Wednesday, July 22, 2009

Is your Personal Residence an Investment?

I received this article from Sandy Sanderson of Wanderingstar has some of the best Investment analysis software around.
They also have a great blog. Sandy read this article in the Wall Street Journal and was kind enough to share with her customers. I think it really say's it all about home ownership.

My wife and I have sold all of our four previous homes for more than we paid for them—sometimes a lot more.

We’ve been pretty lucky. We’ve never overpaid much for a house, we’ve always bought in good school districts and decent neighborhoods, we’ve lived in neighborhoods where prices soared during the real-estate bubble, and we’ve been hurt but not decimated by the bursting of that bubble.

When I constructed a very basic cash-flow model for our home-buying history—selling price minus purchase price, renovations and repairs—it showed a roughly 3.5% annualized return on investment, from 1991 through the summer of last year. That’s when we sold our last home and bought our current one.

Then things got ugly. If we were forced to sell our current home, which I estimate has lost 5% or so of its value in our 10 months of ownership—despite the more than $20,000 we’ve made in improvements—our cumulative return over the years sinks to approximately 2% annually. And if prices keep falling in our northern New Jersey neighborhood, as is likely for a while, that return will shrink even further.

So do I regret owning a home? Heck, no. It’s not a get-rich scheme, and Americans never should have viewed it as one. Owning a home has given my family a series of anchors to cling to as we’ve moved around the country for my job. It’s allowed us to live in pleasant neighborhoods where it would have been tough to find a rental house. And paying down a mortgage is a form of forced savings, which should help us in retirement.

Columbia Business School’s Christopher Mayer, who has studied housing markets, says our experience with home-price gains is pretty typical. Home appreciation nationally has run about 1% above inflation over time.

The big price run-ups from the late 1990s through 2006 or 2007 were an aberration. The biggest value you derive from home ownership isn’t appreciation. “It’s being able to live in it,” Prof. Mayer says, and avoiding the rent you would otherwise have to pay.

Once you add in imputed rent and subtract property taxes, Prof. Mayer estimates, my 2% annual home-ownership return looks more like 6%.

That’s why you should buy as much home as you need—but no more. A bigger home than you need isn’t an investment—it’s an extravagance, the equivalent of renting a bigger apartment than you need. You may choose to do so, but that doesn’t make it a smart move financially.

Another reason home ownership isn’t the road to riches: Most houses—especially the old ones my wife and I favor—are money pits.

Consider the house we owned in Verona, N.J., from 2001 to 2004. We bought it for $335,000 and sold it for $455,000 near the height of the real-estate boom. That’s nearly an 11% annualized return. The only problem was that we sunk $45,000 into renovating the bathrooms, spiffing up the kitchen, refinishing the floors and the like. The result: Our actual return was less than 7%.

Contrast that with our current house. Counting the money we’ve sunk into it and its decline in value, I estimate close to a 10% loss on our investment since we bought it last year. Prof. Mayer predicts house prices in the New York metropolitan area will fall an additional 10% over the next couple of years.

That’s the brutal financial reality of home ownership in today’s market. But the consolation is this: I really like our house, our neighbors and the quaint suburban town where we’re now putting down roots. In other words, I’m happy being a tenant in this building I happen to own.

Friday, July 17, 2009

Portland June 2009 Market Statistics

The June 2009 Market Stats for Portland have arrived. The good news is the inventory is decreasing and closed sales are up 24.5% from the previous month.

Friday, July 10, 2009

Forty Tips for a Faster Sale

“And this is the bathroom . . “ or

Showing the property is the most critical of phases of home buying yet the most often under emphasized. A well cared for, neat and attractive home will sell more quickly than an uncared for home. The following are but a few suggestions on preparing your home for showing:


Forty Tips For A Faster Sale

1. Reduce clutter. Sort through closets, drawers, and storage areas. Toss what you can, organize the rest. If you have too much furniture in your home, put some pieces in storage to make a better first impression.
2. Clean. Not only should your home be spotless, it must be clean. Apply elbow grease and strong cleansers to surfaces inside and outside your home. Clean the window sills. Consider painting if cleaning does not do the job.
3. Sparkling windows are a signal to buyers that you care about your home. Clean your interior and exterior windows. Repair cracked panes, torn screens, broken sashes, and ropes or cords. Whenever your home is being shown, open your curtains to let the light in - especially if the view is nice.
4. Make minor repairs. Tighten loose knobs, fix leaky faucets and discolored sinks, lubricate squeaky hinges, clean out clogged drains, replace filters, secure loose shingles, fix holes in screens, tighten loose banisters, repair doors, door knobs and remove stains.Clean all curtains and draperies; shampoo rugs and wax floors.
5. Arrange furniture to make each room appear larger.
6. Make sure all lighting fixtures work. Add new bulbs with the highest wattage allowed for each fixture to make your room seem brighter.
7. Appeal to the senses. Create an aroma during the open house. Burn candles or potpourri, boil a pot of cinnamon sticks, or put a dab of vanilla on cold light bulbs before turning them on. If you have pets or if someone in your home smokes, the odors can linger and lessen your home’s appeal. You might not notice these smells if you live with them every day, but an unchanged cat box or an ashtray filled with cigarette butts can mean your home will get no further attention.
8. Gussy up the front entrance. A coat of paint on the door; brass accents such as house numbers, a door knob, and a kick plat; and pruned bushes and blooming plants can help your home make a good first impression.
9. Make sure your doorbell works.
10. Paint. Light, neutral colors such as beige, white, off-white, or gray have a broader appeal and can make small rooms seem larger and airier. If you have dated wallpaper, remove the paper and paint the walls. Choose premium quality paint. Caulk and fill nail holes before painting.
11. Repair a leaky roof, and then paint over any water marks on the ceiling. Don’t paint to hide a problem, always fix and then paint.
12. Repair a wet basement as applicable. The problem can be as easy to fix as installing covers over window wells. If the moisture problem calls for more extensive repairs and you are not able to make them, be prepared to explain the problem to a buyer. Don’t try to cover up the signs of a wet basement.
13. Exterminate. One bug, dead or alive, can make a bad impression on a buyer. Call in a professional to rid your home of insects, and allow time for the smell of the pesticide to disappear before showing your home.
14. Organize the kitchen. Clear off the counters. Add drawer organizers to suggest efficient use of space. Store seldom-used small appliances and large baking pans.
15. Update the bath. If cleaning and painting can’t make a dingy bath dynamite, consider replacing the vanity and sink, installing a new floor covering, or resurfacing a stained bathtub. Even a new shower curtain or toilet seat can work wonders.
16. If you have a deck, patio, porch, or other outdoor entertainment area such as a pool or hot tub, make the most of them. Keep these areas, as well as your backyard, clean and clutter-free, put debris in covered trash cans.
17. Install outdoor lighting that properly illuminates your entrances, walkways, and drive. Turn on all those outdoor lights when your home is being shown.
18. Put potted flowering plants by the front door. Give shutters a fresh coat of paint. A window box full of flowers is an inexpensive way to add an accent of color to your home’s exterior.
19. Buy a new doormat.
20. Pick up tools and toys from the yard. Put garbage cans in the garage and shut the door. Make sure the garage is swept, and try to remove any stains from the floor.
21. Paint your mailbox and lamppost.
22. Clean gutters and downspouts. Straighten and paint if necessary.
23. Depending on the season, hose down the house, walkway, and drive at least once a week.
24. Repair cracks and pull weeds from walkways and the drive.
25. Carpeting has a major impact on the look of your home. If yours is badly worn, outdated or stained, consider replacing it.
26. Hardwood floors add to the beauty and value of a home and deserve special attention. If you live in an older home, check for hardwood floors under the carpeting. You may be able to pull up the carpeting and refinish by simply cleaning and waxing the floors to create a classic fresh look.
27. Ask a friend to care for your pets or take them to the kennel when your home is being shown. Park your camper boat, or extra car at another location.
28. Buy or cut fresh flowers for a dramatic arrangement in any room.
29. Take a picture - it will last longer. If your home is surrounded by flowering or fruit-bearing trees, low-maintenance landscapes, and herbal or flower gardens, be sure to take pictures when everything is in full bloom. Photographs are proof of the breathtaking view of your lawn and garden and tell prospective buyers the full story of your home - no matter the season.
30. Edge between your lawn, drive and walkways.
31. Remove dead leaves, limbs, and other debris from lawn.
32. Trim trees and hedges. Prune evergreens and shrubs.
33. Put fresh mulch around trees, shrubs, or hedges.
34. Put away lawn equipment and gardening tools.
35. Make sure the exterior paint and siding are in good condition, and that the roof, gutters, and spouts are in good repair.
36. Weed and cultivate flower gardens.
27. Repair fences and gates, and give them a fresh coat of paint if necessary.
38. Mow your lawn. For more lushness, be sure to water, mow, and fertilize it regularly. Remove dandelions and other weeds that are visible. A good rule of thumb for mowing is to never cut off more than one-third of the blade at one time. For example, if the recommended height is 2 inches, mow when your grass is 3 inches.
39. If you are an absentee seller, make arrangements for lawn care.
40. Clean all curtains and draperies; shampoo rugs and wax floors.

You only get one chance to make a first impression!