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Saturday, July 22, 2017

The Gift That Keeps Giving: Real Estate in a Buyer’s Market

There is much uncertainty in the world when it comes to investing in real estate and the stock market. No one knows for certain where the economy is going and it has been a historically volatile year.

Emotion is the biggest enemy to investors in any market. When the market is going up emotion leads investors to buy due to the fear they will miss out on making money while everyone else seems to be. On the way down investors focus on the loss of values and fear the market has not hit bottom yet. When the market was on the way up buyers were anxious to get into the market and were afraid of not getting into the market fast enough to benefit from the appreciating values. Many paid above asking price and even waived appraisals and inspections to get into the market. Now that the market is in a downward direction, buyers are paralyzed with the fear that we are not at the bottom yet, and rather than investing at a time of opportunity–a fantastic buyer’s market–they are holding back. Ironically buyers were much more motivated to buy real estate when prices were peaking than they are now. The best advice is to remain calm and focus on the opportunity of the current market. It can be difficult when the media continues to dwell on the doom and gloom of the markets all day long. Dave Jenks, vice president of Research and Development of Keller Williams Realty believes all we hear is that the real estate market is in recession. Were not hearing that the market may have in fact, corrected. We need to point out that affordability is at its highest level that it’s been in five years when you look at year over year comparisons.

At this point in time in South Mountain Village and Laveen, there are 1,862 single family homes for sale (not including condos and town homes). There are 454 homes listed at prices under $100,000, 236 homes are less than $75,000, 120 homes are under $50,000 and nine homes are under $25,000. The inventory of homes for sale owned by banks as a result of foreclosure is 641 and the short sales (homeowner’s selling for less than is owed) is at 371. Interest rates are still historically low and yes, there are loans available.

There is a reason they call it a “buyer’s market.” Have you considered buying a home for the holidays? Some examples of great buy opportunities are a four-bedroom, two-bath home built in 2006 originally sold for $232,725 is now listed for $100,000. A new custom horse property in Laveen with four bedrooms and two baths on one acre is listed at $219,000. That price is less than what the land was selling for in the early 2000s. A gated golf community home can be purchased for $255,000. A luxury home that sold in 2006 for $623,455 is now listed at $279,000. A mountain-side home with views of the Valley and mountain in an upscale gated community is available for $403,750; it originally sold in 2006 for $1,280,000.

It is a great time to move up to the dream home you never thought you could afford. The comment I hear in response is “but we can’t sell the home we are in.”

Buying up in a down market is one of the best real-estate moves one can make.

An example of this is if your home was valued at $250,000 and is down 30 percent and now valued at $175,000 you will see a loss of $75,000. On the buy side, the home you are moving up to has also depreciated by 30 percent and it’s value has dropped from $375,000 to $263,000–a savings of $112,000. You are ahead by $37,000 and are living in your dream house. The home you moved up to will also appreciate at the same percentage per year as the one you sold. The more expensive home will benefit by appreciating more as the market recovers. Another option is renting your existing home and letting a tenant make the payments until both homes appreciate and sell the starter home when the market comes back. That is a win- win, buy low on the dream home and sell high on the starter home. There are plenty of renters in the market now. Many families have lost their home to foreclosure and need places to rent since their credit has been negatively impacted.

Now is the time to purchase a rental property for investment as well. A newer home for $100,000 loan amount would run approximately $665 a month principle and interest. Add taxes, insurance and homeowner’s association fees and you could be looking at $750 month cash out. This home would easily rent for $1,100 a month, netting the investor positive cash flow of $350 per month. Conservatively the home will be worth $150,000 in five years and will have netted the investor $21,000 in positive cash flow from the rent and $50,000 in appreciation. That is a Christmas gift that keeps giving.

The economic atmosphere is definitely fearful, but don’t forget Warren Buffet’s famous quote: “Be fearful when the market is greedy and greedy when the market is fearful.”

It is the time to invest in real estate, a time when those who do will reap the benefits of this incredible market of opportunity.

Carlie Back is a South Mountain District resident and real estate agent with local firm Keller Williams Lifestyle Realty. Email her with questions at carlie@carlieback.com

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