualify.
You want to qualify for a mortgage AND a home equity line of credit (HELOC), but your lender says you need a higher score to get both.
You are working with a mortgage broker who is arranging a mortgage with a B-lender for you. She tells you that your interest rate will be lower if your Equifax Fico score is over 680.
And it’s not just about homeownership…
You are preparing your pitch to prospective landlords. These days, that often includes your credit report. Your chances will be better if your score is in the 700s or even 800s.
You want to apply for a personal line of credit or a high-end personal credit card, but your score is too low.
1. Use The Optimal Utilization Strategy
When maximizing your personal credit score, you should look at your utilization of available credit for each individual credit facility. By this I mean what percentage of your available credit is the balance being reported?
Percentage utilization can have a significant impact on your personal credit score. Equifax Canada states utilization has a 30% weighting on your personal credit score.
One scenario: maybe a furniture store or a home improvement store offered you “don’t pay for one year.” The balance you are carrying on this card might be relatively small, but if it’s at or over the actual card limit, this is dragging down your personal credit score. Consider paying it off now!
Another scenario: suppose you have three credit cards, each with a limit of $10,000.
And let’s say one card has a balance owing of $9,900 and the other two have zero balances. This might happen because you are trying to earn rewards on one particular card, or maybe you said yes to a balance transfer promotional offer.
Chances are your credit score is lower than if the usage was spread across the three cards equally—i.e., each with a balance owing of $3,300, or 33% of the limit.
Overall, your usage remains unchanged, but now you no longer have an individual card reporting at 99% utilization.
If you can afford to cover or reduce the balance owing on the one with a balance of $9,900, you should see a nice little score boost.
2. Use the Statement Date Strategy
It may be that the best thing for you to do is simply reduce balances owing on your credit facilities. If time is of the essence, you should plan this carefully and do it in the correct order.
Gather up your most recent available statements for all relevant credit facilities. And note the day of the month when the statement was printed. Most of the time it’s the balance on that statement date that is being reported to the credit bureau.
And give or take a day, it is safe to assume that same day of the following month is when the next statement will be issued.
So, plan your payments accordingly. And allow several business days for online payments to process in time. If you are paying a credit card issued by your own bank, you should see transfer payments being processed either instantly or overnight.
3. Pay It Down and Keep It Down
This is especially important when your limits are not very large. Suppose you are a model citizen who uses her credit card frequently, and pays the balance in full every month after receiving the monthly statement, and before the due date.
That is the “correct way” to manage your credit—taking advantage of the grace period you are given by all card issuers.
But these days, there is little benefit to trying to use up the entire grace period because current account interest rates are so low they are pretty much negligible. It’s far better to pay your balance in full before your statements come out. You are even more of a model citizen, and now the balance being reported to the credit bureau will always be extremely small, if anything.
4. Exercise All Dormant Credit Cards and Lines of Credit
Some people have credit facilities they never use. People tend to favour one particular credit card (maybe we like their rewards program) and we might neglect our other cards. And most of the time we don’t even need our personal line of credit.
If you are trying to maximize your credit score, it is good to use all available credit fairly regularly, even if it’s just for a nanosecond.
It will rarely be correct to close these older credit facilities since they are contributing ‘score juice.’ Equifax Canada states your history can have a 15% weighting on your personal credit score.
These credit facilities can become stale and may not be not pulling their weight on your personal credit history. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately. If it’s a personal line of credit, just transfer $10 to yourself and the next day transfer back $10.50.
If you notice you have credit cards that have not seen daylight for months or years, take them to the supermarket or gas station, use them just once, and pay online right away. After the next statement these cards will report the date of last activity as the current month and year, and that may give you some much-needed points.
5. Scour & Clean All Reporting Errors
There might be some incorrect information in your personal credit history that’s needlessly dragging down your score.
A few examples include:
You have two or more personal profiles with the credit bureau and your information is scattered and diffused. Combining it all into one credit report could well increase your score and strengthen your look. (This often happens to people whose name is hard to spell, or who have legally changed their name).
Late payments being reported when it’s not you. Maybe you have a relative with the exact same name.
That router you returned to the cable company is showing as a collection; but in fact you returned it to the local store.
You completed a consumer proposal and all the debts included in the proposal should be reporting zero balances and should not carry an “R9” rating. This generally means an account has been placed for collection or is considered un-collectible.
There may be incorrect late payments. Equifax Canada states payment history has a 35% weighting on your personal credit score.
Mortgage brokers can fast track an investigation with Equifax Canada for you. What might take you two months, we can get done in a few days. Keep that in mind if time is of the essence.
This overview is a fairly simplistic way of looking at your personal credit report and highlights initiatives specifically intended to give your credit score a quick boost. These tips are not necessarily the same as when you are managing for optimal credit health or interest-expense minimization.
Ideally, you are working with someone who understands all the nuances and who can help you determine what your priorities should be.
Florida’s housing market is constrained by tight inventory which is not likely to improve significantly due to several challenges cited in a new report from Florida Realtors.
Chief Economist Dr. Brad O’Connor sees robust growth for the market with strong immigration and low unemployment in the state. Home sales are expected to gain 4% year-over-year in 2020, similar to 2019.
Last year, Florida saw an uptick in sales despite a 9% pullback from international buyers.
“It was exciting to see the almost 6% growth (5.9%) in closed single-family sales in 2019 from 2018,” O’Connor said. “Florida topped over $100 billion (total of “$101.9 billion) in volume in home sales last year, up 8.3% from 2018; for condo-townhouses, we reached $31.6 billion in volume, up 1.8% over the 2018 figure.”
But with new listings down 11.4% year-over-year for single-family homes and down 9.7% for condos, prices are set to rise around 4%, although O’Connor doesn’t see that as a problem currently.
“The median sales price still continues to rise, but looking at what the monthly mortgage payment is, that’s still a lot lower due to current historically low mortgage rates,” O’Connor said. “And that continues to drive sales and makes it a good time to buy.”
Supply side issues
The challenges to increased supply in Florida were discussed at the 2020 Florida Real Estate Trends summit during last week’s Florida Realtors Mid-Winter Business Meetings.
One of the panelists was Kristine Smale, senior vice president, Meyers Research, who says that there are three main factors restricting supply: higher construction costs, which moderated slightly in 2019 but are expected to rise again in 2020; a shortage of labor – 2019 had the largest amount of construction job postings since the Great Recession; and a lack of available, affordable land supply.
Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate
Sandy Silva, a 39-year-old sales director at Tulip Retail, a software platform for retail companies, with her seven-year-old son, Xavier.
In 1999, Sandy started dating her soon-to-be husband, Ryan, in Waterloo. She studied economics at Wilfrid Laurier University while he took political science at the University of Waterloo. In 2002, they got engaged, and Sandy’s father gave them an early wedding gift of $75,000. Sandy and Ryan used that money for a down payment on a $289,000 pre-construction two-bedroom condo in CityPlace. In 2005, they got married and moved into the unit.
Within a few years, they were thinking about having children, and being near family became a priority. At the time, they both worked in Toronto: she was a buyer for Sporting Life and he was a supervisor at an automotive manufacturing company. They used their combined savings, along with equity from refinancing their condo, to buy a $470,000 detached house in Brampton, where Sandy’s parents lived. Meanwhile, to make some extra cash, they rented out their CityPlace condo for $2,150 a month.
The value of their properties increased enough, after four years, that they decided to leverage their equity to scoop up more real estate. They knew, from having lived in the Waterloo Region during their college years, that demand exceeded supply in the area. Ryan also had family in Waterloo, which meant someone could take care of their investment properties. So they bought two detached houses in Waterloo for a combined $462,000 and rented them to university students for a total of $4,675 a month. The rental income was enough to pay their mortgage and turn a profit. In 2013, Xavier was born.
Three years later, Sandy and Ryan separated. Ryan sold the two Waterloo homes for a total of $540,000 and split the $78,000 profit with Sandy. He also kept the place in Brampton. Sandy held on to the CityPlace condo and took $250,000 in equity from the Brampton property, which she used to invest in Rent Frock Repeat, a designer dress rental company.
The bottom line
Sandy recently joined Tulip Retail as a sales director. She lives part time at her CityPlace condo, which is now worth $850,000, otherwise she stays at her parents’ place in Brampton with Xavier. And Sandy’s not done investing. She recently bought a one-bedroom condo in Vaughan—which she plans to use as a rental property—for $525,000. Her portfolio is now worth $1.375 million. Before the end of 2020, Sandy would like to buy a place in Brampton.
Source: Toronto Life – BY ALI AMAD | PHOTOGRAPHY BY GIORDANO CIAMPINI |
Knowing the best age to invest in real estate is one of the most frequent doubts that those who are beginning to think about their future have. Especially because they see in the real estate area a financial security that other types of investment as the stock market no longer offers.
The short answer is that there is no right age to invest, but the sooner you do it, the more opportunities you will have to make money – and your investment will last longer.
However, it is true that investing is not a habit that we have all been taught. Not all of us receive financial education, and some do not even have the habit of saving money. We know that it can be difficult to do when you are young and you are between your twenties or beginning the thirties: travel, shopping, transportation expenses and fashion technology tend to monopolize the attention of your money.
Unfortunately, this lack of financial education ultimately affects the future. Especially when you decide to start investing and you realize how much time you lost because you did not do it before.
Why should we start investing as soon as possible?
Something that guarantees the value of a property is the capital gain that it has, depends on the location in which the property is located. The capital gain acquires more value over time. That is why the big investors are those who can analyze the market and see beyond what is trendy. Imagine if 10 years ago you had invested in real estate developments in the Riviera Maya, or in real estate developments in Tulum, places that are currently a magnet for tourism and foreign investment.
That’s why we say that the best time to invest is now; the more time you spend, the less chance you will have of acquiring properties at a lower cost that guarantees a high return on investment.
We must also consider that the responsibilities we acquire over time can make it more difficult to become a real estate investor. Marrying or having children can make you reconsider your expenses and how much money you can use to invest.
Each individual has different priorities and opportunities. There are those who see in their twenties the opportunity to promote a future while there are others who can invest only after their 30’s or 40’s. It is also normal and natural for some to think about investing until after retirement, when they have the money to do so.
Nor can we deny that each generation has different perspectives on what we should consider a priority and what not. For example, while for millennials acquiring experiences is a priority -as traveling- for generation x and baby boomers, acquiring properties is more important.
However, this does not mean that millennials – who are between the ages of 23 and 38 – have a chip that prevents them from being good at investing in real estate, on the contrary it is they who are changing the notions of success and ways of doing business and even as we think about work and lifestyle, this makes them less incompatible in investing in real estate, they are the ones who are beginning to consider investing their money to obtain financial independence.
For example, for the baby boomers and generation X financial security meant having a stable job and a fixed salary in order to save for retirement or get their pension. Today the notion of working from home without the need to attend an office is a reality for many people, as well as the existence of jobs that 30 years ago were difficult to imagine.
30 years ago it was hard to think that ordinary people could make money using the internet. Computers and the Internet were exclusive to those who were studying something related to technology. Today you do not need to be a hacker to be able to use digital platforms to make money like blogs or investing in services like Uber.
The orange economy – that is, the creative economy – allows retirement to become more possible at an early age. Which has also become possible because more and more people decide to invest their money in a smarter way – and do it at a young age – to be able to live on their investments and not have to be dependent on a job.
Years ago we thought that buying a property was to live in, today thanks to applications like Airbnb, more and more investors decide to buy apartments and houses only to rent them on these platforms.
You do not need to be a millennial to start investing. The technological evolution has made both applications and platforms as well as access to them, are increasingly easier to use.
For example, since 2017 Airbnb host users over 60 years have increased by 120%, while women over this age have become the best rated on the platform. Which indicates that even baby boomers see technology as an opportunity to get a better return on investment with their property.
What is the best age to invest in real estate?
As we mentioned, not all ages or stages are the same for every person. For some it may be impossible to invest in their twenties and find the possibility of doing it later.
Our best recommendation is that rather than being guided byan ideal age you start doing it for the goals you have and the opportunities that come your way.
There are many myths around investment, especially when you want to do it at a young age, and one of the factors that keep people away from real estate investment is the lack of knowledge on the subject and investor stereotypes. We are not surprised when we hear cases of clients who want to become investors but fear not being able to do so because they do not understand numbers or be experts in the subject.
Knowing the real estate sector is one of the biggest keys to becoming a successful investor, this does not mean that it is a privileged knowledge that you cannot access.
Many millennials have the fear of investing in real estate because they think they need to buy a house to do so, and they ignore the investment possibilities that residential or industrial lots have.
For this reason, they fear not being able to do it because they believe that it is economically impossible for them, and they do not consider the possibilities of acquiring properties in other cities. For example, for some foreigners, investing in Mexico is a better option than doing it in their countries, but in the same way for some Mexican residents, investing in states such as Merida where there is increasingly strong demand in properties not only for housing but also for businesses and offices, it can be more accessible and profitable than doing it in places like Mexico City.
That is why it is important that you do not wait to have an ideal age and start thinking about becoming an investor or making an investment from now on. So the sooner you do it, the sooner you can designate your budget and create a work plan to invest or start saving money and then invest.
Otherwise, as you let time go by, you will be less likely to find suitable properties for yourself and especially if you have the opportunity to invest in places that are in presale in areas that will later have even more capital gain.
How to start investing in real estate?
One of the most common mistakes made by young people who aspire to become investors is to obtain immediate profits and be able to spend them on whatever they want. But as you know, this is not possible in the real estate market.
Being an investor is a goal of many to be able to have financial freedom and not be tied to a job or to live experiences like traveling or living in different parts of the world, investing to earn money immediately is not an actual goal.
This does not mean that you cannot earn an income in a short period of time. For example, apartments near tourist areas can generate profits if you decide to rent them. The same happens if you acquire property near schools, universities or hospitals.
What we really mean is that if you want to invest to enjoy the results you need to be patient and prepare constantly about the subject.
The preparation on the subject not only includes understanding how the market works, but also observing and analyzing where it is going.
That is why it is very important that you start to know very well and read everything about the area and the developments that are developing in the city you are looking to invest. Find out about the market and how real estate works in the place. About the papers you must have in order and the types of credits -if you’re considering obtaining one- to which you can access.
Begin to consume information and observe how other real estate investors are generating income with their properties. One of the advantages of investing in real estate is that it is a safe investment, but it also gives you the opportunity to take advantage of your investment.
There is a lot of information especially now that we live in the age of the Internet, but it is always good that you can approach the experts and work with a real estate agent to solve your doubts if you are already thinking about acquiring a property. Ask everything you need to know about the property and the area: the places of access, the maintenance fees, the projection of growth and the amenities with which the development has.
What factors should I consider when investing in real estate?
We already mentioned in our definitive guide of the real estate investor, if you want to be successful when acquiring a property you need to analyze the location and interests of your possible market without letting yourself be guided by the trends.
Actually, what makes your property acquire value is the capital gain of the area. This depends on external factors such as the location, amenities and even the roads that the property has.
Mérida is a city that we love to take as an example because the boom that is experiencing is related to the intervention of factors such as security and the excellent location in an area that attracts tourists and allows them to have access to beaches and archaeological sites.
In the best cities to invest in Mexico we have also mentioned the importance of decentralization that Mexico is living and Mérida is an example of how the diversity of industries can be an important factor in the development of the economy and in the demand for properties and offices, and therefore is another opportunity to ensure your future.
The more diverse of jobs and industries, the more likely you are to be victorious in your investment, as in the case of a crisis, for example, the closure of a factory or a big company that is in the area.
That’s why we emphasize the importance of not investing where everyone is investing, in the end -it may sound cliche- you get what you pay for.
Many new investors make the mistake of acquiring goods in areas that, although cheap, end up being insecure. In the end these investments end up being losses because they end up investing even in luxury finishes in areas where house prices are quoted in an amount lower than what they are thinking of asking for, whether they are rents or for sale.
The capital gain depends a lot on the area, the location and the amenities. And even if you get a very cheap property, in the end you will not be able to generate income if it is located in an area where there is no capital gain or the market cannot access the amount of money you propose. You will lose more money, unlike you decide to invest in an area with a guaranteed gain capital, thanks to all these external factors that we already mentioned.
Another factor that we highlight and that you have to take into account are pre-sales. There is no better way to guarantee your money than buying before, remember our example of the Riviera Maya and Tulum? Now imagine how much it will cost to buy a housing development once it is popular.
Acquiring properties in pre-sale is an excellent way to invest your money, since once the developments begin to acquire capital gain, your property will have more value than what it cost and you can adapt your income according to the costs of the area or decide to sell it to a higher price, or keep it to get more return.
So, if you’re wondering what is the best age to invest in real estate? It is better to start asking yourself; how can I start investing in real estate? And start making a plan so you can reach your goals and start creating a safe economic future for you.
Canadian snowbirds or real estate investors considering a home purchase in the United States can be confident in the state of the market according to a new survey.
Results of a poll conducted in the fourth quarter of 2019 have been released this week by The National Association of Realtors and show that 63% of American consumers felt it is a good time to buy (33% strongly) while 74% said it is a good time to sell.
The strength of the jobs market and economic conditions are boosting sentiment.
“The mobility rate has been very low as many have opted to stay put for longer,” said NAR chief economist Lawrence Yun. “However, this latest boost – Americans saying now is a good time to move – is good news. With mortgage rates low, the timing is indeed ideal for those who want to enter into homeownership and for those looking to move on to their next home.”
Older respondents (the Silent Generation and Baby Boomers) showed the highest confidence in buying conditions and higher earners ($100K+) and those in the West are more likely to feel that it’s a good time to sell.
“The Western region has seen home prices increase to the point that costs have outpaced income,” said Yun. “So, it is no wonder that those living in the West would think that now is a perfect time to place a home on the market. California especially is seeing some of the highest prices ever.”
The NAR survey has also asked about home prices with 64% saying their believe that prices in their communities have increased in the past 12 months.
More respondents expect local home prices to rise in the next 6 months (48% said so) than those that expect them to stay the same (41%) or decrease (11%).
On the economy, 52% believe it is improving although this falls to 47% among millennials and 41% of those living in urban areas (66% among those in rural areas).
“Whether it is a reflection of politics or true economic conditions, there is a difference of views between rural and urban areas,” added Yun. Source: Real Estate Professional – by Steve Randall 10th January, 2020
A new report reveals the cities that are seeing the strongest immigration currently; and those that are seeing the most exits.
U-Haul’s migration trends report for 2019 shows that North Vancouver, BC, is the No.1 U-Haul Canadian Growth City, posting the largest net gain of one-way U-Haul trucks entering the city versus leaving it during the past calendar year.
Along with Vancouver, BC has a further three cities on the list: Salmon Arm, Merritt and Victoria.
“Every community in Metro Vancouver feels the pressures associated with regional growth,” stated Michelle Benson, U-Haul Company of Vancouver & Vancouver Island president. “Vancouver is booming, but many people are priced out of the city. That gives North Vancouver the opportunity to attract new residents.”
The number of one-way U-Haul truck rentals arriving in North Vancouver jumped almost 30% from 2018 levels with departures up almost 20%. Arrivals accounted for 55% of all one-way U-Haul traffic through North Vancouver in 2019.
“Vancouver is rated as one of the top cities to live in, so every nearby city is growing,” added Jennifer Anstett, U-Haul Area District Vice President. “North Vancouver is enjoying the trend of people moving toward the West Coast and all it has to offer.”
The rest of the top five are all in Ontario – Trenton, Saint Thomas, Brockville and North Bay – and the province boasts 19 of the top 25 cities.
U-HAUL CANADIAN GROWTH CITIES FOR 2019
* Ranking from Top 25 U-Haul Canadian Growth Cities of 2018 in parentheses, if applicable
Source: Mortgage Broker News – by Steve Randall09 Jan 2020
Despite what many of us math-allergic folk would prefer, real estate does involve some math. Luckily, most of the formulas are simple and straight-forward. In fact, if you can master the calculations below, you should be just fine.
The Top 8 Real Estate Calculations Every Investor Should Memorize
Net Operating Income / Total Price of Property
Total Price (Purchase + Rehab): $300,000
$25,000 / $300,000 = 0.083 or an 8.3 Cap Rate
This calculation is mostly used for valuing apartment complexes and larger commercial buildings. It can be used for houses and small multifamily too, but operating expenses are erratic with houses (because you don’t know how often and how bad your turnovers will be).
You want to have a cap rate that is at least as good, preferably better, than comparable buildings in the area. I almost always want to be at an 8 cap rate or better, although in some areas, that’s not really possible. And always be sure to use real numbers or your own estimates when calculating this. Do not simply use what’s on the seller-provided pro forma (or as I call them, pro-fake-a).
Monthly Rent / Total Price of Property
Monthly Rent: $1,000
Total Price of Property (Purchase + Rehab): $75,000
Rent/Cost = $1,000 / $75,000 = 0.0133 or a 1.33% Rent/Cost
This is a great calculation for houses and sometimes small multifamily apartments. That being said, it should only be used when comparing the rental value of like properties. Do not compare the rent/cost of a property in a war zone to that in a gated community. A roof costs the same, square foot for square foot, in both areas. And vacancy and delinquency will be higher in a bad area, so rent/cost won’t tell you what your actual cash flow will be. The the old 2% rule can lead investors astray, and they shouldn’t use it. But when comparing like properties in similar areas, rent/cost is a very helpful tool.
According to Gary Keller in The Millionaire Real Estate Investor, the national average is 0.7%. For cash flow properties, you definitely want to be above 1%. We usually aim for around 1.5%, depending on the area. And yes, I would recommend having a target rent/cost percentage for any given area.
Annual Rent / Total Price of Property
Annual Rent: $9,000
Total Price (Purchase + Rehab): $100,000
Gross Yield = $9,000 / $100,000 = .09 or a 9% gross yield
This is basically the same calculation as above but flipped around. It’s used more often when valuing large portfolios from what I’ve seen, but overall, it serves the same purpose as rent/cost.
Debt Service Ratio
Net Operating Income / Debt Service
Annual Debt Service: $20,000
Debt Service Ratio = $25,000 / $20,000 = 1.25
This is the most important number that banks look at and is critical for getting financing. Generally, a bank will look at both the property’s debt service ratio and your “global” debt service ratio (i.e. the debt service ratio of your entire company or portfolio).
Anything under 1.0 means that you will lose money each month. Banks don’t like that (and you shouldn’t either). Generally, banks will want to see a 1.2 ratio or higher. In that way, you have a little cushion to afford the payments in case things get worse.
Cash on Cash
Cash Flow / Cash In Deal
Cash Flow (Net Operating Income – Debt Service): $10,000
Cash Into Deal: $40,000
Cash on Cash: $10,000 / $40,000 = .25 or 25%
In the end, this is the most important number. It tells you what kind of return you are getting on your money. In the above example, if you had $40,000 in the deal and made $10,000 that year, you made 25%. This is a critical calculation not only when it comes to valuing a property, but also when it comes to evaluating what kind of debt or equity structure to use when purchasing it.
The 50% Rule
Operating Income X 0.5 = Probable Operating Expenses
Operating Income: $100,000
Operating Expenses = $100,000 * 0.5 = $50,000
This is a shorthand rule that I judge to be OK. It is for estimating the expenses of a property. Whenever possible, use real numbers (i.e., the operating statement), but this is good for filtering out deals that don’t make sense. Just remember, a nicer building will have a lower ratio of expenses to income than a worse one and other factors, like who pays the utilities come into play. Don’t simply rely on this rule.
Strike Price = (0.7 X $150,000) – $25,000 = $80,000
This is another rule like the 50% rule, although I think this one is better. This one is for coming up with an offer price. Always crunch the numbers down to the closing costs before actually purchasing a property. But if you offer off the 70% rule, you should be just fine as long as your rehab estimate and ARV (after repair value) estimates are correct.
Comparative Market Analysis
Unfortunately, there’s no real calculation for this. It’s mostly used for houses, and it’s all about finding the most similar properties and then making adjustments so that a homeowner or investor would find each deal identical. The MLS is by far the best for this, but Zillow can work too (just don’t rely on the Zestimate). For a more detailed explanation, go here.
In the end, the math isn’t that bad. No rocket science here luckily. Instead, there are just a few handy calculations and rules to evaluate properties before purchase and analyze their performance afterward. Memorize these, and you should be fine.
What formulas do you use to analyze your deals? Any calculations you’d add to this list?
The mention of rent control is enough to make most apartment investors shudder—the notion of artificially capping rents flies smack in the face of American capitalism. But there are several misconceptions about rent-controlled properties. For some, they can be a great addition to their investment portfolios.
The Cons of Rent Control
Rent control regulations can be difficult to navigate.
Rent control regulations can be regulated at either the city or state level—or both. The state of California, for instance, allows rent control, but the decision is made at the local level as to whether to adopt a rent control policy.
It’s not uncommon for two adjacent communities to have different policies, one with rent control and the other not. The landscape is continuously evolving; investors need to track these regulations closely as there are routinely efforts (like ballot measures) to change policies.
Your ability to increase rents is capped each year.
Depending on the community, it’s possible that the rent control policy will prohibit landlords from raising rent more than 2 percent each year–in other words, rent increases essentially just keep pace with inflation. This may be completely out of line with market averages, particularly in hot-market cities, where rents have experienced double-digit increases over the past several years.
This ceiling can make deals less attractive to investors in search of strong cash flow.
Typically, low turnover is a good thing as far as apartment investors are concerned. However, some rent control policies stipulate that rents are capped each year until an apartment becomes vacant, at which point the landlord can increase the rent to market rate and then the new cap takes place each year thereafter under the existing tenancy.
To bring units to market rate, they must turn over at least every few years–but tenants in rent-controlled units tend to stay longer than average (sometimes 30-plus years!).
There’s less incentive to improve properties.
One unintended consequence of rent control is that, unable to increase rents, there’s no incentive to invest in a property beyond routine repairs and maintenance. Over time, this can lead to a deterioration (and therefore, value) of the property.
If you decide to sell in the future, your pool of buyers may be smaller.
Given the challenges associated with rent-controlled properties, some investors will never even look at these deals. This inherently shrinks the pool of potential buyers when it comes time to sell.
Rent-controlled properties tend to have lower acquisition costs.
Investors typically use the current rent roll as a major factor when determining the value of a property. Rent-controlled properties, particularly if multiple units are below market rates, are therefore valued lower than what the free market would bear.
This results in lower acquisition costs, which may be a good way for an investor to enter a market they’d otherwise be priced out of by investing in a rent-controlled property.
You CAN increase rents.
Contrary to popular belief, landlords CAN raise rents in a rent control environment—they’re just limited as to by how much each year.
For instance, Oregon just passed a statewide rent control ban this past year that caps rent increases at 7 percent plus inflation annually. That’s a total of 10.3 percent this year. Statewide, rent growth has slowed to less than 2 percent a year since 2016, so the new law makes little difference to landlords looking to increase rents.
There are usually policies in place to challenge the cap.
No community wants to see their housing stock decline. To prevent this, most rent control regulations contain provisions that allow investors to challenge the cap when making substantial renovations or improvements to the property.
Rent-controlled properties tend to have consistent cash flow.
Because rents are lower, and because tenants tend to stay in place longer, rent controlled properties tend to have consistent cash flow. What’s more, tenants in rent-controlled properties are less likely to move out during a downturn, which helps investors weather the ups and downs that are inevitable over the course of multiple real estate cycles.
Ultimately, the decision as to whether to invest in rent-controlled properties is a personal one. Rent control regulations can vary so widely–from highly restrictive policies in cities like New York and Los Angeles, to the more flexible rent control policy recently adopted in Oregon.
Anyone considering investing in an area with rent control should spend the time needed to understand the nuances of the policy. One misstep in violation with a rent control law could cripple an otherwise promising investment.
Would you invest in a rent-controlled property? Why or why not?
Is the white-hot fire of real estate investing burning in your heart? Do you solidly know within your gut that real estate investment will be life-changing? Do you have vivid pictures of the freedom owning property will offer you?
Hmm, now how to impart that passion to your spouse…
You want them to see it as you do. You want them to feel as intensely committed as you feel. You want them to be as excited as you are. You want them to see the vision for your future.
Why You and Your Spouse Would Make the Perfect Investing Team
You can do this together. You have a lot of practice.
Now let me say, this may seem different than other decisions in your relationship, but actually it’s not. Really!
I say this because all types of big decisions like this in a relationship require similar elements. Among these are a bit of understanding, a whole bunch of open-hearted listening, a giant amount of belief, and a huge heap of trust in each other. I mean it!
Planning a wedding, having a child, changing jobs, moving, buying a car together, taking out a student loan, purchasing your first home, raising your kidsâevery one of these requires discussion and negotiation. The point is, every big decision obliges you to be there for each other’s excitement. But it also necessitates being patiently present for each other’s fear and anxiety.
Where to Start the Discussion About Investing
So, let’s step this out.
First, have you already talked to them about investing? If you haven’t, then that is where you need to start. And then keep the tips below as tools in your tool bag to make the convo go smoothly.
However, if you have already talked to them—and they were less enthusiastic than you wanted or expected—perhaps the conversation had one or more of these possible outcomes.
You two discussed it and:
They seemed open, but they were not necessarily excited about the idea
They were fine with you doing it, but they don’t want to be part of it
They have no interest, and they do not want you to do it at all
OK, so none of these three scenarios are what you most want, but they are manageable. You have managed to work out compromises on other large events in your life, right? You can do the same here.
Think of it as excellent practice for negotiating a complex real estate deal. (I’m not kidding here.)
Why Don’t They See the Potential in Real Estate That You Do?
Let’s get into the reasons, the “why” they didn’t feel your same sense of sureness and excitement.
When you negotiate with a property seller, your first job is to find out what they really want or what is holding them back from saying “yes.” And honestly, when you first start talking with a seller, you cannot assume that they even know or are truly “in touch“ with what their hesitations are. Nor can you be sure that, even if they do know what’s bugging them, they will confide their reasons to you!
They might be too embarrassed or ashamed to say them aloud—or even to admit them to themselves. Or it might make them feel vulnerable to admit their hesitations to you. You have to uncover objections by asking questions. You have to listen carefully and openly. You need to pay very close attention.
This is the same process you will use with a hesitant spouse.
Focus on Problem-Solving
If they aren’t overly enthusiastic to talk about real estate investing, be patient. Talk with them in a setting that is quiet and relaxed. Let them finish their sentences. Ask questions without anger, accusation, or judgement.
Remember, you are collecting information so you can solve the problem. Don’t make this an argument. Use your best puzzle- and problem-solving skills.
The solution to this puzzle is one of the most important solutions you will ever uncover. So, I repeat, pay close attention. Listen to the clues.
You are not just a “spouse” in this situation, you are a detective, a troubleshooter, an analyst, an entrepreneur, a visionary.
You see, if you can truly get to the heart of what is making them uncomfortable, only then can you begin to brainstorm solutions. Those solutions need to be two-sided, because when you can help your spouse feel better and more comfortable, you minimize their negative reactions and you increase the likelihood of their participation and willingness.
You also increase the possibility you will engage your spouse in your excitement about the opportunities real estate offers your family.
OK, after years as a therapist, I will tell you that when it comes to real estate investing, there are some very specific stressors, fears, and anxieties that people tend to experience. These usually boil down to one or more of the primary concerns listed below.
That said, no two situations will be identical. Your situation with your spouse will be unique.
If you review these potential concerns before you have the conversation, you can develop some well thought out and realistic solutions for how you can alleviate your spouse’s specific hesitations. Anticipating objections and concerns this way should increase your chance for a successful conversation and positive movement ahead in your joint real estate investing future.
Pick out the issues below you are most likely to face (or have already experienced) when talking with your spouse about your desire for their participation in a real estate investing venture. Write out the questions you might encounter and how you might respond. Note the trigger words you might want to avoid with your spouse—you know, the ones that tend to spark an unfortunate outcome!
Then, pick a time and place, and go for it!
Consider Their Fears
Money fears: The fear of losing money and being left without security or unable to pay the bills.
Not enough time: In the beginning, real estate takes time and commitment. As with all skills and education, it requires study, reading, practice, and repetition until it becomes seamlessly familiar.
Afraid of failure: Whenever we start new things, we run the risk that until we master the skills and knowledge, we may not be as successful as we want. But practice improves everything!
Uncomfortable with change: Some people love change—even crave it—but there are others who abhor change. Most of us are somewhere in the middle. But in truth, fear of change is almost as common as the fear of public speaking, which is the highest reported fear. The best way to deal with this concern is to just jump in and try. The sooner you start, the sooner the transition is in the past.
Not knowing who to trust/fear of being taken advantage of: Being new at something means listening to lots of other people’s advice, paying attention to tons of new information, and not knowing which is trustworthy and which is not. Practice makes perfect, or at least very good. So, the more you perfect your skills in listening to your gut while really hearing the person opposite you, the sooner you will know “when to hold them and when to fold them.”
Fear of getting started: When learning something new, it can be very difficult to decide where or how to “jump in,” and those concerns can be intimidating.
Don’t think they’re interested: Sometimes when we don’t know a lot about a topic or skill, we perceive it as boring or uninteresting. Then, once we are exposed to it, we may recognize that we have lots of talents that would make us incredibly successful in that area. But we don’t know until we try.
Afraid of handling tenants: It can seem quite daunting to suddenly have so much power over people’s daily comfort and happiness, but it’s not as hard as it seems at first. Start by giving people the service you would want (just that good ole “golden rule” stuff). Over the years as an investor, I have found that communicating with tenants, sellers, and buyers in the manner I wish to be communicated with goes a long way toward creating positive results, happy tenants, and satisfied colleagues.
No experience/“I don’t know enough”: No one wants to look like they are clueless. It never feels good. Word of wisdom: sometimes the honesty of saying, “I’m new at this,” goes a long way in getting people to warm to you, open up, and be willing to help you deal with any of the hiccups occurring in any new line of business.
Other investors will always be able to find better deals: It’s true! My answer to that is, “Yes, because they keep trying.” They keep networking to meet more people, they make offers on more properties, they talk to more sellers. Does any of that mean you shouldn’t start? Nope. Why? There will always be a “Joe Investor” who will do a deal and make $60K. That doesn’t mean that a deal you do that makes $30K is any less a good deal. Your wallet will still be VERY HAPPY! (This I guarantee you!)
Scared to get it wrong and look foolish to family and friends: This is a really significant fear for a lot of new investors. But are those same family and friends taking risks to build wealth? Are they investing in themselves and their futures by learning new things and creating new investment opportunities? Probably not, and therefore your willingness to invest and trust yourself makes you something special. You and your spouse are pioneers on the adventurous journey of increasing your wealth and building your own personal future success.
So honestly, some of this list may resonate for you, while many of these concerns may not seem realistic or valid at all. It doesn’t matter. You yourself have your own unique worries and stresses in your heart and mind that your spouse does not share.
Your spouse has a different set of concerns.
We all have insecurities and deep-seated discomforts that can hold us back. But remember, if you can be there to provide support, if you can be present and caring for your spouse during these scary and exciting life changes, you are also very likely to discover the two of you are an amazing team that knows NO LIMITS!