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I wish I knew then …

I wish I knew...

Interest rates are at historic lows, but will climb in the next year. Look at history and take advantage of this to invest in real estate!

We have all heard this expression that implies that had a person known earlier in life what they know now, they would have done things differently.  The subject possibilities are endless   While no one has a crystal ball to see into the future, it may be possible to learn from people who have experienced similar situations.

In the late sixties, mortgage rates hit 8.5% but before the decade had finished, the rates had come down to 7% where they stayed for some time.  Homeowners who purchased at the higher rate, could buy a larger, more expensive home for the same payment if they could get out from under the obligation of their existing mortgage.

FHA and VA mortgages, up until the late 80’s, could be assumed by anyone, regardless of credit worthiness.  Since these homes were purchased one or two years earlier, the sellers didn’t really have much equity in them, and many homeowners were willing to “give” them to investors so they could qualify on a new, lower rate mortgage.

It was a fantastic opportunity for investors who could afford the negative cash flow because the homes wouldn’t rent for the payment.  As the 70’s economy, started heating up, so did inflation.  Most people consider inflation an undesirable thing but for people who owned rental property, it meant the values were going up and so were the rents.

Soon, the rentals no longer had negative cash flows and the investments turned the corner.  If you talk to investors who purchased those homes during that period, you’ll very likely hear, “I should have bought more of them.”

If we could fast forward into the future to see how people will be talking about the period we’re currently in, we might see an even greater opportunity in our present time.  Interest and mortgage rates have been on a downward trend for thirty years.  In the past ten years, they hit an historic low.  They are trending up currently and it appears they will continue to do so.

Homes are in short supply which has caused the prices to go up.  Builders haven’t returned to the number of new units needed to meet demand and that has been going on for over ten years.  Even when the supply does increase, it will take a long time to catch up with demand.

Combine that with supply chain shortages due to the pandemic and prices look like they are unaffordable.  Many millennials and some Gen Xers believe the “window of opportunity” has closed.

For tenants, rents are continuing to increase due to the same causes that home prices are increasing.  Buyers, by acting now, can lock in their mortgage rate and the purchase price of the home.  As prices continue to increase and the amortization of the mortgage pays down the unpaid balance, homeowners’ equity increases and so does their net worth.

Unfortunately, for tenants, the rents will continue to rise, along with prices which will make it more difficult in the future to purchase.  Their rent is used to pay the landlord’s mortgage who benefits in the principal reduction for each payment made.

The market is changing and people who don’t own a home currently must find a way to buy one.  The longer they wait, the harder it will be to buy one.

People wanting to purchase a home in today’s market must educate themselves with facts and not hearsay.  There are all sorts of programs available to address low down payments, varieties of mortgages, credit issues and other things. 

It starts by meeting with a real estate professional who can recommend a trusted mortgage professional.  Download my Buyers Guide and check out your numbers using the Rent vs. Own.

McKee Smith, REALTOR®, has been helping people like you sell and buy homes in the DFW area for many years. He is very knowledgeable about the housing market in Dallas and Fort Worth. Remember – McKee has the keys to selling your home!

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The Dynamics of Home Equity

Home Equity

“The equity in a home is the difference between what it is worth and what is owed.”

For many people, their home is their largest asset and their best-performing investment.  The equity in a home is the difference between what it is worth and what is owed.  Two dynamics, appreciation and unpaid balance, work in concert to make homeowner’s equity grow.

It can be said that you appreciate the fact that your home is your best financial investment.  It is also ironic that the appreciation, the increase in value, is what causes it to be your best financial investment.

In a one-year period, the increase in value divided by the beginning value will determine the rate of appreciation for the year.  News stories and articles, frequently, report statistics on appreciation for the month, the year, or longer. In many cases, a national appreciation is mentioned but the local appreciation is more reflective of an individual property.

The National Association of REALTORS® reports “The median existing-home price for all housing types in June was $363,300, up 23.4% from June 2020 ($294,400), as every region recorded price jumps. This marks 112 straight months of year-over-year gains.”

The low inventory being experienced nationwide has caused some significant appreciation that has increased homeowners’ equity.  According to Black Knight, a mortgage technology and research firm, at the end of 2020, roughly 46 million homeowners held a total of $7.3 trillion in equity.

If a homeowner has a mortgage on their home, while the home is appreciating, the unpaid balance is declining.  An increasing portion of each payment is applied, when the payment is made, to the principal balance to retire the debt based on the term of the loan.

Each month the equity in the home becomes larger because the home is worth more due to appreciation and the unpaid balance is less due to amortization.

Once a homeowner has sufficient equity in their home, they can borrow against it and take cash out of their home.  Most lenders require that the homeowner maintain at least 20% equity position.  This means that owners can borrow up to 80% of the appraised value less the amount that is currently owed on the property.

The options include a cash-out refinance mortgage or a home equity line of credit, HELOC.  While some institutions have stopped offering HELOCs, they are still available.

 The HELOC is a line of credit that is established for usually ten years.  The owner is approved, and the money is available to draw out as needed.  The interest is calculated daily.  Like a credit card, when the balance is paid down, the unused portion of the available credit is available again.

McKee Smith, REALTOR®, can put you in touch with several lenders with whom he’s worked. He knows these lenders will try to get your loan approved with the fewest problems possible!

McKee Smith, REALTOR®, has been helping people buy homes in the DFW area for years. He can help you find your perfect new Dallas or Fort Worth home! Remember – McKee has the keys to selling your home!

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A Sad Story Relived Over and Over

Sad Story

“One of the valuable advantage’s sellers have is their agent’s experience and lack of emotional connection to the property.”

Ask any real estate agent and they will tell you a similar sad story.  The seller, whose home just hit the market, received an offer that was less than the list price but felt secure their home would sell quickly and countered for more.  For whatever reason, the buyer did not continue to negotiate and moved on.

After a week or two and no other offers, the seller instructed the listing agent to contact the buyer’s agent and say that the seller had reconsidered and would now accept their original offer. However, the initial enthusiasm the buyer had was gone and they were looking elsewhere.

This is a story that frequently happens across America, in all price ranges.  The lesson to be learned is that sometimes, the first offer is the best.  Consider the rationale, a home is fresh on the market, and buyers, especially the ones who have lost bids on other homes, act quickly to hopefully avoid some of the competition.

When an offer is not accepted, it voids the original offer and, in this case, the seller makes the buyer a counteroffer; the buyer can accept it, make a counteroffer, or walk away.  Even if afterward, the seller reconsiders and says that he will accept the terms of the original offer, the buyer is under no obligation to accept it.

Alternatively, if the seller accepts the buyer’s original offer, a contract has been agreed upon based on the terms within.  The house is sold and closed once any contingencies such as financing and/or inspections have been satisfied.

Think of an example where a seller countered for an additional $5,000.  If he had accepted the original offer, the home would have been sold.  In essence, he bought the home back from himself in hopes of making an extra $5,000. 

To put it in perspective, on a $350,000 home, the additional $5,000 would have been 1.4% of the value.  As an investor, the risk involved in having to continue to own the property may not be justified by such a low rate of return.  Having the property sold may actually provide peace of mind and convenience that far exceeds the $5,000.

When a seller receives an offer, they are faced with three options. 

  1. They can accept the offer and the house is sold considering the contingencies can be met.
  2. The seller can reject the buyer’s offer outright and wait for an acceptable offer.
  3. The seller can counteroffer the buyer with terms that are agreeable to the seller.

Many agents feel that if the offer is not acceptable, the counteroffer alternative presents a greater likelihood of negotiating an acceptable agreement between the parties.  Every situation is unique, but compromise has brought buyers and sellers to the agreement in many situations.

One of the valuable advantages sellers have is their agent’s experience and lack of emotional connection to the property.  McKee Smith, REALTOR®, has years of experience selling homes in Dallas and Fort Worth. If you are selling a home in DFW, McKee Smith, REALTOR®,can provide objectivity and alternatives for you to consider in making your decisions. Remember – McKee has the keys to selling your home!

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Selecting the Right Agent in a Seller’s Market

The right agent

“The number of people attempting to sell on their own has been in steady decline since 2003 from 14% to 8% currently.”

Even in the current, low inventory housing market, sellers are resisting the urge to sell it themselves and still seeking the help of a real estate professional.  It may be more important than ever and there is too much at stake to risk going it alone.

The number of people attempting to sell on their own has been in a steady decline since 2003 from 14% to 8% in the latest Profile of Home Buyers and Sellers produced by the National Association of REALTORS®.

The most frequently mentioned difficulties that owners who decided to sell it without the benefit of an agent included preparing the home for sale, understanding, and performing the paperwork, getting the price right, and selling it within the length of time planned.  Another commonly cited challenge was having enough time to devote to all aspects of the sale.

The other nine out of ten homeowners who are selling are many times faced with the question: “How do I determine which agent to use?”  In some situations, owners know more than one agent and the dilemma becomes picking the right person for the job.

To get the answers that will lead to selecting the right agent, an owner needs to ask the right questions.  Open-ended questions will give you a more descriptive answer that can bring clarity to your decision.  Questions that begin with who, what, when, where, why and how will elicit a much more robust answer.

The following suggestions should be helpful for homeowners considering selling:

  • How long have you been selling homes and is this your full-time job?
  • What designations or other credentials do you have?
  • How many homes did you and your company sell last year?
  • What is your average market time compared to MLS and your top competitors?
  • What is your sales price to list price ratio?
  • When will you report to me on the progress of my transaction?
  • Who can you recommend for service providers like mortgage, inspections, repairs, and maintenance?
  • Why do you want to work with me?
  • Where are the opportunities to expose my home to the largest market?
  • What is your marketing plan for my home?

In today’s market, homes, on average, are selling in 17 days and sellers are seeing an average of five offers.  It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market in the first place.

Specific to today’s market, additional questions to help you identify the best agent for the job could include:

  • With the shortage of homes on the market, is it necessary to update in advance?
  • In this competitive market, is staging the home important?
  • What are your thoughts on professional photography and video?
  • Is there a way to stimulate competition among to buyers?
  • Explain to me range of pricing and how it applies to home search on the Internet.
  • Can you profile the most likely buyer for my property?

Don’t think of these things as being an interrogation but more like an interview.  That is exactly what it is; you are trying to find out how this prospective agent is going to handle some of the intricacies in the selling process that can affect the successful sale of your home.

After evaluating the answers you receive, you will either move forward to have this agent represent you or you move in a different direction.  A third option, from our perspective, that occasionally develops is that we determine that we may not be able to manage the outcome that you are expecting.

Selecting the right agent to represent you, even in a Seller’s market, is an important decision and you need to have all the help you can get making the right one.  We’re happy to provide the answers you want and need and will disqualify ourselves if we believe that it is not in your best interest. Our reputation depends on satisfactory results from every transaction we handle.

Download McKee Smith, REALTOR®’s Sellers Guide.

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Homeownership Cycle and Inventory

Homeownership Cycle

“Regardless of where you are in the homeownership cycle, having the facts essential to making a smooth move reduces the risk of bad outcomes.”

An interesting homeownership cycle begins with a starter home and progresses to larger and smaller homes throughout a person’s lifetime.  Within a few years after purchasing their initial home, they might move up to a little larger house.  The reasons could be that they simply want a larger home and can afford it, or their increased family size may be motivating the move.

While the children are small, they can probably get by with less space but as they grow and behave more like adults, even though they may not be, the need for more room becomes more pressing.  Depending on the size of the family, this will last some time and then, as they go off to college, enter the workforce and find their own living space, the parents may find that they no longer need the larger home. 

In the interest of saving money or possibly convenience, they migrate from a larger home to a smaller home until they consider an assisted living facility or possibly, a nursing home.  Another alternative, many homeowners are electing is to move in with their children or other family members.  Some homeowners are even retrofitting their homes with equipment and safety devices that will allow them to continue to live in their homes in old age.

According to the American Community Survey, a person in the United States can expect to move 11.7 times in their lifetime.  When that person is 18 years old, they can expect to move another 9.1 times and by age 45, they can expect another 2.7 moves in their lifetime.

One of the suspected reasons affecting the low housing inventory in America at this time is the group of homeowners who would move but are reluctant because the home will sell and with the shortage of homes, they may not be able to replace it with what they want.

The fact that builders have not kept up with the demand in the past twenty years has been a major contributor to the low inventory that housing is currently experiencing.  It is estimated that it will take two million new homes a year for the next decade to get caught up, assuming demand doesn’t increase.

There are also other factors involved like the fact that since 2007, the owner’s tenure in their home has more than doubled from five years to 10.6 years.  People are staying in their homes longer which means the homes are not coming on the market for sale.

Another consideration is that sellers with extremely low mortgage rates are reluctant to buy another house which would have to be financed at a higher rate than they are currently paying.

Regardless of where you are in the homeownership cycle, McKee Smith, REALTOR®, can provide important information and experience that is essential to making a smooth move.  Having the facts reduces the risk of bad outcomes.

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No Need For Common Mistakes!

“McKee Smith, REALTOR®, is a valuable part of selling a home who can offer advice, bring perspective to the transaction, and suggest different ways to help you achieve your goals.

A successful home sale, considered by many owners, is to maximize their proceeds in the shortest time with the least inconveniences.  Just because it is a seller’s market doesn’t mean that homeowners can shortcut some of the steps that make it happen and they certainly need to avoid commonly made mistakes.

Pricing too high

Low inventory and high demand have contributed to the rising prices of homes.  NAR reports that the median sales price is up 17.8% in the past year and CoreLogic recently released data that July set new record growth of 18% year over year.  This might give sellers a false sense of security about overpricing their home

Pricing a home too high initially can limit activity, attract the wrong buyers and ultimately, cause the home to realize a lower price than optimum.  There is an interesting dynamic that takes place when there is a shortage of homes to show, and a new home hits the market.  Buyers, who have been in the market but not purchased yet, will rush out to see the home.  They are familiar with what homes are selling for and possibly, have even lost bids on one or more.

These savvy buyers expect certain amenities based on the price of the home.  They can tell if a home is priced right or not.

Failure to do Market Preparation

There are people who will buy a home that is not pristine and does not have everything in good working order, but they usually will not pay top dollar for the home.  They recognize the money that needs to be spent and will adjust the price accordingly.

To command the highest price, the home needs to be spotlessly clean with everything working as it should be.  The home needs to be depersonalized to appeal to the broadest group of people.  The clutter needs to be removed so it isn’t distracting or gives the impression that the rooms, counters, or closets are small.

It is important to evaluate if painting is necessary along with replacing floor covering, appliances, and/or light fixtures.

Thinking the agent doesn’t matter

Market time is down to 17 days and 89% of homes are sold within a month.  These statistics might be used to rationalize that an agent is not currently playing an important role in the home but that would be a mistake.

Nine out of ten homeowners use an agent, and the four most important reasons were to help sell the home within a specific timeframe, help price the home competitively, help the seller market the home to potential buyers, and help the seller find ways to fix up home to sell it for more money.

Being present during showings

It may not be convenient, but sellers should try to leave the home when it is being shown.  Buyers like to look at the home freely and ask questions or point out things to their agent.  Sellers may have the best of intentions, but they have not established rapport with the buyer and don’t really know what is causing the questions.

Not letting your agent negotiate for you

The role the agent plays as a third-party negotiator is one of the most important things an agent does for a seller.  It begins long before buyers even make an offer.  The protocol is for the buyer’s agent to go to the listing agent with the question and if necessary, they can ask you and get back to the buyer’s agent.

Buyers and sellers have inherently different objectives.  Sellers want the highest price and buyers want to pay the least.  Sellers want the terms of the contract in their favor and the buyers want them to favor them.  Buyers want lots of contingencies to let them out of the contract and sellers want the fewest possible contingencies.  Sellers want the most earnest money and buyers want to put up the least possible.

Agents are skilled at negotiation not only because of training but also experience.  Sellers’ experience is usually limited to personal transactions separated by years in frequency.   Agents see multiple transactions in their daily business and can guide people through difficult areas.

Not responding to offers in a timely manner

Normally, an offer can be withdrawn, at any time, up until the point that it is accepted.   The expression a bird in the hand is worth two in the bush reminds us that the offer you have is real and the ones in the bush, may never come to fruition.

A common situation occurs when there is large amount of activity on the home and an offer comes in quickly.  Instead of negotiating on that offer, the sellers wait to see if any better ones are received.  By waiting, the seller runs the risk of the buyer changing their mind.

Alternatively, in the same situation described, the seller may decide to put the home on the market on Saturday morning and let prospective buyers know that they will be deciding on all offers received over the weekend on Sunday evening.

McKee Smith, REALTOR®, is a valuable part of selling a home who can offer advice, bring perspective to the transaction, and suggest different ways to help you achieve your goals. When working with me, everything else will start to fall into place!

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Rising Rents – Music To Your Ears?

Rising rents

“Interestingly, detached rentals are experiencing an even higher growth rate of 7.9% year over year compared to the 2.2% annual rate for attached rentals.”

Rents going up may not be pleasant to hear for tenants, but it could be music to your ears if you are an investor.

The recent CoreLogic Single-Family Rent Index, April 2021, showed a 5.3% increase in national rent year over year which doubled the increase experienced in April 2020.  This is the largest annual rent price increase in nearly 15 years.

Interestingly, detached rentals are experiencing an even higher growth rate of 7.9% year over year compared to the 2.2% annual rate for attached rentals.  This is supported by the CoreLogic report that half of millennials and 2/3 of baby boomers “strongly prefer to live in a single, stand-alone home.”

From an investor’s point of view, single-family rentals offer large loan-to-value mortgages at fixed interest rates for long terms on appreciating assets with definite tax advantages and reasonable control. 

Rentals are considered to be the IDEAL investment because if offers income to offset the carrying cost of the investment; depreciation contributing to annual cash flows with a non-cash deduction; equity build-up because a portion of each payment is applied to principal reduction; appreciation with increases in value; and, leverage that increases the overall yield through the use of borrowed funds.

Most homeowners are very aware of the housing inventory shortage that has caused homes to rise over 12% in the past year.  The increased demand for homes coupled with the shortage of supply has contributed to the rapid appreciation.  The trend is expected to continue for years.

While appreciation is a large component to the rate of return, cash flows are bolstered by the increasing rents.  This combination makes investments in single-family rentals very attractive.

An added appeal is the familiarity and understanding of this type of investment because it requires the same aspects as homeownership.  The same service providers a person uses for their home can be used for rentals.  For the investors who don’t want to manage the property themselves, professional management is available for placing and qualifying a tenant only or the entire process including collecting the rent and maintenance.

For more information, download my Rental Income Properties guide. Contact McKee Smith, REALTOR®, if you’d like to have a more in-depth conversation and address any personal questions you might have.

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The Value of a Staging Consultant

“The lesson to be learned is that even if a home is in good condition, taking the time to go through the steps to make it look its best will generate the kind of results that every seller hopes for when selling their home.”

A well-known professional home stager, recently, decided to sell the 4,000+ square foot home which she lived in with her husband.  It was certainly well maintained and by most standards, could have gone on the market immediately.  However, she still went through a full staging effort before she listed the home.

The work included painting inside and out especially, changing the kitchen cabinets from gray to white.  The carpet was replaced along with a few dated light fixtures.  They stained the fence and added minor landscaping to make it look fresh and inviting.  They removed personal items from the home that might be distracting and replaced some furniture that was too large and might have limited a buyer’s imagination.

The home looked, smelled, and was clean.  It had great drive-up appeal.  Each room looked like it belonged in a magazine and the professional photos let potential buyers see the home before they visited it in person.  When the home did come on the market, it sold in five days, above list price, with multiple offers, and for a considerably higher sales price than previous comparable sales had indicated it would.

The lesson to be learned is that even if a home is in good condition, taking the time to go through the steps to make it look its best will generate the kind of results that every seller hopes for when selling their home: the highest possible price, in the shortest time with the least amount of inconvenience.

One of the unique things McKee Smith, REALTOR®, does is offer to bring in a professional home staging consultant to suggest the best ways to present your home for the fastest sale and the highest price!

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Removing Or Adding A Person To A Loan

“The difference in a minimally acceptable credit score and something that might be considered “good” could be as much as a 0.5% higher rate for the term of the mortgage.”

In divorce situations, it is common, for the spouse who keeps the home to refinance to remove the other spouse from the loan.  Equally as common, first-time buyers who don’t have enough income to qualify may ask a parent to co-sign and must add their name to the mortgage.

Another situation that requires removing or adding a person to a loan could be to qualify for a better interest rate.  The difference in a minimally acceptable credit score and something that might be considered “good” could be as much as a 0.5% higher rate for the term of the mortgage.

Consider that a couple is buying a home on a conventional loan, and they have individual credit scores of 760 and 670.  The underwriters will price the loan based on the lower of the two scores.  A half percent interest on a $400,000 30-year mortgage could have close to $110 a month difference.

A possible solution to this dilemma could be available, assuming the borrower with the higher credit score had enough income to qualify for the mortgage separately.  If so, that person would be eligible for the lower rate.

The property could still be titled in both names and if so, that person would be liable for the mortgage should the named borrower default on the loan.

Another scenario that may arise is that a couple has enough income to qualify for a mortgage but because one of the parties has a lower credit score, it will be priced higher.  Having a parent or relative added to the mortgage as a non-occupying borrower to help with the credit score.  Interest rates are determined on the lowest middle of three scores for the borrowers applying for the loan.

Assuming the parent’s score was higher than the lower score of the couple, it could improve the rate applied to the mortgage loan.

The value of a trusted mortgage professional, like McKee Smith, REALTOR®, is very important.  He can offer alternatives to situations that could be worth tens of thousands of dollars over the life of the mortgage and in some cases, can make the difference in being approved at all.

McKee Smith, REALTOR®, would be more than willing to make a recommendation and can support the need to assemble a strong team to help with your transaction.