November Market Update 2018

New Listings Up 18% between $250-400K
Q4 is Seasonally Best Time to Buy

November Market Update 2018

For Buyers:

Seasonally the 4th Quarter is the best time to be a buyer and this year is no exception. Typically buyer contract activity is at its strongest from March through May and weakest between November and January. Buyers who were out-bid by competing offers last Spring will have a different experience now. October saw 18% more new listings hit the market between $250K- $400K compared to last October while buyer contracts are about the same within the same price range. There was only a 1% increase in new listings in the lower price range between $200K-$250K but a 12% drop in buyer contracts which caused overall supply to rise another 11%. The market is still a seller’s market, but more seller competition for fewer buyers translates into more price reductions and seller concessions until the Spring “Buyer Season” is up- on us once again.

For Sellers:

The market may be softening between $200K-$400K (which accounts for over 56% of MLS sales), but that doesn’t mean sellers are getting a raw deal. Monthly average sale prices per square foot in this price range have appreciated 5% since October last year and nearly 19% in last 5 years. Under $200K, the appreciation rate is 9.5% in the past year and 44% in 5 years. $400K-$800K has appreciated 6% in the last year and 14% in 5 years and the annual average sale price per square foot* over $800K has appreciated 3% in the last year and 10.5% in 5 years. What’s happening underneath that contract price, however, is an increased cost to sell at “top dollar”. That cost can take the shape of longer days on market with multiple price reductions, repairs, needed upgrades to the home prior to list and closing cost assistance.

Contact the real estate experts at NextHome Valleywide in Chandler, AZ at 480-621-6828 for more information.  If you are currently looking at buying or selling a home in the Phoenix, Scottsdale or East Valley area and are not sure where to turn, search for homes at ChandlerAreaHomeSearch.comwhere you can find single family homes, golf and lakefront properties, 55+ communities, townhomes and much more. Visit our blog at NextHome Valleywide for a monthly Phoenix Market Update.

October Market Update 2018

Seller Concessions Spike on Listings Sold Between $200K-$250K
Price Reductions up 27% on Active Listings Between $250K-$400K

October Market Update

For Buyers:

October marks the 4th month in a row that supply has continued to rise between $200K – $400K, which is good news for many buyers as it provides them with more choice and fewer competing offers. However, for those buyers with budgets under $200K, this trend in supply doesn’t apply to them and their choices are still extremely limited. Last January, inventory under $200K made up 18% of all active listings.  Within that price range, single family homes made up 50%, condos and townhomes 30%, and mobile homes 20%. As of this month, inventory under $200K only makes up 12% of actives and has declined 36% since January. Single family homes make up 45%, condos and townhomes 36%, and mobile homes 19%. This drop in supply equates to 591 fewer single family homes, 198 fewer condos and townhomes, and 229 fewer mobile homes available for sale under $200K since the beginning of 2018.

For Sellers:

When supply rises, sellers react in a number of ways to compete with one another for the existing buyer pool. One option is a price reduction on their active listing prior to contract. This does not necessarily result in a decline in sale price, only a decline in sellers’ expectations for appreciation. Sales price trends may still continue to rise, but perhaps only at 5% instead of 8%, for example. Another option is to agree to a concession, such as paying a portion of closing costs or a home warranty; and finally to agree to a much lower sale price than what they were asking. Typically sellers agree to the first two options before submitting to a “low ball” contract, which is why sales price trends are the last measures to respond to a shift in supply and demand.  With that being said, weekly price reductions this month between $250K$400K are up 27% compared to last year, while price reductions between $200K-$250K are only up 1.7%.  However, seller concessions on sales between $200K-$250K reached 41% so far this month compared to last quarter’s measure of 36%.  Only 21% of sales between $250K$400K recorded a seller concession.  Which leads us to conclude that sellers below $250K are agreeing to more concessions than price reductions; while sellers over $250K are submitting to more price reductions. Despite this slight weakening in sellers’ advantage, Greater Phoenix is not close to a balanced or buyer’s market so expect overall prices to continue rising over the next 3-6 months.

Contact the real estate experts at NextHome Valleywide in Chandler, AZ at 480-621-6828 for more information.  If you are currently looking at buying or selling a home in the Phoenix, Scottsdale or East Valley area and are not sure where to turn, search for homes at ChandlerAreaHomeSearch.comwhere you can find single family homes, golf and lakefront properties, 55+ communities, townhomes and much more. Visit our blog at NextHome Valleywide for a monthly Phoenix Market Update.

September Market Update 2018

September Market Update courtesy of Craig and Stacey Akers at NextHome Valleywide.  Contact 480-621-6828 or info@nexthomevalleywide.com for a Seller Solution book that will give you selling tips, pricing, and comparable home sales in your area.


Supply Continues to Rise in Middle

Overall Market Remains Sellers Market

September Market Update 2018

For Buyers:

Overall supply is down 9.6% compared to last September. At first glance that’s nothing new. However, for those of you who pay close attention to our monthly infographic (I know you’re out there), you have no doubt noticed that last May supply was down 15.5%, June supply was down 12.2%, July was down 11.1% and August was down 9.9% from last August. What this means for buyers is that the Greater Phoenix market is still in short supply, but it’s subtly becoming less bad. Most significantly, supply continues to increase between $200K-$400K. Last month we reported an 8.1% increase in listings between $200K-$250K since May, that is now 9.7%. Between $250K-$300K, supply has risen 15% in only 8 weeks. Between $300K-$400K, supply has slowly risen 10% since January. All other price ranges are either declining in supply or following their normal seasonal trends. This is great news for buyers; more choice in the marketplace means less negotiating pressure. However, don’t expect sale prices to plummet anytime soon. The first price to respond to a supply shift isn’t a sale price, it’s a list price in the form of a price reduction.

For Sellers:

Despite the increase in supply between $200K-$250K, there hasn’t been a correlating increase in weekly list price reductions from sellers yet. However that is not the case for the market between $250K-$300K where weekly list price reductions have risen 46% in the past 8 weeks and weekly reductions between $300K-$400K have risen 61% since January. This isn’t an indicator that sellers are becoming desperate. Make no mistake, there are very few desperate sellers in this marketplace. There are, however, many optimistic sellers who may be taming their expectations. Average annual price appreciation per square foot remains between 3.5% – 5.0% for sales between $200K-$400K, so it’s still a seller’s market despite recent developments. Expect prices to continue increasing at least through the remainder of 2018.

Contact the real estate experts at NextHome Valleywide in Chandler, AZ at 480-621-6828 for more information.  If you are currently looking at buying or selling a home in the Phoenix, Scottsdale or East Valley area and are not sure where to turn, search for homes at ChandlerAreaHomeSearch.comwhere you can find single family homes, golf and lakefront properties, 55+ communities, townhomes and much more. Visit our blog at NextHome Valleywide for a monthly Phoenix Market Update.

Best Use of Investment Property

investment property

The residential investment property market is now the fastest-growing segment of the housing market. In the United States, the demand for single-family rentals, defined as either detached homes or townhouses, has risen 30 percent in the past three years.1 And in Canada, rental units now account for nearly one-third of the country’s homes, with particular demand for multi-family units, including apartments and condominiums.2

At the same time, the short-term, or vacation, rental market is also booming. The popularity of online marketplaces like Airbnb, HomeAway, and VRBO has helped the short-term rental market become one of the fastest-growing segments in the travel industry.3

Now, more than ever, there is an abundance of opportunity for real estate investors. But which path is best: leasing your property to a long-term tenant, or renting your property to travelers on a short-term basis?

In this post, we examine the differences between the two investment strategies and the benefits and limitations of each category.

WHY INVEST IN A RENTAL PROPERTY? The Top 5 Reasons

Before we delve into the differences between long-term and short-term rentals, let’s answer the question: “Why invest in a rental property at all?”

There are five key reasons investors choose to real estate over other investment vehicles:

Appreciation

Appreciation is the increase in your property’s value over time. And history has proven that over an extended period, the cost of real estate continues to rise. Recessions may still occur, but in the vast majority of markets, the value of real estate does grow over the long term.

Cash Flow

One of the key benefits of investing in real estate is the ability to generate steady cash flow. Rental income can be used to pay the mortgage and taxes on your investment property, as well as regular maintenance and repairs. If appropriately priced in a solid rental market, there may even be a little extra cash each month to help with your living expenses or to grow your savings.

Even if you only take in enough rent to cover your expenses, a rental property purchase will pay for itself over time. As you pay down the mortgage every month with your rental income, your equity will continue to increase until you own the property free and clear … leaving you with residual cash flow for years to come.

Hedge Against Inflation

Inflation is the rate at which the general cost of goods and services rises. That means as inflation rises, the money you have sitting in a savings account will buy less tomorrow than it will today. On the other hand, the price of real estate typically matches (or often exceeds) the rate of inflation. To hedge or guard yourself against inflation, real estate can be a smart investment choice.

Leverage

Leverage is the use of borrowed capital to increase the potential return of an investment. You can put a relatively small amount down on a property, finance the rest of the investment with a mortgage, and then profit on the entire combined value.

Tax Benefits

Don’t overlook the tax benefits that can come with a real estate investment, as well. From deductions to depreciation to exemptions, there are many ways a real estate investment can save you money on taxes. Consult a tax professional to discuss your particular circumstances.

These are just a few of the many perks of investing in real estate. (For more detailed information, visit our previous post: Why Real Estate Investing Makes (Dollars and) Sense) But what’s the best strategy to maximize returns on your investment property? In the next section, we explore the differences between long-term and short-term rentals.

LONG-TERM (TRADITIONAL) RENTAL MARKET

When most people think of owning a rental property, they imagine buying a home and renting it out to tenants to use as their primary residence. Traditionally, investors would use their rental property to generate an additional stream of income while benefiting from the property’s long-term appreciation in value.

In fact, that steady and predictable monthly cash flow is one of the key advantages of owning a long-term rental. And as an owner, you don’t usually have to worry about paying the utility bills or furnishing the property—both of which are typically covered by the tenant. Add to this the fact that traditional tenants translate into less time and effort spent on day-to-day property management, and long-term rentals are an attractive option for many investors.

However, there are also limitations to long-term rentals, which often come down to your ability to control the property. Perhaps the most obvious one is that you do not get to use the home or closely monitor its upkeep (this is different from a short-term rental, which we’ll share in the next section).

In addition, while you can usually generate a steady, predictable income stream with a long-term rental, you are limited in your ability to adjust rent prices based on increasing or seasonal demand. Therefore, you may end up with a lower overall return on your investment. In fact, according to data from Mashvisor, in the 10 hottest real estate markets, short-term rentals produced “significantly higher rental income” than long-term rentals.4

SHORT-TERM (VACATION) RENTAL MARKET

Short-term rentals are often referred to as vacation rentals, as more and more travelers enjoy the benefits of staying in a home while on vacation. In fact, according to Wells Fargo, vacation rentals are steadily growing and predicted to account for 21% of the worldwide accommodations market by 2020.5

Investing in a short-term rental or funding your second-home purchase by renting it out can offer many benefits. If you purchase an investment property in a top travel destination or vacation spot, you can expect steady demand from travelers while taking advantage of any non-rented periods to enjoy the home yourself. In addition to greater control over how your property is used, you can also adjust your rental price around peak travel demand to maximize your returns.

But short-term rentals also have risks and drawbacks that may dissuade some investors. They require greater day-to-day property management, and owners are typically responsible for furnishing the property, upkeep, and utilities.

And while rental revenue can be higher, it can also be less predictable based on seasonal or consumer travel trends. For example, a lack of snowfall during ski season could mean fewer bookings and lower rental revenue that year.

In addition, laws and limitations on short-term rentals can vary by region. And in some areas, the regulations are in flux as residents and government officials adapt to a new surge in short-term rentals. So make sure you understand any existing or proposed restrictions on rentals in the area where you want to invest.

Urban centers or suburban communities may be more resistant to short-term renters, thus more likely to pass future limitations on use. To lower your risk, you may want to consider properties in resort communities that are accustomed to travelers. We can help you assess the current regulations on short-term rentals in our area. Or if you’re interested in investing in another market, we can refer you to a local agent who can help.

WHICH INVESTMENT STRATEGY IS RIGHT FOR YOU?

Now that you understand these two real estate investment options, how do you pick the right one for you? It’s helpful to start by clarifying your investment goals.

If your goal is to generate steady, predictable income with less time and effort spent on property management, then a long-term rental may be your best option. Also, if you prefer a less-risky investment with more reliable (but possibly lower) returns, then you may be more comfortable with a long-term rental.

On the other hand, if your goal is to purchase a vacation or second home that you’ll use, and you want to defray some (or all) of the expense, then a short-term rental may be a good option for you. Similarly, if you’re open to taking on more risk and revenue volatility for the possibility of greater investment returns, then a short-term rental may better suit your spirit as an investor.

But sometimes the decision isn’t always so clear-cut. If your goal is to purchase a future retirement home now to hedge against inflation, rising real estate prices, and interest rates, then both long- and short-term rentals could be suitable options. In this case, you’ll want to consider other factors like location, market demand, property type, and your risk tolerance.

HERE OR ELSEWHERE … WE CAN HELP

If you’re looking to make a real estate investment—whether it’s a primary residence, investment property, vacation home, or future retirement home—give us a call. We’ll help you determine the best course of action and share insights and resources to help you make an informed decision. And if your plans include buying outside of our area, we can refer you to a local agent who can help. Contact us to schedule a free consultation!

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

  1. USA Today –
    https://www.usatoday.com/story/money/personalfinance/real-estate/2017/11/11/renting-homes-overtaking-housing-market-heres-why/845474001/
  2. The Globe and Mail –
    https://www.theglobeandmail.com/real-estate/the-market/article-demand-for-rental-housing-in-canada-now-outpacing-home-ownership/
  3. Phocuswright –
    https://www.phocuswright.com/Travel-Research/Research-Updates/2017/US-Private-Accommodation-Market-to-Reach-36B-by-2018
  4. Rented.com –
    https://www.rented.com/vacation-rental-best-practices-blog/do-long-term-rentals-or-short-term-rentals-provide-better-investment-returns/
  5. Turnkey Vacation Rentals –
    https://blog.turnkeyvr.com/short-term-vs-long-term-vacation-rental-properties/

Avoid The Top 8 Home Inspection Mistakes

home inspection mistakes

It’s easy to get swept up in the excitement of buying a home and overlook the importance of the home inspection.  Once you’ve had an offer accepted on your dream house, you’ll probably be anxious to move in. However, before you make a significant financial commitment, it’s best to know exactly what you’re buying.

When you hire a home inspector, you get a professional, in-depth examination of the property’s structures and systems. It’s a worthwhile investment that can save you money in the long run, either by warning you away from a bad purchase or by providing a list of deficiencies you can use to negotiate with the sellers.

The inspector’s report will also list minor repairs that, if made, will help to maintain your home over the long term. Additionally, a good inspector can often predict the standard life expectancy of your roof, HVAC, and other big-ticket items so you can start planning for their eventual replacement.

However, many buyers make mistakes during the inspection process that cost them time and money and lead to unnecessary stress. Avoid these eight common buyer blunders to minimize your risk, protect your investment, and give yourself peace of mind and confidence in your new home purchase.

MISTAKE 1: Skip Your Own Inspection

Many buyers rely on their home inspector to point out issues with the property. However, by conducting your own visual assessment before you submit an offer, you can factor expected expenses into the offer price. Or, if you suspect major problems, you may choose to move on to a different property altogether.

Examine the walls and ceilings. Are there suspicious cracks, which could point to a foundation issue? Any discoloration? Yellow spots can indicate water damage, while black spots are typically mold. If there’s a basement, look for powdery white deposits along the walls and slab, which can result from water seepage.1

To assess the plumbing, start by turning on a bathroom sink or tub, then flushing the toilet. Check for a drop in water pressure or a gurgling sound coming from the pipes. You can also try running the water in sinks and tubs for several minutes to test for drainage issues. Peak underneath sinks to spot signs of leaks or drain pipes that go into the floor instead of the wall.1

Look for fogged or drafty windows, which may need replacing. Examine the roof for signs of cupped, curled, or cracked shingles. Check siding, decks, and other wooden structures for evidence of rot.

Overall, does the home appear to be well maintained? Unless it’s a highly-competitive seller’s market, consider the overall condition of the property BEFORE you submit an offer. Work with your real estate agent to factor in repairs and updates you know you’ll need to make when you determine your offer price.

MISTAKE 2: Hire the Cheapest Inspector

We all love to save money, but not all inspectors are created equal. Before you hire one, do a little research.2 You may even want to start shopping for an inspector before you complete your home search. Inspection periods are typically short, so it never hurts to be prepared.

You can start by asking around for recommendations. Check with friends and family members, as well as your real estate agent. Then contact at least two or three inspectors so you can compare not only price but also levels of experience and service.

Ask about their background, years of experience, and the number of inspections they have completed. Verify their certifications and credentials, and make sure they carry the proper insurance.

Find out what is (and what isn’t) covered in the inspection and if they utilize the latest technology. Ask to see a sample report so you can compare the style and level of detail provided. Finally, make sure you feel confident in the inspector’s abilities and comfortable asking him/her questions.

MISTAKE 3: Miss Attending the Inspection

Make every effort to be on-site during the inspection. Buyers who aren’t present during their inspection miss out on a great opportunity to gather valuable information about their new home.

If can attend the inspection, don’t spend all your time picking out paint colors or chatting with your new neighbors. Instead, use your time there to shadow the inspector. It’s the perfect chance to find out where everything is located, ask questions, and see first-hand what repairs and updates may be needed.3

Of course, if you do choose to tag along with your inspector, exercise good judgment. Don’t get in the way, become a distraction, or do anything to jeopardize your (or the inspector’s) safety.

If you can’t make it to the inspection, ask if you can schedule a time to meet in person or speak by phone to go over the report in detail. It will give you an opportunity to ask questions or request clarification about issues in the report you don’t fully understand.

MISTAKE 4: Skim Over the Report

Inspection reports can be long and tedious, and it can be tempting to skim over them. However, buyers who do this risk missing crucial information.

Instead, you should read over the report carefully, so you don’t miss anything significant. Now is the time to address any areas of concern. You have a limited window of time to request repairs or negotiate the selling price, so don’t squander it.

Your inspector may also flag some minor items that you wouldn’t typically expect a seller to fix. However, ignoring these small issues can sometimes lead to bigger problems down the road. Make sure you read everything in the report so you can take future action if needed.

MISTAKE 5: Avoid Asking Questions

Some buyers are too embarrassed to ask questions when there’s something in the inspection report they don’t understand. Afraid they might look foolish, they avoid asking questions and end up uninformed about important issues that could impact their home purchase.

The reality is, questions are expected. You hired your inspector for their professional expertise, so don’t be shy about tapping into it. For example, you might ask:

  • Would you get this issue fixed in your own home?
  • How urgent is it?
  • What could happen if I don’t fix it?
  • Is this a simple issue I could fix myself?
  • What type of professional should I call?
  • Can you estimate how much it would cost to make this repair?
  • How much longer would you expect this system/structure/appliance to last?
  • What maintenance steps would you recommend?

Don’t bother asking your inspector if you should buy the property, because he/she won’t be able to answer that question for you. Instead, use the information provided to make an informed decision. A skilled real estate agent can help you determine the best path.

MISTAKE 6: Expect a Perfect Report

Some buyers get scared off by a lengthy inspection report. But with around 1600 items on an inspector’s checklist, you shouldn’t be surprised if yours uncover a large number of deficiencies.4 The key is to understand which problems require simple fixes, and which ones will require extensive (and costly) repairs.

Your real estate agent can help you decide if and how to approach the sellers about making repairs or reducing the price. Whatever you do, try to focus on the major issues identified in the inspector’s report, and don’t expect the sellers to address every minor item on the list. They will be more receptive if they perceive your requests to be reasonable.

MISTAKE 7: Forgo Additional Testing

There are times when an agent or inspector will recommend bringing in a specialist to evaluate a potential issue.5 For example, they may suggest testing for mold or consulting with a roofing expert.

Some buyers get spooked by the possibility of a “red flag” and decide to jump ship. Or, in their haste to close or desire to save money, they choose to ignore the recommendation for additional testing altogether.

Don’t make these potentially costly mistakes. In some cases, the specialist will offer a free evaluation that takes minimal time to schedule. And if not, the small investment you make could provide you with peace of mind or save you a fortune in future repairs.

MISTAKE 8: Skip Re-inspection of Repairs

Most buyers request receipts to prove that repairs have been correctly completed. However, it’s always prudent to go a step further and have negotiated repairs re-evaluated by your inspector or another qualified professional, even if there’s an additional charge.6

While the majority of sellers are forthcoming, some will try to save money by cutting corners, hiring unlicensed technicians, or doing the work themselves. A re-inspection will help ensure the repairs are completed properly now, so you aren’t paying to redo them later.

To avoid having to go back to the sellers, be specific when requesting repairs. Identify the problem, how repairs should be completed, who should complete the work, and how the repairs will be verified.7

Some buyers prefer to avoid this step altogether by completing the work themselves. They either request that the seller fund the repairs or reduce the selling price accordingly. Whichever path you choose, protect yourself and your investment by ensuring the work is done properly.

WE CAN HELP

A home inspection can reduce your risk and save you money over the long-term. But to maximize its effectiveness, it must be done properly. Avoid these eight common home inspection mistakes to safeguard your investment.

While these are some of the most common missteps, there are countless others that can trip up home buyers, cost them time and money, and cause undue stress. Fortunately, we have the skills and experience to help you avoid the potential pitfalls.

If you’re in the market to buy a home, we can help you navigate the inspection and all the other steps in the buying process … typically at no cost to you! Tap into our expertise to make the right decisions for your real estate purchase. Contact us today to schedule a free consultation!

Sources:

  1. Family Handyman –
    https://www.familyhandyman.com/tools/diy-home-inspection-tools/view-all/
  2. HGTV –
    https://www.hgtv.com/design/real-estate/finding-the-right-home-inspector
  3. The New York Times –
    https://www.nytimes.com/2018/03/23/realestate/home-inspection.html
  4. Realtor.com –
    https://www.realtor.com/advice/buy/what-does-a-home-inspector-look-for/
  5. Realty Times –
    https://realtytimes.com/advicefromagents/item/37369-top-5-biggest-home-inspection-mistakes
  6. Realtor.com –
    https://www.realtor.com/advice/buy/home-inspection-mistakes-buyers-should-avoid/
  7. Star Tribune –
    http://www.startribune.com/who-verifies-repairs-after-the-home-inspection/132844523/