Sales Still Happening - Home Ownership Benefits

Blog for 02-11-08

Although the market has slowed, it’s impossible to ignore the fact that homes and properties are still being sold and buyers are still buying. And no, no one appears to be stealing anything. No theft involved. Obviously there are still those who understand the benefits of home ownership.

Okay, let’s review. The benefits of home ownership include:

1. You have the choice to repaint the colors you like or relocate or enlarge rooms to make the space more pleasing and livable. Tenants are rarely given the option of making such changes.
2. With a fixed rate loan, it’s a guaranteed savings program. While very little is applied to principle initially, a portion of every payment represents debt reduction and, over time, it increases with each payment that is made. In a rental situation, a tenant pays rent and the landlord benefits from the debt reduction on his loan.
3. Over the long run, homes typically appreciate in value, typically at 2% -to- 3% annually. While the amount varies, over a period of 30 or 40 years, nearly every home in America has benefited from appreciation. In fact, in 1972, appreciation was considered a function of inflation. Regardless of the amount, appreciation or inflation will help to increase ones equity position. Simply put, equity can be defined as current value less mortgage balance owing. However, it is important to remember that when selling a property, ones equity is reduced by the selling costs applicable to that specific sale. I’ll try and address that more at a later time. Appreciation doesn’t apply to tenants.
4. And, speaking of inflation, the amount that one borrows to purchase a property today is typically repaid in dollars that are worth less as each successive payment is made. Rent is what it is; rent.
5. Although it will vary with each property owner, each will speak of an intrinsic value or security that property ownership provides. This is something very difficult to measure, but it always seems to exist. For my family, purchasing property in a specific location provided my children access to the schools we thought would give them the best education. Unknown to us at the time, it also gave them a great sense of worth because their parents were property owners. I’d like to see someone attempt to measure that benefit

Let’s talk more about appreciation or inflation. If one purchased a property with 100% financing and an interest only loan, the home would have to increase in value roughly 9.3% in order for the owner to breakeven upon its sale. Of course, that assumes that the owner would utilize the professional services of a Realtor. In the typical world, based on the typical appreciation or inflation, one would have to continue owing that property for at least three-to- four years in order to breakeven. This is important because there seems to be a lot of purchasers who believed their purchase today meant instantaneous profits tomorrow.

The point here is that purchasers were buying real estate, not for the benefits of owning that property, but instead because they believed that real estate was a certain means to instant riches. Fixers and foreclosures became the envy of every so called investor. Or, If only one could purchase a property with two lots from an unsuspecting seller so they could make a killing selling them separately in a simple legal procedure. Of course the market took a turn and many unsuspecting investors have been left holding an empty bag of equity. Many years ago I learned an important lesson; that you couldn’t eat equity; it simply didn’t provide the nourishment to sustain life. In that sense, until sold, equity was an intangible.

Speaking of homes with extra lots, I have a story. I’ve represented sellers twice where they legitimately had two lots that could be legally separated very easily and inexpensively. In the first case, the property owner was having great difficulty emotionally making the transition from one home to another. When I explained the benefits of separating the two lots and selling them individually for more money, he emphatically said that he didn’t want to deal with the bother or the strain. It was his choice and consequently a builder bought the property, split the lots, rented one and built a new home which was eventually sold on the other.

In the second instance, I informed my prospective seller that there was a definite benefit if he split the lots before we put them on the market. He followed my advice and his home was sold to one buyer and the vacant lot was sold to a different buyer who eventually built and sold a new home constructed on the vacant site. This is an important story because it goes to the matter of honesty and integrity; things which I have patterned my entire life around.

Obviously, there is continued vitality in property ownership. But we as Realtors need to go back to the basics and promote the greater values of property ownership rather than simply selling it as a quick and easy way to untold riches.

Throughout my blog today, I have mentioned Realtor, not real estate agent. This is an important distinction that very few Realtors make. In short a Realtor is one who has pledged to abide by a higher set of standards and ethical obligations than what is required by the state for other licensed agent. Therefore, as a Realtor, I’m better than a non Realtor agent. Plus Realtors, through their dues, work continuously to promote and protect the interests of property ownership.

Anyway, I’ve been busy; spending countless hours crafting words together hoping that a meaningful and striking mosaic would result. My goal has been and will continue to be to help my sellers sell their property and to provide my buyer clients the opportunity to purchase the homes and properties of their dreams.

Again, I thank everyone who has contacted me. I believe I have continued to be successful in responding to every one of you. And as your week continues, remember to always:

Do Good ….. BE GREAT ….. 110% …..