cash buyer

Harsh reality of renting instead of buying

by John Rice

Sometimes when I tell first time buyers that they should buy a home as soon as they have a down payment and know they won’t be moving for several years, I wonder if they think I am just trying to get a sale.

Here is a harsh reality. Even if you are renting, you are paying somebody else’s mortgage.

In 2013, I bought a house to rent out. My mortgage was $543 a month including taxes and insurance. I rented it for $1100, which was a fair price at that time. Last year, I raised the rent to $1450. That is still under market value. When I raise rent, I try to keep it at about 85-90% of full market value since I am benefiting from the continued relationship. It is a win-win for everybody.

When I bought this place, I think I made the first 5-6 payments while I was renovating it. Do you know who has made the payments for the past 12 years? The same tenant. If that tenant could have bought the house in 2013, their mortgage would have been a little higher since I had to have a larger downpayment and I paid cash to do some work to the house. Their mortgage would have been more than mine, but still a little cheaper than the rent. Do you know what their monthly expense would have been today had they bought the house back then? THE SAME AMOUNT ALL THIS TIME. Ok, technically their taxes and insurance would have gone up a little, but what they pay for interest and principal would have been the same all this time. My point is that had they basically had a down payment and decent credit, they could have bought the house, had a fairly stable payment, been building equity for themselves instead of me, and would have the house more than half paid off by now.

This is why I encourage first time buyers to buy as soon as they can. I know it is tough right now with higher rates, prices, tariffs, inflation, etc. It is not impossible though regardless of how discouraging it may be. I think anybody is better off in the long term buying most any house they can afford verses renting.

“How long will it take to sell my House?”

by John Rice

I get asked this on every listing appointment. It is hard to believe that a couple of years ago, it was rare for any house in any condition to make it past the first day on the market. I usually don’t reply with an amount of time, but with a sequence of events that need to happen to attract a buyer. The honest to goodness truth is that any house should sell pretty quickly if the seller will do some prep work. Granted, there are exceptions…..Two million dollar house? Will take time since there aren’t many buyers in that price range. A unique house? May need a unique buyer. An overpriced house? Will usually only sell to an idiot with a realtor who thinks we are still in the 2022 market.

I’ve been doing this a long time. This is how it usually goes in this changing market. I see the house. I ask the sellers if they are able to do any work that needs done to attract buyers. Buyers want as move in ready as possible and for the best price right now…..well, I guess they always have but now they have more listings to chose from and sellers can no longer just put their house on the market without a little prep work. Sometimes the seller can’t/won’t do anything. If they can’t/won’t, I tell them the price I think their house will sell for just like it is. Usually though, the seller picks a few items from the list. We put it on the market. They get positive feedback for the things they have done. They get negative feedback for the remaining items on the list.  After awhile, the seller starts to realize that they are going to have to do more items on that list or reduce the price. Often, buyers subtract about 5 times the cost for the remaining items on the list. I’ve been on the buyer side of this. They almost always say something like “If I have to paint this whole house I’m not paying a penny more than $XXX,XXX!!”  or “I would need to replace all the carpet and I like hardwood, so let’s just subtract the cost of hardwood from the asking price and go from there.” Can’t blame them. After all, it is turning into their market these days.

Eventually, the seller plugs away at the list until it sells. See, there is the sequence of events I mentioned at the beginning of this post. Now that the house is ready, it is going to sell because it is competitive and will almost always fall on the short list of a buyer.

But what happens to the people who do everything on the list from the beginning and price it correctly? Their house usually sells very quickly. Why? Because buyers want the best house for their money. Make your house THAT house, and start packing.

Selling? What you like doesn’t matter

by John Rice

A long time ago, my wife decided she wanted a Subaru Outback. We looked at a few on used car lots. I did a lot of research to find out what trim level we had to get for her to have the sunroof and heated leather seats that she wanted. There really weren’t a lot of used Outbacks in or around Lexington at that time. This was so long ago that I found a classified ad in a newspaper that said “2008 Subaru Outback, SI Drive” with the price and the seller’s phone number. That was it. Not a lot of info to work with. Definitely nothing to make the guy’s phone start ringing. But to me, this car having SI Drive told me a whole lot more about it. Having done the research, I knew that was only offered on the top trim level. It had the giant sunroof, heated leather seats, and the bigger engine. When we went to see the car, the seller kept talking about the SI Drive. I could tell it was very important to him.

A lot of home sellers are like that too. They want to focus on what is important to them when selling their house, rather than focusing on things that are important to the buyer. I see it a lot in the marketing material of For Sale by Owner listings. I once read a flyer where the seller spent a lot of space talking about how level the sidewalks are.

About this same time, I sold a house to a family that I have since become friends with. They found the house by driving around the neighborhood. They would have never come to see it if they had only seen it online. Why? Because of the marketing remarks. Instead of mentioning the hardwood floors, instead of mentioning that one of the upstairs bedrooms was huge, or that there were bedrooms on both levels of the house, or that the backyard was an awesome park-like oasis, the realtor used that space to tell you that the exterior was maintenance free, that the curtains stayed with the house, and that there was an allowance for water-proofing the basement as well as mitigating radon. The marketing remarks could only have been better if they said  “Must see! You get to keep the seller’s curtains AND fix some major problems with this house, but at least you’ll never have to paint the outside!! NOT a drive by!”

The hardest thing about real estate is getting sellers to think like a buyer and a buyer to think like a seller. I think if that ever were to happen, I’d probably be out of a job! Being a realtor these days is as much about mediation, negotiation and understanding differing perspectives as it is about houses.

BTW, “SI Drive” is a feature that has 3 settings for throttle response and transmission shift points.

The market is changing

by John Rice

No doubt, there has been a shift this year.

Few sellers have to move. Most just want to. None of them are excited about being a buyer if they need to finance their next home. They don’t want to give up their very low interest rate they got during COVID. They are upset that they can no longer expect to sell their house the first day on the market, get above list price, and the buyer waive a home inspection.

Buyers are only buying if they really need to move. They don’t like the combination of high prices and high interest rates. They have more choices and power in the transaction than ever, but they can’t see the forest for the trees.

First time buyers account for the lowest percentage of buyers in forever. Most first time buyers seem to want to skip the small, boring most affordable houses and rent until they can afford what we used to call the “Move up” house. This is leaving most houses under $250k to investors. Almost every super affordable house I have sold this year has been purchased by an investor. Even in multiple offers, they are easier to work with and will often pay the most for a house.

Basically nobody is happy.

This is the first time in my 20 year career of seeing such pessimism from both sellers and buyers in a fairly good market. The only other time I have seen both parties this discouraged is during the Great Recession. It was an extreme Buyer’s Market so sellers were unhappy. Buyers were worried their house would be worth less than they paid for it after the closing. Nobody was happy.

I think we are stuck here for a while. I don’t see prices going up much in the near future and I don’t see them going down either. I don’t see interest rates going down enough to make much of a difference. I think this is just the new normal.

OK to take a contingency offer?

by John Rice

Well, I don’t really like to do it. Sure, an offer without that type of contingency is better, but there is a good side to this type of contract. Guess what it is? The buyer will typically pay you more with a contingency to sell or close their old house than a regular buyer will without that contingency.

I see it all the time. A buyer with a house to sell or close gets really nervous about not knowing where they will be living. They are desperate to find a house and will pay top dollar for the mental peace of knowing where they are going to land.

The bummer part is if the deal on their old house falls apart, so does your deal. There is an upside though, and it is the home inspection. If the inspection goes okay on the buyer’s old house, it typically means it will too on your house. Short of some catastrophic issue, a buyer will not walk away from your house. Why? There is not enough time to find another house prior to closing their old house…..and remember, they did all this because they do not want to be homeless once they close on their old house.