Tuesday, August 01, 2006

Lazy Days, but It's Not My Fault!!!

Apologies for the near six-week hiatus. Shortly after my last post, I came down with an illness that could only be diagnosed as "not strep" and "not mono". The doctor's advice? Take ibuprofen for the fever and come back if I don't feel better in a week. Well, the fever did subside within a week (over 103 degrees at its worst), the throat eventually went back to normal (I could swallow, but I really didn't want to), but I am still sleeping nine hours a day. Have recently started a vitamin regimen to try to feel better, and also back to regular workouts - hopefully will FINALLY be back to normal in a couple weeks.

So this two-week illness necessitated my taking it easy for all of July. I did manage to close a sale and find some very lovely ladies apartments, but it was more luck than anything else - I lacked the energy to keep up the marketing, but I'm back on it now.

Of course, the first thing I came back to was the tightest market since 1999, which was the height of the dot-bomb bubble. I (blissfully shielded from the mania by living in a three-way share in a gorgeous Brooklyn Heights apartment building that I still covet today) remember those few of my friends who could afford to live in Manhattan (we were after all in our early 20s) scrambling to find guarantors. How I ever managed to live for only $540/month in rent is beyond me, but even today I find plenty of people who manage to find such situations. So, if you are planning to move to New York, go roommate first - it will save you a bundle and a headache. Besides craigslist, I recommend Roomster.net.

In other news, home sales have basically been flat for the summer. What does this mean? It means that prices are not going up right now. Sellers hoping to make the big bucks are going to be disappointed. Picking the right asking price is crucial to a quick sale. Picking the wrong asking price can mean months of sitting on the market and stalled plans for the future.

Buyers have more leverage than they have the past two years. This means that they have more to choose from and more ability to negotiate price. However, waiting for "the bottom to drop out" is unadvisable for the following reasons.

  • Interest rates are going up. Rates are tied to the 10-year bond issue, not the overnight funds rate that we hear so much about. On a $100,000 mortagage, you will pay $600 with a 6% interest rate but $665 with a 7% interest rate. Rates are already above 7% for a 30 year fixed mortgage for all but the highest credit scores. Keeping in mind that the average mortgage on a New York City home is far more than $100,000, and you would do well to get moving if you are serious.
  • Time is the greatest appreciator. In otherwords, even the worst investment can make money in the long run (although, considering that time is money, not a good idea to deliberately make a bad investment!). If you have a long time horizon - at least five to seven years - and you want to buy a home, chances are good that you will experience appreciation. If you find a property that you are willing to fix up and plan to live in for several years, then you can get even more appreciation.
  • Don't put the cart before the horse. If buying a home is important to you, then do it.

On the investment side, I have been learning quite a lot. It's no secret that the best investments never actually go on the market. Those sellers of investment properties who choose to go through a broker seem to have very inflated ideas of their property values, or they are looking for a very specific type of buyer. Most listings that I see are priced to need a minimum of 50% down to cover the necessary debt service, operating costs and allow for even minimal cashflow. On the other hand, many people are out there looking for land that they can develop into other types of property, most often condominiums. The enormous amount of money that they can achieve from the individual unit sales pushes up the property value (ie, the current owners know that developers will make more money so they try to get a larger piece of the pie).

According to The Real Deal , at least one high profile condo project has been cancelled due to increases in construction costs (the SUndari Lofts, unfortunately; they truly looked beautiful). Such developments lead me to urge caustion: investment purchases are best made with more than the minimum down payment, with adequate reserves and for cashflow purposes only - it is dangerous for all but the most experienced developers to be in the game for the next months.

The next few months find me and my partner in search of our next investment - likely to be another house in Philadelphia. We are not totally out of the woods on it yet, but light is at the end of the tunnel. Our tenant is happy and hopefully paying on time. Our second tenant has just chosen to renew his lease. It's not easy to practice what I preach. being a landlord is a harrowing experience. Even if you have many units (I know someone who has 63 units and still is worried about his building making cashflow), it is truly a business, and you have to run it thus.

As such, my goal for this month is to complete my tax return and implement my accounting system.This may take some doing but it's the right way to do things. A reorganization of my living room may help my organization problems, so that is possible as well. My partner is off on vacation for a week - that is always when most changes occur. We'll see if he recognizes his home upon his return :)

This computer is so slow, it's driving me crazy. I have more to say but it will just have to wait for tomorrow.

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