Thursday, April 28, 2016

Mortgage Interest Rate Update

It's Thursday!  Time for the mortgage interest rate update from Freddie Mac!

Every Thursday throughout the year, as it has since 1991, Freddie Mac publishes its report on what borrowers paid for average mortgage interest rates throughout the country over the past week.  Today's average covers Monday through Friday of this past week, and includes both 30-year and 15-year loan numbers, as well as 5/1 ARMS.

The Numbers:

This past week, the average borrower on a 30-year fixed rate qualifying loan got a 3.66% annual rate of interest, and paid 0.6% as a fee for that rate.  For that same loan over 15 years, the average fee was the same for a rate at 2.89%.

So what does that mean for you?  Had you secured a mortgage on your home this past week, amortizing it over the next 30 years, you'd have paid $600 as a fee for every $100,000 you borrowed.  Your 3.66% rate on that loan would have resulted in a monthly payment of $458.02 for every $100,000 you borrowed.

Doing the math, if you borrowed $300,000 against your home, you'd have paid $1800 as a fee at closing to get a monthly payment of $1374.07 a month for the next 360 months.

If you chose the 15-year option, the same fee would have applied, but the interest rate would be less at 2.89%.  For every $100,000 you borrowed, your monthly payment would be $685.30 for 180 months.  Doing the arithmetic, a $300,000 loan amount would result in a payment of $2055.91.

When I began selling real estate in the early 1980's, interest rates were around 18%.  Your payment for that same 30-year loan at $300,000 would have been $4521.26.

Wow.  Kind of makes you want to buy a home.

Call me as you need.  I'm always here for you.

Enjoy the day,
Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile

Monday, April 25, 2016

Madonna and Staging Your Home

I love Madonna.  Kind of.  A bit racy for my tastes, but I think she’s very talented.  And she taught me a valuable lesson about selling homes very early in my career.

Jim Bryan was one of my first bosses in the real estate sales business.  I was only a couple weeks on the job when he told me to get in the car.  He wanted to show me something important.

He drove to a neighborhood about five years old with a couple of homes for sale, and told me he wanted my opinion on the values.  No problem.  I knew the area well.

We walked into the first home and he told me to walk around and let me know what I thought.  The entry was nice.  You could see past the moss rock fireplace through the living and dining areas to the wall of glass in the back.  From the deck, you looked over a quiet ravine with a creek below.  The kitchen was modern, with stone counters and raised panel beech cabinets and all white appliances.

When I walked upstairs, Jim was in the first bedroom, staring at a poster on the wall.

“Who’s this?” he asked.

I had no idea.  A huge stage with a rock band had a tiny little lady you could barely see in the middle of it all.  She was obviously belting out a song and wasn’t wearing much.  In the bottom right corner, I read “Madonna”.

“Oh, this is Madonna,” I said.  “She’s the phenomenal new talent in the rock world.  Very big deal.”

Jim just looked and said, ”I think people should wear more clothes.”

When I finished walking through the home, he asked me what I thought of the asking price.  It was on the market for $84,900.

I knew this was a test, so considered my answer carefully.  “I think that’s fair.  This neighborhood will support that price,” I said.

Next house was three doors down on the same side of the street.  “Let’s take a look at this one,” Jim said.

When we walked in, I knew it was the same floor plan, same size, same builder built in the same year.  Nice rock fireplace, glass wall leading to the deck overlooking the ravine.  Cabinets were raised panel.  Nice appliances.

I found Jim upstairs in the first bedroom.  Amazingly, he was staring at the exact same poster of Madonna on the same wall of the same room.  These neighbors must have been good friends.

But it was different.  This poster was matted, under glass and framed.  The walls were painted a cream color.  I started looking differently at the whole house.  The furniture was leather.  The rugs on the hardwood floors were beautiful Persian-style rugs with colorful patterns.  All of the walls were painted in warm colors, and the rest of the art was actually art.  Real oil or watercolor framed in beautiful wooden frames.  Bookcases were stacked neatly, cut flowers in every room.  Even the dining table was set for a dinner party of eight, with cloth napkins and wine glasses.

“So this one’s asking $89,900,” Jim said.  “What do you think of that asking price?”

Again, I knew this was a test.  After some thought, I avoided the inevitable trap and told him, “You don’t get the furnishings with the house.  It’s the same house as the one down the street for $5000 less.  I don’t see it at $89,900.”

“Which one will sell first?” he asked.

“You don’t get the furniture.  The one for $84,900 will sell first.”

“But which one will sell first?” he asked.

“The one down the block.”

“But which one will sell first?” he asked.  I got it.

“This one, obviously,” I said.  “It’s a much nicer home.”

“Exactly,” he said.  “Let’s watch over the coming weeks and see.”

Jim was right.  The home that was staged beautifully sold three days later for almost full asking price.  The other was on the market for two months longer, and sold for less than the $84,900 they were asking.

It didn’t make sense.  The houses were identical, but one sold for significantly more money in much less time.

Statistics show that a buyer will make up his or her mind on whether or not to buy a home within 18-20 seconds after walking through the front door.  A home either feels wonderful or not.  It’s either home or not.  The rest of the tour is commonly just verifying that there really are bedrooms and bathrooms.

Staging a home is critical in any marketplace.  Sometimes remodeling or refurbishing a whole home, although perhaps expensive, is worth it on the bottom line.  Sometimes it’s not.  But always, cleaning and staging a home is critical.  It is always worth every dime and every hour spent on it.

If you’re thinking about selling your home or investment property in the coming year, it’s time to call me.  I’m happy to walk through with you and talk about what we might do to make those first seconds count.  Fact is, even Madonna, presented well, can help.

Call me as you need.  I’m always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Saturday, April 23, 2016

Dollar Cost Averaging

A client of mine and I had a conversation this week about long term investing in real estate.  He started out by asking the common question, “How do you know when to buy?”

I knew where he was going.  Generally speaking, the perfect investment model is Buy Low – Sell High.  It makes sense.  If you buy when the investment costs the least it’s ever been, and sell it when it’s at its zenith in the marketplace, you’ll make the most money you can make with that investment.  It’s timing the buy and sell that make it work.

The problem is obvious.  When you buy, how do you know the price isn’t going to go down in the coming weeks or months, perhaps years?  If the price is going down, you should wait and buy it then.  And when you sell, how do you know the price won’t increase after you’ve sold it?  If so, you should wait until then to sell.  You’ll make more money.

Answer:  You don’t.  You don’t know what the price will be in the near or far off future.  That’s the risk part.  Historically, everyone wants to time it all perfectly, and no one can.

This all assumes of course that profit is the only goal, and you have no need for the money for a specific purpose.  If you have a child entering college, right now may be the time to sell.  He’s going to school in the fall, and isn’t going to want to hear you tell him to wait a couple of years for the market to peak.

But assume that you have no specific plans that restrict your time frame.  Without knowing when the troughs and peaks will happen, how do you time your buy and sell?

Generally speaking, real estate is a long term investment.  Unless you’re buying, fixing and flipping a property, you’re usually in it for a number of years.  That makes it easier, and sets you up perfectly for the Dollar Cost Averaging model.

Dollar cost averaging is simple.  Rather than trying to choreograph your investment portfolio to buy at the lowest trough and sell at the highest peak – and almost always miss one, the other or both – you plan out your investment buying and selling in evenly spaced periods.  You buy one every year, or three years, or five years.  Decide when you will begin needing the money you gain from the appreciating property, and begin a timed selling of the properties evenly spaced out over a specific period of time.  You buy and sell according to your calendar plan, whether the markets at those times are up or down.  Just do it.

Statistically, in dollar cost averaging your portfolio, you mitigate much of the risk of investing, whether you’re buying real estate, stocks, bonds, funds or coins.  Think about it.  If you have chosen to buy a certain class of investment, you’re assuming that the value will increase over time.  If you didn’t, you wouldn’t buy it at any time.  And if you’re in it for a longer period of time, the later years will bring more value that the early years.  That means that, over time, the average price of buying will be less than the current value at any time.  Your risk is therefore less than if you tried to buy at the trough and sell at the peak.

Some of your buys will result in higher or lower returns than others.  But over time, the average return will be higher, simply because they all increased over that time.

People wonder at the sanity of investors jumping into the market when values are declining, and those same people can’t believe when someone sells something while values are increasing.  Statistically, though, those investors make more money than the people who try to time the market.  The absolute reason is that no one can know whether values will increase or decrease tomorrow afternoon, let alone next year.

In the end, investing in anything is something to take seriously.  Suddenly inheriting a significant amount of money and deciding to throw it all into buying Iraqi dinars because you heard that when the government finds its groove, they’ll immediately be worth a bundle is not a plan.  The most successful investors – those people who actually get to retire in a way that’s wonderfully secure and comfortable – are those that plan it out over time and stick to the plan.  That includes their homes.

Don’t wait.  Maybe dollar cost averaging is a place to start.  It’s been a proven plan for many, many very comfortable people.  And waiting to buy or sell until the market changes is not part of the plan.

If you’re thinking about it, call me.  We’ll set a time to get together.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile