Thursday, July 13, 2006

Real Estate vs Stock

In an ideal world people have both kinds of investments in their portfolios – but our world is not ideal. Generally Americans do not view their homes as part of their investment portfolio. Traditionally people purchase homes to raise their families making their home their single long-term investment. Some homeowners invest in stocks for financial security or to see them beyond retirement. That is changing some, in part because of the downfall of companies like Enron and the fact that people are bombarded with volatility of the stock market daily: online, newspapers and television. Real estate investing appears more stable and many people are turning it away from stock.



In light of these misgivings, some investors may find direct investment in individual real estate projects an attractive alternative to pouring funds into equity shares of corporations, including real estate investment trusts (REIT), or even corporate bonds… Investors in real estate projects have the opportunity to take more direct control of their investments,” reports Charles E. Gilliland.


It would be easy to just encourage people to buy homes (after all I am a real estate professional) but real estate is only one type investment strategy and timing is an important issue. If you are willing to do some homework and have the time and inclination to deal with the tasks in owning real estate then it can be a lucrative business. If you find the volatility of the stock market distressing and want to have better control over your investments then real estate makes sense for you.



In a comparison of real estate vs stock Forbes.com’s Sara Clemence found that in the short term real estate is the better (1999-2004 stats) deal but looking at a term of say 25 years then the stock (S&P 500) is the winner. While it is true that in the long-term the stock market appears to do better, the comparison is not simple and some important numbers did not make the comparison as Ms Clemence freely admits. The dividends homeownership were not factored into the comparison such as rental income. Then again stocks do not have repair costs. The idea is to figure out what is the best way to make your money work. For some that will be real estate and for others it won’t.



Now don’t get me wrong, what I am talking about is not a substitute for professional financial planning advice. A financial planner helps individuals decide what is best for a particular situation. That said collecting the dividend of homeownership rather than giving it away in paying rent makes sense. Do you homework. Know what is happening with you portfolio and remember a home is part of your portfolio.




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Wednesday, July 12, 2006

Tip of the Day: Selling? Staging Effect Dollars

When selling a home, there is a relationship between the selling price and how buyer feels about the house – how the home showed. With the change in the market of last year, sellers have to “show off“ the attractions of a home to make is stand out from the other places a buyer sees. The home stager helps sellers make the transition from lived-in home to house for sale shortening the time a home spends on the market. To get top dollar for a home, sellers should seek the advice of a home stager.

Home stagers give aggressive advice to help people sell their homes. They may
suggest new paint colors, how to rearrange furniture, what to take off walls and
shelves. If needed, they’ll even loan or rent furniture and accessories to dress
up a place” reports Annie Calovich of the Wichita Eagle.

What the seller must remember is buyers want to look at a home and imagine it being their home. If there are too many reminders (personal items, knickknacks, and pictures) that disturb the potential buyer’s imagining, the buyer will look elsewhere. Staging helps the seller remove all disturbing influences. Large furniture pieces may be comfortable but two many pieces become clutter and make a room appear smaller. Less furniture can also make a small room appear larger. The home stager can help the seller determine what will help the house sell.

According to Keith Rockmael, a contributor to The Christian Science Monitor:


Many people are under the misconception that staging is a pricey option for rich homeowners. Not true: Staging is about the creativity, not the money. What some people don't realize when they sell their house "as is" or don't stage is that it can actually cost them money.

Home staging need not be expensive if the homeowner is willing to help with the work of preparing a house for sale. A staging consultation can cost as little as $250. Some professional realtors take the extra training to become home stagers or have a list of home stagers they have worked with in the past and are willing to arrange a consultation.

Preparation of a home for sale is different from just living in the home. Clutter, often familiar and comfortable to the homeowner, can prevent a top dollar home sale. Having an expert help you take the steps to depersonalizing a home may well be worth the price of a consultation.




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Monday, July 10, 2006

Wake Up and Pay Attention


The Problem: Interest Rates are going up

The 30-year fixed mortgage interest rate increased nationally from 6.33% to 6.4% this week while the 5/1 adjustable rate mortgage also increased from 5.93% to 6.01%. In New Jersey, the numbers are a bit higher but the rate actually fell from 6.44% to 6.42%.

The federal fund rate increased slightly over the last three months. The federal fund rate (FFR), which is the interest rate banks with excess reserves at a federal-reserve district bank charges member banks needing overnight loans to meet reserve requirements, is the most sensitive indicator of interest rates because it is set daily by the market. It is more sensitive than the prime rate which is set by banks or the discount rate which is set by the Fed.

Why it Matters to You

The rate increasing means an average buyer will get less house for his or her investment dollar since more will go to repaying the interest on the mortgage. It makes sense to pay more during the early few years of the mortgage to pay down the principle so that the amount paid toward the end of the mortgage will decrease.



For those whose credit history is relatively small or those with poor credit the outlook is less promising. Often these buyers are ineligible for fix rate mortgages. The 7/1 adjustable rate mortgage (ARM) rate in New Jersey though lower than the 30-year fixed rate at 6.18% dropped from last week’s 6.2%.

Unfortunately, a 7/1 ARM means after the first seven years of the mortgage, the rate can change annually. Many people are finding themselves facing foreclosure with ARM payments becoming too high for their income. According to Foreclosure.com foreclosures are expected to rise across the country. An article appearing in the business section of Colorado's Pueblo Chieftain describes the situation of one family. The falling unemployment rate has helped keep more people from falling behind in the first three month of this year but it is a delicate balance. Any rise in the unemployment rate and the expected rise in the foreclosure rate may almost be a certainty.

What is Happening

Buyers are not the only one taking a second look at things. Builders are also re-evaluating their perspectives on the new-home market as are their investors. The sellers market of 2005 has changed. What the new-home market can tolerate is still unclear but builder confidence is decreasing according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for June. From a May report to the June report the index for the Northeast fell seven points.

What the rising interest rate means to the house seller is that it will take longer to find a buyer. If the house seller is using the sale of their present home to purchase their new home getting the timing synchronized will be essential. Pre-qualifying for mortgages will help determine the amount of house a buyer can afford. The best place to find a person with the most experience of pointing people in the right direction for a mortgage broker is the professional realtor. Still mortgage brokers are not hard to find.

What You Can Do

Everyone involved in the housing market is affected either directly or indirectly by the changes in the interest rate and everyone needs to pay attention. The housing market is directly impacted by the unemployment rate. So a rise in it will affect the housing market. Hopefully the American economy will stabilize and her people will remain employed. We all need to just keep an alert eye on things.



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