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The Real Estate Market

Is the real estate market in a state of limbo? “How low can it go”? How long will it last? What is causing it to drop? Is it a buyers market or a place to avoid? What’s my house really worth? Having trouble making my payments what are my options? If I call one the “We buy houses ads” will they really buy my house?

Is real estate still a good investment? On an average home values nearly double every 10 years. During the last three decades home values have gone up on an average of 6.6% per year. And since most buyers put only a small percentage down their return on the initial investment is much higher.

What is going on with the real estate market? Without a doubt the real estate market has changed and the change has caused a major decline in home values in many market areas. Area homes are for sale for sometimes 3 years without selling yet some are selling in a week. The average seems to be about 180 days. There are more homes for sale than buyers. . In Macomb county Michigan there are 10,000+ homes on the MLS and another 6500 in neighboring Oakland county plus a large number being sold by owner. This means buyers are going to be able to pick the best price and the best house. If you make your house fit both of those criteria it will be gone in a week

What is a house worth? Same as always, it is worth “whatever someone will pay for it” those that argue this point are the ones that can’t sell their homes. Best way to figure your best price is to use “sold” comps of similar houses in your area

What will make my house sell? The answer is really not that difficult. We cannot change the trend but we can react to it. Houses are selling and people are buying. If you want to be the one that sells their house you have to respond to the market. Not only do you have to know what people will pay, you also have to have your house in pristine condition. Your house has to ”wow” the buyer. When they walk in they have to immediately be impressed. If they see problems, it is on to the next house. If you are hesitant to put money into a property because you are afraid you won’t get it back be prepared to sit on the property for awhile

Should I list it with an agent or sell it myself? You can do either or both. List it with and agent but retain the right to sell it on your own. The market is slow so many agents have scaled back on their time and effort to get a house sold. Before you sign with an agent ask to speak to some of the others owners he has listing with and see what effort he is making. The best exposure you can get is on the agent’s MLS list. You should require it be placed on several multi listing. In the Detroit area list it on the Macomb, Oakland and Wayne county MLS. If you are going to sell on your own contact a title company for help and an attorney is highly recommended. Agents will charge between 4 & 7%. You might consider offering an extra $1000 to selling agent

What kind of price can I get from the “We Buy Houses” or “1800buykwik” type buyers.? At first their offer might seem impossible to take but if you will take the time to do the math it might not be a bad deal. Start with what you really think the house is worth. Take away the 6% agent fee. Then since the offers you will likely get will be less subtract that amount. The buyer may ask you to pay part of closing cost so take that amt off. Figure your monthly taxes, insurance, utilities, and upkeep and take one or more months of those off (avg. sale time 180 days) so consider taking that off and compare those prices. They need to make money too so what they offer should be at least considered. . How quick do you want to sell? Some have had their home on the market for 3 years.

When will the market go back up? A date is hard to predict but there are signs to watch for. When the rental markets stop offering special; when the number of rental ads start to decline; when apartment start raising rents; when builder start to build again; when more job opening appear in the paper. These are all good signs things are starting to turn around. When enough people more from the area that employers now can’t find workers they raise the salary creating a new group of home buyers.

Should I sell or rent? Renting makes sense if the market will come back and you can afford to wait. You need to analyze your monthly holding costs and compare them to the income first. Costs include: Loan payments, taxes (use the non homestead rate), Insurance be sure to change from a homeowners), utilities (unless the tenant pays (be aware if water is not paid it becomes a lien on the property), upgrades (paint and carpets if needed to rent), landscape (cutting and snow removal), repairs, advertising, Landlord registration and inspections, legal, and misc. expenses. Then do you have forms needed, an advisor can help, do you know the laws in your area. Do you have the temperament to be a landlord? Do you know what record keeping has to be done? Will you have to pay taxes on the sale and on rental income? You need to expect some vacancy time and expenses during turnover of tenants. Will you have the time & shills to do repairs? Do you have access to credit and criminal reports? Do you have a handyman you can use? Renting can be a good alternative if you are prepared. You can also turn it over to a professional manager for about 10%

Is there money available to borrow? At what rate?
In 2000 there was some $4 billion loaned out in home equity loans. During the first 6 months of 2006 borrowers pulled $2.2 billion out of their equity, but in 2007 the number was only 200 million. In metro Detroit the home equity financing market as dried up. In the early 2000 this money was used for almost anything but when the house values took a dive that market disappeared. The loss of these funds has had a ripple effect across the country. People just aren’t spending money so manufactures and stores also feel the pinch and lay off people making it harder for that group to purchase quality products. Some gurus are predicting housing prices will continue to fall. Recently equity loans were available at 4% now they run about 7.64

What are lender looking for now?
Credit scores are more critical then ever.  January lenders were requesting  a 620 score.  In May one had to have 68- to be considered .  What is a credit score and how is it assigned?  About 300 items are considered to arrive at your score. And it tells lenders about you financial stability at that give point in time.  Can I raise my score?  Yes, first get a copy of all three reports and check them for mistakes. The older your credit the higher the score, so don't discard old cards. Avoid being late with your payments. Keeping your credit below half of the limit will help/  Keeping it below 30% of it limit will help even more/  Pay off the balance on some cards.

How low have house prices dropped? Some home have dropped 20% in value over the last 6 months. Houses once appraised for $380,000 several years ago recently sold of $285,000. Comerica and Chase banks no longer loan out 100% of a house’s value but limited it to 90%. Lower home prices have also push homeowner out of qualifying for home improvement loans further hurting the economy. The average home in The Detroit area is predicted to lose about 25% of it’s value when it is all over. Currently prices are down about 14%. Detroit, Livonia, and Dearborn are listed as some of the riskiest markets to invest in. On the other hand banks are looking for good borrowers and that money is available. Shop around for the best deals.

Bottom line: Can one make money in real estate? People are continuing to make money and you can also. The key is to make it when you buy not when you sell. Don’t pay too much and determine what type of investor you want to be, Will you be a landlord, rehabber selling retail, wholesaler, note buyer, money lender, etc. Joining a local investors association can be very beneficial.

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