Many properties in the marketplace today fall within one of three categories peaking interest of investors/rehabbers.  Foreclosures, short sales and listings labeled as fixers.  So, which one will provide the greatest potential as far as return?  Property analysis is same regardless of the selling situation.

Here’s a fairly typical case study

Yesterday I went out with clients looking at an entry level project house for sale.  It came on the market that day and was listed at $169k.  Wow!  Houses in Beaverton listed for that price draw attention.  Very few properties for sale even come up under $200k (detached homes).

Looked like a decent deal at first glance.  Hey, you can practically break even on payments with 20% down using it as an income property.  Pretty interesting, on paper…  We arrived at the home and it did match the pictures a little too well.  Blue roof of several layers, single pane windows, cheapest sheet siding known to man, and best of all… trashed.  Rather bummed on this find.

After quick review of the surrounding homes and overall condition of the neighborhood it was estimated that resale in average to decent condition would fetch around $190k.  A rough guestimate of rehab costs was an easy $20k as long as sweat equity was involved and not 100% contractor labor. Question then is; At a list price of $169k is the home worth purchasing strickly for potential gain?  In my opinion there are more lucrative forms of real estate investment out there.

Taking a look at overall investment costs, just rough numbers:

Loan and closing fees: $6000

Carrying cost during rehab: $2000 (figure two months)

Material and labor costs: $20,000

Total investment: $28,000

From $169k add this $28k and we have a product that most likely isn’t going to sell for the money spent.  If a buyer is looking at keeping as a long term rental or primary residence it’s not too bad.  For $197k you’ve pretty much got a new house but for immediate resale… dream on, there’s no money in such.

My guess is that this particular piece of Portland Oregon real estate is not going to sell in it’s current condition for much over $160k and it’ll take a couple of low-ball offers to convince the seller of such.  Still, if you’re searching for fixer type houses for sale in Beaverton, Hillsboro, or any other Portland metro area you can do better.  Look for key words like “fixer”, “short sale”, and “foreclosure.” Check out the website and search all RMLS listings for free at www.maxwellsinclair.com.  Great investment opportunities are available with a little searching!

It’s a buyer’s market here in Portland Oregon and everyone knows it.  Prices have changed dramatically over the last year or so, home buyers can reap big benefits.  While exactly where the market will land is unknown one thing is certain when looking at history; It’s a better time to buy now than within the last three years!

Here are a couple of buyer tips:

1. Look at the comparable recent sales and make an offer lower than perceived market value.  Notice that I didn’t say lowball the heck out of 20 houses.  This approach is a giant waste of everyone’s time for the most pat.  Comparing current sales data is required, regardless of market conditions and most everyone does it.

Let’s say for example that you’re looking to buy a house in Beaverton Oregon.  Comps on the house of choice point to market value being $300k.  Given current real estate conditions a realistic offer may be $280k.  Most sellers will probably counter at a higher price.  Stick to your guns and counter back with original offer price.  Leave the ball in the seller’s court.

2. Don’t get emotionally attached to the outcome.  This tactic will suit you well in the long run.  People tend to pay more once they’ve mentally moved into a house and started arranging furniture.  Look at home buying from two standpoints.  It’s a place to call home and an investment.  Money is made on the purchase not the sale.  Disengaging from the outcome of your offer keeps the decision more business like.  So a seller doesn’t accpet your offer.  Big deal.  Plenty more to choose from!

3. Knock the price down after inspection.  Some buyers want to play hardball and really push for a lower purchase price.  Others would prefer a softball approach.  It’s up to you and your Realtor can address either avenue.

Once home sellers come to an agreement arrangements for their move become more solidified.  Much of this goes back to emotions.  Mentally, they’ve sold the house and are moving on.  Buyers control transactions for the first few weeks and it’s up to them to continue or potentially walk away after inspection.  Seller options are limited.  Typical inspection periods run 10 business days here in the Portland Metro area.  Pushing inspection negotiations towards the 2 week deadline gives sellers more time to move foreward with their plans.  Remember, they’re selling because they want something…

Get that professional home inspection.  Minor or major, suggested repairs show up 99% of the time during these closer looks.  One of the most common approaches is to get contractor bids for such repair points and go back to sellers asking for a price reduction (compensating for repairs costs).  Who says it has to be a dollar for dollar reduction?

Buyers willing to play hardball can come back with a take-it-or-leave-it approach.  Asking for additional money to compensate for (insert additional excuses here) house/market shortcomings is an aggressive approach.  Sellers will be ticked but they’re faced with a choice.  Move on with bird in hand or risk putting their home back on the market only to weather additional market downturn or potential repeat of a similar offer.  Tough one…

For the most part experience says that the majority of home buyers take a balanced approach and ask only what is perceived as a reasonable repair cost.  Price still goes down in the end and buyers can address non-critical repairs at their leisure.

Additional Portland Metro area home buying tips are available at www.MaxwellSinclair.com

It’s an interesting real estate market here in Portland and one that heavily favors Portland real estate investors.  Depending upon whose real estate study you’re looking at and where in the country it was generated you can expect somewhere between 5 – 7% annual appreciation.  Keep in mind that appreciation is not linear.  That is to say price does not necessarily go up 5+% each and every year.  15% appreciation one year, -5% the next…

Take a look at what’s happening now.  We’re experiencing a buyer’s market where prices of Portland real estate have dropped very little compared to just one year ago.  Being immersed in the field I can tell you that prices have declined more than statistics show.  In 2006 buyers were very hard pressed to find homes for sale in Beaverton anywere under $220k.  Now those same homes are running close to the $200,000 point.  About a 10% reduction in 2 years.

The great thing about being an investor is that you’re looking at the long term return.  Single family investments yield better returns on the lower end, such as a $200k home in Beaverton Oregon.  An average condition ranch style home will fetch an easy $1100/mo in today’s market.  Do a little remodel and $1200/mo is not a problem.  Try that 3 years ago and you’d be looking at big vacancies.

Rents are heading north.  They’ll continue to do so as long as our housing market remains in a slump.  Great time to be a landlord and invest in real estate.  Prices are down, inventory is up, mortgage rates are increadibly low today.  At 5.375% for a 30 year conventional loan money is cheap.  Add .5% roughly for an investment.  No one has a crystal ball but signs are very promissing that now is the time, buy low.

Capitalize on overall return, not cash flow.  Here’s a rule of thumb you possibly haven’t heard before; Buy entry level investment houses with 100% financing (or as close as possible to) where rent covers the mortgage payment (principle and interest only).  There will be negative cash flow because you’re paying taxes and insurance out of pocket each month.  It is possible to do this.

100% financing is still available through various sources but most easily structured through a home equity line of credit on primary residences plus 80% ltv on the purchase.  Very few houses qualify, in my opinion, as good candidates for this formula.  They’re usually fixers in need of about $10k worth of work (sweat equity).  So, with $10k invested in this property and the rest financed you’re only negative roughly $200/mo (taxes and insurance).  Pretty bad right?  Maybe not.

Cash flow can be a very short sided approach for some people.  There are 3 major factors to keep in mind; tax deduction, depreciation, and return on investment.  Overall, in today’s market, you’re probably not coming out ahead due to the direction of prices.  When our housing market turns around such an investment will return a very attractive number overall.  Prices have not gone backwards like this in approximately 40 years.  It’s not going to continue!

Like always, I encourage your comments and objections.  Is investing in this market right for you?

Feel free to check out Portland Real Estate for Sale and investments guides at www.MaxwellSinclair.com

Listening to Non-Professional Advice

So you’re shopping homes for sale in the Portland Oregon area.  Good for you.  It’s a fantastic buyer’s market at the moment and mortgage rates are awesome!  Now all that’s needed is some expert advice from a relative or co-worker.  Make sure that the last house this person bought was in Detroit and about 20 years ago.  I’m  being sarcastic.

Hey, most people mean well but unless advice comes from someone who’s emmersed in the current local market it might be good to take it all with a grain of salt.  Keep in mind that real estate markets are not national and are dynamic.  What was common practice 6 months ago may not even apply today.

The purpose of a Realtor is to negotiate the best deal possible, protect your interests and watch out for pitfalls that’ll potentially cost you money.  Get advice from people and run it by your trusted real estate broker to see how applicable such can be at this point in time.  I can’t tell you how many buyers have missed out on properties because they insisted on listening to non-professional advice.  A good Realtor will keep you on track!

Not Shopping the Mortgage Market

Shopping the mortgage market can be a frustrating experience.  Mortgage brokers are required by law to give quotes in writing along with a Truth in Lending statement.  What’s known as a Good Faith Estimate (gfe) shows closing cost numbers.  Without getting into too much detail essentially this allows home buyers to compare mortgage brokers in the same format.  Like any other industry there are honest, ethical lenders and those who you may not want to do business with.

A good real estate broker should be familiar with how to read a gfe.  He’ll can potentially identify numbers that are blatently high by comparison to the norm or those which could even be missing from the equation.  By no means should your real estate broker be considered the mortgage professional.  Double check numbers by running line item costs past several lenders.  If the numbers are accurate they should fall within a small margin of eachother on all gfe’s.

Does the real estate broker have to know your personal information?  Heck no.  Looking at a good faith estimate does not disclose buyer’s income, cash reserves, or any confidential information.  It gives a general overall picture of home purchase costs that will be related to a purchase price.  The buyer’s agent gets all this as part of the transaction’s closing documents regardless.  It’s called a closing statement and all parties involved see such.  Sharing a gfe during infancy stages of home buying with your Realtor could really help save money!

Not Interviewing Real Estate Brokers

Unless you make a point to sit down with several agents it’s tough to find a good agent.  Some are actually rated by outside companies based upon client feedback.  After puchase of a home is completed buyers will receive surveys from monitoring companies asking for ratings of agent performance.  These companies are not related to the broker in any way, keeping feedback objective.  Third party companies like QSC (Quality Service Certified) allow clients to submit feedback that actually ranks agent performance on a scale.  Agent ratings are available to anyone who wants to review such before getting involved.  Very few Realtors are monitored!

Ask for a list of referrals from buyers/sellers who’ve done more than one transaction with subject agent.  No agent with good community standings is going to object to contact of past clients.  Might want to think twice if there are no referrals immediately given.

For more tips on buying Portland real estate visit our website.  www.MaxwellSinclair.com

Today many search options are available online.  One of the easiest ways to start a home search is to use Google or another search engine.  Key phrases like Portland Houses for Sale will give a million results.  Most of which are Realtor sites or sites that link to major companies like John L Scott, Re/Max, or Prudential.

Here’s a bit of education that the average shopper may not be aware of.  Portland’s Realtors input listings of homes for sale into RMLS (Regional Multiple Listing Service).  Regardless of which company or agent lists the home information will be input into the same database, RMLS.  All sites showing on the results page from search engines get their data exported from RMLS.  You’re seeing second hand information.

What’s wrong with second hand information?  Nothing for the most part except that it’s not always complete.  Depending upon which website you’re searching results can differ slightly and in the end a house or two could be missed.  I’ve witnessed this numerous times over the years.  While some searches are very accurate some are out to lunch.

One of the best ways to make certain buyers end up with a complete list of houses available is to hook up with a Portland real estate agent.  Agents pay for access to the RMLS database and set up search parameters based upon input from their buyers.  Search results can be sent automatically as new properties hit the For Sale market.  Benefit is that you’re getting information directly from the horse’s mouth rather than second hand.

Additional searching on the buyer’s end is incredibly common, kind of human nature.  Outside of Craigslist or a For Sale by Owner site it’s all redundant searching.  Even these two websites generally have their listings already on RMLS.

Many buyers will insist on continued searching on their own, however, convinced that their agent could not possibly be sending all the listings.  When agents get specific information the search is set up based upon buyer-set parameters.  As long as given information is accurate, so are the search results.  But, garbage in, garbage out.  Problems occur when requests for house parameters are too specific.

The best thing you can do?  Give your agent a broad spectrum.  Instead of saying 1990 and newer homes only say 1985+.  Instead of saying 1800 sq ft 3 bedroom 2.5 bath, say 1700+ sq ft and leave it at that.  Much better to weed through a larger list of candidates and find that there’s a house with 2 bedrooms and a den that will potentially work than miss out.

Map searches of properties for sale are the worst.  A good number of listings can potentially not show up due to a couple of reasons; data export parameters from RMLS and inaccurate location information input by the listing agent.  Recently agents are required to verify gps mapping location on any new listing.  Some agents plain just don’t bother to make sure map location is correct.  This explains why clicking on mapping links occasionally puts a selected house in a completely different city.

Map searches are fantastic for getting an overall feeling of what sort of house prices are available in a specific area and getting ball park ideas.  Freely browse sites and search online for Portland homes for sale until you’re serious.  Then contact your agent to get the latest up to date selection near your target area.  You’ll be assured of seeing all listings!

Happy searching

Portland home prices have slid a bit and are mirroring the rest of the U.S. housing market.  Albeit not to the same extend but we were bound to feel the push towards price reductions and sluggish home sales eventually.  As of this moment RMLS numbers are showing a decrease of 4% over this time last year.

New construction sales fall in sync with resale and builders are having to come up with creative incentives to move product.  Most are no longer pouring foundations without a sale agreement in place.  Buyers can typically not make new builder’s sale agreements contingent upon sale of an existing home.  Time for construction to be completed is roughly six months here.  At the point where final occupancy permit is available buyers are required to have financing in place and close the deal.

The light turns on for some buyers after waiting six months for their new home and watching prices slide.

“Why should we pay the price agreed upon 6 months ago when the builder is now offering more incentives for the same house!?”  Good question.  What has to be weighed is what the loss or gain will effectively be.  Most likely buyers of new construction have released earnest money to the builder for upgrades, etc.  It’s not refundable.

Choice is to go forward with the existing sale contract, attempt to negotiate a new price, or walk away from the purchase and any funds already paid.  Tough one.  Going forward as planned means a buyer is potentially paying a premium compared with today’s pricing.  No one wants to do that but an agreement is an agreement.  Keep in mind that a builder takes the same risk in seller’s market.

Purchasing pre-sale homes in phase one of a development can potentially be very profitable in an up market.  Locking in a price early on and watching phase two prices climb in a quickly appreciating market is fun.  Buyer’s love it.  Flip side is the case now and buyer’s hate it.  Builders want to maintain good report in any community and may have suggestions.  Probably the best advice is to evaluate options with your real estate broker.

Check out www.maxwellsinclair.com for awesome tips on negotiating real estate purchases or possibly re-negotiating with builders!  Search Houses For Sale in Portland that have come onto the market recently and compare resale with new construction.