The LEXpert

How I beat Bitcoin

by John Rice

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

by John Rice

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

by John Rice

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

Why I let my sellers stay home 2-4 on Sundays

by John Rice

The house across the street from me recently sold.  There had been open houses almost every week that it was listed.  It had tons of people come see it.

Sounds great, right?

Doing a little research, there had been 82 sales of houses priced $50k less and $50k more than this house’s list price.  That is 82 sales all year.  In ALL of Lexington. And there had probably been about half that many people come to the open houses.  I know because I was home every Sunday between 2 and 4, usually washing my cars.  Could it be that there were half as many buyers out there looking as we have had sales all year?  Doubtful.  I bet most of those people are just out on a Sunday between 2 and 4 for entertainment.

Which gets me to my point.  No offense at all to the agent who had this house listed.  The agent did a great job.  The pictures looked great.  Great marketing too.  I just don’t think open houses really help sell a house.  In the internet age, exposure is never the problem.  I think they are one of the few tasks an agent can do that a seller can see.  It makes a seller feel good.

Selling a house is a lot like fishing.  You bait the hook with quality pictures and an attractive price, drop it in the water we call the internet, and wait for a bite.  Sellers don’t like that.  Sellers want action.  An open house is something they can see.  Even if at 4:05 when you are pulling the open house sign out of the yard and telling the seller the house didn’t sell, they are happier because they saw you do something.

I often have sellers ask about doing an open house.  I guess I could do one and make them feel happy, but I normally tell them how it really works.

I tell them that open houses are the 8 track player of the real estate world.  They hark back to the days when there were no pictures except maybe a black and white thumbnail of the front of the house in the newspaper.  An open house was the only chance a buyer had to see the inside.  Now we have multiple quality pictures, inside and out, and some even have pictures to show you what the house looks like to passing airplanes.

I tell them that most people that come to an open house are either just beginning their search and not ready to pull the trigger, or are neighbors, or bored, or even thieves.

I tell them that to believe the house will sell due to an open house means that we have to believe there is a buyer out there who wants to buy the house but is too afraid to call their own agent or the listing agent to schedule a time to see it.  And in this market, doesn’t mind the risk that it will sell before the open house.

I tell them I know all this because I use to do open houses all the time until I realized all I was doing was kicking them out of their home in the middle of one of their days off work.

And they always tell me they didn’t realize all that and to skip the open house.

In my opinion, the best thing you can do when your house hasn’t sold is to listen to the market.  If you get feedback from showings and most of the buyer’s thought the price was high, the house needed paint, or there was some other negative, you should fix the issues or reduce the price.  Remember my fishing analogy?  Not responding to the negatives is like fishing with the wrong bait.  Inviting all the fish to come see your bait will get you an audience, but they won’t bite if they don’t like it.

Oh, about that house across the street.  How did the buyer see the house?  They scheduled a private showing with their own agent.

Why isn’t that house selling? I thought it was a HOT market?

by John Rice

You’d think in a time where there are not a lot of houses on the market, buyers would be less picky.

Not the case at all.

Back when the market and economy were bad, few people were updating or renovating their homes.  I mean, why would they when they didn’t know if they were going to remain gainfully employed as they watched the value of their home decrease?

Flash forward a few years and people are feeling great about the economy, home values have gone up, all is swell.  After all those years of watching HGTV, it’s time to pull out some cash on a refi or HELOC and spend spend spend.

Not so long ago, most of the houses for sale were just very ho-hum.

Now it seems like most of the houses I show have been updated or extensively renovated…..cooler, lighter colors, lots of white cabinets.  Marble and quartz have replaced granite.

So where does that leave the house that needs paint, flooring, has too much travertine or has that Tuscan vibe that was so popular earlier this century?  It leaves them sitting on the market, collecting dust each and every day as they get overlooked online.  The ones in more desirable neighborhoods do better because a good location can make a buyer more forgiving.

You’d think in a time where there are not a lot of houses on the market, buyers would be less picky.

Not the case at all.