Thursday, October 28, 2010
My story mostly revolves around my parents. They cared about us kids and, although it may have been a little misguided at times, they did love us kids. I grew up in Niles, Michigan during the 70's and times were tough. The 5 of us were crammed into a small 800 or 900 sqft house. My parents were high school graduates, but really did not have a lot of skills. To date, I am the only one from my family to actually graduate from college. My mom worked at the JC Penney in Niles after Grants closed up, which was another retail store in the same location. After getting out of the Air Force, my dad worked in a factory called Clark Equipment in Buchanan until they started to move their operation down south somewhere. When that happened, it left my dad unemployed in a lousy job market with little knowledge of how to do anything other than the factory work he was just laid off from.
You Know What You Know
With the job market the way that it was, we were on Food Stamps and Welfare. I remember standing in Government Cheese lines with my parents (great tasting cheese by the way!) and I remember that we had Powdered Milk because we couldn't afford the real thing. Most of the time for dinner we would have fried bologna sandwiches, spaghetti or anything else that was inexpensive to make. Because of the money situation my family was in, I was in the free hot lunch program at school.
Growing up this way, it was all that I knew, it was all that my family knew. You struggled to pay bills and put food on the table. Good paying jobs were a myth when you grew up, and when you did have a job, you had to work hard at what ever it was in order to keep it. I knew that I didn't want this when I got older, but I had no idea how I would avoid it. You know What You Know, You Don't Know What You Don't Know.
You Don't Know What You Don't Know
As I got older and into high school I always tested out at high levels in math. The problem was, I had no idea how to enhance the way I studied. I was on my own. My parents knew nothing about the subjects I was taking, let alone the proper ways of studying. So, despite "testing out" well, I struggled at times. But I knew I needed to stick with school, even though it was VERY frustrating. When I saw successful people, they all seemed to have college degrees. So, I figured my goal should be to go to college and get a degree. "You have to go to college!" my parents would say. They were right, but I really had no idea why at the time. They wanted something better for me. I wanted something better for me too. I just didn't know what. You Don't Know What You Don't Know.
So, off to college I went. My grades in high school were average, something like a 2.6 GPA. The only money that I had was from the paper route that I delivered for the South Bend Tribune and from the part time job I had during my senior year. I saved and saved and saved. I had about $3,000, which was not nearly enough to pay for college. And, since my parents had no money to contribute but made just enough to disqualify me for certain types of aid, I applied for Student Loans and Pell Grants after being accepted to South Western Michigan College (SMC) in Dowagiac and meeting with financial aid counselors.
I had no idea what I was doing. I had no idea what I wanted to do. I felt that I had some good common sense in my thought process, and since it seemed that 90% of business decisions seemed like they were just good common sense, I decided business was what I should study. SMC made a lot of sense. They had an extension program with Ferris State's business program, so, I could get a 4 year degree and stay local so that I did not have to pay room and board like I would have to if I went away for college. I was still a little short on money for books and such, so I worked 2 jobs to make up the shortage while going to college full time. I remember one semester where I took 21 credit hours while working a 42 hour schedule between my 2 jobs. I would get up at 6 a.m. and go to bed at 2 a.m. Nothing but work, college, studies and trying to build a relationship with my then girlfriend and now wife Kimberly.
You Know What You Know, You Don't Know What You Don't Know
I know that, in part, I am where I am today because I knew I wanted something different than what I was used to as a kid. But I also know, that if it were not for programs like welfare, food stamps, pell grants and student loans, that I would not be where I am today. When you grow up in the kind poverty type of environment that I did, it is all you know. You know nothing else, because that is all that the people around you know. You Don't Know What You Don't Know.
When I hear political candidates talking about cutting these programs, or worse, eliminating these programs. It's upsetting.
It's upsetting because these programs enabled me to lift myself up.
It's upsetting because there are people out there that want what I now have and people are trying to stop them from getting it.
It's upsetting because these candidates might as well be saying to me "We wish you were still at that level of poverty you were at as a kid."
Maybe these candidates that are against these programs just don't care about people like me. Maybe they just Don't Know What They Don't Know, which is all the more reason that I will not be voting for them.
Think about who you are voting for, and what that person stands for, before casting your vote on election day.
My vote will be cast for people that are trying to help those less fortunate. I hope that's where your vote lands as well.
Thursday, October 21, 2010
"Now is a great time to buy because rates are low and prices are low. Historically, when rates are low, then prices are high. Or when rates are high, prices are low. So, this is truly a unique market in that you have the best of both."
Don't get me wrong, I think that is a fine answer to give, especially since it was the answer that I have been giving to people. And, to some people, I think that answer resonates. They get it. But to others, maybe not so much. So, today I thought I would take a different approach and really throw out an analysis as to if it is a good time to buy or not.
It is no secret that prices in real estate have taken a hit. According to numbers released from the NAR (National Association of REALTORS), at the end of 2009, the national median selling price of a home had reverted back to what they were in 2003. But since then, nationally our median selling price is up .7% this year and if you look just at Midwest numbers, that number grows to a 2.2% increase over last year.
So it appears that we have hit bottom on price and could be back on the incline again.
Now, let's look at interest rates.
Today I traced interest rates all the way back to 1963, I didn't feel the need to go back any further to prove my point. Since 1963 we are currently at our lowest point in mortgage interest rates which are currently at 4.375% as of this morning. As you can see by looking at this chart that I made, with only a couple of exceptions, interest rates go UP a lot faster then they go down. And since interest rates are in the low 4's, an area they have not been before, it would make sense that they may not be going down any further. Or at least not much further. It would also make sense, that interest rates will start to climb, even if it is by only 1/2% or by 1%.
So, why does this make a difference? After all, a low interest rate is a low interest rate, right?
True, but the low interest rate along with the low price effect something called buying power. People love to get the most for their money. And right now may very well be that time.
As you can see by this chart that I made, the payment stays pretty much the same throughout. But look at the interest rates and the buying power. As the interest rates go up, you cannot afford as much house. This was all based off of an original purchase price of $100,000. If the original purchase price were even higher, the difference would be even greater.
Now, take that prices are back at 2003 levels which means that $100,000 house today may have been a $115,000 house or more 3 years ago, and it is easy to see how great today's Buying Power actually is.
Hopefully that explains to you why the current real estate market IS the right time to buy, especially since prices and rates may start creeping back up again.
Wednesday, October 13, 2010
I like to tell people to get a number in your head as to what you think it will cost to rehab, and then add 50% to it. There are always hidden problems that will need to be addressed. If you budget for that extra 50% and never use it, then its profit. Work backwards from what you think the house would be worth fixed up and start subtracting repairs, realtor fees, title work, taxes, and the purchase price etc. You might find that you will be upside down when it is all said and done.
2. See The house for yourself. Many investors have made mistakes by buying “sight unseen”. If you are an out of town investor, have someone from the area that you are wanting to buy in go out and take a bunch of pictures and give you a description of what they see.
3. Look at the neighborhood. Do your homework and check out crime rates and foreclosure rates in the neighborhood that you are looking to buy in. High crime and high foreclosure rates will make it difficult to recoup the cost of repairs due to falling home prices in that area. High crime rates may make it difficult to rent out.
4. How long has the house been empty? The longer a house sits, usually, the more damage there is. Vacant homes have a tendency to be vandalized, so check the walls and plumbing carefully. People like to break into vacant homes and take the copper plumbing.
5. Was it winterized? Do a very careful inspection of the plumbing and look for breaks and cracks before turning on the utilities. If the house has been winterized, when was the date? I’ve seen homes that were not winterized until March. By then, it may have been too late.
6. Look at the landscaping. Look for hanging braches on trees that are up against the roof, it could be concealing a roof or shingle problem. Look for grown up vegetation around the siding and base of the house. Vegetation holds in moisture making it a prime Termite area. Sometimes improper grading around the house can cause water problems if the house has a basement.
7. Have the home inspected. Expect a whole laundry list of things to show up, but what you are looking for are major defects. The big things that are going to cost lots and lots of money. Roofs, electrical, plumbing, foundation ,mold, furnace, AC, and well and septic if not on city water and sewer. A $300 to $500 investment in inspections can save you from making a huge mistake that could cost you thousands.
8. Consider buying a HUD home. The Department of Housing and Urban Development is sitting on 10’s of thousands of homes and usually sell at bargain prices. Local government and owner occupants get first shot at buying these, but if they pass on them, investors are allowed to bid on them. Investors account for about ½ of the HUD home purchases. HUD homes come with a property condition report, but still get an inspection of your own. Beware though, HUD homes usually have extensive damage to them but the trade off is a better price.
9. Don’t expect to profit from a quick sale. People that buy a home and put very little into it expecting a large payoff are generally fooling themselves and may find little profit and big headaches down the road.
Monday, October 11, 2010
To figure the current Absorption Rate, it really needs to be broken down in to different categories and areas. Afterall, the west side of South Bend is going to sell completely different then what Granger is going to sell. From there, you can break it down in to price range to get even a better, more accurate number.
To keep it simple on this post, I just broke it down in to price ranges and did not break it down in to areas. How these rates are figured, is I took the number of homes sold in a category for the last six months and divided by 6 to get an accurate monthly number. I then took the number of available listings in that category and divided by that monthly number. That gives you the number of months of "Available Inventory" that is currently on the market. These numbers are through the end of September.
You can also break these numbers down in to subdivisions if it suits the purpose of what you are trying to accomplish. If you are interested in knowing a particular area of St Joseph County, please shoot me an email at Barry@PrudentialOneRealty.com and I will try to get the numbers together for you. One thing to note though, if your house is really a $90,000 home and you see that it currently has 14.15 months of inventory, bumping it up to over $100,000 which has 10.22 months is not going to make your house sell faster. It will cause the opposite to happen. Over priced homes do nothing but sit on the side of the road in this market.