$49.00 While the media sends a wave of panic over homeowners, the reality is that you have far more options than you might think. This report explains how to capitalize on today’s changing market and make the move you’ve always dreamed of.
How to Turn a $100,000 Drop in Your Home’s Value into a
$200,000 Gain A Special Report Prepared by REALTOR® Jonathan Modene
How to Turn a $100,000 Drop in Your Home’s Value into a $200,000 Gain
The headlines could hardly be more frightening. Unemployment still running high. Is the threat of another wave of foreclosures real? Homeowners everywhere are watching the economic indicators to try and decipher where this changing market is headed. The fear is understandable. As everyone monitors the economy, and more specifically the changing housing market, the strategy for most homeowners is to dig in their heels and weather the storm until their home’s value rises once again. It’s an approach that, on the surface, seems rational and logical. After all, you don’t want to lose money on the house you’re in now. But if your long-term goal is to move up to a bigger and better home for you and your family, employing this strategy might cost you dearly as you miss out on a tremendous opportunity.
The Land of Peaks and Valleys Like any market economy, real estate is cyclical. Prices rise and fall repeatedly, and over the course of history, the rises have been larger than the falls. That’s why real estate has traditionally been such a good long-term investment. Factor in where we’re at in the cycle today, and real estate becomes an especially attractive investment when the market is at a low point. Like John D. Rockefeller said famously, “The way to make money is to buy when blood is running in the streets.” In this report, my goal is to show you how to capitalize on today’s market conditions by taking a proactive approach to your investments. You might be surprised to find that your best strategy goes directly against conventional wisdom.
The Mindset for Real Estate Success The key to success in real estate is remembering that your investment is for the long term. Your house isn’t something you’re going to buy now and sell in two years and never have to worry about again, pocketing a nice profit or taking a loss in the process. For most people, housing yourself and your family is a constant expense and must be viewed not for today, but for its long-term projections. As we discussed earlier, real estate has historically been one of the greatest investment opportunities available. Even when prices dip, they often rebound to higher highs when the cycle turns. So let’s take a look at a real-world example of how this can impact your decision making when it comes to your own investment. For the purposes of this example, let me tell you about a couple I knew who were in a situation much like yourself. We’ll call them John and Mary. John and Mary have two kids, one in preschool and the other a second grader. When I met them, they had recently bought a three-bedroom, 2,100-foot home with a two-car garage and a small yard. It was a nice home but their intent was not to live there for the long term. They wanted more room for their kids and living in a more luxurious home was their ultimate goal. They wanted this to be “home” for a few years before they were able to move up. They paid $495,000 for their home just a few years ago. At the time, that was a good price right in the middle of what comparable homes in their neighborhood were selling for.
Scared to Death Dealing with the aftermath of the sub-prime meltdown and the real estate bubble bursting, John knew I was in real estate and often sought my advice while commiserating about how he and Mary had bought at the wrong time. Home values had fallen considerably and John was scared to death that now his family would be stuck in their home for the long term. From his perspective, the only way out was to wait for the market to fully recover and eventually surpass the price he paid before he could even begin to think about selling their house and moving up to the house of their dreams. He and I had many conversations about this and each time, I told him that his situation wasn’t as dire as he made it out to be. I told him he still had options but he didn’t want to hear it – he simply wasn’t interested in selling his home for less than he’d paid for it. He prided himself on being a smart investor, and his ego just wouldn’t let him take a loss on what he viewed as his most important investment.
Don’t Be Fooled: It’s Not as Bad as You Think Finally, one day, he came to me exasperated. He started saying again how his hands were tied and how he felt like his kids would be in college before he was able to sell his house and move up. This time, however, he agreed to listen to my suggestion. I explained to him that taking a loss on his house wasn’t the end of the world – especially when you consider what it could allow him to do. His eyes sparkled a little bit at the possibilities. I continued showing him how prices across the board had dropped significantly since he’d bought his house, and how the selling price of homes in his desired “move up” category have decreased at an even greater rate than his own house. Finally he started to see the light at the end of the tunnel. “So you’re saying now is actually a good time to move up?” John asked. “Exactly!” I said. He still wasn’t crazy about the idea of selling his house for less than what he paid, but when I showed him the numbers, he saw the beauty of making a move now. We ended up selling his house for $399,000, allowing him to move up to a five-bedroom, 3400-square foot house with a three-car garage for $615,000. Here’s the real kicker: the house he bought was selling for $825,000 two years ago when he bought his house. By selling their house for $100,000 less than they paid, John and Mary were able to move up to a dream home that was previously out of their price range, all because they acted before the market began to heat up again.
Now’s the Time It almost goes without saying that timing is everything in any investment. I say “almost” because I see so many homeowners who think they shouldn’t sell their home in a down market. But here’s the thing – if you plan on buying a bigger home, there’s absolutely no reason not to make your move now. Interest rates are low and will only rise when home prices begin to rise again. An important factor to your real estate success is being able to ignore all of the “doom and gloom” headlines and TV news stories about the market. While the media has created the perception that the bottom is falling out, the reality is that there are many great opportunities waiting to be capitalized upon in the market right now. Here’s a warning, however.
The media has also personified current market conditions in such a way that many buyers think they’re going to “steal” a property. This, too, is a fallacy that can set unrealistic expectations when you begin searching for your new home.
The Media-Fueled Myth If you pick up a newspaper on any given day, you might think buying a house in foreclosure is simply an easy way to get a great deal. The reality is that all of the foreclosures, REOs and short sales you hear about are difficult, complicated sales and rarely actually sold at prices far below market value. Furthermore, these unique sales tactics are often not fully understood by the general public. For that reason, I’ve provided a quick description of short sales and REOs below. Short Sale A short sale is a transaction in which the lender agrees to forgive part of the loan. This is an offer made from the lender with the aim of staving off foreclosure. A homeowner can request a short sale, but in most cases, the lender is only going to agree to it when it’s in their best interests. In a short sale, the seller gets some debt forgiven, but the buyer isn’t typically getting a great deal on sale price of the property. There’s a lot of hype about short sales that tends to give buyers false hope, but it’s primarily due to a misunderstanding of what a short sale entails. REO: Real Estate Owned REO stands for “real estate owned,” which means property owned by a bank or a lending institution. These properties are not owned by a private party. Now, a bank or lending institution isn’t in the business of holding property, but on the other hand, they possess the financial wherewithal to wait for a reasonable offer before selling. What’s more, they have a staff of real estate appraisers working for them, so they aren’t going to sell a property at an amazingly discounted price. Most REOs sell for very close to fair market value. Banks do, however, tend to frequently offer attractive financing to those with immaculate credit when buying an REO. If you have a perfect credit rating, you may be able to purchase an REO with little or no money down. Here’s the dilemma – the types of homes most people with perfect credit are looking for usually do not exist in the REO marketplace. REOs are not often your nice, upscale homes. This is because most people with reasonable credit realize they are in financial trouble and take steps to sell their home long
before they get into desperate financial straits. REOs are viable opportunities for investors with great credit looking to expand their portfolios, but otherwise the hype surrounding them has created a false perception that they offer the single-family home buyer a great bargain. Sadly, this just isn’t true.
Great Rates If You Act Now A Lending Tree analysis printed in Time Magazine (see table below) shows how if you bought a home today with a 30-year fixed mortgage at a 5.5 percent interest rate with 20 percent down, your payments would actually be less than if you waited for prices to drop an additional 10 percent if the Federal Reserve raises interest rates half a point due to an end of the recession. TODAY
12 MONTHS FROM NOW
$218,000
Typical Home Price
$197,010
5.5%
Interest Rate
6%
$994.31
Monthly Payment
Put 20% down and get a 30-year fixed-rate mortgage
Current rates after recent declines
If prices drop an additional 10%
Recession ends; Fed raises rates
$994.94
Although your payment will be higher when moving to a larger home, if you wait to make your move and interest rates rise, the jump to your higher payment will only grow larger. In other words, if not now, when? Will you be able to afford to move up if you don’t act now when the differences between home values are less pronounced? You Have Lots of Options When it comes to real estate, everyone is in a different place and every situation is different. The good news is that chances are you currently have many more options than the media and the general industry malaise would have you know. In order to help you take advantage of the opportunities presented by today’s market, I’d like to offer you a free copy of my Home Buyer’s Questionnaire. This is a worksheet that will help you identify and focus on what, exactly, you’re looking for in your next home. I’ve found that having
buyers complete this questionnaire helps clarify your goals and objectives, will save you time and in the end, will lead to a much smoother process throughout the purchase of your next home. Frankly, I’m amazed that so many full- and part-time real estate agents don’t utilize this important process for their buyers. Once you’ve completed the questionnaire, I invite you to call me to discuss where you’re at and together we can devise a strategy to help you reach your real estate goals. The scenarios and tactics discussed in this report are only the tip of the iceberg of your options. Once I better understand your current situation, I’ll be able to help you review your options and then you can decide whether or not now is the right time for you and your family to move up to a bigger and better home. I look forward to your call and hope I can assist you with any real estate-related questions you might have now and in the future. Thanks for reading!
Jon Modene 419-466-7653 jon@modene.com
9094 Baltimore Ave. College Park, MD 20740