Housing Slowing; More Interested Buyers
A: Its the focus of most contrarian thinking; that is buy when a sector is out of favor and down with a medium term forecast for appreciation. No one can pick the exact bottom, but you can look for deals if you understand how to spot them. So what makes a good deal and something to jump on in this market? Lets discuss.
I wrote about Contrarian strategy a ways back to point out the main aspects of this investment school of thought. When it comes to housing though, an illiquid investment because of the time it takes to sell a home and the transaction fees associated with the deal, you must make sure that you are buying a new property for the right reasons and NOT just because a deal pops up. To start out, the right reasons to buy would include:
1. A stable job (without the possibilitiy of relocation) with rising income that you see yourself at for the next 3-5 years
2. Thinking ahead to a home that you can grow into for the longer term
3. Saved up financially to be able to afford the initial costs of home ownership (i.e. closing costs, moving costs, mortgage + taxes + maintenance costs)
4. You are happy with the town/city that the home is in
These are some powerful reasons to buy a new home rather than rent. But how do you spot a deal? In order to spot a deal you must first gain PRODUCT KNOWLEDGE.
PRODUCT KNOWLEDGE
Your buyer broker should already know this, but if you are working on your own product knowledge of your price point is extremely important. Not only do you have to be able to know what you can get for your budget, but you will need to know how to spot a deal when one pops up that can be moved on very quickly!
In real estate training with Citi-Habitats, they talk about placing buyer clients into categories:
'A' Buyers - Buyers whom are educated on their price point and have been looking for a while. These buyers are the most ready to go and will jump on a good deal when it is found. 'A' Buyers should gain a broker's highest priority especially after months of working with these clients.
'B' Buyers - Buyers who are 1-2 months into looking for a new apartment but aren't quite ready to go. These buyers are still in the education process of buying a new home and are about halfway between 'C' buyers and 'A' buyers. 'B' buyers quickly move up the scale to 'A' buyers after a month or so of solid showings and will be loyal to their hard working agent that spends the time with them.
'C' Buyers - Buyers who are just starting to look around, have some time before they need to buy, and are really uneducated about what they can afford, what is out there, and spotting a good deal. These buyers require patience on the part of the real estate agent who makes their annual salary on commission alone. 'C' Buyers are considered in the industry the worst type of buyer to work with, although I do not agree. To me, 'C' buyers are the easiest buyers to work with and become the most loyal over time. Start out through emails by sending these buyers listings with excerpts to educate them on why one listing might be better than another.
Which buyer would you classify yourself as? If you do not classify yourself as an 'A' buyer (again this is an industry set category for agents), than how will you know when a good deal presents itself?
Bottom Line: Get product knowledge by researching all properties in your price point and visiting open houses on your Sunday's! Try to see at least 10-12 properties in the first few months of looking which should give you the experience needed to spot a good deal in the future!
SPOTTING A DEAL
Look at the main 3 aspects of housing that I talk about all the time here on UrbanDigs and then compare the PPSF (price per square foot) with recently sold's in the building to evaluate the desperation of a seller.
The 3 main aspects of housing that take priority remain:
1. Location
2. Light/Views
3. Raw Space
This should be your focus, with all other apartment/building characteristics following suit (i.e. renovations, a roofdeck, gym in building, etc.). When you spot a property that meets your needs and wants, you normally move on to price evaluation next to see if the apartment is priced right and worth a bid. Thats exactly what you should do now except you need to find out RECENT SALES for this particular building as well.
Ask your broker or look at PropertyShark.com to try and find the last sales in the building and then compare to what this property is asking. Lets do an example:
245 East 93rd Street (a luxury full service building in the UES) has a large 1,494 sft 2BR/2.5BTH apartment on the 11th floor listed for sale at $1.195M. Details:
245 East 93rd Street; Apt 11H
Size: 1,494 sft
maintenance: $842
RE Taxes: $820
Views/Light: City & River Views with N/E exposures
Asking: $1,195,000
PPSF: $800
Now lets look at the last comparable unit sold in the building to evaluate current pricing. The last units sold were:
Apt. 8D
Closed: 7/26/2006
Size: 1,400 sft
Closing Price: $1,125,000
Closing PPSF: $804
Apt. 19E
Closed: 6/06/2006
Size: 1,300 sft
Closing Price: $1,125,000
Closing PPSF: $865
CONCLUSIONS: The current ACTIVE 2BR/2.5BTH apartment at 245 East 93rd street has been on the market only 2 weeks but is priced right and below the last 2 comparable sold in this building! Obviously the eventual purchase price will be even lower with a negotiation making this listing a good deal for a new family seeking space to grow into at this price point!
Do the same work for your price point and for any listing that looks like a good deal to you and you should be just fine! And remember: AS HOUSING SLOWS SAVVY BUYERS GET MORE INTERESTED TO SCOOP UP THE BEST DEALS
Posted by Dave
Mon Oct 2nd, 2006 03:15 PM
Noah interesting food for thought.
How do you decide when the market is at it's trough? What you set out above is to see if something is priced below what was sold in the building previous. However, what if you buy now and prices are lower in 12 months time? We know property is inflated on a global scale, but by how much, we have no idea. How does the contrarian property purchaser decide when is the "optimum" time to enter the market they are looking at? (i.e. when it's at it's lowest ebb, before things pick up again).
Any thoughts on this? Is it best just to go on historicals when the future can be potentially so uncertain?
Posted by Noah
Mon Oct 2nd, 2006 04:33 PM
Great question Dave. I don't think the answer is so concrete, and rather, like most types of investments, needs fundamentals to be lined up perfectly so that possible investment returns are transparent.
You cant say lower rates alone are what to look for because then the argument becomes, 'but what about a slowing US economy and job losses'. You cant say historically alone because historically speaking this has been one of the greatest bull runs in housing in decades.
I would say a combination of future interest rate policy (possibly AFTER the fed is done cutting rates to combat a slowing US economy and sees the economy on a future upswing) PLUS inventory levels starting to reverse course with declining time on market and unsold inventory PLUS high rental costs locally which resulted from the housing boom but is now contributing to its comeback after years of correcting.
Sounds like a few things I would look out for when trying to time the market for re-entry. Thoughts?
Posted by Larry Nusbaum
Tue Oct 3rd, 2006 03:44 AM
Location is a very over used and over played concept....in terms of buying & selling and making money.
As a follow-up to that - I would probably not live on a busy street again. But, I would buy on a busy street again as a rental house.
(btw, you have an issue with everything getting underlined)
Posted by Noah
Tue Oct 3rd, 2006 04:18 AM
I'd buy into that to an extent for NYC real estate. While location is still very important, I've noted before in previous posts how I believe natural sunlight/views to be more important in terms of buying and selling and making money; especially as buyers get priced out of their top location choice and look outside this area for their new property.
In NYC, Sunlight and views are very well appreciated and go a long way to helping sell a property. At least that is the feedback I get in the field at open houses of apartments with exceptional sunlight and city/park views.
Thanks for the display issue note. Should be fixed now!
Posted by Harriet
Tue Oct 3rd, 2006 05:58 AM
I have a question: when you figure the price per square foot for comparison purposes, do you use the typical rounded-up size that is in most listings or actual measurements of floor space? I would assume the former (b/c how would one know the actual size without going into every apartment with a tape measure)?
Interesting blog, btw.
Posted by Noah
Tue Oct 3rd, 2006 01:03 PM
Harriett,
At first I use the sft # listed on the webad and/or what is listed in the internal central brokerage system I use.
If I were considering bidding on the property, I would look up the unit in www.propertyshark.com where condo's are listed as public record; tougher for co-ops. If I still can't find the actual, I would ask broker to tell me or find out via management the exact size or # shares for the unit so I can plan a bid accordingly.
In the end, the offering plan goes to your attorney for review and if they lied about total size or # shares allocated, than you are entitled to adjust your bid before you sign any contract. Brokers lie all the time, it just isn't worth it. I guess its OK to round up a 779 sft apt to 800 sft or so, but when you jump from 708 sft to 800 sft, that is a bit of a stretch.
Posted by Harriet
Tue Oct 3rd, 2006 06:31 PM
When we were shopping for a place last year, it seemed like ALL of the apartments' square footages were rounded up. Our agent told us most are by about 10%. No. of shares seems like a different thing, but easier to compare. We ended up buying a studio in Carnegie Hill (this is for investment and eventual pied a terre for us) that was listed as being 400 sf, but by my measurements is less than 350. Using the larger size puts the cost per sf at less than $800; using the actual size puts it closer to $1,000.
I actually have another question: the co-op we bought into is about 50% sponser owned. It's a small co-op with 28 units total. I think it was started about 20 years ago, so they still have tenants living there who are in rent-controlled apartments from its pre co-op days. The lawyer we used said this was a good thing, because as the units get sold off, the value will go up. I still keep thinking we paid too much, but he thought it was a good purchase. What's your opinion? (Although too late to worry about it now!) Thanks.
Posted by Noah
Tue Oct 3rd, 2006 07:10 PM
Harriet - What price did you pay, maint, views/light, condition, walkup-floor?
Address?
Posted by DowntownGal
Tue Oct 3rd, 2006 09:28 PM
Question about square feet - I was told by some agents that coops are not legally allowed to quote square footage for some reason. Sometimes the listings say 'approx sq ft' or they say nothing at all.
When I've pressed agents they've responded with some nonesense that I should look at the layout of the unit because that's what's important. I think it's a load of crap. Any thoughts?
Posted by Noah
Wed Oct 4th, 2006 03:19 AM
DowntownGal - tough to really get mad at the agent that says this because chances are he/she tried to get the actual sft, but was NOT given the info by the owner or management. So what to do?
To legally protect themselves, they will advise clients to make their own measurments and bid accordingly. I've seen deals be re-negotiated because of a size lie.
Not worth it if you don't know the info and its not your fault. Co-ops usually offer you the # of shares allocated to the unit a a per share estimate can be used for pricing evaluation with recently solds.
Posted by DowntownGal
Wed Oct 4th, 2006 02:53 PM
Thanks for the explanation, Noah. It's easy to get jaded in this market.
So that said, if the square footage is measurable, why not just quote it in the description? It's helpful to me as a buyer because I can compare the space per $$ with other units.
But given all that, is the proper question then how many shares allocated to that unit? And how is that number used to compare with other coops?
Posted by Harriet
Wed Oct 4th, 2006 04:16 PM
Noah -- if I tell you all that, are you going to laugh me off of this board?
Paid: 315k; maintenance: 625; light: good (south facing); view: pleasant city street; condition: good; 3rd floor walkup. We spent some money on a good professional paint job and refinishing the floors, and we bought a new refrigerator, but it was in good shape otherwise. The bathroom is quite nice, the kitchen (separate room) is okay.
This is the only place we looked at in this price range that wasn't (a) a pit, (b) on the ground floor, (c) the size of a walk-in closet, or (d) miles from the nearest subway station. It's about a 30-second walk from the 86th St. station, a few blocks from Central Park, and near lots of shopping and restaurants. As a rental, it's been ideal. The last agent that showed it for us described it as "gorgeous," and it was rented in a day.
When we bought, the co-op allowed investors to buy, but since then they refinanced the mortgage and changed the rule. This will make it harder to sell the place, but we weren't intending to flip it; our plan is to hold onto it for the long term if possible. We bought as part of a 1031 exchange.
Posted by 500 Brickell Condo
Fri May 21st, 2010 09:02 AM
One of most informative real estate blogs. Hope to see more good things in next visit. Thank you for this
Posted by Mbt
Thu Jun 3rd, 2010 01:57 AM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.