The first house you buy is the most important one ever

First time buyers.  I’ve been working with a few of them lately.

Most first time buyers are thinking about finding a place they like.

I like to show them that their first house is so much more than that.

Every house you are ever going to own is impacted by that first one.

It is really the most important house you are ever going to purchase.

Why?

Because eventually you will sell that first house.  How well of an investment it turned out to be will impact how much money you have to put down on your next house.  It just keeps going until you are middle aged and in your forever home.  You know, the one you sell to help fund your retirement when you downsize to a cheaper home.

My dad called this compounding.  He was mainly referring to interest when he was teaching me this stuff in middle school, but it applies to real estate too.

It really reminds me more of bowling though.  To get a strike, you don’t knock down every pin with the ball.  You just hit one of them right and the pins begin to knock down the remaining pins.

How I beat Bitcoin

Bitcoin would have been nice to have bought earlier this year.  But wouldn’t any stock be nice to buy that you knew was going to appreciate?  Wouldn’t it be nice to not worry about it all crashing tomorrow?

Imagine an investment that has consistently beat inflation for hundreds of years.  An investment that has only taken two major hits in the past 89 years?

It is called real estate.

I’ve often wondered why so many people are skiddish about investing in real estate.  Sure, it takes a little more time than buying/selling stocks.  And it isn’t as liquid either, but part of what makes stocks so volatile IS how easy they are to buy and sell.

And then there is my favorite part of real estate investing:  OPM (Other people’s money.)

When you buy a stock, you use 100% of your money.  When you invest in real estate, you can end up with 0-20% of your own money in the deal and let tenants pay the rest for you.  You end up owning 100% of the asset without paying anywhere near that much to acquire it.  Anything you make in rent that is above paying your mortgage and maintenance costs is like a dividend.

Here is one of my examples of how to do it:

I bought a house for $100k.  I spent $45k fixing it up.  Now I have a house with new roof, windows, furnace, air conditioner, water heater, hardwood floors, etc.  All brand new.  It appraisers for $180k.  I get a loan for 80% of that, which is $144k.  So, I now have spent some time and effectively $1000 of my own money.  I have a house that is practically new AND $36k in equity as soon as I am done.  The rent covers the mortgage and maintenance.  Life is good.  That is a 3600% return on the investment in about 6 months.

Fast forward a few years and the house is now worth about $210k.  It is on it’s second tenant, so the rent is higher.  More equity too through appreciation and through the tenant paying down the principle.

Rinse.  Wash.  Repeat.  I’ve done it several times.  You can too.

Better than Bitcoin.

 

 

 

Why a price reduction is usually better

I practically wrote this post in my head last night.  I woke up just before 3 and never really went back to sleep.  Then riiiight when I was about to fall asleep, the dog barked at 5:AM and wanted to go out.

As I was lying there, hoping to fall asleep, I got to thinking about those houses that get the same negative feedback from showings and how sellers sometimes respond.

Let’s say a house is getting showings but no offers.  The feedback you get is something such as the buyer didn’t like the kitchen.  The kitchen is plain.

I often get asked by my sellers if they should do something like spend money getting granite.  I probably disappoint them because I usually say it isn’t a good idea.  It is better to reduce the price.

To a seller, this one thing is what appears to be holding back the sale so it only makes sense to remove the negative that has been a common thread in the feedback.

Having done this for a while, I know how it works.

See, the buyer walks in the house hoping it is THE one.  They look around until there is something they cannot live with.  Once they have made the decision that they will not be making an offer, they quit looking at the house.  Sure, they may walk around the rest of the house but they don’t really think about it any more because they know it isn’t the one.  They’ve checked out.

Then you get the feedback that they didn’t like that certain feature.

You spend a lot of time and money fixing that feature.  You turn that frown upside down.  You get a new batch of showings expecting it to sell because well, you’ve resolved the only problem previous buyers had with the house…..then you get feedback and there is a NEW problem.

See, what happened is that the buyers got past whatever problem you fixed.  You did a good job.  They kept looking at the house with serious buyer eyes.  They made it further into the showing this time before the next big negative became the issue.

IF that happens, then you’ve really wasted the money you spent because now your house isn’t selling for some other reason.  That is why I think it is safer to reduce the price verses spending a lot of money.

There has only been one time in the past 12 years where I was wrong on this.  I gave my client this same advice that you have read.  She insisted on getting granite.  LOL, the very next buyer bought the house……So if you’re reading this Tammy M, I hope I have made your day!

 

The hardest houses to sell

I’ve been at this for a long time.  I’ve sold a lot of houses.  In a good market.  In a bad market.  In Lexington.  Outside of Lexington.  In neighborhoods.  In the country.

Want to know the houses that are the absolute hardest to sell?

The ones that are partially updated.

Why?

You would think that a buyer would view a house that has some parts really nice to be a big bonus.  They don’t.  The nice part of the house just makes the rest of the house look worse to a buyer.  Too much contrast between the nice and the average bits of the house.

Who comes to see these houses?

  1.  The buyer who sees the nice new stuff in the pictures.  They get excited but almost always say that the rest of the house needs too much work.
  2. The buyer who see the part of the house that needs updated.  They get excited because they want to renovate the rest of the house, but not give any credit for the work that has been done……meaning they want it for free.
  3.  All the other buyers who come mainly because it meets some or all of their search criteria.  They don’t buy it because they say it needs too much work.

What you have to do with a house like this is try to make the non-updated bits look as good as possible.  You want to minimize that contrast.  You don’t want the buyer to walk in one room and be unhappy, then walk in the next and fall in love, then walk in the next and be unhappy.  The goal is to make them at least feel neutral, then love, then neutral as they walk through the house.  Less contrast is good.

You also have to really emphasis the other features of the house, hoping that the right buyer will see all the other pluses and feel like they can live with the house like it is or take on the updating.  If the house is the best bargain in the neighborhood, walking distance to trendy places, has a park nearby, a desirable school district, is the most square footage for the money…..whatever the house excels at, and all houses have something unique, that is what you want to emphasize.  Anybody looking for one or more of those unique features is usually the one who buys the house.  Why?  Because they don’t have as many choices

Common mistakes sellers make

Besides thinking the people on HGTV really know a lot about real estate, below are the most common ways sellers shoot themselves in the foot.  Granted, we are in a hot market and buyers are easier to please these days, but there are 228 houses in Lexington in the $100-500k range that have been on the market for more than 60 days…..not EVERY house in town is selling in multiple offers the first day on the market.

Here goes:

1. When sellers don’t finish moving out. If you are no longer living in the house, get ALL of your stuff out. You know you are going to have to do it anyway, right? It will make your house look better. Better looking houses sell quicker. Time is money.

2. When you don’t paint because you think you are somehow doing the buyer a favor by leaving it up to them to paint. I hear this a lot: “I don’t know what color the buyer will like and most buyers always paint after they move in anyway.” I can tell you that bad paint keeps a buyer from making an offer. If it doesn’t look good, they don’t want it. Fresh neutral paint is the cheapest thing you can do you make your house easy for a buyer to say YES to.

3. Leaving a lot of room for negotiating. An over inflated price usually drives buyers away. I see all the time where a seller will list for far more than the house is worth and eventually sell it for a little less than it is worth. The best model is to price it right from the start. If a house has been on the market for a long time, buyers assume there is no risk of losing it so they make a low offer just to see what you will take.

4.  Not doing any obvious repairs.  As a seller, your goal is to make it easy for a buyer to say yes to your house.  You want them to be excited and fall in love.  If a buyer walks in and immediately sees work that needs done, they begin to subtract whatever they think it would cost to change it, and they usually overestimate the cost.  You want your buyer to be walking around your house falling in love with it rather than subtracting repair costs off your list price.

I hope this helps you when it is time to sell.  The worst thing that could happen if you did all of this is that you sell your house for top dollar in multiple offers the first day on the market.