Looking back at the first half of the year and it has been very interesting. The overall market has been very good. Interest rates are about 1% below what they were at the end of last year with many clients getting rates near or under 3.5%. Something that may surprise you is the number of investors buying homes. 40% of our listings so far this year have sold to investors. Even more surprising is the amount of money being “parked” in the area. Joyce has a client from China who has bought 6 homes this year. What that means for you? If you are a first time homebuyer it is tough to compete with investors, especially if they are paying cash. For potential home sellers investors are likely to offer you a leaseback which may get you off the fence of buying your next home if you can avoid having to move twice.
Looking back at the May closed statistics the median price of a home in Austin hit a record of $407,000 in May. We saw strong sales growth in the number of sales in the suburbs with Williamson County up 8.3% and Hays County up over 10.2%.
Something we are seeing is there are pockets of our area where the real estate market is very strong and other areas where sales are sluggish. Areas competing against new construction or where the schools do not have a great reputation are not selling as well as other neighborhoods. If you are thinking about selling your home rather than rely on general statistics let’s talk about your specific home.
Spending Money In The Right Places
Something we are seeing in the market is often our clients want to spend money on items that will not give you a good ROI. For example, I met with a family yesterday and they were planning to replace the fence. What they should spend money on is replacing the carpet. If you are thinking long term about resale value consider spending money on things that can be advertised and will wow a future buyer. Making your home move in ready, spending money on things that will create an emotional attraction to your home and areas where an appraiser will give your home extra value are places to spend money. Floors, walls, kitchen and master bath are generally the best areas to spend money. Before starting on a home improvement project feel free to give us a call to ask us how future buyers will value your investment.
Mental Math and Investment Properties
We help many investors sell their properties when they realize their return is not as good as expected or owning the properties is too much hassle. Most of us are guilty of using mental math to calculate our financial situation. In particular I see many errors using mental math with real estate investors. Many investors I talk with will take the monthly rent and subtract the mortgage payment to give a return. What usually isn’t calculated is any vacancy loss, repairs (including budgeting for large repairs in the near future…new roof, AC, etc).
As an investor you also want to consider your opportunity costs (what else you can do with your money). I often have people say they expect their home to be worth more in the future. The question is not if your investment property is worth more in the future. The question is could you make more money with a different investment.
Some homes simply do not make for good rental properties. I have found larger homes in particular wind up with too many problems and the rent does not justify the higher mortgage and tax expenses. Other homes with a large amount of equity may also give you a much lower return than expected once you do the math.
The other items investors or homeowners converting an occupied residence to a rental home do not consider is the effect of missing out on the capital gains exclusion, higher property taxes without a homestead and depreciation recapture. Explaining what depreciation recapture is to someone who thinks depreciation is a forever deduction is always interesting.
Owning investment property can be a great way to build wealth. Understanding which homes and which situations are good investments can be the difference between success or you becoming frustrated.
If you have an investment property or are considering converting a primary residence to a rental property call us to review a more thorough analysis to see if that truly is the best option for your situation.
Home Selling 2nd Opinion
This is also the time of the year that some home sellers get overconfident. That may result in putting their home on the market in poor condition, overpricing or hiring a Realtor without much experience. 25% of the homes we sell were previously listed with another agent. If you have any friends trying to sell and are getting frustrated have them call us for a no obligation 2nd opinion.
Community First! Village
We are excited about our fundraiser almost wrapping up. Since last fall a portion of every sale has been donated to the Mobile Loaves and Fishes Community First Village to build a home for a homeless/mentally ill person. If you would like to see our progress or make a donation visit KopaKares.com.