Category Archives: Real Estate Investing

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Nantucket vs. America

National real estate statistics are just that-national. Although the national February numbers for new construction home sales and pre-existing home sales numbers were not what many had hoped for, these numbers take into account the US as a whole. But, there are many parts to the whole and Nantucket is one part. There are areas that are still hurting,

but from what I can see, Nantucket is not one of them.

There is serious money coming into the ACK market-get it while it’s fresh!

P.S. Don’t believe everything the talking heads tell you-there is optimism in the air…

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Nantucket Real Estate Market continues to improve…

In December 2008, there were 628 total properties listed and out of those, 17 had accepted offers or were under agreement, 2.7%. In December 2009, there were 630 total properties listed and out of those, 33 had accepted offers or were under agreement, 5.2%. In December 2010, there are 593 total properties listed and out of those, 25 have accepted offers and 29 are under agreement, 9.1%. So, the numbers, falling inventory and rising amount of deals, are clearly showing that the Nantucket real estate market is strengthening. Now could be the golden opportunity for buyers while the interest rates are still low and the market is at the bottom…

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Inman Real Estate Conference and Nantucket

I just got back from the Inman Real Estate Conference in NYC and learned a ton.

All in all, people think there will still be pain in most real estate markets. However, there was also a majority consensus that areas like Nantucket, the Hamptons and Manhattan are well insulated markets that are very resilient and will for the most part be unscathed. This is particularly true of Nantucket (and Manhattan less so) because there is a finite supply of land.

To understand why the Nantucket market is so resilient to downward pressures in the national real market think of this:

There is a finite supply of land that is constantly decreasing (mainly because of the conservation groups buying up the little remaining undeveloped land) and there is a rising (say even flat line) demand of land. Economics tells us prices go up in terms appreciation, i.e. real terms appreciation. So, when you are buying a piece of property on Nantucket and you get upset over the 2% Land Bank tax, remember that you will recoup that money many times over because of the appreciation it causes.

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Leverage and returns with Real Estate

Real estate is most often purchased using leverage. Leverage refers to the purchase of an investment with borrowed money (the mortgage). The effect of leverage is that both gains and losses on the investment are magnified dramatically.

Consider the following two examples:

The Smith family has $25,000 to invest. They choose to invest in the stock market by purchasing mutual funds. If the stock market rises by 10%, the value of the Smith family’s investment will increase by $2,500. If the stock market falls by 10%, the Smith family will lose $2500 on their investment, leaving them with an investment worth $22,500.

The Jones family also has $25,000 to invest. They choose to use the money as a down payment to purchase a $250,000 investment property. In two years, the value of the property has increased by 10% and the Joneses’ decide to sell their property for $275,000. The gain represents an increase of 100% on their original cash investment.

However, should home prices drop by 10%, the value of the $250,000 house will fall to $225,000. In this event, the Joneses have lost 100% of their original $25000 cash investment.

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How to Avoid Losses in the U.S. Home-Price Bubble

BloombergJune 6 (Bloomberg) — While it’s folly to predict exactly when local housing bubbles will burst, there are ways to ensure that your real-estate holdings don’t explode.

With U.S. Federal Reserve Chairman Alan Greenspan finally weighing in with the observation on May 20 that he’s seeing “an unsustainable underlying pattern” and “froth” in U.S. housing markets, it makes sense to monitor local economic signs to guide when — and when not to — buy.

There may be a gradual slowdown as mortgage rates ascend in line with the Fed’s policy to curb inflation by raising short- term borrowing costs, provided it stays that course. So paying attention to types of financing used in the most active markets is critical.

It’s unlikely that the housing market will crash soon. Fixed mortgage rates continue to hover below 6 percent with adjustable rates about 2 percentage points lower. The 77 million-strong baby boomer generation is also in the throes of buying, upgrading and investing in second and third homes.

Single-family, existing-home sales rose 4.5 percent in April, setting a record, according to the National Association of Realtors, the industry’s trade association.

In the first quarter, U.S. home prices increased by an average of 12.5 percent compared with a year earlier and by 2.2 percent compared with the previous three months, according to the Office of Federal Housing Enterprise Oversight in Washington.

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Stocks or real estate?

Measly returns on Wall Street over the last few years make the hottest housing market on record seem like a sure thing. It’s not.
By Forbes.com

Where’s a better place to put your money: the stock market or real estate? These days the accepted wisdom (at least at cocktail parties) says to pick real estate. But is the accepted wisdom right?

boston real estate

It is — in the short term. U.S. real estate sale prices increased more than 56% from the beginning of 1999 to the end of 2004, as tracked by the Office of Federal Housing Enterprise Oversight, part of the U.S. Department of Housing and Urban Development. The S&P 500 index ($INX) dipped nearly 6% during that same period.

But if you take a longer view — say, 25 years — you’ll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sales prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.

You can’t live in your stock
Of course, pitting home sale prices against the S&P is an imperfect and less than highly sophisticated comparison, for a host of reasons. The stars have been aligned over the stock market for the last quarter century, even with the dot-com bust taken into account. And, there are limitations on the data — it’s far easier to track stock prices, which are centrally traded, than home prices, which change hands in individual, and individualized, deals around the country.

Beyond that, for most people, a home has traditionally not been seen as a portfolio device or financial instrument, but rather as place to live and raise a family.

But recently, more and more people are looking to their homes to be something more, fueling speculative markets in some areas of the country, such as South Florida. Even in less investment-driven markets, though, skyrocketing home prices are all the buzz.

Real estate is at another disadvantage here, because we’re not taking into account potential income tax breaks. And, though dividends aren’t included in the S&P 500, Jeremy Siegel, an expert in financial markets and economics at the Wharton School of the University of Pennsylvania, points out that a house pays a benefit that is not measured in its price. In other words, you can live in it. Rent free.

“That’s like a big dividend,” Siegel says. “When you take a look at a stock market index, a lot of the dividends are reinvested by the company. The dividend yield is much lower, but you get it back in capital appreciation.”

“Some people today think they are going to get a tremendous increase in real estate investments,” he says. “This illustrates the fact that your home is not going to do as well as stocks, because you’re taking part of the return on housing services.”

Less volatile, but harder to sell
So you can’t shack up in your shares of Microsoft (MSFT, news, msgs) or General Electric (GE, news, msgs). Then again, you also don’t have to buy a new roof for them or pay their condo fees. Plus, stocks are very liquid, says Laszlo Birinyi, president of Westport, Conn.-based financial consulting firm Birinyi Associates. You can sell out quickly, paying only a small fee. A house can take months to sell and cost several percentage points in commission.

“I guess I’m not surprised, at the results of the comparison,” Birinyi says. “A lot of our view is influenced by the past three to five years. But I can remember some very, very weak periods in housing over the last 25 years. In the late 1980s, when I lived in New York City, you couldn’t sell a one-bedroom apartment.”

Still, the historical real estate data show blips and dips, but over years they tend to smooth out to an upward-trending curve — just like equities. Even where they do decline, however, real estate prices tend to be stickier on the way down than on the way up, because homeowners are more reluctant to sell in downturns.

“Historically, the largest real home price decrease is on the order of 5% in any given year,” says Jonathan McCarthy, senior economist at the Federal Reserve Bank of New York. “Whereas you talk about a real stock-price decline, you could probably see 20% or even more.”

It’s not always bust that follows boom
When certain property markets have stalled over the past quarter century, however, they have remained stuck for years.

A study by economists at the Federal Deposit Insurance Corp. concluded that while local real estate booms can result in major price declines, it happens very infrequently. “Boom does not necessarily lead to bust,” says Richard A. Brown, chief economist at FDIC. “Busts are very rare when you’re not having some sort of local economic distress.”

Instead, booms usually end in periods of stagnation, he says. Incomes catch up with prices, and the market slides back into equilibrium.

All the speculation about a coming real estate bust doesn’t seem to be keeping home buyers out of the market, however. According to the National Association of Realtors, in April, homes changed hands at a record pace of 7.2 million per year, at a median price of $206,000, up 15.1% from a year earlier. The last time home prices rose so fast in one year was in November 1980, when prices shot up 15.6%. But if housing prices contract, many home owners may find themselves wishing they had spent more time with their stock broker and less with their real estate broker.

— Sara Clemence

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Real Estate Gone Wild

How Cheap Dollars And Cheap Flights Are Bringing Average Joes To A Market Near You.

By Rana Foroohar
Newsweek International

May 2 issue – Property, like politics, used to be local. After all, what demands more on-the-ground knowledge than buying a home?

But over the last few years real estate has gone global. Already, there’s a good chance you or someone you know owns a second home abroad. You may even unwittingly own a stake in a Guangzhou office block, via your pension fund. “Over the last five years, both direct and indirect cross-border real-estate investment has been on the rise,” says Tony Horrell, CEO of European capital markets for property-investment firm Jones Lang LaSalle. “By some estimates, half of the world’s wealth is now in real estate.”

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‘Appraisal inflation’ a worry for housing experts
By Jane Wells

It is often referred to as “appraisal inflation” and it could be the dirty little secret of the housing industry.

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The practice — when real estate appraisers bend the numbers to satisfy clients and stay in business — is a growing problem, according to real estate experts.

Appraisers say there is pressure on them to inflate home values, and there is concern that if people pay too much for their homes it could lead to more foreclosures if housing prices tumble. And banks could be left holding the bag.

Data show the problem is widespread.

A recent survey of 500 appraisers by the October Research Group, a provider of news and information to the real estate services industry, found that 55 percent of them personally feel pressured by sellers, agents, and even lenders to inflate home values by 10 percent. And one-third of the appraisers surveyed said they fear losing business if they don’t comply.

Jonathan Miller, CEO of Miller Samuel, an appraisal company in Manhattan, said he thinks 75 percent of appraisals are inflated. And Miller thinks honest appraisers are leaving the business as a result.

Congress recently introduced a bill to curb the appraiser issue.

The Ney-Kanjorski bill would prohibit agents and other outsiders from pressuring appraisers through coercion, bribes or extortion. It would also force a physical inspection for higher-cost loans instead of just using computer appraisal software, which can be manipulated, and it would force a second appraisal of a property that has risen in value over the previous six months.

However, Miller says the proposed bill does not address structural problems in the appraisal business, such as the fact that many lending institutions that hire appraisers profit from the outcome.

The wall is eroding between the loan sales department and quality control, Miller contends, and no one is worried about potential defaults if the housing market takes a breather.

So what if people start defaulting?

“I don’t think there’s a general awareness or concern about that,” Miller said. “The sales function, the people who are paid on commission probably won’t be there when those problems come in the future.”

The issue could evolve into the something similar to the savings-and-loan scandal of the late 1980s, Miller added, referring to the failed speculation and, in some cases, fraud that cost the U.S. taxpayer over $100 billion.

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Trading Places: Real Estate Instead of Dot-Coms

New York Times
Published: March 25, 2005
By MOTOKO RICH and DAVID LEONHARDT

Real estate-crazed Americans have started behaving in ways that eerily recall the stock market obsession of the late 1990’s.

In Naples, Fla., some houses have been bought twice in a single day, an early-21st-century version of day trading. Buying stocks on margin has morphed into buying homes with no money down. The over-the-top parties of Internet start-ups have been replaced by flashy gatherings where developers pitch condos to eager buyers.

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Real estate investing generates big tax benefits

By Robert J. Bruss
Inman News
Consumer Real Estate News

At the 2005 International Builders Show in Orlando, Fla., economists David Seiders of the National Association of Home Builders, David Berson of Fannie Mae, and Frank Nothaft of Freddie Mac agreed that mortgage loans to rental-home investors are becoming a significant factor in home sales. As much as 9 percent of home sales, they reported, involve investors buying houses and condos for rentals rather than owner-occupancy.

Go to Yahoo! Real Estate news and read entire article