Even though we are some six years removed from the mortgage collapse, there are many investors who still look at the way things used to be. The biggest adjustment for investors, old and new, is to look at where your local market is at the moment. Property values and market information that is even a few months old can be unreliable, forcing you to make bad decisions. In this era, where short sales, foreclosures and real estate owned (REO) properties are still prevalent, you need to stay up to date with whatever area you are investing in. If you are looking at where values were instead of where they will be, you will find yourself quickly behind the eight ball. Adjustments are required to participate in today’s market – make sure you take the appropriate steps to accommodate the transition.
Depending on who you listen to, the real estate market is either poised to take off or still has room to bottom out. The truth is probably somewhere in the middle. However, it is true that every market is different. Furthermore, every market can change on a dime. With reduced inventory in many areas, all it takes is one or two distressed sales to have an impact on every other home in an area. Even though a house may have been listed for $300,000 a year ago, it doesn’t mean it is worth that amount. If the house didn’t sell and the price has gradually reduced, you need to adjust to the new list price. While value and potential may be there, the reality is that the market is talking and you need to listen to it.
It is hard for many investors to adjust their thinking in today’s market. They see properties that they may have owned or looked at that were once valued for tens of thousands of dollars higher, and think that is still the case. Regardless if you are dealing with real estate, art or a professional sports team, value is always a moving target. Things can often change in a short amount of time. Value is always just an estimate of worth. Any appraisal you have done on a property estimates the value that you can get if the house is listed on the open market. It is not until you list the property that you know what you can really get. Looking at where a house was listed and what it sells for can be two very different numbers.
Where many investors get themselves into trouble is in using old data when making a purchase and thinking there is value in their assertion. In a new market, real data is more important than what you think should happen. A house that you think should sell for a certain amount has to carry less weight than what a house actually sells for. Sometimes this can be perplexing to an investor when they just don’t understand why a property hasn’t sold or why it sold for a certain amount. That is the market talking. It is providing you with valuable information if you are willing to listen. If you are stubborn and caught up in where things were, you will end up overpaying for a property that is not worth what you think.
Adjusting to the new market means breaking down each listing, each sale and everything that is going on in the area. Knowing that a home recently sold a few blocks away from a property you have your eye on is important, but that is not enough. You need to look at the listing sheet and see if there were any circumstances that impacted the value. You need to look at the pictures and see if work had to be done, if copper was missing, who the seller was and if there were any circumstances that prompted them to sell. The more information you know, the better decisions you will make.
You also need to know what is going on with your market. Are there any changes to town policy, has the tax rate increased, is employment stable or if there are any new schools planned to open. All of these things, and many more, play a major factor in demand, which will have an impact on value. When things were going great in your market and demand was high and mortgages readily available, you could ignore these factors because the buying pool was deep. In today’s real estate environment, there aren’t as many buyers and the slightest changes in taxes or demographics can cause values to drop. It is knowing the little things like this that make all the difference between a good investment and one you will have to hope to break even on.
The market is constantly changing, and you have to change with it. Everything from how values are determined to what kind of sellers you should target change every few months. If you devoted your entire business to foreclosures, you may not have been as successful as you were two or three years ago. Being a good investor means spending time to stay on top of your business and having the ability to make changes as you see fit. Sometimes these changes pertain to your business, but often times it means changing the way you think about your market. 2007 is long gone, and even the beginning of 2014 is in your rearview mirror. The market is always changing and you need to change with it.