Interpreting the market - By Lisa DiBiase

What is happening to the local Greater Portland real estate market? This actually can be a challenge to answer, especially as numbers and reports are published frequently, and in so many different places.

This is especially true when it comes to getting your arms around pricing and value.  There is a big difference in “average” price versus “median” price when it comes to looking at what has sold recently.  In many cases not spending time to dig through the details can lead to bad interpretations of the market.

For most buyers, price by itself is not the only key factor when a purchase is being considered. This is because most buyers compare the features and benefits to other properties and do not simply make their purchase decision based solely on a property's price. In essence when a purchase situation arises, price is one of several variables buyers evaluate when they mentally assess a property's overall value.

As a reminder, the median is the midpoint, which is something completely different from the average.  A rise in the median does not necessarily indicate an overall increase in prices across the board.  Rather, it is reflective of more activity at higher price ranges than had been experienced in the recent past - just as a lower price would be indicative of the opposite. 

Considering our low inventory of properties for sale, sellers who are thinking of listing their homes are positioned to sell quickly. A sense of urgency has driven traditional buyers hoping to take advantage of still-affordable home prices and historically low mortgage rates. Buyers found selection limited and were often forced into bidding wars with investors and other buyers. Sellers are reaping the rewards in terms of quick sales, often above the asking price.

In this type of environment it is important for sellers not to infer home value from overall changes in market price.  Rather, they need to focus on what is happening in their particular market place and ensure that they can provide value to prospective buyers if they do indeed want to get their homes sold.  In the broadest of senses, pricing should be viewed as a marketing tool aimed at attracting the widest range of potential buyers.

As I have said since the beginning, please call a local realtor for all your real estate needs no matter how big or small. We are trained professionals here to make your life easier. It's best to surround yourself with the right team of professionals that can continuously give you the right advice for all your circumstances.

Lisa DiBiase is the owner and a realtor at Landing Real Estate in Portland. She can be reached at columnist@TheWindhamEagle.com

Why investment real estate is a great investment - by Kevin Brunelle

I believe that investment real estate, when purchased wisely and taken care of properly, has the potential to make almost anyone wealthy over the long term. Investment real estate is powerful because of the way it is taxed, the way it can be financed, and how easy it is to improve. 
 

The best part about investment real estate is that it can be purchased with the bank’s money. Let’s say a duplex down the street is for sale for $150,000. How much money will you need to purchase the property? If you said $150,000, you would be wrong. You only need to come up with 20 or 25 percent of $150,000 or $30,000 to $37,500. Now all you need to do is find a bank to lend you the rest. If one bank happens turns you down, just walk down the street and find another. 

This 20 percent down payment makes you 100 percent owner of the investment and any subsequent increases in value. Let’s say the property increases in value by 3 percent or $4,500 during the year. Your return on the investment is not 3 percent, but is instead a whopping 15 percent ($4,500 divided by your $30,000 down payment). Your return is magnified by the fact that you used other people’s money or leverage to purchase the property. 

The tax code is kind to real estate investors thanks to the depreciation expense. Each year, the IRS allows a real estate investor to expense a portion of the cost of the building. In the above example, the person who purchased the $150,000 duplex can expense approximately $4,400 of the cost each year. This is what I like to call a “paper” expense because it only exists on paper. There is no $4,400 actually coming out of your pocket during the year. In fact, the property, if purchased properly, should generate an annual positive cash flow and this depreciation expense can help shield the investor from paying any taxes on the cash. 

Investment real estate can be easily improved by the investor. If the $150,000 duplex above doesn’t have a garage, you could build one or have a contractor build one. The garage might cost you $10,000, but now the tenants are happy to pay you an extra $50 apiece per month to have their vehicles protected. Your $10,000 investment is generating $1,200 per year. Adding a garage is just one example of an improvement that can generate a nice return on your real estate investment. 

The above is a summation of complex tax law. Please check with your tax professional before making a decision. Our CPAs at Milliken, Perkins, and Brunelle are available to assist you any time of year.

Buying a house this spring - By Carrie Colby

The spring and summer months are traditionally the busiest times of year for the residential real estate market. Weather is more cooperative and many families like to move while the kids are on their summer break.
 

If you’re in the market for a house this spring, there are a number of steps you can take to try to give you the advantage over other homebuyers, including:

Get started early finding a realtor to work with. Interview three or four, get references and let the person you choose know exactly what you’re looking for. It is important to like and trust your realtor this is one of the largest purchases of your life.

Get your financing pre-approved. This will give an advantage on several fronts. First, it will be done and out of the way. Second, you’ll know how much the bank is willing to loan you so you know in which price range to look. And third, it shows sellers that you’re serious and ready to buy when you make an offer. Your loan officer should be able to get you a pre-approval letter that should be presented with your offer.

Figure out how much you have for a down payment. First-time buyers typically make a down payment of six percent on a home purchase, and 24 percent of down payment funds were gifts from relatives or friends. If that’s not an option, there are many loan programs that accept down payments of five or three percent. And don’t forget closing costs, which will often run two to seven percent of the property’s purchase price.

Begin thinking about homeowners’ insurance now. Begin by making sure your credit report is accurate - credit histories are sometimes used to determine whether a company will insure you, and, if so, at what rate. And if you’re renting, make sure you have renter’s insurance - it’s helpful to have insurance history when you obtain insurance for your new house.

Be ready at a moment’s notice. If you’re in an especially tight market, your realtor will be reviewing new listings as soon as they’re available. If he or she finds something that matches your criteria, you’ll want to look at the house and be ready to make an offer - quickly.

When looking at houses, look at the potential. There are major factors you won’t be able to change - the neighborhood, proximity to work and schools, the basic floor plan of the house (unless you plan on completely renovating), and size of the backyard, among other things. If you’re put off by paint or carpet color or old linoleum floors, envision what the walls will look like with your color of choice and the floors in a material you prefer.

Listen carefully to your realtor about how much you should offer. If there’s competition you may want to offer more than the listing price and you shouldn’t try asking for things like carpet allowances or a long closing date. If you know sellers may have several offers in front of them, you’ll want to make yours the best. Your realtor can show you comparable sales in your market.

Carrie Colby is a broker/owner of Premier Properties at 1263 Roosevelt Trail in Raymond.

Tips for Flips - By Rick Yost

In a previous column, I warned of some of the obstacles to earning a profit by flipping houses. Flipping houses is the term used for buying a house, doing repair work, and then quickly selling it for a presumed profit. There are dozens of shows on television depicting investors making big money in short periods of time. Please remember that those are just shows, not reality. 

I am approached more often each week by people that want to flip houses and the national data shows that flipping is back. In 2013, 4.6 percent of single family home sales were resales in less than six months. This compares to 4.2 percent in 2012 and 2.6 percent in 2011. If you are going to join this growing rank of flippers, here are some tips to protect your investment.

Understand your market. Each market is unique and has different demands and opportunities. The Lewiston housing market is very different from the Windham market as the Windham market is from the Cape Elizabeth market. A $200,000 house may be a steal in Cape Elizabeth and way overpriced in Lewiston. Do your research, know market values, and watch selling trends before making your purchase. This will help you avoid a costly mistake.

Look at many properties. Not every property is a flip opportunity because it needs work. Network with people in the construction trades, real estate brokers, and other people that can turn you on to potential flip properties. Find the best value possible by searching and being patient. Opportunities are out there, but they are not everywhere.

 Make money on the way in. The television shows glorify the remodels, but the truth is that you want to buy undervalued properties that you could sell for more than you paid tomorrow. 

You will add value and more potential profit with the remodel, but protect your investment by purchasing well in the first place. 

 Watch for trends in the market. Which markets are seeing rising prices? Which markets are seeing flat prices? Is a market declining? When the bubble burst in 2007 and 2008, many flippers were caught with lots of inventory and no buyers. Watch your local inventory levels, local pricing trends, and even local employment trends to get a feel for your market. It is a good idea the watch some national numbers also. National employment and GDP are good indicators, as are interest rates and consumer sentiment surveys. Paying attention to these things should help you avoid buying properties in a downward trending market.

My most controversial piece of advice is simple. Make full price offers. Get sellers attention and get the deal. If it is already a well-priced house, get it under contract with inspection contingencies in the contract. Over the next week, while it is under contract to you, do your inspections and really find out what needs to be done. If you find more problems (also known as costs to you), start your negotiation then. Detail a list of issues and asked to have them resolved or negotiate a reduced purchase price. If you cannot come to an agreement, you can terminate your contract before your inspection contingency clause expires. 

As always, used a qualified real estate professional to help you find undervalued properties, help you understand your market, and help you spot trends. Good luck and happy flipping.

Rick is a realtor, real estate author and longtime. Windham resident. You can contact Rick with any of your real estate questions or needs at columnist@thewindhameagle.com.