Monthly Archive for January, 2009

Real Estate versus the Bailout: Can an REIT Hedge against Inflation?

Published
by
Editor
on January 31, 2009
in Market Conditions
. 4 Comments

Newsflash: the dollar is going to Hell, post Bailout.

Even worse, the Boston Herald’s Barry Armstrong recently recommended investing in REIT (real estate investment trusts) as a hedge against the extraordinary rate of inflation we’re going to see in the next few years.

I read some data from far too long ago, disproving this theory based on numbers from the 1970’s and the 1980’s. Since we may reach an unprecedented rate of inflation in the near future, I’m not sure why anyone would publicly say that REITs are the go-to against inflation. When so many REITs are so closely connected (if not part of) the stock market, why, why, why would anyone recommend this to a broad base of Boston readers? New York REITs are just beginning their downward spiral, and believing that they could really be a hedge against the coming inflation seems like a decent hedge against reality.

It’s going to be a bold guess to determine what’s going to be the magic hedge in the next five years. Where will you be holding your money?

Obsession’s Not Always a Bad Thing

Published
by
kmunsell
on January 30, 2009
in Online Resources and Technology
. 126 Comments

I married a numbers freak. It’s not that he likes to count random objects or anything like that, but he has an affinity for spreadsheets. He likes to forecast, project, graph, and speculate on all things financial.

On second thought, “numbers freak” isn’t entirely accurate. Maybe “obsessive compulsive planner” is a better description. But don’t get me wrong. I’m not complaining. In fact, I feel exactly the opposite. I am lucky to be married to one, simply because it means that I don’t have to be one. Actually, it’s very prudent to have one in the family, and you’re lucky if you have (or are) one too.

But just in case there are some wanna-be-planners out there, who don’t have the time to build your own mega spreadsheets, this one’s for you. You can ease yourself into the process by starting with some pre-fabbed online calculators to do the job. Here is a small collection of nifty little planner thingie-ma-bobs to get a grip on your finances.

On the web, you can estimate:

  1. Your net worth.  Add up your assets, subtract your liabilities and that’s your value in a nutshell.
  2. How long it will take you to become a millionaire. Get a look and figure out if you need to change the game plan.
  3. How much it would cost to live in another state. Hawaii? Do I hear Hawaii? Homes, utilities, groceries, and health care costs differ by state. Determine how another state differs from your own.
  4. How much you need to save to retire at age 65? A lot of assumptions go into this one, but this one is good for order of magnitude calculations.
  5. How much another kid is gonna cost you? Assign a $ sign to that precious, little, chubby face, and figure out if economies of scale apply to kids!
  6. How much Fluffy gonna to cost you? Family pets cost the bucks too. Before you click, you should probably decide if you really wanna know how much.
  7. If you’re gonna live long enough to be a millionaire or retire anyway. Determine your life expectancy to see if any of this makes sense anyway.

If you still want more, Bloomberg offers a whole collection of useful investment related utilities to keep you going, but remember to keep the results in perspective. In the end, you’re the best judge of your household finances, so dig in and obsess away!

What’s Good About Renting

Published
by
preynolds
on January 29, 2009
in Uncategorized
. 107 Comments

It’s been drilled into our heads that owning makes a lot more sense than renting. After all, your home increases in value AND you get a big tax deduction.

But let’s face the facts. Owning a home isn’t the financial bonanza most of us have been led to believe. There are purchasing costs, financing costs, property taxes and maintenance. And as we have seen, appreciation isn’t guaranteed, either. As one renter points out, the savings by renting can amount to hundreds every month and thousands every year. Those extra dollars can be tucked away for safekeeping in the bank or (if you have the guts) invested in dividend-paying stocks that will appreciate over the long haul. According to our renter’s calculations, the $8,000 a year saved on housing costs, if invested, could appreciate to a value of $2.4 million over 30 years. The townhouse she didn’t buy would probably only do a little more than double in price, according to her model. And yes, rents go up, but so do property taxes.

Of course, the numbers vary depending on where you live. In some cities, renting might cost about the same or even more than owning. In others, the numbers veer way in the other direction. (Check out www.rentometer.com to find out what average rents are in your part of the country.)

In all honesty, I think owning hardly ever makes REAL financial sense. And it especially doesn’t make sense in a culture where people move every five or six years. The real value of owning, in my view, is intangible and emotional — being able to care for a place in a way that you would like and feeling rooted and invested in a community in a way that renters rarely are. Owning certainly doesn’t make sense unless you intend to stick with a community for the long term — I mean 15, 20, 25 years, not 5.

Is owning worth it? Yes. But not because it makes financial sense. Don’t let that diminish the value of owning, though.

Green Goes to Zero

Published
by
kmunsell
on January 28, 2009
in Progressive Trends, Sustainable Living and Technology
. 1,397 Comments

(Photo Source: The New American Home, BuilderOnline.com)

Talk about green–can you get any more green than a “zero-energy home?” Maybe not, but new technology and a desire to keep pushing the bounds leads us to the possibility that one day we might even have a surplus of resources?

Enter zero-energy homes (ZEH). A zero-energy home is one that is still hooked up to the energy grid, but during off-peak time periods, it generates more power than it uses by combining renewable energy technologies with advanced energy efficient construction. In fact, it’s entirely feasible that these structures can actually generate enough power to sell surplus energy back to the utilities company.  Nevertheless, with a ZEH demand for public utilities is considerably lower so that by the end of a year, these homes produce as much energy as they consume during the year. Voila! Net zero energy usage!

At the recent International Builders Show, held January 20-23 in Las Vegas this year, company Blue Heron displayed The New American Home, showcasing these technologies which include “active solar design (photovoltaic cells), passive solar design (orientation and shading), an insulated concrete wall system, and a revolutionary gas-powered mechanical HVAC system.” Though you would think a-more-than-just-energy-efficient home would be small to induce such energy savings, this home is nearly 9,000 square feet, with a multi-million dollar price tag to match.

Of course this isn’t the only ZEH home out there today (which is a good thing, since this one sold before it was even completed). Builder Esopus completed a 4,000 square foot home ZEH more than a year ago, the first in the state of New York. At a price tag of $1,0550,000 (it’s still for sale) this home takes advantage of insulated concrete form walls and frames, geothermal wells, a ground-source heat-pump system for heating and cooling, and solar panels on the roof.

The ZEH is a trend that may very well take stronghold in the future, taking hold in non-residential sectors as well. Washington University utilizes the zero energy concept in the construction of The Living Learning Center at the Tyson Research Center. Future home of a local high school outreach program, the University hopes to go beyond green with this project, using photovoltaic cells for energy and a microfiltration and UV sterilization system for purifying rainwater collected from the roof.

Hey, wouldn’t it be cool if one day energy efficiency ratings were replaced by energy productivity ratings instead?!

Can’t Sell Your Home? Swap That Baby!

Published
by
preynolds
on January 27, 2009
in Home Buying, Home Selling and Online Resources
. 107 Comments

Bartering is where it’s at. Just check out your local Craig’s List and you’ll find a long list of people offering to trade some object or service for another object or service. Real life CL examples: a bunny for a puppy, a Rolex watch for a SUV, carpentry skills for a satellite dish installation.

And yeah, it makes sense when you’re talking about carpentry skills or a Rolex watch (not so sure about the bunny). But what kind of sense does it make when you’re talking about swapping a house?

Judging from the mushrooming numbers of permanent houseswap websites (not the vacation houseswaps we wrote about last week), it’s making a lot of sense for some. After all, if you can’t sell your home, why not exchange it? Home exchange sites include goswap.org, domuswap.com, besthouseswap.com  and onlinehousetrading.com , to name just a few. And it’s easy to see how these desperate times could lead to these fairly desperate measures. Certainly, bartering a house is better than giving it away for free.

 After spending some time surfing these sites, however, I have to wonder at the viability of it all. How likely is it to find someone who wants to live in your city, in your neighborhood in your particular home where you’ll feel just as enthusiastic about moving into their digs?  I also notice that many house swap homes fall into three categories: 1) They are out in the boonies. 2) They are in markets so deep in trouble that you would hardly want to swap into them. 3) They are NOT in highly desirable cities —like New York, San Francisco or Boston — likely because the housing markets in these places isn’t bad enough for folks to resort to bartering. So if you hope to get to one of these cities, either you’ll have to make some major concessions or just forget the whole idea.

So when can house swapping work?

 Well, just as in online dating, attempt house swapping only if:

1) You have lots of patience. Finding the exact right house for a trade isn’t going to be easy.
2) You are tremendously flexible. You can’t expect to find everything you want on your wishlist and you’ve got to be prepared to make some compromises.
3) You do your homework. Just like you’d “google” a prospective online date, you’d better visit the house you want to exchange for AND hire a home inspector.
4) You look at the financial implications. You’ll still need a new mortgage on your new place and you’ll still have to go through closing. Make sure you do the closings on both homes simultaneously so you’re never carrying two mortgages.
5) You get professional help. You’ll need an attorney and/or realtor to help you through the process.

House swapping can work for some, but just as in online dating, you’ve got to approach the whole thing with caution and a sense of humor.

When the Economy Gives You Lemons…Find a Way to Make Lemonade

Published
by
jmiller
on January 23, 2009
in Home Selling
. 1 Comment

  Amidst the bleak news about failing industries, businesses, and the economy as a whole, it was comforting to discover that some people are making a killing off of the housing crisis. Companies such as Showhomes and Vacant Home Caretakers are taking advantage of the unprecedented number of vacant homes that are currently on the market by selling the services of a “home manager” - a person or family who lives in the vacant home until it sells. 

I think the business model is genius. According to a survey conducted in 2004, vacant homes (even if they’re staged) typically sit on the market for 30 to 60 days longer than occupied homes, and sell for at least 10 percent less. Owners of vacant homes pay for the upkeep and utilities of the house, in addition to the staging fees and insurance costs, only to find that the house doesn’t sell. By hiring a company such as Showhomes, the homeowner pays an upfront staging fee of $1000-$3000 and, after the house sells, coughs up about 0.5% of the selling price. However, the homeowner no longer has to pay for utilities or maintenance as the home manager takes care of that, and the insurance costs get covered by the company. And most importantly - the house sells. One 2007 study conducted in Chicago showed that managed homes sold at 93% of the list price, while comparable unoccupied homes sold at -14%, if at all. 

But why would anyone want to live in a house that they could get kicked out of at a moment’s notice? There are a couple of reasons.

1) Many of these houses are listed at $1 million or more, and Showhomes “rents” them for about half of what they’re worth. The lowest listing price for a Showhomes house? $500,000. Not too shabby!

2) The fact that there is no lease is ideal for some folks. For example, a professional who is starting a new job in another city but needs a place to live while looking for the perfect house, or a professor looking for a temporary home while on sabbatical. 

3) Did I mention the extremely low cost of “rent”? 

I am impressed - and am kicking myself for not doing it first.  These house management companies profit from both the homeowner and the “renter,” have minimal costs, and are currently experiencing an enormous market. Why didn’t I think of that?

Vacation at Home (Somebody Else’s)

Published
by
kmunsell
on January 23, 2009
in Online Resources, Progressive Trends and Uncategorized
. 99 Comments

Photo Credit: HomeExchange.com (Paris home available for swap)

Lately it’s all about saving a few bucks–anywhere you can.  At the same time, stress and anxiety are mounting and though the wallet says “no” to a vacation, the blood pressure says “yes.” So, is it possible to reconcile both our stress and our pocketbooks? Though there may be little room in the budget for that exotic vacation you’ve been pining for, you may not necessarily be doomed to a staycation in your own home. In fact, you can vacation in somebody else’s. 

The concept isn’t new by any means, but the home exchange is making a comeback as a vacation option for today’s dollar wise homeowner.  A home exchange allows you to use your little piece of real estate as a vacation bartering tool for another piece of real estate in a vacation destination. Instead of staying in hotels and tourist infested areas, you would stay in an actual neighborhood in the city of your choice, getting a real taste of the local lifestyle and local color above all. 

There are typically three different home swap exchanges available including a simultaneous exchange, where you and another party swap homes at the same time, a non-simultaneous exchange, where you can use each other’s places at different times, and a hospitality exchange, where you are hosting another group while you are in your home. Of course, you’ll have your pick of options, and you can choose anything from a small apartment to a private estate, but for an even swap, you should probably expect a like-kind exchange.

This unconventional vacation option isn’t quite for just anybody, but it might be worth considering if you’re either in possession of a vacant home, or if you don’t mind having strangers in your home (a simultaneous exchange means you’re both in each other’s home at the same time, so mutual trust can be the equilibrium-inducing factor in this case).  Available homes can be found on numerous sites, including the International Home Exchange Network, HomeLink International, and ExchangeHomes.com.

Advice for Tough Times

Published
by
preynolds
on January 22, 2009
in Market Conditions and Progressive Trends
. 226 Comments

With the real estate and housing markets in turmoil, it’s tough for property owners, investors and developers to know what the heck to do. Should we buy now, while prices are down? Should we sell before they go lower? Is now the time to divest or invest?

Looking for pointers, we turned to the Urban Land Institute’s Emerging Trends in Real Estate in 2009. Real estate industry experts expect financial and real estate markets in the United States to bottom in 2009 and then flounder for much of 2010. Property values are expected to drop, more foreclosures are expected, along with a  limping economy that will crimp property cash flows. Here’s what the ULI says you should consider doing during these rocky times:

Developers should:

  • Go green, green, green. While energy costs may be down today, they won’t be tomorrow. Going green lowers operating costs on income properties and opens better sources for financing, and a better return on sale. While residential green building will slow during the housing slump, it will become de riguer once the economy has recovered.
  • Plan transit-oriented development. Metropolitan areas now realize that mass transit systems are needed for economic growth. Plus, people want to drive less. Developers shouldn’t miss securing project sites near rail stops and train stations.
  • Go mixed-use and infill. The future undeniably rests with mixed retail, residential and office which will reduce traffic congestion and lower energy costs. Downsizing for many Americans will mean moving to higher density, well-located lifestyle properties and abandonment of the economically-challenged suburban McMansion.

Property owners and investors should:

  • Buy or hold multi-family. Increasing rental demand is spurred by the recessionary economy and the implosion of the nuclear subprime loans across the country. Increasing demand “will ensure solid cash flow increases when the economy improves.”
  • Focus on “global-pathway markets.” The 24-hour coastal citieslinked to Asian and European commercial capitals will hold value better and bounce back more quickly. Including Los Angeles, Seattle, New York, Washington D.C., Boston, and Miami. Property investors should hold or buy in these areas.
  • Buy distressed condos. There are certainly plenty to choose from. Buy properties in urban areas near transit.
  • Buy residential building lots. Look for the bargains as distressed builders liquidate lot holdings. Be prepared to hold for a while as the market absorbs over-developed inventories.
  • In investing in retail, think grocery stores and drugstores. These tenants will be the strongest during a recession.
  • Be patient and save. Until sellers relent, investors should sit tight. Amass capital. “Investments made in 2009 could result in substantial future returns.” 

SEO Meets the Real Estate Market

Published
by
kmunsell
on January 21, 2009
in Home Selling and Online Resources
. 111 Comments

Web marketing is an undeniable part of any business in today’s brave new word, and frankly, some people are just better at than others. Hot off the press is PCMS Consulting’s new report “Assessing SEO Practices of the Top 50 Real Estate Companies.” (The full report can be downloaded free here.)

SEO, or search engine optimization, is the collective set of online practices which companies use to bring their websites higher up on the search list. The higher up on the search list a business is, the more likely it is that people will visit the site.  In other words, a better ranking equals better business. The real estate business is no exception. According to the National Association of Realtors, 87% of all buyers have used the internet in their home searches.

So which real estate sites are taking SEO to heart? According to this report, after examining the websites of the top 50 real estate companies listed by Real Trends, the top ten real estate websites based on site traffic include the following:

  1. Zip Realty
  2. NRT LLC
  3. The Long & Foster  Companies, Inc.
  4. Keller Williams Realty
  5. John L. Scott Real Estate
  6. Home Services of America, Inc.
  7. Prudential Douglas Elliman Real Estate
  8. Ebby Halliday, Realtors
  9. Hanna Holdings, Inc.
  10. William Raveis Real Estate Inc.

Of course, the list varies according to the other variables examined in this report, which includes the number of keywords found that point to a website, Google page rank, number of pages indexed by Google, META descriptions, page titles, and website validation errors. However, among all six factors examined, the websites ranking among the top the most frequently include NRT LLC, The Long & Foster Companies, Inc., Zip, Keller Williams, John L Scott, and Prudential Douglas Elliman Real Estate, demonstrating that are tech savvy companies out there who understand how to reach consumers at a whole new level.

The Flex-Suite: A Home Builder’s Trend With Staying Power

Published
by
preynolds
on January 20, 2009
in Progressive Trends
. 6 Comments

There’s been a lot of talk lately about the move toward smaller homes, so I’m not sure where this trend fits into the picture:

According to a pre-housing slump survey conducted by the National Association of Home Builders, 60% of custom-built homes will have TWO master bedroom suites by 2015. Homebuyers in all price ranges have been asking for this configuration, which is sometimes referred to as a “flex suite”. (Or at least they were until the bottom fell out of the housing market.)

The reason is not what you might think. These are not couples on the verge of divorce. Rather, the desire for two master bedrooms reflects the frenetic pace of daily life, along with indignities such as a partner’s snoring, night-time visits to the bathroom, child-care duties and shift-work.

Of course, concern with energy prices and our increasing desire (or rather, need) to live within our means suggests that this homebuilding trend will be a short-lived one. A simpler solution to night-time snoring might be a set of earplugs.

There is, however, another type of flex-suite that may be the real wave of the future, given the frugal nature of our times.  This type of ”flex suite” is a universally-accessible ground floor room (or rooms) within a single-family house with its own private or semi- private entrance, a full bathroom, and kitchen facilities. It’s great for unemployed adult children who can’t find a job, elderly parents who can’t afford to live on their own AND pay for their meds, and for couples who can’t afford to get divorced. It’s also a nice solution for families looking to help pay their mortgage by renting out space to roomers.

Now that sounds like a building trend with legs.