Rate hikes, mortgage interest rates and the impact on the housing market have been all over the news for the last couple of months. With dramatic and conflicting headlines, many buyers and sellers are confused about how all this will all impact their plans. Fortunately, there are opportunities available for the right situations and we have plenty of experience and data behind us to help guide decisions on timing and pricing.
Some food for thought for three specific scenarios that are coming up regularly:
Q: We're outgrowing our space but are locked into a low mortgage rate. We aren't comfortable affording a larger home with both a higher rate and higher purchase price. How can we purchase a home that fits our current needs?
A: We often talk with families who are struggling to find something larger in town that fits their budget when both values and prices having increased. If you purchased when prices were lower and are locked into a mortgage rate in the 2s it can be hard to imagine trading that for one in the 6s with a higher balance.
The good news is that there are probably two strengths here: equity and a low rate. You may want to consider keeping your current home - and mortgage - as a rental property. With low payments and strong rental demand, it's likely that it will generate some income each month. Be sure to double check your estimates with your agent or broker.
If cash from the first house is needed to fund the next purchase, a HELOC may enable you to access additional equity.
More good news here is that there is less competition for buyers than there was a few months ago so you may be able to negotiate the purchase price some and will be more likely to get an offer accepted that includes contingencies.
Q: I'm a first time buyer and want to make a purchase before my rent increases again, but interest rates are pricing me out of the market. What should I do?
A: The saying "marry the house, date the rate" applies here, but it's advice that needs to be taken with caution. The idea is that you can never change the purchase price but a rate can be refinanced in the future. If you're certain that you'll be able to sell if necessary within the next 5-10 years, purchasing a property, espeically one where you're able to negotiate a bit on price, and using an adjustable rate mortgage might be a good option. It's important here to understand all the terms of your mortgage and feel confident that if your payments do increase after the initial period that you'll be comfortable with the new amount or that you'll be in a position where you can sell or refinance.
Another great option for first time buyers is house hacking. More about that in our last blog post on investing strategies. Rental income from another unit can go a long way towards making a purchase affordable that might not be otherwise. The bonus here is that it will probably allow you to build equity faster as well.
Q: We spent more time preparing to sell than we expected and are worried we missed the peak of the market. Should we still list our home?
A: The short answer is, it depends. The frenzy of multiple offers within the first hours on the market has died down but that doesn't necessarily mean it's not still a good time to sell. Inventory is still quite low and there are still buyers who need to move. And even though prices are down slightly from peaks in late spring, they're still higher than they were at this time last year.
If you have plenty of time and don't need the certainty of a sale in the next couple of months, you may feel comfortable waiting to see what the spring market brings. There is some risk in this since we never know for sure what will happen, and if rates continue to rise there could be more downward pressure on prices. That said, spring almost always sees more buyer demand than late fall and winter so it's possible that waiting will have its rewards.
Timing the market is nearly impossible though and always involves a bit of luck so don't beat yourself up for possibly missing the tippy top of the market. Besides, if you were spending that time improving your home it should be even more appealing to buyers than it would have been a few months back.
There's no one-size-fits-all strategy and we're in a market that's fluctuating so it's as important as ever to consult with your agent/broker and lender on what strategies will help you reach your goals. To stay on top of the market, make sure to follow us on social for weekly updates specific to Greater Boston.
head ovWe get a LOT of questions from real estate investors in and around Boston, and all over Massachusetts. Not only are we a firm that works with a lot of investor clients, the vast majority of us are investors ourselves. This, alongside our role in representing traditional end-user clients and knowing what they want, gives us a unique perspective on what makes a successful investment. All of us also love talking real estate and are glad to spend time going over specifics of individual goals and strategies.
There are many more, but here are the top five residential investing strategies for both new and experienced investors:
1. House Hacking
This is usually the best choice for someone new to real estate because there are optimal financing options and it's more forgiving than some of the others. Buy a multi-family home, live in one unit (taking advantage of the best rates and lowest down payments as an owner-occupant) and rent the other(s). The rental income can be used to offset the mortgage, allowing the investor to live at a very low cost and benefit from appreciation.
Most people are pretty familiar with this concept thanks to HGTV. The strategy is simple: buy a property that needs work, fix it up and resell it for a profit. In reality, before making the purchase it's important to make sure you know your ARV (after repair value), your construction budget and timeline - and stick to them - to ensure the numbers will work. Always ask your agent about specific upgrades and projects based on a property's location and most likely end user to make sure your choices will translate to a good return on investment.
Buy, Rehab, Rent, Refinance, Repeat: Think of this as a long term flip. Buy an undervalued property in need of repair, renovate it and get it rented out. Now you've increased the property value so you can refinance based on that amount, taking out your capital (and often more) to apply to the next purchase. Repeat and you'll build a cash flowing portfolio without tying up too much personal capital.
4. Short Term Rentals
This has become a lot more popular in recent years since renting a property short term, or as a vacation rental, usually brings in a lot more than it would as a traditional long term rental. Lots of local investors see this as a strategy to use out of state but it can be done here in Massachusetts too, as long as you've been careful about checking local rules and regulations (Boston, for example, doesn't allow short term rentals with very few exceptions) and you've researched the seasonal fluctuations in what your rental will bring in.
5. Long Term Rentals
Traditional long term rentals are another one that most people are familiar with; buy a property and rent it out for more than your expense. In Greater Boston, this is easier said than done and some investors buy rental property for appreciation rather than cash flow. With the right property (and location) though, investors can benefit from both cash flow and future appreciation. It's very important to go over Massachusetts landlord-tenant laws with your attorney - before making a purchase - and use approved paperwork provided by your agent to ensure everything is being done in compliance with state law.
Most successful investors find one or two niches and areas that work well for them and are able to build wealth (we haven't even touched on tax savings) for themselves and their families. We love being part of the process and our clients' success, so if you aren't already working with us, head over to our team page and reach out for a consult.
A new school is here and that means everyone is already talking about the latest rankings.
Parents, teachers and students know that school rankings need to be taken with a grain of salt. Each ranking system uses a different methodology and emphasizes certain factors over others and none can communicate things like individual experiences, special services, facilities, or extracurricular activities.
Case in point: four different ranking sites, four different number one schools:
All of the above are focused on public schools but do include charter schools, which can be an important consideration for families moving to the area. Charter schools are usually available to students in several nearby towns based and base admissions on a combination of application, eligibility and lottery.
All of these well-publicized school ratings are certainly not the whole picture but can be a starting point for more research and conversations with local families and administrators.
Whether a potential buyer will have children in the local school system or not, it is important to at least take school ratings into consideration for a real estate purchase. Districts do move up and down in the rankings over the years but those districts (rather than individual schools) that are consistently towards the top of the list tend to benefit from better-appreciating real estate markets than others.
A Realtor.com study done in 2016 found that homes in districts rated as a 9 or 10 by greatschools.org were an average of 49% more expensive than those rated a as 6 or less. Of course, property taxes and consequently school spending tend to be higher in these areas also which provides the public schools with more resources to be successful.
Public school quality is just one factor of many including home price, commute, community, etc that buyers have to weigh as part of the whole picture and most home buyers have to prioritize their non-negotiables.
Luckily, regardless of which town you choose, there are no wrong choices; Massachusetts is fortunate to have, as a state, the highest rated public schools in the country
In a strong sellers' market it can be tempting for homeowners and investors (and, unfortunately, a few agents) to skip going the extra mile in preparing a home for sale. After all, the home will likely get offers with or without things like staging, professional photos and a strategic marketing plan. The difference, though is in how strong those offers are and how quickly they come in. That difference can equate to tens of thousands of dollars and more.
Buyers tend to develop feelings for a property, either positive or negative, very quickly after seeing the first photos or stepping through the front door. The way a home is styled and furnished has a huge impact on this first reaction, and ultimately the offers that buyers will make.
With an occupied or already furnished home, a professional home stager or knowledgeable seller's agent can provide the owner with room-by-room suggestions on exactly what to clear out, rearrange, and specific items to add. Cleaning and decluttering alone makes a major difference but it's almost always worth going a step further and making some minimal investments in a few key up-to-date accent items in the right places or repainting a certain room in a more neutral color.
Vacant properties can see an even more substantial impact on the bottom line when they're at least partially staged. We recommend staging at least a living room, dining room and primary bedroom and adding a few accessories or accent pieces to the kitchen and bathrooms. Good agents will have recommendations for home stagers who can supply and install everything needed and remove it in time for closing. Some investors choose to purchase inexpensive furniture and resell it just before closing or offer it to the buyers of the home. Others, especially those who build or renovate several properties per year, find that it's worth keeping their own inventory of staging supplies. This of course does require some design expertise and knowledge of current trends.
The investment in staging (usually between $1,000-$7,000) can really pay off. According to research by the IAHSP, staged properties sell between 5-11 times faster than others. Not only is a faster sale far less stressful for sellers than spending months on the market, early offers tend to be much higher in price than those that come in after a property has been listed for a while. An NAR study found that staging equated to a 1-5% increase in sales price; definitely a solid return on investment.
Interest rates are up almost 2% since their lows in January and are expected to increase more over the coming months. Inflation is still at record levels and stock prices have dropped substantially. With all of these variables on a national level, what does this mean for our local housing market?
Those of us who stay consistently active week to week are noticing slight differences in buyer behavior but not in sale prices. As of the end of June, prices of condos and single family homes in the Greater Boston coverage area were up 3% from May and 10.3% from June 2021 so data still reflects record high prices and strong buyer demand. Looking at just the Metro West region within Greater Boston, price increases were even higher at 12.6% from May and 23.4% from June 2021.
Because inventory has remained low and incomes locally are quite high, only a small section of the potential buyer pool has seen enough of an impact on their purchasing power to delay their search, while plenty of others haven't been deterred. This has resulted in sustained high levels of demand over the last few years.
The resulting shift is that multiple offers now more often means three or four rather than a dozen plus and with that decrease in competition, buyer concessions like no-cost seller lease-backs and waiving all contingencies are becoming less frequent. The good news here is a bit more balance for both sides; sellers are still able to benefit from high sale prices while buyers are more likely to be able to move forward on their first choice home rather than writing offers every week for months on end.
Of course, the big question left is what might happen moving forward. Based on data and what we've seen so far, it seems that another significant rate increase would begin to have more of an impact on prices, even if that only means slower appreciation. The important thing to remember is that there are opportunities in any market and markets are very hard to time successfully. Instead of timing, focusing on the costs and benefits of a specific property, its valuation, looking at a variety of financing options, and determining how long it would (or could) be held will help to reach the right decision in making a purchase or choosing to sell to move on to another opportunity.
Data from the Greater Boston Real Estate Board.
Usually the very first impression would-be buyers have of a house, before they get inside, before they drive by and before they even read listing details is from one photo of the exterior. And if your agent is doing their job, this will be a professional high definition, wide angle photo showcasing every detail of the property. Not only will this first impression make or break whether buyers decide to find out more about the house, it sets the tone for how they're going to feel about it once they get there.
As sellers you want that initial peek of the house to draw people in and have them ready to write a competitive offer. The good news is that boosting curb appeal can be incredibly easy and inexpensive (think hundreds, not thousands) and will provide a huge return on investment. Here are our must-dos for seller clients:
These quick improvements will make your home stand out in pictures and in person, equating to a faster and higher priced sale.
We all tend to be weary of commitment so plenty of homebuyers and agents alike can be hesitant to discuss an agency agreement, often until it's too late. But having a mutually beneficial agreement in place early in the process is valuable to both the client and the agent, for several reasons.
For the homebuyer, a buyer agency agreement ensures that your agent is working on your behalf and will have your best interests in mind throughout the process. Since your agent is the person is advising you on one of the largest purchases you'll ever make, it's important to make sure that they're committed to you from the beginning. It confirms that the agent has no incentive to sell you any one property over another and means that any and all off-market properties can be considered as potential options. The agreement will spell out what you can expect from your agent and any compensation that would be expected to come from you as the client in the event that some or all of the amount due is not being offered by a seller or seller's agent. Understanding the structure of your relationship with your agent from the very beginning makes for a much more straightforward process.
For agents, presenting new clients with a buyer agency agreement when you first begin discussing their home search will ensure that your clients are as committed to working with you as you are to them. Sometimes just having a conversation about the agreement is helpful in determining whether the client and agent are the right fit for one another. It also will allow you to search for and present off-market and for sale by owner properties without having to address how - or if - you'll be compensated for your work. And, having the agreement in place gives you the opportunity to educate your clients on the services you offer, and allows you to outline expectations for them so that everyone is on the same page and can anticipate clear communication throughout their homebuying journey.
After all, very few people enter into a working relationship with an attorney, financial advisor or other professional without having some sort of agreement in place outlining what each party can expect from the other. Real estate should be no different.
How Not to End Up Homeless After Selling a Home in a Sellers' Market
The competition for available homes on the market in the Greater Boston area (and across the country) has never been higher. What this means for lots of would-be sellers is that they're faced with the very real possibility of selling their current home without having found a new one. This is not a position anyone wants to be in, and luckily there are ways around it.
Because demand from homebuyers is so high, sellers are in an excellent position to dictate the terms they want. What many don't realize is that this goes beyond simply suggesting an offer that comes in at a great price. A good seller's agent will guide potential buyers to draft an offer that's both strong in price and terms that allow the sellers some time and flexibility in figuring out their next steps.
One strategy is to sell subject to sellers finding suitable housing. In a seller's market, it is MUCH better to ask buyers for this accommodation than vice versa. Making an offer on a new home subject to a home sale contingency is very likely to go nowhere in this type of market. However buyers, especially those who are currently renting or have flexibility in their closing timeline, are often very willing to move forward with a purchase knowing that it may take some time before closing for the sellers to get an offer accepted on a new home.
A second option that can be more appealing to buyers since it allows them to close and lock in an interest rate sooner is to request that they lease the house back to the sellers for a period of time after closing. While this does come with an eventual end date it can often give sellers 60-90 days between the offer and closing plus the agreed upon lease period which is often up to 60 days after closing. Having this 4-5 month cushion plus the advantage of having the proceeds from the sale in hand before closing on the new house can make a huge difference in having both the time and budget to close on the new home.
With careful planning and strategies like these it is entirely possible for homeowners to take advantage of high sale prices while minimizing the risk of not finding a new home. As with any major transaction, it is always important to discuss pros and cons with your agent before moving forward.
With extremely low inventory levels in early 2022 (just take a look in changes in inventory for both condos and single family homes in Massachusetts) and slight increases in interest rates doing little to dampen record levels of buyer demand, getting an offer accepted in the Greater Boston market is no easy feat.
Over the last year our agents have seen multiple offer situations where the winning bid has included terms like free lease-back periods for the seller, all expense paid vacations, uncapped escalation clauses and of course waiving all contingencies. The good news is that there are ways to get an offer accepted that don't involve selling your firstborn child. Here are 7 of our favorite strategies, but it's always important to discuss the details of any terms you're considering with your agent:
Home inspections done by a thorough, knowledgeable inspector can be an essential educational component of purchasing a home and protect buyers against many - not all - unexpected issues that might come up. In Massachusetts, much of our housing inventory is made up of older homes so bringing in an expert who is familiar with how things were built during different decades, how they age and the nature of our climate's effect on a house can provide a wealth of information. We often get questions from both buyers and sellers about what to expect during a home inspection: