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November, 2005
A Home is Like Your Car
A home is like your car: it also needs regular maintenance. An oil change (new furnace filter), a tune up (service the heating and cooling system) will help preserve your home’s value and in many cases avoid costly repairs.
Winter might be the time to tackle indoor maintenance, or that special project you have been meaning to do but haven’t had the time. Now is a good time to get bids from repair people; many of them are in their slow season and will appreciate the business, even at a discount. Another good reason to tackle the “to do” list is that you might have holiday guests and you want things to go smoothly.
Here is a basic list of minimum “to do’s”:
- Smoke Detectors—Check the batteries to see if new ones are needed and if the units are working properly.
- Carbon Monoxide Detectors—Test each unit and replace batteries as needed.
- Exterior Water Pipes—Check the ones that have a potential to freeze; wrap them as necessary. Pay special attention to the pipes that are on the north side. Store garden hoses and check with your professionals for pool, spa, and sprinkler systems.
- Gutters—Check to see if they need cleaning; this is the time of year when they fill with leaves.
- Furnace—Clean and change the filter; have the unit checked by a professional to make sure it is working at 100% efficiency.
- Refrigerator—With the holiday season your refrigerator will have extra use. Vacuum the condenser coils in the back or bottom. If it has a drain pan remove and clean in hot soapy water.
- Microwave Oven—Check filters on microwaves; clean or replace as necessary.
- Emergency Needs—Evaluate your emergency situation, in case you were to loose electricity or water. Do you have flashlights, water, food, and blankets? A camp stove is useful also.
Barbara Dubois
The Housing Wiz Assistant
Cell (972) 814-7462
November, 2005
Real Estate Bubble Watch
It is not our business to scare people about approaching real estate economic problems; most of our readers have only one house and it is not considered an investment; rather, it’s their home. But some regularly invest in real estate, and others might get caught up in the current investment fever, so it’s important that you get information not being disseminated by other real estate professionals who believe only good news sells real estate.
We believe you should be informed, and we also know that bad news can bring times of great values in real estate. That’s something you should know.
The first indication of a bubble bust is a decrease in house sales. It’s happening in some markets. For example, in Northern Virginia October sales were down 28% compared to October, 2004. In Sacramento, California, sales have dropped 40% during the last three months—the sharpest decline in 15 years. DFW single family sales were DOWN only 3% in October compared to October, 2005; but they had been UP 10% for August and September from a year before.
If you’re in the DFW area you’ll be glad to know that the bubble has not inflated as much as in hot real estate spots, but the decline in sales for October might be an indication that our little bubble is deflating. We see people making the same mistakes here as in highly inflated markets; the mistakes are simply smaller or more manageable. Some of those mistakes are adjustable rate mortgages (ARMs), zero equity loans, and buying more house than necessary.
Seventy-five years ago the normal down payment on a home purchase was 20%. Later on in the Twentieth Century 10% down loans were more the norm. During the last couple of years buyers and lenders have fallen in love with zero down loans; many want one. That will be a major problem for those people selling their homes when—note I did not say if—interest rates rise further.
Higher loan rates are often the big bubble-poppers. The average rate on a 30-year home loan is at 6.37% nationally. The payment on a $100,000 loan at that rate is $623.54 per month. When rates reach 7% that payment will only allow borrowers to get a loan of $93,723. When rates reach 8% that payment will only be good for $84,978. What happens at 10%? The loan will only be for $71,053.
How does this affect prices? It lowers them. The buyer who barely qualifies for a $100,000 loan at 6.37% can only borrow $71,053 at 10%. What happens to the $100,000 house? It might only bring $71,053 when placed on the market when rates go to 10%.
In 1980 rates went over 16%. Today’s $100,000 house at that rate might only be worth $46,368 to the buyer who must borrow at 16%; however, it does not mean that the seller must sell at that price. There is one bit of good news for investors, and it is that they might get today’s $100,000 house for 46 cents on the dollar if rates rocket up that high again.
What does that mean to buyers and sellers today? For buyers, shop around and get the best deal possible, with the lowest interest rate available. For sellers, it is still a great time to sell; do so rather than later.
Maurice Dubois
The Housing Wiz
Cell (972) 814-7391
November, 2005
Holiday Down Time
Winter holidays produce images of roast turkeys, family get-togethers, and neatly wrapped presents. But the houses we use for these holiday wonders play an important but overlooked part in our traditions.
Residential real estate sales tend to experience a behind the scenes slow down during the period from around Thanksgiving to New Years. Why? Most people are too busy thinking about Christmas shopping, or taking time off to visit family, than purchasing or selling a house.
When looking at the housing sales graphs throughout the year, the line “roller-coasters” up during summer and dips during the winter; meaning houses sell like hot cakes in the summer, but sales slow down during the winter. What does this mean for buyers and sellers who are soon to partake in a transaction?
For buyers, this means fewer people are buying houses. The supply of housing accumulates and motivated sellers might feel the urge to drop their asking prices. This could provide an opportunity to pick up a good deal. Don’t expect to pick up a “steal,” but the sellers who MUST sell might go the extra mile to get their property sold. Have your financing or funds ready so you’re prepared when a good deal comes along.
For sellers, if you plan on selling during this season, expect a low turnout for showings and few offers—especially if your asking price is higher than the competition. If you have plenty of time and plan on selling later in the coming year, shoot for late spring to late summer as a prime marketing time. Why? Take a look at this chart that shows sales for a year through October.
Late May through late August is prime selling season. During this time, most families make a move and don’t need to worry about the kids being in school. Buyers are more likely to house hunt and make their purchase decisions then.
Based on last year’s DFW area statistics, the average home remained on the market anywhere from 60 to 90 days before a sale. This means you will need a considerable amount of time to market the property. If you plan to sell, what should you do in the down season while you have the chance?
Get your house in as tip-top shape for as little money possible. This means doing the repairs and curb-appeal touch-ups necessary to make your house appealing. It could be anything from the leaky faucet in the tub to a missing shingle on the roof. Remember, any money you spend now is money out of your proceeds at the time of the sale, so budget accordingly. Though difficult, play devil’s advocate and put yourself in the shoes of a buyer: Would you choose your house if you were in the market to buy?
If you need help understanding your competition, visit some builders’ model homes. Their marketing is impeccable, and they fix their houses up to a “T.” They know what it takes to sell houses and they decorate accordingly. Try to achieve a similar appeal level with your home as you see in their models. Obviously, your pre-owned home won’t look brand spanking new once you finish repairs, but in our market, the best looking ones fetch the highest prices.
Fix anything that is obvious, and relatively inexpensive to complete. Don’t change the furnace because it looks old. If it still works, simply clean the unit and all around it; have it serviced and make sure it will pass a house inspector’s careful scrutiny.
John Dubois
The Housing Wiz Assistant
Cell (214) 418-4829
October, 2005
Interest Rates go Ballistic
I’m not at all surprised that long-term interest rates are beginning to move up; and I think they’ll head up a lot faster than anyone had anticipated. Here’s the story.
While most people believe that interest rates are set by central bankers, the truth is that central bankers only wish they could control them; in fact, they only control short-term rates. Long-term rates are driven by supply and demand.
Interest rates are the cost of borrowed money. The demand for borrowed money is growing daily. The U.S. Government needs money—barrels full of money—to finance the budget deficit, to finance the war in Iraq, to cover the cost of hurricane reconstruction, and to pay for all the other social programs and additional employees that have been hired for the many new departments.
Consumers are putting pressure on the money supply for home financing, to cover credit cards coming due; thousands of corporations are also at the credit trough. So just like any other commodity, less supply and more demand mean a higher cost for the commodity.
We currently have inflation that’s looking like we are back in 1980. Lenders don’t want to lend long-term money at low interest rates when there is high inflation because they are afraid of losing principal when they get paid back with cheaper and cheaper dollars. In 1980 the 3-month Treasury bill rate jumped from about 6% in June to 16% at the end of that year. I remember it well because rates on home loans went to 16% in a flash.
Here are two interesting questions:
- Can it happen again?
- And if it does, what does that mean for home interest rates?
The answer to question number one is a resounding YES. I’m not sure it will happen exactly as it did back then, but as George Santayana said, “Those who cannot remember the past are condemned to repeat it.” The present is looking too much like the past.
If it happens again, home interest rates will surge and I would bet my last penny that more than one large homebuilder will bite the dust; it’s a certainty that many small builders will go out of business. In fact, you could see one or two of the largest builders go the way of the dodo bird as did heavyweight apartment builder Kasuba back in the mid 1970s.
You might wonder how that affects you. If you’re planning to sell your home in the near future, higher rates might not bring you as much money as you might get today; but don’t rush out and sell your property just yet, there will be many great opportunities to sell with owner financing that can bring you a much higher return.
If things repeat as before, the foreclosure rate will continue to increase; it is already up considerably from a couple of years ago. In that case, there will be a lot of people who will have lost their houses to foreclosure. The majority of those unfortunates will NOT want to rent apartments; they will want to continue to live in single family houses. You might then not want to sell your house; you’ll want to convert it into an investment property.
Wherever there’s adversity there is opportunity. Interest rates will hurt housing where housing is attempting to run in the current paradigm. There is absolutely no doubt that interest rates will rise for at least a few of the reasons I’ve cited above. When they do there will be an exodus of people “investing” in housing and making their living in the housing sector. The consequence will be mass loss of jobs. There will be less people building houses; many of the new real estate agents will leave in disgust; people selling carpet, bricks, appliances, drapes, and everything that goes into housing will see a loss of business. So inefficient people will be flushed out of housing; however, those who understand how to get out of the current paradigm will succeed handsomely.
What will be the new paradigm? Actually it will not be new; it will simply be a return to some of the old tried and true ways. For example, a few decades back the only zero money down financing was through a VA loan. Today, almost anyone who can fog a mirror with their breath can get a zero down loan; bad credit and no job don’t seem to matter. But sub-prime lenders are finding that their default rate is becoming unbearable. Anyone who has been in housing more than a couple of decades could have told them that they were making some serious blunders in their lending practices. They didn’t read history—there have been times when lenders made stupid loans—so they are condemned to repeat it.
You might be wondering what this means to you. If you have absolutely no interest in housing; if you plan on staying in your present home for the next decade or more; and if you believe your retirement plan and /or Social Security will take care of your retirement, then this means nothing to you. Otherwise, there are some GREAT opportunities in housing on the horizon.
Maurice Dubois
The Housing Wiz
Cell (972) 814-7391
October, 2005
Investment vs. Speculation
In order to acquire sound investments you need to know two basic investment principles to keep you safe. You must know the difference between:
- An investment and
- A speculation.
Investments are assets which pay you back on a periodic basis. An example would be an investment property. You purchase the house to rent it out; you receive monthly cash flow from the tenant’s monthly rents. This is a highly effective investment.
Speculation, on the other hand, is purchasing something with the hope it will go up in price so you can sell it for a profit later. Speculations don’t pay you a periodic return such as rents or dividends. The only way they make you money is to sell them for a profit.
Let’s use the same house from the previous example. Imagine you purchased it in poor condition for a discounted price with the intention of rehabbing it and selling it for a profit. You don’t rent it out but you fix it, sell it, and pocket the profit. This deal is no longer an investment, it is speculation.
There’s a huge string attached to speculation. If you aren’t able to sell what you bought for a profit, then the best possible outcome is that you dump it just to recoup your money; however, the more likely outcome is that you’ll lose money if you can’t sell for what you have in it. Because of its inherent risk, speculation has the same reputation as gambling. In fact, without calculated risk, speculation in most situations IS gambling.
We must be careful to understand that an investment might become a gamble because of market changes. Imagine you bought a house so you can rent it out; you take out a loan to buy it. You close and find that the market has turned a little sour. Your mortgage payment is $800 but you can only rent the house for $600. You have a loss of $200 a month. You bought the property as an investment, but now you might be forced to sell it, hopefully for a profit; however, in hard economic times I wouldn’t count on it unless you were shrewd on your purchase. That’s why before going into any investment you must buy low. All asset classes, without exception, experience ups and downs. In order to take advantage of them, you always want to purchase below market value.
John Dubois
The Housing Wiz Assistant
Cell (214) 418-4829
October, 2005
Seeing the Forest when Upgrading
Many homeowners upgrade or downgrade houses when their housing needs change. A larger family can make the current home crowded; when the children grow up and leave the nest a smaller house might be the ideal solution for empty nesters.
Too many times people working on a change of housing fail to see the forest for the trees. They either get completely involved in the new house, or they concentrate on selling the existing house without thinking of the new one. Changing housing lifestyles needs to be a well thought out process that takes into account the existing house, the move, and the new house.
The first order of business is to determine the disposition of the existing house. There are two choices:
- Sell the house
- Keep the house as an investment property
Option number one makes sense if the house will not make a good investment property; obviously, a very expensive house probably won’t make a good rental property, while a modest home might be a fantastic money maker now and in the future.
The next step is to find a good lender and get pre-approved for a loan on the new house if a loan will be needed. Whether you rent or sell the existing home should not make a difference in your ability to obtain a loan on the new house.
The last step is finding the new house. If you plan on keeping the existing home as an investment property you would go straight into the new home search because renting a house should not take more than 30 days if the rent is set correctly. You would want to coordinate the purchase of the new home with turning over the existing home to the tenants. There is never a need to make a double move. You make the closing of the new home contingent on getting a tenant into the existing house.
Selling the existing house means that you do not need to rush out immediately to find the new house; you can wait until you have a contract on the existing property. There is nothing wrong with familiarizing yourself with areas that interest you; look at builder model homes if you are contemplating buying a new home. As a rule it IS NOT a good idea to go on contract for the next home until there is a contract on the existing home. Most contracts go through to closing, but no matter how solid the buyers are, there is always a chance that something will throw a wrench in the works and kill the deal. In a market like the one we currently have in the DFW Metroplex, finding another home, whether new or used, is a very simple process.
The final step is to make sure that you coordinate the closing of the existing house with that of the new one so that there is no chance of a double move. You can help yourself tremendously if you buy a house that is vacant; that way the house is ready for you to close and occupy at any moment. Vacant houses have the added advantage that no defects are hidden by the owner’s furniture and other belongings.
It’s very important that the contract on the new house specify that you are obligated to buy only if the existing house closes AND funds.
Maurice Dubois
The Housing Wiz
Cell (972) 814-7391
September, 2005
Investing the Right Way
I have been in housing 40 years, and have been investing in real estate for 35 years. Real estate investing has been very good to me. That’s why I believe that everyone should be a real estate investor. Unfortunately, most people believe that to become a successful real estate investor one simply takes two simple steps: a) take a weekend course from a well-known “guru” and b) buy the guru’s complete $1,500 home study course with all the forms, tapes, CDs, and manuals. That’s too often a recipe for economic disaster.
Lies and Schemes
Another misconception is that you can get rich quick in real estate. That is usually a recipe for disappointment. Can it be done? Yes, by a very, very few lucky individuals. For the most part “get rich quick” schemes are just that: schemes. But you can get as rich as you want, and make as much monthly income as you want by investing in real estate the right way. By that I mean starting slowly and carefully, learning the process a step at a time, and adding to your real estate inventory a little bit at a time. You have already taken the first step towards real estate financial freedom if you own your home. The next step is to convert that house into a rental property and buy your next home; or to simply buy your first rental property. You make a plan and follow it. Over time you’ll be like my friend Dave’s daughter. She and her husband own 34 houses in the Lewisville area; 28 have no debt. They have homes in Colorado and Florida; one for each season for their own use. In a moment I’ll tell you how you might duplicate their success.
Take the Right Path
We are planning a series of FREE real estate investing seminars for our past clients, their relatives, and friends near our Cedar Hill office. We will have room for additional prospective investors; we’ll enlarge our seminars if necessary. We will start from the very beginning to make sure you understand the concept and get going on the right foot. Keep in mind that Social Security won’t be anything more than bare subsistence; it will not give you a comfortable retirement, assuming it even survives when you retire. Please call Deirdra at (972) 299-2233 and let her know you’d like to attend the seminars. She’ll put you down on the list so we can call you with dates and times.
September, 2005
Your Dollars are Fake
Would you sell your house if someone paid you in Euros? What about Swiss Francs? How about Dollars? Obviously, anyone would sell their house as long as they received some kind of valuable money for it. What if someone offered to pay with gold or silver coins? Sounds strange, doesn’t it?
Gold and Silver
Not but a few generations ago, gold and silver were the trusted default forms of exchange. They have inherent value due to their usefulness and durability. Since gold and silver—or precious metals as they are called—are difficult to deal with and transport in large quantities, people wrote “notes” (fancy talk for IOU’s) guaranteeing so many ounces exchange for whichever precious metal they might be trading. Whoever held this note could trade it for the noted amount of metal.
In fact, the dollar used to be one of these notes. Get out a dollar bill; a one, five, ten, twenty…whichever. Look at the top and you will see the words “Federal Reserve Note”. This used to say “Silver Certificate”. On the bottom of a one, it says “ONE DOLLAR”. It used to say “ONE SILVER DOLLAR”. Why? And what does “Federal Reserve Note” and “Silver Certificate” mean?
Have you ever noticed the dimes and quarters in your pocket never have a mint date (the date they were created and distributed) earlier than 1965? That’s because dimes and quarters before 1965 were 90 percent silver. Even further back, other precious metal coins traded freely in the country. In the 1970’s the country went off of the “gold standard”, meaning you could no longer trade a dollar bill for gold or silver coins or bullion. Now, The Federal Reserve—the central bank of the United States—is the only entity allowed to print and distribute money. As a result, banks are required to get their money from The Fed. Now The Fed has replaced “Silver Certificates” with “Federal Reserve Notes”, otherwise known as dollars.
The Dollar is Just a Weak Promise
Today the dollar is only backed by the promise and confidence of the United States Government, not a tangible, useful metal. This type of money is known as a “fiat currency”, meaning it is valuable only because of government decree. In eras long gone, various precious metal coins could be traded throughout the world regardless of their minting location. The reason was that no matter where in the world you were, a chunk of gold or silver is a chunk of gold or silver. Try buying a Big Mac in modern day Paris with American Dollars and see what kind of look the clerk might give you.
Essentially, the Dollar, and all its fiat currency cousins of the world—yen, yuan, euro, pesos—are subject to the world’s confidence in the governments that print them. And just like any other commodity, they are also subject to the law of supply and demand. As the supply goes up, the relative value comes down. Since dollars are being printed like mad, known as inflation of the money supply, to pay for a multitude of government spending programs like the wars in the Middle East, Hurricane Katrina clean up, and welfare programs, their relative value goes down as more and more are printed.
Printing More and More Dollars
Think of inflation of the dollar supply like watered down lemonade. Sure, there’s more of it, but its flavor is diluted and weaker. The dollar is getting “watered-down” in value. You might have heard people complain, “I remember when milk was twenty five cents a gallon, and now it’s two bucks!” Does this mean the milk is more valuable or more nutritious? No. Maybe the container is more attractive, but it’s the same old milk as always. What’s different is the dollar is worth less, so it takes more of them to buy the same old milk. Remember, price increases are not inflation. They are a symptom of inflation.
The same thing goes for your house. Its intrinsic value hasn’t gone up, but it does take more and more weakening dollars to purchase it; thus the recent investment trend to purchase real estate. It is a store of value as the worthiness of a currency deteriorates. It is interesting to note that economists have recently compared the prices of real estate in dollars versus gold. The price of homes have gone way up in dollars, but stayed about the same in terms of gold.
If the world suddenly loses confidence in the dollar, or any other widely used fiat currency for that matter, watch out!
For more info on a shaky dollar and its relevance to your home, stay tuned.
September, 2005
Nothing Compares to Real Estate
There is a lot of talk about a housing bubble. An economic bubble works the same as a soap bubble. As more and more air is pumped into a soap bubble, it gets larger and weaker; eventually it pops.
From One Bubble to Another
In many parts of the country, people who were investing in stocks either lost a lot of money when the market plunged a few years ago, or have realized that the stock market is no longer a good way to get rich quick—or to even make money over the long haul. These “investors” have jumped on the real estate band wagon. It hasn’t helped that there are real estate “gurus” coming out of the woodwork, showing the new investors how to get rich in real estate. So, in many parts of California, Nevada, D.C., New York, Florida, and other trendy places these investors have pumped money into real estate, inflating the real estate bubble, causing prices to skyrocket beyond any reasonable limits. Their bubbles are getting mighty thin.
Dallas/Fort Worth has seen its share of new real estate investors. I have seen my share of unbelievably naïve purchases by novice investors; some have already thrown in the towel after serious losses on only one property. The gurus will continue to pump out new investors as long as our market remains in relative equilibrium—we currently have about a six-month supply of houses in the MLS. Prices in this area have not gone wild like they have in the trendy places. We have a lot of people moving into our area, and the home builders are building at a steady pace, so prices have not inflated wildly; they have simply kept up with inflation.
Inflation
That brings up the topic of inflation. First a definition: Inflation is the decrease in the purchasing power of the medium of exchange—in our case, the dollar—which is manifested as an increase in the cost of goods and services. To most people, inflation means an increase in the cost of everything they buy. But in actuality, it is an increase in the amount of the money supply that lowers the money supply’s value. As a general rule, inflation is caused by government’s propensity to print more money than is necessary for the economy to have a stable medium of exchange. Basically, it is counterfeiting by government. Inflation is called the “silent tax” because it reduces the value of the money that people have worked hard to earn.
Here are some questions you might ask yourself:
- Does inflation affect me? The answer is yes.
- Is inflation fair? The answer is no.
- How can I protect my money from the ravages of inflation? The answer is to convert your money to tangibles.
Inflation is so dreadful that everybody should guard against it. Here is how bad it is. If you had an ounce of gold in the early 1900s it would have been worth $20, and you could have bought a nice suit of clothes with that amount of money. Today it’s hard to find a nice shirt for that same $20; however, one ounce of gold is currently worth about $450 and you can still buy a nice suit of clothes for that same $450. Gold and clothes, both tangibles, have pretty much kept up with each other. The dollar has been trashed by politicians.
If you save your money, its value is constantly being savagely eroded by government’s constant overprinting of money. By the way, if you believe the government’s figures on inflation, figures that are finessed and manipulated to be more palatable to the masses, then you are a prime candidate for a big hit from the silent tax. Current real inflation is probably around 10% per year—and it will get much worse before it gets better. That means that if you put $10,000 in the bank today, it will be worth about $9,300 next year by the time you factor in the pitiful interest rates banks are paying. And that does not take into account the government’s hand in your pocket for income taxes on the pitiful interest earnings.
Guarding Against Inflation
So let’s change gears here and talk about tangibles that guard against inflation. Some of the good ones are gold, platinum, silver, oil, rare paintings. Unfortunately, these are only stores of value; they do not produce income. You should own some physical rare metals—the real thing that you can hold in your hands, and not just certificates of the stuff that just might be somewhere guarded for you. Oil is a bit hard to keep, unless you have a big back yard with a nice leak proof hole in it. Rare paintings are for those who have everything else and can afford to plunk down a big chunk of change for one or several.
Now we come to the very best hedge against inflation: Real Estate. This tangible has made more people more serious money than anything else. And the best part about real estate is that it pays you a dividend each and every month. Your own home pays you a dividend every month even though it might not actually hand you over any cash. A home that’s worth $100,000 will “increase” in value by $10,000 per year if inflation is 10%; that’s over $900 per month. If there is a loan on the home, the interest you pay the lender is deductible on your income tax return. If you own rental property it gives you cash every month, plus it “increases” in value at least on a relatively even pace with inflation. Real estate is the best way to beat inflation.
July, 2005
Home Selling 101 – Questions and Answers on Selling a Home
Is it time to move up? Maybe you’re getting a job transfer and need to sell soon. Or have you had financial troubles and need to do something quick? We talk with The Housing Wiz for the answers.
Q: How do you sell a house?
A: First, you MUST understand your market. It’s not an easy task, but it’s crucial to know what’s going on in order to begin the process.
Q: Why is it important?
A: To know your competition, and understand what to expect out of the sale.
Q: What sells a house?
A: Two things: First, the house, second, its price. The house must look good, and the price must be enticing. Remember, you must understand your current market conditions and put yourself in the buyers’ shoes to know your competition. If there are lots of attractive new homes and listings for sale at good prices, it’s tough competition. For buyers, your house will be a grain of sand on the beach. You must price accordingly.
Q: Should you list with an agent?
A: It’s certainly worth looking into; especially if you need to sell quickly. The workings of a real estate transaction are complex, and not for the faint of heart.
Q: But what about the commission? It’s a huge chunk of money!
A: Here’s what we’ve learned by trying to save the commission when selling properties. Buyers are savvy on real estate prices thanks to the internet. When a property isn’t listed with an agent, buyers know the seller isn’t paying a commission, so they reduce their offer amounts accordingly.
Q: Will a good agent be able to get you a higher price?
A: No one can get you a higher price than fair market value. A good real estate agent or appraiser can only estimate a selling price based on what other similar properties in the area are selling for. Buyers ultimately determine price, because if they don’t want to pay such-and-such amount for a house, they don’t have to. They’ll simply go to another property for sale at a better price. Again, two things sell a house whether you’re using an agent or not: the house and its price. The house must look good, and the price must be enticing.
Q: How much will it cost to sell?
A: You can figure your closing costs at about 8 to 10 percent of the sales price. This includes real estate commission, escrow closing costs, and maybe even some repairs.
Q: What if you have little or no equity but need to sell quickly, what should you do?
A: Contact us quick. The sooner you do, the more time we’ll have to advise you on a solution. Several options are available, depending on your situation, but time is of the essence.
Thanks Wiz.
Do you have questions on selling a home? Chances are, other readers have the same questions and want to know the answers. Call or e-mail The Housing Wiz with your questions, and stay tuned to our newsletter for more information. Happy marketing!
John Dubois
Assistant to The Housing Wiz
July, 2005
Bargains or Bad Deals? HUD Homes in the Dallas/Fort Worth Area
Our company sold a few thousand HUD and VA acquired homes in the Dallas/Fort Worth area during the 1980s and 1990s. The best deals were available from the late 1980s to the early 1990s.
The Department of Veterans Affairs (VA) does not have a substantial number of properties at the present, not when compared to HUD. Since VA now lists their homes with brokers—we have some of their listings—it is not possible to see how many bids VA receives on each property unless it’s one of our listings.
HUD is another matter, and it looks like their inventory is getting a little larger as time goes along; although nothing like we saw fifteen years ago. If you’re not familiar with the HUD program, here’s a very short explanation.
FHA Loans
The Federal Housing Administration (FHA) insures loans that are made to buyers with very low down payments, and who have less than perfect credit; they are called FHA loans. FHA is a part of the Department of Housing and Urban Development (HUD). When buyers default on their mortgage payments, the lenders foreclose, and HUD has two options: they can pay the lenders the amount of the insurance coverage, or they can buy the houses from the lenders and then sell them through their Acquired Homes program.
No Loss to Lenders
Since lenders who receive the insurance coverage might end up losing money on the houses, HUD buys the houses and sells them to the public, or to individuals or non-profit entities under special programs. Most properties are sold to individuals and the sales are always under a bidding process.
HUD and its private managing agents have done a great job of indoctrinating the general public, giving the impression that HUD homes are great bargains; however, I am able to see the entire picture by looking at new home sales, MLS sales, and HUD sales; I find that too many people are either paying what the house is actually worth, or in fact are getting a bad deal. Before I explain further I will answer the questions posed in our headline: Bargains or Bad Deals?
Are there Bargains? Yes, there are; but very few; and too often you have to dive deep into the barrel of rotten apples to come up with a good one; but they are available if you know where to look.
Are there Bad Deals? Yes, there are entirely too many.
Finding Bargains
So the question many buyers ask is: How do you find the bargains? The simple answer is that you call us, since we’ve done it for almost 25 years. But, of course, you want an explanation rather than an advertisement. So let me get a little sidetracked so you can understand the psychology of the HUD selling frenzy.
Silver analyst Theodore Butler, in explaining his thinking that silver will explode in price sometime soon—the “soon” could be a month or a few years—gives a great explanation of asset bubbles (which we’re experiencing right now in real estate, gold, oil, and even silver) that’s very enlightening on the subject of HUD home prices. He explains, “At the heart of the unique set of silver factors is one common denominator – human emotion and group behavior. People are motivated by price. Ironically, it is only high and rising prices that causes great numbers of people to buy in unison. Low prices discourage mass buying….If you study the history of investment extremes, or bubbles, it is the rising price itself that is at the heart of the cause for the move.”
The Good Ol’ Days
During the mid to late 1980s there were tremendous bargains in HUD homes; few people knew what they were, including most real estate agents and their brokers. As more and more of the public and real estate agents became aware of the bargains, the houses started to sell for higher and higher prices.
At that time HUD had so many houses in our local market that they held public auctions to lower inventory. I attended several of the auctions and picked up some great deals during the early events. I found no bargains to buy during the last auction I attended. As Butler explained, group behavior had taken hold, prices were rising, and people were jumping onto the bandwagon.
Today
Flash forward to 2005. HUD homes are no longer an unknown phenomenon. Ask any real estate agent and most will immediately tell you that they are familiar with the HUD program. Most, in fact, will tell you that there are a lot of good deals. That answer will be especially foremost on the lips of those heavily involved in selling HUD homes.
A Run of the Mill Deal
Now for an example of what I’m talking about. This week bids went in on the property at 102 Mystic Trail in Cedar Hill. It’s a large, two story house that the Dallas Central Appraisal District (DCAD) has valued at $173,380. HUD had priced it at $129,500—an extremely good strategy for maximum bidder response. There were 36 bids on the property, all the way from $102,000 to the winning bid of $153,000. The house, in its present condition, would probably sell for the winning bid amount if it had been marketed as a conventional sale in the MLS. The house was in reasonably good condition, though it could use some carpet cleaning and interior paint. So where’s the bargain? In the eyes of the buyer, there’s a bargain. Looking at it with comparable sales at hand, there’s no bargain.
With enough time, effort, and smart tactics a few gems can be found in the HUD program. Of course, deals are in the eyes of the beholder. A good deal for the homeowner is generally not an acceptable deal for the investor. What is a steal for the investor (don’t expect to find one with HUD in the current market) might be a once in a lifetime situation for the homeowner.
Call us for more information.
Maurice Dubois
The Housing Wiz
July, 2005
Home Buying 101 – A Crash Course with The Housing Wiz
Owning a little chunk of our planet has been the quintessential human dream since the dawn of society. For those ready to take the first steps towards home ownership, we ask The Housing Wiz some basics.
Q: Where do you start?
A: Buyers tend to immediately go looking at houses, and while this is important to understanding your market and its prices, the first step is to sock away some money.
Q: How much?
A: In a perfect world, you want to sock away as much as possible to pay cash without financing. And if that’s your plan, it’s a good one. Of course, paying cash isn’t always possible. The alternative is getting a loan, but you’ll still need money for closing costs and a potential down payment.
Q: So, how do you go about getting a loan?
A: Shop around. Tons of lenders and loan programs are out there right now. Educate yourself to the terminology and workings of a real estate loan and understand what’s involved. Aim for a fixed rate loan, and stay away from adjustable rate mortgages and interest only loans. Put down as much money as you can comfortably afford. This will lower your payment, get you a better rate, and build up-front equity.
Q: What’s equity?
A: Equity is the difference between what the house will sell for, and what you owe. Think of it like this: as home prices appreciate and/or your loan balance decreases, your equity increases, and vice versa.
Q: Should you use an agent?
A: Absolutely! But understand who they represent in the transaction. They either represent the seller or the buyer. Remember, real estate for-sale signs in front of houses are signs for the “sellers” or “listing” agent. They can help you, but their job is to get the seller the best deal possible. If you’re buying, you want an EXPERIENCED and KNOWLEDGEABLE buyers’ agent. They’ll make sure you get a good deal on your purchase.
Q: Why is it a good idea to use a buyers’ agent?
A: First, the agent works for you in the transaction. They have access to sold home prices in order to comparison shop and make sure you’re not overpaying for a property. Second, the buyers’ agent is paid by the seller. This means their service to you comes at absolutely no charge! Why would anyone turn down free service?
Q: How do you make sure you put yourself into a good financial position rather than a risky one?
A: Excellent Question! Don’t bite off more than you can chew. Buy a little less than what your lender qualifies you for. This allows some leeway when it comes to those unexpected financial downturns in life, like job loss or tax increases. Also, it’s important to remember that taxes and insurance usually go up every year, which means your monthly payment will go up along with them. This is especially true with brand new houses after they’re built. The reason is the taxing authorities previously calculated the property’s value based on an empty lot, and now they’ll calculate it based on a lot with a building on it.
Thanks Wiz.
Do you have questions on buying a home? Chances are, other readers have the same questions and want to know the answers. Call or e-mail The Housing Wiz with your questions, and stay tuned to our newsletter for more information on home buying. Happy hunting!
John Dubois
Assistant to The Housing Wiz
June, 2005
The Housing Wiz’s Investing Chronicles: Flipping vs. Buying and Holding
As seasoned investors, people constantly ask us how to invest in real estate. What we always recommend is, first, read up on the subject, and second, understand the definition between an investment versus a speculation.
Investments are something you purchase that put money in your pocket on a periodic basis. Speculation is purchasing something with the intent of selling it later for a profit. Once upon a time, most stocks paid nice dividends. They were investments. Now they pay little to nothing in dividends and have crossed over the line to speculation. The same thing applies to real estate.
Many investors purchase properties, fix them up, and anticipate selling at a higher price. This process, known as “flipping” is pure speculation. It does provide a way to make a quick buck, but it requires skill and experience. Flipping is dependent on the health of an area’s market. In areas with rapid property appreciation (Like parts of California, Nevada, and the East Coast) you can purchase a property at full market value with the expectation of selling for a handsome profit in a year or two - though we don’t see this lasting forever. In other areas, where property prices are appreciating slowly or depreciating, investors must buy at deep discounts in order to pull any kind of profit. We have seen many self-proclaimed investors in the Dallas/Ft. Worth area buy properties at too high a price without anticipating proper closing and fix-up costs, then get stuck making payments on a property that won’t sell. Like Robert Kiyosaki (of Rich Dad fame) says, you make your money when you buy.
The Alternative?
Buying and holding is a great way to invest in real estate. Think of it like a stock that pays dividends. It means purchasing a property with the intent of renting (or owner financing) for the long haul to attain a monthly cash flow, and possibly take advantage of appreciation at a later date. This is true investing.
Are We In A Position To Buy And Hold?
Buying and holding falls under two categories: Buying with or without financing. If you have the ability to purchase property without the need of financing, you are in a good position. Ideally (and we’re talking perfect-world here) it should be every real estate investor’s goal to save enough money to purchase properties with cash. This way, the investor has the ability to rent it out no matter what the market does.
If you need to use financing to purchase an investment home, it’s IMPERATIVE to purchase at a DEEP discount. Why? Let’s play “Worst Case Scenario” and imagine the market drops, sending property prices down. If you purchased at a deep discount, you can either sell the property for a small profit (or at least break even), or still have the ability to rent it for more than your monthly payment. If you purchased at full market value with a low to zero-down loan, it will be difficult or impossible to find renters able (never mind willing) to pay an amount higher than your payment; however, landlords who owe little to nothing on their property can lower rents. A landlord with high monthly payments can not do so.
How Do We Get Started?
Remember, nobody can take better care of your money than you. As always, do your homework before purchasing any kind of property, and consult The Housing Wiz to ensure you acquire a sound investment.
Happy Hunting
John Dubois
The HousingWiz Assistant
June, 2005
How much value can one place on life?
Builders are putting up millions of new homes in the United States; trillions of dollars are spent building those homes. Unfortunately, new homes are not much safer than those built in the 1800s. In 2003, on average, one person died in a fire every 2 hours, one person was injured every 29 minutes. In 2004 there were 152 deaths as a result of hurricanes. In an average year there are 800 tornados that kill 80 people and injure 1,500.
Not all of these deaths occur in a home; but a good percentage of them do, and modern homes offer little more protection than the homes built when Jefferson was President. That’s because homes are still built basically the same way as they were built back then. People buying modern homes, whether they are brick or stucco homes, are generally getting wood-framed structures. There are a few areas of the country where the outside walls are made of concrete block, but the inside walls and the roof are still made of sticks.
Most of us have seen the devastation of a home fire, either in person or on television. Here are some pictures I took of a burned house not far from my home.
Two centuries of stagnation
Modern homes, for the most part, are framed in wood and then given a coat of wood or man-made siding, brick, or stucco. That’s a real shame. Can you imagine if our transportation system had remained as backward? We would have covered wagons with modern vinyl tops and aluminum-clad sides as our primary form of transportation.
The solution
There is a better and supremely safer building material than wood. It’s called steel-reinforced concrete, and it’s what you see on most interstate highways and so many large industrial buildings.
Concrete homes can be built square or round. Square is much more expensive than round. Round concrete homes are typically constructed as domes. Most people are familiar with geodesic domes; these are buildings that are constructed of a series of wood triangles to form a dome. While geodesic domes are stronger and offer some advantages over square wood homes, they are still made out of wood.
Concrete domes, on the other hand, are simply the strongest, safest buildings in the world; insulated with polyurethane insulation, they are at least 50% more energy-efficient than wood homes. The downside is that even though they are less expensive than square concrete homes, they are still more expensive than wood homes.
The most important question
The big question is, “What is the value of life?” I don’t know anyone who would say that life is not worth more than the additional cost of a safer home. The trouble is that not many people know that there is a better way to build.
The Monolithic Dome
A Monolithic Dome is the answer to the best buildings in the world. It is constructed of high-strength concrete that is reinforced with steel bars. It is insulated with a layer of polyurethane insulation on the OUTSIDE of the dome shell. The exterior is either the airform that was used to construct the structure, or a special coating that protects the rigid insulation.
If a new home is in your future, and you value safety, low maintenance, and energy-efficiency over the looks of a typical new home, you might want to look into a Monolithic Dome. Here are some interesting sites with plenty of ideas on concrete dome homes:
Happy Housing,
Maurice Dubois
The HousingWiz
June, 2005
The Sky Is Falling! The Sky Is Falling! Are We Experiencing a Real Estate Bubble?
Covers of many recent magazines have flooded news stands with worries of a “Real Estate Bubble”. All markets experience up and down cycles, and buying low and selling high is the ideal situation. But finding the entry and exit points prove difficult. In this episode we analyze our market and show what to do whether we’re in a bubble or not.
What Is a Bubble?
For newcomers to housing and/or real estate investing, a bubble is a metaphor for a market that expands with euphoric price rises, then “pops” at the peak, sending prices down (or deflating them slowly depending on market conditions); just like an over-inflated balloon. Those who had money invested in the NASDAQ and dot-com stocks around 1999 to 2002 know the popping noise well. So, “Is the DFW real estate market in a bubble?” It has happened before.
What Causes a Bubble?
Many factors underlie real estate market fluctuations, and covering them all proves difficult in one article. But here’s a list of the most detrimental afflictions of the U.S. market, and the dangers they pose:
Easy credit: It has become ridiculously easy to obtain a loan to purchase real estate with low interest rates and little to zero money down. If lenders are loaning easy money to risky borrowers, the chance of default increases.
High risk loans: Especially Interest Only and Adjustable Rate Mortgages. Loans with the potential to increase homeowners’ monthly payments because of rising interest rates pose a serious risk. We recently read a statistic stating something like 40 or 50 percent of the real estate loans made last year by a certain lender (whose name we won’t mention) were ARMs and Interest-Only. If interest rates go up, (and there’s a good chance they will) there will be a flood of homeowners unable to make their payments.
Speculative buying: There is a flood of amateur “get rich quick” investors purchasing investment properties using risky loans without doing their homework. This sounds a lot like the proverbial shoe shine boy giving stock tips.
“I want it NOW” syndrome: We are a nation of borrowers with little or no savings. And due to the recent lowering of interest rates, people have been enticed to refinance or borrow money against their home’s equity to pay for SUVs, wide screen TVs and other non-essentials.
What these things boil down to is a flood of properties coming back on the market if the economy goes sour, thus weighing down the supply side of the “supply-demand” equation. And we all know what happens when there’s more supply than demand - prices come down.
Is The Dallas/Fort Worth Area In a Real Estate Bubble?
Since markets are so unpredictable it’s hard to say. But we can look at some facts and figures to derive some sense of situation and recommend actions to take regardless which way the market goes. Compared to the rest of the country, (especially the east and west coasts) our housing is much more affordable and experiencing zero to small amounts of price appreciation. Obviously, some pockets of the Metroplex experience more ups and downs than others, but on average we’re a lot better off than areas of the country experiencing double digit appreciation. With a 6 month supply of housing, the supply/demand see-saw seems to be in balance. It’s neither a “buyer’s nor a seller’s market.” Per historical standards, prices don’t start dropping till there’s about a 12 month supply of houses.
Should We Wait to Buy?
Buying a home is not only a personal decision, but a financial one. If you need a house, you need a house. You’re okay to buy, just BE SURE to get a sturdy loan (30 year, fixed rate is best) with favorable terms, and a good deal on the property’s purchase price - what we like to call “inherent” or “intrinsic” value.
What To Do If The Sky Falls (or even if it isn’t falling)
If all else fails and we all go to economic-inferno-in-a-hand-basket, the following tips will help you sleep better at night.
Save some money: A good chunk of savings never hurt anyone, and it prepares you for rainy days.
Avoid impulse buys and the “I want it NOW” syndrome: Be very cautious about spending your hard earned money. Ask yourself, “Do I really NEED that high definition TV?”
If you already own a home: Avoid refinancing if you already have a good loan, it eats up your equity. If you can afford it, throw a little extra to principal on your house payment every month to build equity. And before you make any kind of decision such as borrowing money, remodeling, moving, selling, or the like, ALWAYS check with The HousingWiz.
If you must buy a home, do your homework: Consult with The HousingWiz to ensure you put you and your family in a favorable financial position.
Keep your eye on HousingWiz.com for bubble updates. We’re tracking it like “Chicken-Little” hound dogs. Happy Housing,
John Dubois
The HousingWiz Assistant
June, 2005
Loans 101 - Using Other People’s Money to Buy a House
The most utilized method of home purchase on the planet.
Where do we go to borrow money?
The first place to check is your bank or credit union. Many of them offer specials and favorable terms to customers and account holders. Another good place is online. With the internet’s advent, an infinite supply of lenders have the capability to process loans via the web; however, make sure you get a Truth in Lending and a Good Faith Estimate from the lender; go over them with your real estate agent. A good source, of course, is to ask your real estate agent for the name of a good lender.
What kind of loans are out there?
Loans (a.k.a. mortgages, or notes) come in as many types as there are insects on the planet. Most are payable in monthly installments at a certain interest rate for a period of 10, 15, or 30 years with 30 being the most common. Some are guaranteed or insured by the government (Federal Housing Administration and/or Department of Veteran’s Affairs) meaning if the borrowers quit making payments, the government keeps the lender from taking a serious loss.
How much should we put down?
Historically, lenders required a minimum of 20% down, but as credit has become lax, lenders require less and less (which is good for buyers). The general rule is: the more you put down, the more favorable terms the lender will offer. In the current market in the Dallas/Fort Worth area, it is possible to get very low down payment loans—even zero move in.
Interest rates and types of interest terms
In terms of rates, the best loans have a fixed rate. So how do we get the lowest rate? A good credit rating certainly helps. If you need to do some homework on your credit before you buy, it may be well worth it. As we write this article, interest rates are at their lowest in decades. This won’t last forever. But beware of tricky loans: Stay away from Adjustable Rate Mortgages (a.k.a. ARMs) and Interest Only loans. The rates on ARMs can increase, meaning the monthly payment could become unaffordable to the borrower. Interest Only loans put none of your payment towards the balance of the loan. This means none of your loan is being paid off. Sure, they offer lower than average payments at the beginning, but it doesn’t favor buyers in the long run. We HIGHLY recommend sticking with fixed rate mortgages!
What will my monthly payment look like?
Your monthly payment will include a small portion to be applied towards | 
