realtor

Airbnbust?

by John Rice

One of the most valuable lessons I learned from my dad is how cycles work.

I remember one of the first times I ever thought about such things was when we lived in a starter home neighborhood in Frankfort. I remember him telling me that the houses in our neighborhood would eventually get run down because everybody who buys such an entry level home only plans to stay there for a few years. You don’t do a room addition, kitchen renovation or anything when you’re thinking so short term. Forty years later, the neighborhood is pretty run down. Houses only got fixed up when the values got so low that an investor could buy them cheap enough to make a profit.

Another thing I learned about cycles is to expect them. There will be good times. There will be bad times. Most people view the good times as the norm and are shocked when bad times come.

We are there now with the short term rental market.

Over the past few years, I’ve had several clients ask me about getting into the STR (Short term rental) market. I have always been cautiously optimistic. I tell them sure, you can make some money, but have a backup plan because one day, the market will be saturated and/or demand will not be as strong. We had several things line up perfectly all at once to create the buzz for short term rentals. We had many people wanting to travel after the pandemic, we had a robust economy, and we had people eager to try using an Airbnb. I knew that would not last forever, especially with so many so eager to buy a house and use it for short term rentals.

The downside of the cycle is happening now. I am on a facebook group for real estate investors. Just about everybody is saying their bookings are waaaaaaay down compared to last year. We have several things that have lined up but none of them are good: Everybody travelled a lot after the pandemic and demand is down, we have a not-so-robust economy, and people are a little more cautious of short term rentals (Excessive fees, terrible hosts, pretty houses in scary areas, etc.)

In time, demand will pick up. Those who were merely Airbnb hobbyists will get out of the market leaving only those who view it as a serious business. This is part of a cycle too.

So what’s my advice to anybody wanting to buy real estate for STRs? Have a backup plan. Make sure the numbers also work as a long term rentals. Be ready to pivot when needed. Buy a property that is a good investment. Don’t buy a terrible house in a slummy neighborhood where the only desirable feature would be your trendy decor. Have an exit plan because one day you will be as excited to sell your property as you were the day you bought it.

The single most important thing when selling your house (or anything really)

by John Rice

I did it again.

I bought another car. For people who know me, this is par for the course. I am always falling in and out of love with cars and trading them like crazy.

If you’re wondering how me getting a new car is related to real estate, it is because of pricing.

The car I bought was not expensive. It is just a little Japanese sports car that is fun to drive. A new version came out during COVID and they have been in short supply ever since. You never see one on a lot. Most are sold before they arrive. Dealers are taking deposits on them and telling people they will call when the car arrives.

I went to a Volkswagon car show with my oldest son and his girlfriend last weekend. We had lunch on the way home. They asked about the deposit I had on another one of these cars at a local dealership. I replied that I was told it should arrive later this month. He then went on a mission of finding me one that was immediately available. He found one about 250 miles away in Indiana.

He called to confirm that it was in fact in stock. It was. I remember thinking to myself “Why is this car in stock, collecting dust on a dealer’s lot when every other one is pre-sold???”

Ahhhhhh……the price!

This dealer wanted $9000 over the MSRP price.

I told the salesperson that I was definitely interested in the car but there was no way I was taking it at $9000 over MSRP. He started telling me what a hot car it was and how many calls they get on it. I am totally sure all that is true. I’m a realtor, so I know how markets for things for sale work. This is a super hot car in high demand, but the reason it hasn’t sold is that it was overpriced.

Here are some truths about any market:

  1. You cannot sell something for more than it is worth.
  2. The whole market determines the value, not just the seller.
  3. A buyer is defined as ready, willing and able. (At $9k over list for a very affordable car, that price pushed the total cost well over budget for the target buyers, thus knocking out the “Able” part of those three requirements.)

Like real estate, you cannot sell the most gorgeous $500k house in a highly sought after neighborhood for $750k. If you try, it will sit on the market and you will reduce the price until those ready, willing and able buyers think it is worth it.

But isn’t the market still hot? Yes, it is. Prices are still going up in our area. That means you still, like always, have to price a house for something a buyer will pay. A hot market doesn’t mean you can sell it for more than it is worth. It just means it will sell quickly and many buyers will want it and be eager to pay top dollar….not more than top dollar. If you ever see a house that is sitting on the market and wonder why it hasn’t sold, literally 100% of the time it is due to price. It may have some odd feature or be in bad shape, but it will definitely sell when the asking price is in line with what Buyer’s think it is worth.

So what happened with the car? They came down to $6k over MSRP and I drove up and got it yesterday. I suspect had they priced it at that from the beginning, it would have immediately sold.

Always make this your first priority when picking a house

by John Rice

Let’s face it, most houses in any price range are all pretty similar. It is rare in Lexington to get something unique in the sense of a feature or design that is different from anything else. We have old houses that mostly have the same character from the time period they were built. We have new houses with their open floor plans. We have updated houses. We have outdated houses. We mostly have houses with average lots. We also have houses with less than average lots. Basically you can pick what part of town you want, what age house you want, whether you have to have it updated or not and just like that, you’ll find about every house that makes your list is pretty darn similar to every other house on your list.

While this isn’t necessarily a bad think, it can make your house harder to sell whenever the market softens……which right now appears will never happen.

Tastes change. Things go out of style. The 90s saw a bread drawer in the corner of every kitchen plus a built in desk. Cherry cabinets were the rage. It won’t be all too long before white shaker cabinets and shiplap will become negatives to buyers rather than something that makes them want the house.

What should you do to make your house be among the best when you go to sell it? The best thing to do is pick a good lot. Why? It never goes out of style and never needs updating.

I recently sold a townhouse in a nice complex on the edge of downtown. The location is great and always will be. The thing is that about half the units are totally identical to each other. The one I sold was an end unit. That means you only share a wall with one neighbor. It also gives you windows on the other side. This unit backed to the houses in a historic neighborhood. You looked out your rear windows and saw trees and grass with the neighboring houses far away. The other units all backed to each other. This unit was on the edge of the complex. It had some greenspace across the street out front. All the others faced other units. There was plenty of guest parking and since it was on the edge of the complex, it is the least likely to be used. This was the best lot in the entire complex.

I told my buyers to picture it is 2008 all over again. They decide to sell when there are 15 other identical units for sale at the same time. Which unit is that one buyer in the market going to pick? Their unit, because the lot will never go out of style and never need updating.

$30k over list and STILL wasn’t the best offer??

by John Rice

Yesterday was sort of a bummer.

It began with a sale falling apart. My buyers had a contingency contract on a house since they needed to sell their old one first. Somebody else came along without a contingency and kicked them out. Time to start all over.

Then late last night, I found out that another buyer did not get a house on which we had submitted an offer. We went $30,000 over the list price, which was close to 10% over list. There were 22 offers on that house. My poor buyers will likely be competing with those other 20 buyers who didn’t get the house on the next new listing in their price range.

I did at least get one of my listings sold for $5000 over the list price.

It’s shaping up to be another crazy year in real estate. It’s a tough market. It’s tough for everybody except the sellers.

Want the lowest price you’ll see in 2023?

by John Rice

I have always said that late winter and early spring are the best times to buy a house if you’re worried about prices.

Why? Very simple.

Regardless of the temperature of the market, you are still buying at last years prices. We never know what the market will be like until the Spring buying season begins. Once the market pops for the year, prices begin to go up. The past few years they really went up.

While I don’t see this year having the same crazy appreciation, there are enough signs that prices WILL go up:

  1. There will be fewer houses for sale since most people bought or refinanced when rates were very low. We are back to people moving because they need to instread of just wanting an upgrade.
  2. Rates are stabilizing and projected to go down a little more. Every time recently that rates have gotten to about 6%, buyer activity really picks up.
  3. Aaaaaaaaand the obvious is inflation is causing the prices of everything to go up!

By the time all the leaves are on the trees, anybody who plans on buying a house will be out there submitting their highest and best offer. Your best chance to get the lowest price for the year is to get out there now. The house you can buy today WILL be worth more by the end of 2023.