Weekly Wisdom #231 – Expectations and Experience

October 27, 2014
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Weekly Wisdom #231 - Expectations and Experience

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Renters: When They’ll Move and What They Want

October 26, 2014
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What a difference five years can make. Apartments.com surveyed 2,500 renters recently, and they found that renters want different things now than five years ago, and incentives landlords offer to get them to move may need to change as well.

There are solid reasons for differences, but the most influential is likely the far lower vacancy rates now than back in 2009 when vacancies hit a 23 year high. Landlords do not need to offer those big flat screen TVs, large rent discounts, or free rent months to maintain reasonable occupancy these days. The flight of first time buyers from the housing market hasn’t helped the renters in their quest for a deal either. Competition and rents for homes and apartments have steadily risen.

The majority, 56% of renters surveyed, say that they plan to move within the next year mostly for a change of scenery, rather than for economic or other reasons. They also were asked what would get them to move immediately, and they cited:

• Big rent discounts.
• More space.
• Free month’s rent.

These were reasons to act sooner than they planned, but they aren’t considered critical in rental unit decision-making. When asked about the relative importance of rental incentives, survey respondents said:

• Nice to have but not a deal breaker: 33%
• Incentives are one of a few key factors in their decision: 28%
• Didn’t see any incentive offers in their search: 20%
• Incentives are crucial, make-or-break in their decision: 14%
• Didn’t care at all about incentives: 5%

Landlords can’t get complacent, as only 6% of those surveyed said that they loved their rental so much they couldn’t be convinced to move. Questions about why they rent yielded interesting results. As you may expect, about half of the respondents say they rent for financial reasons. However, more than a third of them stated that maintenance-free living was their primary reason for renting. Though we’re a highly mobile society and workforce, only 13% rent because they need to be mobile.

Those are the reasons they rent and some of the factors that play into their decisions as to when to move. As far as what renters consider important in their choice of a rental unit or location, only 21% want to be in a “cool neighborhood or city.” Factors important in their decision as to unit and location ranked this way:

1. Affordability: 71%
2. Safe area/Low crime rate: 57%
3. Convenient utilities/Amenities: 50%
4. Large rental unit/home size: 48%
5. Location near work or school: 38%
6. Parking: 33%
7. Pets allowed: 26%
8. Rental incentives: 23%

Some of these responses should be considered as important by developers who are making development location decisions. Perhaps the recent trend toward developing in big cities and popular urban areas isn’t going to be as lucrative in the near to mid-term future; especially if the size of the apartment is on the skimpy side.

For investors buying single family rental homes, it’s important to note the affordability and safety concerns at the top of the list. With location near work or school number five and behind home size and amenities, this could open up some neighborhoods for consideration previously dismissed or placed lower on the priority scale.
Dean Graziosi

Weekly Wisdom #228 – Your Unfair Advantage

October 23, 2014

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Foreclosure Hurting Your Neighborhood and Home’s Value? — Buy It!

October 22, 2014
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We’ve all heard many times the “making lemonade from lemons” quote. When life throws a negative at you, turn it around and make something good out of it. Of course, this isn’t possible in many cases, but it’s a nice thought and course of action if it works.

Recent news and data tells us that there are far fewer homes for sale in foreclosure than in recent months. In August 2014, foreclosure inventory plummeted 33 percent year over year. This marks the 34th consecutive month that this inventory has declined, and 19 straight months of 20 percent or greater declines. Home prices are improving, in part due to fewer price-depressing foreclosure sales.

All of this information is nice, unless you own a home in a neighborhood with a foreclosure in poor condition sitting there dragging down neighborhood home values. Actually, there is some lemonade to be made here. Of course, if there are a half-dozen of these foreclosures within a few blocks, this isn’t going to be a great opportunity. But, if there is one or maybe two, you can do your neighborhood a favor, help your home’s value, and generate some great cash flow in the process. You can help yourself and your neighbors as well, and make some money in the process.

Invest in Your Neighborhood for Profit

Why not buy that foreclosure and convert it to a rental? You’ll take it off the market as a deep discount property. You’ll improve the neighborhood when you fix it up. And, you can control not only its ownership but occupancy as well. After all, if an investor buys it, they may be less picky about renters, or discount the rent to keep it occupied. You, on the other hand, can control the rent, marketing for better quality tenants who can afford the home and will hopefully take better care of it.

Single family rental home investors will tell you that one of the things they must be disciplined about is checking their properties, at least with a drive-by, regularly. Making sure that your tenants aren’t violating exterior HOA rules and getting early warnings of problems are the goals. If the home is right there in your neighborhood, it’s almost a daily thing without any planning required. You may be driving by it every day to and from work.

There May be Help Out There

Some areas are aggressively working to avoid neighborhood blight by offering government-backed financing for distressed homes and/or repairs. Check your local tax assessor and city and county housing offices to see if there are programs to take foreclosures off the discount market and fill them with owners or tenants who will maintain the homes.

It’s a Great Investment

If you’re not upset with the tiny returns on your savings and certificate of deposit returns, that’s OK. But, with today’s miniscule savings rates and risky stock market investments, it’s nice to be able to generate double-digit ROI with special tax advantages as well. In most cases, you can deduct all expenses related to ownership of a rental property, as well as depreciation. You can wipe out a chunk of the tax liability, even while you’re enjoying depositing the rent income every month.

If your lemon these days is a foreclosure in the next block that’s vacant and losing ground on the curb appeal front, take action, squeeze that lemon, and sweeten the lemonade with some cash flow sugar.


Dean Graziosi

Weekly Wisdom #171 – Lurking Lies and Frustrating Fibs?

October 20, 2014
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Weekly Wisdom #171 - Lurking Lies and Frustrating Fibs?

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Weekly Video Blog #24 – How To Buy A House For A LOT Less Than The Seller’s Bottom Line

October 16, 2014

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Attitudes Alone Can’t Buy Houses — But We Can Hope

October 14, 2014
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You can get opinions about Zillow.com ranging from extremely negative to rave reviews. The negative views are more weighted toward real estate professionals who view Zillow as a threat, while many consumers see a great online resource with lots of bells and whistles for real estate shoppers. It’s a little of both, and some of the data from Zillow can be off the mark when it comes to estimates of value.

One area in which Zillow seems to be gaining credibility is in surveys and housing study results. The Zillow Housing Confidence Index is an example. The index increased over the summer from 63.7 in January to 64.2 at the end of the summer. Housing confidence increased in 11 of the 20 metropolitan areas tracked. Anything over a 50 indicates positive sentiment. So, generally people are feeling better about housing overall.

Zillow’s data also indicates a cautious attitude about value appreciation moving forward. Zillow’s Home Value Forecast predicts only a 3.1 percent growth in value through next year, as compared to 6.6 percent over the previous year.

When 10,000 questionnaires were returned, there was a distinct differentiation of attitudes based on age group as to whether the respondents were confident they would be able to afford a home someday. The percentages were:
• 18 to 34 age group – 82% confident
• 35 to 49 age group – 64% confident
• 50 to 64 age group – 48% confident

It’s nice to see that the younger generation is generally positive about the economy and I suppose about their job prospects. It’s hard to see why, when the percentage of working age adults actually holding a job in this country has been steadily declining. Perhaps there is an enthusiasm in youth that looks forward to better times. Or, maybe there is just a burned-out attitude that accelerates with age, accounting for the dropping confidence.

The value appreciation question is of crucial importance. The chart below is from the St. Louis Federal Reserve Bank, and shows that price appreciation of existing homes may be peaking. A chart of median new home sales prices looks very similar, with multiple tops and a move downward in the latest data.

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This is an important trend to watch, as many home buyers currently own a home and are unable to move or upsize unless they can see some more appreciation. They’re still either underwater on their mortgage or they don’t have enough equity to sell and take any cash away from the closing table to use for another home.

So, what does the future hold?

Renting is still the lifestyle of the younger generation, but they seem to believe they’ll move from tenant to owner status at some point. An interesting quote from Stan Humphries, Zillow’s Chief Economist:

“It’s heartening to see younger renters express so much confidence in their ability to buy a home in coming years, because today’s renters by necessity are tomorrow’s buyers. Cynics might argue that these results represent no more than youthful exuberance, or perhaps some naiveté, but that’s missing the point. We need this generation to be confident and wanting to buy, regardless of the difficulties they face.”

Actually, the same Zillow survey showed that fully a third of the youngest age group expected home prices to rise by 6 percent per year over the next decade. That’s a pretty upbeat attitude, but if they are trying to buy, they’re shooting at a moving target. And, if wages don’t begin to improve more or if inflation worsens, they’re fighting on two fronts. So being confident and wanting to buy is nice, but there still has to be a down payment, affordable mortgage payments, and a sustainable job to pay them.

We’ll just have to wait and see, but my thoughts are that renting is going to continue to dominate the younger generation’s lifestyle. For investors big and small, buying and properly managing rental properties is still a good strategy. After all, if the younger generations do begin to buy into the market, investors have an asset that’s grown in value and they can always take their profits with a sale.
Dean Graziosi

Weekly Wisdom #274 – Real Estate Enhancement Drugs?

October 12, 2014

The Only enhancement drug you need is already inside of you.. Watch this weekly wisdom and discover what breaking the 4 minute mile has to do with your real …

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Weekly Wisdom #182 – Reality TV and Real Estate

October 9, 2014

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Weekly Video Blog #119 – Success Lessons from… A Toddler?

October 5, 2014

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