Perrysburg Blog

Is real estate “flipping” investing?

I don’t think so.

And this is not a post against “flippers” and it’s not a post against “flipping”!  Some of my best clients are real estate flippers.

But THEY are professionals.  And if you are reading this you know who you are.  Your full time job is real estate investing.   The model you use is that you know the area, you know the product, you know the numbers, you know how to do a pro-forma, you know how to use a cap rate, and you have experience in this market.

I would warn against the casual real estate buyer who has the gleam in his or her eye to buy on the cheap, spend $15 in caulk and bailing wire, and then put the asset back on the market and make $50,000 in a month.

It’s not happening that way.

There are too many unseen landmines.

Many of these investors call me AFTER they have bought the property they are going to flip.  They have already locked in their numbers and then they discover the . . . a: mold problem in the basement, b: the mold problem in the roof, c: the Rumsfeldian unknown unknowables, or what is worse is d: a + b + c + d.

And it’s too late to do anything but lose your money at this point.

My advice in this market it to buy to hold UNLESS you are a professional (see above).

Buy and hold.  Buy for cash flow.

These values are incredible today!   And lots and lots of people are looking for houses to rent.

Buy and hold – that is real estate investing.  And it’s a much safer thing to do than invest in stocks!!

This market rewards prudent investors.   And it rewards professional flippers.  But you have to choose who you are and not delude yourself.

Many, many houses are NOT selling.

Many, many homeowners call me or email me to ask for help. Not everyone listens or understands. That’s fine – we are in a brutal and unprecedented market. I don’t like it either, but to quote the new axiom of the day, “it is what it is” . . . . whatever that means!

1. Unmotivated Sellers. (They really don’t need to sell, so they don’t)
2. Part-Time Listing Agent. (If your Realtor has a “real job” or “other job” your house will most likely not sell – the managers at Costco frown on their employees selling houses while they work there)
3. Poor Marketing. (Print is DEAD. Sorry if you own a newspaper or a forest in Canada! – Have you heard of the internet?)
4. Price. Price. Price. (Get this wrong and NOT EVEN I can sell your house)
5. Location. (It still matters and it matters even MORE in this market)
6. Condition. (see #5 above)
7. No Showings Allowed. (Just plain crazy in this market. You might have one showing a month and you are not letting them in???)
8. Kennel Club. (I estimate that 45% of the buyers I show are either afraid of ______ (fill in the blank with cats or dogs) and/or / but are allergic to __________ (fill in the blank with cats or dogs or both). You can do the math.
9. Reduced/Discounted Selling Agent Commissions. (Yep – that’s a great plan to “save money”. You ought to fire your Realtor right now if they have done this to you – don’t understand what I am talking a out – email me for a free Special Report at jon@modene.com)
10. Wrong Buyeritis. (We actually need more than an offer today to sell a house. We need this formula for a closing to occur: House + Good *Buyer + Credit Score + Down Payment + Appraisal to Contract Price + Lender with $$$$ + Good Home Inspection + Clear Title + Sane Loan Underwriter = Closing. NONE of these steps can be skipped. *And note that the buyer has to have a JOB or cash)

So there you go – if you house has not sold, I can practically guarantee that one or more of these items is operating in your life right now.

2 real estate equations that cause the most confusion?

Easy:  Cap Rate and Absorption Rate.

Absorption rate is the topic for this post.

In this kind of market you REALLY have to pay attention to absorption rates if you are a seller or an investor.

Simply put -  the Absorption Rate is the rate at which inventory is being removed from the market by a closed, successful sale.  It tells me, if I am a seller, how long – all things being equal – i will have to wait to see my house “cleared” from the market.

Great definition?  Well, in reality the market is moving.  And in reality no home is average.   And in the real world, each and every house is unique.  So much for the technical definition.   In reality it’s a gauge.  Like a wind speed gauge.   Or a weather vane.

The absorption rate can show you what is happening and where the market is heading.  So it’s pretty useful.

In Perrysburg – with single family residential homes – we had 313 active listings on the market on the last day of October.  The number of sold listings last month was 18.  Multiply solds (18) by (12) months and you get 216.  This is a yearly number of solds IF everything works like it did in October.  Take this number (216) and divide it by 52 weeks in year and you get 4.15 homes per week being “absorbed” under current market conditions.

Now go back to the number of active listings in Perrysburg – 313 and divide it by 4.15 and you get 75 weeks.

Which is a huge absorption rate!  Usually we put that in month  -  so divide it by 4 and you get 18.75 months which I will round up to 19 months supply of inventory.  Which means if everything stayed the same and NO NEW HOUSES came on the market it will take 19 months to clear the market of inventory.

I use this number – as expressed on the chart below – to show my clients what is happening with the trends in Perrysburg real estate.

Today?  The absorption rate is going UP.

Got a question?  Ask!  jon@modene.com or 419-874-1188.

As the Broker/Owner of RE/MAX Masters, I coach and train my Sales Associates in addition to selling real estate.

It’s a good thing that I am active in the market – or I would not know how to help my Sales Associates succeed today.  Because things have changed.

What’s different now vs. 1.5 years ago?  Glad you asked!  Here’s a list:

1. Print Advertising.   It generally does not work.  Sorry local newspapers!
2. Direct Mail.  It can INFORM and drive to the internet.  That’s all.
3. Floor Time.  This old hoary relic died in 1995.  Most of my competitors still use it!
4. Open houses.  Except in new homes models. . . .
5. Door Knocking.  First thing I learned at the real estate school of “hard knocks”.  No one is home today.
6. Cold Calling.  Hard to believe this was ever done.  You have to be a politician today to do it legally.
7. Hiring new agents and NOT training them.  A cruel joke:  90% of all new agents fail.  They need help today more than ever since no transactions are easy anymore.
8. Agents sitting in the privacy of their offices.   You have to meet the people.
9. Bragging that you are “Number 1″ in Perrysburg or Three Meadows or the 43551-1403 sub zip code.  People see through this.  The customer ought to be #1, not the ego maniacal agent or broker.
10. Discount Brokers.  They always shrivel and shrink in a down market.  Every time.  In this market?  They are dieing.   Dead.  They are dead men walking (along with a lot of “traditional brokers” who are neither changing or learning).

An astute reader of this blog told me that I should prove that NAR Convention attendance was way, way down this year.

Well – I don’t think that you can rely on the “official” numbers from NAR, which are puffed with paid staff, board officials, etc.

How about the old Mark One Eyeball?

My proof:

The attendance was down.

And the vitality and money (as seen by new companies and new products and new ideas) has left the building too.

The cold west and northwest winds have started.

The brief Fall weather?  Seems like a distant memory.

Winter will soon be here.   Well, if you just got back from Florida and missed the first snow, it seems like it.

So what should a wise Perrysburg homeowner do to get ready?

Acknowledge the clay.

Seriously.

The whole city and the entire township are built on the clay-like muck of the former Black Swamp.

And if you want your basement to survive you had better admit the truth.   Our basements get walloped with thousands of little freeze/thaw cycles in a typical Winter (sun comes up – sun hides behind clouds – repeat ad infinitum for 3.5 months . . .) – and while that is happening the water in the ground is bound up with the Hoytville Clay of Wood County is in freezing and thawing and expanding and contracting.

With TREMENDOUS physical and hydraulic force.

Hence the cracked walls in local basements.

Solution:  keep the water AWAY from your foundation.

ESPECIALLY in the Winter.

Check your downspouts.

Physically go look at them and make sure they are connected and run at least 5 or 6 feet away from your foundation.

This one simple step could save you a $20,000 basement repair.

Having just got back from Orlando after attending the 2008 National Association of Realtors Convention, I was able to observe the negative moods and depressed attendance at my favorite industry trade show.

I generally attend it every year and I have never seen the attendance so light and so sad in demeanor.

Whereas in the past there were entrepreneurs with new gadgets and new companies – they are gone.

Many of the attending Realtors were staff and board officials – there on someone else’s dime. The bright, ebullient hard selling Realtors were missing.

The NAR photo shows last years attendance:

I would be embarrassed to show a picture of what the Trade Show looked like this year. I could have driven my truck down the middle of the aisles.

But when others are “zagging” I am going to “zig”.

New marketing campaigns.

New marketing tools.

New prospecting plans and efforts.

The business is still great – if you are fully engaged and fully informed. If you are working at Costco AND selling real estate . . . you are just kidding yourself. And your poor clients.

I am blessed to have a great base of loyal clients that I have worked for over the years. Their loyalty and referrals allow me to state that I am having a great 2008.

I have even upgraded my marketing to include the “Bootie Butler” for high end listings.

It automatically puts a shoe bootie on your feet when you step in the Bootie Butler box. I fell in love with this little gizmo down in Orlando.

The poor Realtor? Buyers are buying houses, lots, land, condos, farms, and investment properties at incredible prices that make a lot of financial sense.

Sellers who need to sell or want to sell are selling and succeeding in selling.

The poor Realtor? This market is not “BAD” – it is just getting back to reality after 20 years of fantasy. AndI believe that it is a great change.

No.

Not the “national election” (which I prefer to believe is a set of 50 different state elections to choose 50 different sets of “electors” under the Constitution, but I digress . . . ), but rather I mean the LOCAL election.

The key news is the passage of the Perrysburg School levy.

One of the main reasons people pay the “Perrysburg Premium” as I call it, is the reliable resale value of Perrysburg real estate, which in turn owes a lot to our excellent schools.

The levy passed yesterday – which means that the schools will continue as they are now.

Which is a good thing.

(I will also point out that our excellent Sheriff was re-elected – but that’s another story for another day!)

So will buyers still want to come to Perrysburg?

Yes.

But if the local taxes are TOO HIGH – that will change rapidly (see Sylvania tax rates/market data/and anecdotal per house 6 month taxes on many newer houses in some parts of Sylvania and Sylvania Twp. for information).

Buyers are still naming Perrysburg as one of their top destinations or choices to do a home search.  I do have some personal feelings and advice for Ohioans on taxes:  they are too high compared to the rest of the country.  If we don’t lower them, we are just pushing people, capital, and talent to lower tax states.  There is only so much that people will pay and then – POOF – they are in Florida or Tennessee or Texas.

How about investors?    Well, they are now starting this morning, beginning to factor in a 30% capital gains tax rate in their minds for 2009 transactions and sales vice the 15% now in effect.

The upshot:  they are all going to pay less for property.  Which lowers demand.  Which lowers property values.

No big deal on a $5000 beat up REO in the center of Toledo – a $1000 price drop.

But it is a big deal in Rossford, Perrysburg, and Maumee.  I expect prices to be hit hard starting soon.  If you are selling an investment property – sell it in 2008 if you will be paying capital gains.   If you are buying and investing (and why aren’t you – values and prices are AMAZINGLY low . . . ) you need to factor in the newly promised capital gains tax hikes in your investment planning

1. Taxes are not insanely high like some other local cities/towns.
2. It’s actually a pretty city. Trees, a river, no horrible pollution emitters.
3. The sense of community. People still know each other.
4. The police and fire departments. Outstanding men and women.
5. A responsive city government and excellent local schools.
6. The downtown. From the eclectic mix of stores to the farmer’s market.
7. Easy highway access from all parts of the city.
8. Wood County. A great county government.
9. The housing stock is varied – from the new subdivisions to the old historic district and many other housing types in between.
10. Housing values are usually steady – this current crisis excepted – and when they return to normal they allow you to safely own/invest. Reasons 1-9 cause our houses to sell better and faster irrespective of the market when compared to other cities and towns.