Advice from Warren Buffett on the Real Estate Market

Warren Buffett, the man the myth the legend.  Commonly known as the worlds number one investor.  A man that despite his means, lives a very humble life.  Meeting him, you'd never know he was a billionare and known as the Oracle of Omaha.  His wisdom and investing strategies are such that when he speaks, Wall Street listens.  Well with his influence over the masses it sure would be nice to hear his thoughts on the housing market wouldn't it?  Well here he shares some tips for us all to buy into and learn from if you feel his advice is warranted, which i do :)

1. The Basic Premise of Home Ownership -- That Homes Increase In Value Over Time -- Is Sound

Last spring, the Congressional Financial Crisis Inquiry Commission called Buffett in for an interview. He was asked to explain some of his bubble-era investment decisions, as well as to give his take on what in the heck had happened to the economy. In the process, Buffett expressed his belief that the housing bubble was inflated by an irrational, widespread belief that home prices would only ever go up -- an extreme corruption of a generally valid premise. "It's a totally sound premise that houses will become worth more over time because the dollar becomes worth less," Buffett declared.

The sound premise, Buffett explained, got distorted and eventually caused the housing crisis when Americans started buying multiple homes to cash in on what they assumed was guaranteed appreciation, taking out "liar's loans," buying homes with no down payment and with unaffordable monthly payments -- and lenders let them -- all because of the assumption that prices could never go down.


Clearly, this assumption was wrong. As Buffett said in an earlier shareholder's letter: "A pin lies in wait for every bubble."


2. Buy Low (And Now Would Be a Good Time for That)


Buffett writes a letter to Berkshire Hathaway's shareholders every year that is chock-full of his review of the company's fortunes (literally) over the preceding year, his analysis of the stock market and the economy in general, and his smart, plain English tips on life and money and on life.


In last month's annual shareholder letter, Buffett addressed the industry-leading 2010 performance of one of his company's holdings, which sells and finances manufactured homes. During that discussion, the money maven declared that now would be a sensible time to buy a home, in light of record-high affordability: "Home ownership makes sense for most Americans, particularly at today's lower prices and bargain interest rates."

And Buffett didn't stop there. He pointed out his own tenure as a homeowner as an example. "All things considered, the third-best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks," he wrote. Then, to clarify for the readers who'd want to know what numbers one and two were, Buffett elaborated: "The two best investments were wedding rings."


3. But Don't Wait Too Long To Take Advantage of Low Prices


Buffett wrote a 2008 Op-Ed in the New York Times, explaining that buying while prices are low is stressful, because economic markets are volatile and impossible to predict in the short term, even for him. So, when conditions make an investment -- in stocks or in a home -- particularly advantageous, Buffett says not to hesitate too long. Painting a vivid verbal image to illustrate the likelihood that market prices "will move higher, perhaps substantially so, well before either sentiment or the economy turns up," Buffett warned: "if you wait for the robins, Spring will be over."

4. The Smart Way to Own a Home Has Three Elements


Those elements are: fixed mortgage, affordable payments and long-term hold. Detailing why his manufactured housing holding has done so much better than the rest of the real estate market, Buffett pointed out that "[o]ur approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. This policy kept [the company] solvent and also kept buyers in their homes." And that was the ultimate difference between smart home-buying and the home-buying that led to the real estate bubble and the foreclosure crisis.


"If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did."


 In the stock world, Buffett has been quoted as advising investors to "only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." Well known for practicing what he preaches, we can presume a long-term hold strategy would also be an integral part of Buffett's advisory to homeowners, too. Despite his net worth of somewhere around $50 billion, according to the latest Forbes tally, Buffett still lives in the 5-bedroom Nebraska home he bought 52 years ago for $31,500.

5. Buying Your "Dream Home" May Lead to Nightmares


In the 2010 shareholder letter, after he pointed out the right way to own a home, Buffett went on to caution Americans against the wrong way. When dream homes are bought for ever-escalating prices, using rapidly adjusting mortgage payments and unsustainable monthly costs vis-a-vis the homeowners' income, the dream can go bad quickly. Buffett warned, "a house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender -- often protected by a government guarantee -- facilitates his fantasy. Our country's social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford."

I can't agree more with Mr. Buffet that now is a wonderful time to buy and that timing the market perfectly may not be feasible.  If you are currently renting or thinking about moving into a larger home, the opportunities that we are seeing daily are amazing and shouldn't be ignored. 

If you find this blog useful or beneficial, please as always forward to any friends or family that may also benefit.  Thanks and have a wonderful day! :) Ben

9 Tips for Staging Your Home to Sell

9 Staging Tips to Sell Your Home Quickly

Surveys show that staging pays off and often helps to sell a home fast. But you don't have to spend thousands to make a big impact. Put the home center stage with these tips!

1. First Impressions Count

Roll out the red carpet for potential home buyers by sprucing up your entryways, especially the one on a lockbox. Welcome mats, planters filled with seasonal flowers, and clutter-free foyers and hallways set the stage.

2. Sell the Space, Not Your Stuff

Remember that the goal of a successful showing is to make a prospect feel at home – like it's theirs, not yours. Put away your extensive personal collections. Less is more: open up your space so prospects can actually see what they're buying.

3. Paint and Elbow Grease Work Wonders

Fresh paint and a thorough cleaning will give you the greatest “bang for your buck.” Remember that neutral walls are your best bet when staging a home for sale.

4. Go with the Flow

Arrange furniture for easy traffic flow. Consider placing a major piece of furniture at an angle, such as a couch or desk. Angles add interest and can create a more open feel.

5. See the Light

Move lamps to dark corners and arrange window treatments so that natural light floods your rooms. Brighter is better, and your rooms will look larger.

6. Go Green

Live plants can add decorative flair, without spending a bundle. Plants and cut flowers have a way of warming up a room.

7. Don't Forget the Outdoors

If you have a porch, deck or patio, clean the furniture and replace worn cushions. Give your deck a fresh finish with a new stain and seal.

8. Make the Kitchen Sparkle

Declutter the countertops by removing toasters, food processors, and other non-decorative items. If you have a breakfast table or counter, put out a couple of table settings complete with place mats, napkins, and dinnerware.

9. Warm Up an Empty Home

If your home is vacant, consider renting furniture for key rooms, but don't go overboard. Ask your real estate professional for advice, based on your home's unique features and selling points.

These are some great starters to get your home prepared for your open house or its introduction to the market. Remember, this market is extremely competitive for sellers and by utlizing the advice you'll find here and other areas you can only help improve your chances for a quick and successful home sale!

Thanks again for reading my blog and be sure to forward this to any friends or family that may benefit. Also, if you are looking to purchase or sell a home, please feel free to contact me direct as I welcome the opportunity to work for you!

Thinking of Being a Landlord or Investor? Understanding Cap Rate is a Must!

Hello and thanks for reading my blog! If you are not a regular follower of this blog, please subscribe to it today. You'll be glad you did as I routinely share many useful tips for your home, tips on investing, and updates on the real estate market locally and nationally.

Today, I am going to discuss with you how to calculate capitalization rate and why this is a must when investing in real estate.

In order to invest in real estate in income producing properties you must have a method in determining the value of the property you're considering buying and by utilizing the tool of calculating cap rate you can quickly weed out homes that may or may not be a good investment.

So what is cap rate?

Definition: Capitalization rate defines the percentage number used to determine the current value of a property based on estimated future operating income. In other words, taking the net operating income from an apartment complex and dividing it by the capitalization rate would yield the approximate current value of the complex.

The capitalization rate would be determined based on an appraisal and/or the cap rates of similar properties that have sold recently. By taking another apartment project that sold recently, determining it's net operating income (NOI), you would divide the income by the sold price to get the cap rate.

When I review homes, I personally with some exceptions look for properties that have cap rates of 10% or better. For me, this guarantees that once I put money down and purchase the home, that I am immediately cash flowing. Many investors will be happy with less, for me its a number that I try to stick to and have found success.

The Cap Rate is computed by taking the rental net operating income (NOI) and dividing it by the property's fair market value (FMV). The higher the Capitalization Rate is the better.

Cap Rate - Practical Use #1
You can use the Cap Rate to value your property. Let's say that your property generates $10,000 of annual net operating income. Your real estate agent tells you that the Capitalization Rate in your area is approximately 4%. That would mean that the approximate fair market value of your property is $250,000 ($10,000 / .04).

Cap Rate - Practical Use #2
Let's assume that you are looking at investing in two properties. The first property has a projected NOI of $20,000 and an asking price of $500,000. The second property has a NOI of only $10,000 but an asking price of $110,000. Which one would the Cap Rate suggest is a better investment? That's right, the second property since the Cap Rate is 9% ($10,000 / $110,000) versus 4% ($20,000 / $500,000).

Hopefully the above has helped you both understand the benefit of understanding what cap rate is and how to determine what it is for your own properties or others that you are considering investing into.

Want additional information or assistance in finding a great home? Contact me direct for a free consultation where we will work on a personal plan for your own success!

Avoid Paying to Much for your Next Home

Buying a home is one of the most exciting moments in life. It can also be one of the scariest. The question in every buyer's mind is: "How Do I make Sure that I'm not paying too much for this house?" In today's market, this is a valid concern.

In today's market it's not unusual to see homes which had been reduced tens of thousands of dollars...I'm talking between $40,000 ~ $50,000 and still remained unsold! In the higher price ranges, the downward shift was even more bone chilling...$100,000 ~ $150,000 or more. Matter of fact, recently I've spent a large amount of time viewing some absolutely gorgeous homes in Plainfield that were built in the past 4-5 years, sold for 600K-700K and now available for 300-400K! That kind of depreciation can feel like you're watching your money burn.

Throughout the country and locally, inventory levels are at an all time high. If no additional homes were listed in the Naperville Illinois area the current rate of sales would take the homes currently listed about a year to sell and in some cases more. This is what real estate agents refer to as the Absorption Rate...the rate at which homes are being absorbed in the current local market.

The absorption rate is important to follow. When it begins to fall or rise, it foreshadows a turn in market conditions. For reference purposes, a healthy rate of absorption is between 3-6 months of supply.

So, what's a buyer to do? There is a risk to purchasing and paying over market value for a home. But there is also a more insidious issue...the FEAR of being so cautious about making a mistake that you miss a deal that's literally "dancing across your eyelids" in the hopes that you'll blink and take notice.

You see, every market has its' great deals and its' lousy deals. It's not so much a function of the market as it is in knowing when you should hold on to an asset and when you need to let it go. AND everything hinges on HOW you buy the asset in the first place. Buying an over valued asset guarantees that money will be lost...your money. The key is identifying when this is about to take place.

Correctly discerning when money is going to be lost in a real estate transaction is a skill that requires precision, attention to detail and the wisdom of experience. In truth...there's also an element of luck involved. There is no guarantee when it comes to the market that is will improve or worsen, only time will tell. There are some situations which no advance preparation can completely protect against. Life happens...devastating financial reversals in a local economy can wreck havoc with pricing and subsequently a community's home values.

Nevertheless, there are some simple steps that can help you to assess what to pay for a particular home.

1. Know Your Market~
Contrary to conventional wisdom, I do think that home buyers have a responsibility to do their own independent research. Go on-line and look at homes, visit Open Houses and model homes and talk with friends who have bought homes. When you do these things AND talk with a competent professional real estate agent, you are much more likely to understand WHAT questions you need to ask AND to understand the implications of the counsel that you are being given. So often, I see clients who are given excellent information not follow it because they don't know enough about the issues at hand to make a good judgement.

2. Interview more than 1 Agent. ~
According to data compiled by the National Association of Realtors, most people will only interview one agent. This is not wise. There are significant differences in the service and experience levels offered by real estate agents. Most people would not buy the first car they looked at on a lot or forgo having a second opinion when facing a major medical decision. Purchasing a home correctly is a hefty financial obligation. Give yourself the benefit of comparing your options. Choosing the right real estate agent greatly increases the likelihood that you will have the information necessary to make the right offer.

3. Insist on a Comparative Market Analysis AND a Neighborhood Analysis.
At a time when prices in some locations can plummet as much as 25% within a six month period, it's important to have as much information as you can prior to making an offer. A properly prepared Neighborhood analysis will enable you to make comparisons across different neighborhoods. If you are not constrained by a school district, this can afford some incredible opportunities to purchase a good deal. When you compare similar homes in different areas, it is possible to identify which areas are holding their value.

A Comparative Market analysis is the traditional vehicle for determining a home's value. Often this is ONLY made available to home sellers. As a home buyer seeking to protect your investment, you should INSIST that you are given access to this valuable information. A good real estate agent will modify the Comparative Market analysis to ensure that as a home buyer, you are obtaining the information which allows you to make an educated decision about a particular home purchase.

At Advantage Realty Group we provide a number of specialized services to clients who are interested in making a solid investment. We understand that the Value of a Home can never be reduced to simple monetary terms. However, we know that for many home buyers, the prospect of making a poor decision is daunting. Our goal is to put our considerable experience and resources to work for our clients and assist in facilitating a transaction which enables your dream home to remain an excellent investment.

Tips to Prepare for Your Home Appraisal

When it comes to home appraisal tips, take the time to review what moves will have the most impact. An appraisal occurs when a property is evaluated and a monetary value is set by an independent analyst, called an appraiser. Home appraisals also take into account the area where the property is located and the value of similar property in the neighborhood.

Two Weeks Before An Appraisal

Pull together a list of all the major repairs and upgrades that the home has. For example, if you replaced the roof a few years ago, make a note of that. Other key upkeeps are new water heaters, replaced windows and upgraded HVAC systems.

Add valuable features to the home and property. It's not necessary to do an extensive remodel, but investing a few hundred dollars in things like bathroom fixtures, storage shelves in the garage and newly planted trees can all add up to a higher appraisal.

Take care of all the small things wrong with the home, such as burned-out light bulbs, broken front steps, sticky sliding glass doors and smoke detectors without batteries.

One Week Before An Appraisal

Get the inside of the home in as good a shape as possible, including a fresh coat of neutral-colored paint. Other ideas for sprucing up the home include professional carpet cleaning, window washing and hiring a professional cleaning crew.

Don't ignore the outside of the home, either. Clean up all the landscaping so that it is visually appealing. Add to the landscaping, if possible, such as extending the patio or deck with paving stones, planting flowers in beds or pots or even cleaning up cluttered, junky areas of the property.
Simplify the look and layout of furniture and storage inside the home. If you have too much furniture crowded in one room, rearrange and even remove pieces so the room looks bigger and more spacious.

Clean cluttered shelves, and replace stuff with a few simple ornamental pieces. Giving the illusion of more space and clean and simple lines makes a room look bigger and feel more spacious.

The Day Before The Appraisal

Clean the house completely, with no room left undone. Look for cobwebs in high corners, dust light fixtures, sweep and mop floors and take out the garbage.

Place some potted flowers near the entrance of the home (proper weather allowing) to enhance the "curb" appeal.

Ensure the house smells good, either with a scented candle, air freshener or even freshly baked brownies.

Use the tips above and give your home the best chance to shine during its next appraisal. Now more than ever with the strict guidelines and regulations that lenders have, an appraisal can make or break a sale!