There is an alarming trend among many buyers of real estate these days. We’re seeing more and more people who want to “place bids” rather than to “make offers” on a home.
Real estate is not eBay. While some real estate is sold in an auction format, the vast majority of sales are not. I realize that in some markets buyers are in full control given the volume of short sales and foreclosures, but in many places the markets are balanced and in some places there are seller’s markets.
In the north Dallas suburbs, there is a severe shortage of good properties under $150k. Last weekend I was out with some first time homebuyers who had been looking for weeks. We found a home the first day it was on the market. By day 3 there were multiple offers and my clients actually had to offer more than list price in order to secure the contract. It’s a seller’s market for good homes under $150k.
I’ve seen buyers totally upset when their low “bid” was not countered while a more reasonable offer was negotiated and accepted. That’s not to say that a lower offer is not appropriate at times such as with an overpriced property. However, throwing in a bid at 70 percent of market value on a hot property is usually a waste time.
Many investors use this approach but don’t really care if hundreds are rejected while they look for the one seller who will sell at that price. The average home buyer will quickly become frustrated using this method.
Many of our younger buyers have grown up bidding online and to some extent bidding has become part of America’s landscape. While I suspect this trend will continue in consumer goods, I don’t think it will last in the housing market and certainly does not apply to seller’s markets.
My advice is to know what kind of market you’re looking in and use an appropriate strategy rather than always going in with a “bidding” strategy.
This 4 bedroom, 3 and 1 half bath, 3186 square foot, Highland home is ready for new owners. Lots of space including a study, formal dining and game room. Located in Reid Farm, this home offers easy access to shopping, restaurants, and entertainment. Click on any of the photos for a larger view.
Imagine yourself cooking or entertaining in the gourmet island kitchen. All of the upper cabinets has glass doors for an elegant look. The island also hosts a breakfast bar. Lots of storage space!
The large family room has built-ins and a wood burning fireplace. The wall of windows overlooks lush backyard.
The oversized master suite has plenty of room for a king-size bed with room to spare. The bow-window overlooks the backyard while the French Doors lead to the master bath.
The master bath has dual vanities, a garden tub perfect for soaking. and a separate shower. There is a large walk-in closet and a linen closet.
The upstairs game room has hardwood floors and easily accommodates a standard-size pool table. Notice the overhead shelving that encompasses the room, and the windows that overlook the back yard.
The fenced back yard offers plenty of privacy and the patio is perfect for enjoying your morning coffee or entertaining guests.
I bumped into a couple I know today. They know we’re Plano real estate agents and asked about listing their home. They were struggling with the timing. Do they list now or wait until the spring?
Traditional thinking is that the March-April timeframe is the best time to list a home. Since there are lots of buyers out looking, it’s a good time to be listed. While I agree with the basic thought, off-season listing can be more effective.
While there are not as many buyers out looking this time of year, the inventory of homes also drops dramatically. Sellers are pulling their homes from the market for the holidays with the intention of putting them back on in the spring.
New listings in the off-season have less competition and while there are fewer buyers, those who are out looking are usually serious about buying a home.
Think of it as Economics 101. While demand is lower, the supply of available homes is also down. Many of the listings that are on the market are vacant or distressed. You can take advantage of this by making sure your home is properly staged and show-ready. You only get one chance to make that first impression.
Handing over the keys is one of the best parts of working with home buyers. It’s the culmination of weeks or months of work. We work hard to make sure each client has a great buying experience.
“We were out-of-town Buyers with no local contacts and picked The Branch Team after a computer search. From the first time I spoke with Tom I had the utmost confidence in his capabilities and knowledge of current market conditions. Over the course of the Looking / Buying phases he demonstrated the highest level of professionalism and represented our interests very conscientiously. He has tremendous contacts and local contractors that we have taken advantage of and have recommended that our daughter select Tom to represent her when she becomes a Seller.”
Ridgeview Ranch is a master planned golf course development of about 885 homes located in the heart of north Plano. The community consists of four distinct communities – The Villages at Ridgeview Ranch, The Estates of Ridgeview Ranch, The Manors at Ridgeview Ranch, and Ridgeview Ranch West. Community amenities include two pools, a fitness center, playgrounds, parks, and the Ridgeview Ranch Golf Course. The original homebuider for the development was Centex Homes.
August 2011 Statistics:
Status:
Active – 14
Contingent – 1
Under Option – 2
Pending Sales – 3
Sold – 2
Solds
Average sales price per square foot – $86.62
Average Days on Market – 28.5 Days
August was a relatively slow month for real estate in the north Dallas area in general. With daily temperatures over 100 degrees, people were not out looking at homes. What the numbers do show is that homes that show well and are priced right continue to sell in any market.
With the shift from home ownership to leasing brought on by the aftermath of the mortgage crisis, more people see the long-term investment and cash flow potential of residential real estate as a good place to invest their money.
We’ve all heard the horror stories about the “tenants from hell” who fail to pay the rent and destroy the homes they’re leasing. These tenants cost the landlords an untold amount of money from lost income, expenses of eviction, and damage done to the properties.
The real question is, “How do we minimize the risk and avoid the tenants from hell?” You have to filter out the problem tenants before you sign a lease and let them take possession. The key is tenant screening.
Before I discuss the various screenings, I want to encourage anyone who is considering leasing their property to establish their lease criteria before ever advertising the property. By establishing criteria in advance and not deviating from those criteria, you can avoid most Fair Housing issues.
When processing applications, we try to verify as much of the information on the application as possible. We verify employment and income with their current and past employers. We verify rental history with their current landlord or we can see mortgage history on a credit report.
We then calculate the rent-to-income ratio. We use 30% as our standard. While some people can support higher rent-to-income ratios depending upon their total debt load, we reject any applicant exceeding 30%.
A credit report is pulled on every applicant. The data is used to calculate the total debt load against their monthly income. Our standard is 50% debt-to-income ratio (including the proposed rent). Once again, we reject any applicant exceeding 50%.
We pull a criminal background check on all applicants. We reject any applicant with a felony conviction within the past 5 years and misdemeanor convictions within the past 2 years.
Applicants are checked against the Office of Foreign Assets Control (OFAC). Applicants on the OFAC list are rejected.
Last we search for past evictions. Applicants who have been evicted within the past 5 years are rejected.
While this appears to be a high standard for applicants, we find that applicants who meet these criteria pay their rent on-time and generally take care of the property.
If you are considering leasing your property, I encourage you to give some thought to establishing leasing criteria and putting a tenant screening process in-place. While this requires some time and thought, it can save you lots of time and money in the long run.
With real estate leasing going strong in many parts of the nation, you may be considering getting into Real Estate Investing. In this blog, I’ll describe some of the basic terminology.
All examples will be based upon a $100,000 purchase price, $1,000 a month rent, $300 a month operating expenses, and a $450 a month mortgage.
Gross Rent Multiplier
GRM is used to describe a ratio between the cost of a property and the anticipated rental rate. It calculated by dividing the purchase price of the property by the monthly rent. In our example, we would use $100,000 / 1,000 to arrive at a GRM of 10. The higher the number is the better.
Net Operating Income
Net Operating Income is the total cost of the property excluding any mortgage. It’s calculated by adding up all the operating expenses including taxes, insurance, management fees, leasing fees, maintenance, and HOA dues. The total monthly costs are $300 and the monthly rent is $1,000. We would use $1,000 – $300 to arrive at a Net Operating Income of $700. Use $700 * 12 to arrive at an Annual Net Operating Income of $8,400
Capitalization Rate
The Capitalization rate is a ratio between the Net Operating Income and either the original or current market value of a property. We would use $8,400 / $100,000 to arrive at an annual Capitalization Rate of 8.4 percent.
Cash Flow
Cash Flow is the movement of cash in and out of the property. Positive cash flow is usually the goal. It is calculated by subtracting the Net Operating Income and any existing debt from the Gross Income. We would use $1000 – ($300 + $450) to arrive at a monthly Cash Flow of $250.
Occupancy Rate
Occupancy Rate is the ratio between the amount of time a property is rented and the amount of time is vacant. If there is no actual data, I usually use 90 percent as a starting point for analyzing a property.
Knowing the basic terminology and how to calculate them is essential to evaluating any real estate investment purchase.
Looking to purchase investment properties in the North Dallas area? Contact us! We have the experience and knowledge to find good investment properties, lease them to suitable tenants, and provide on-going property management if needed.
Important Notice: The Branch Team with RE/MAX Dallas Suburbs is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
