More on dealing with the changing market

The Realestatejournal has two informative articles here and here that emphasize a couple of things about the changing real estate market that seem to have been forgotten during the recent boom. 1) Real estate is an illiquid investment and 2) Plan (and be prepared for) for the worst – a vacant house that you can’t sell in a timely manner.

And don’t kid yourself: If you have a cash-flow problem now, it could get a lot worse. What if you have trouble finding tenants, or your tenants stiff you on the rent? If the property is already a cash drain, imagine how grim things could get without any rental income coming in.

Real estate has proven to a be, in most cases, an excellent long-term investment. Note use of the words “long-term.”

The current slowdown reflects three broad trends, according to real-estate agents and economists. One of the most important is that many speculators have started to dump homes that were purchased as investments. In addition, high prices and rising interest rates have reduced affordability for middle-class families.

The third – hurricanes – does not directly impact the Central Virginia market. The Charlottesville-area market has seen a reduction in price gains, more inventory on the market and longer marketing times. Patience is the key.

When second homes account for 40% of home sales nation-wide, there may be cause for concern. I do not know the specific percentage of investment properties in our market, but anecdotally, my educated guess-timate is that about 25% of homes in CharlAlbemarle are investment properties. Many realize that the true investment return comes long-term and via rental income.

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3 Comments

  1. UVA08 April 13, 2006 at 18:28

    Hey Jim I always hear you talk about the Waynesboro market. What is going on over there? I just heard of another person moving over there but keeping their job here in Charlottesville…. Is that area becoming a new bedroom community for Charlottesville?

  2. TrvlnMn April 13, 2006 at 20:45

    UvaO8 wrote:

    Is that area [Waynesboro] becoming a new bedroom community for Charlottesville?

    Yes it is becoming a bedroom community for Charlottesville. The key indicator in my book that it’s becoming a bedroom community for C’ville is that Ch. 29 put a satelite newsroom over there, that and I too knew someone who purchased over the mountian. Said person was looking for a first house but didn’t want to lay down the 200k plus to get into the market here. And last time I looked you could still find real estate for under 200k in the Waynesboro area.

    That said if all these other developments (North Point, Hollymead Town Center, Albemarle Place, Biscuit Run, Rivanna Village, and the two other’s I don’t remember the names of) if those developments go on the market with the slow down it looks like might start happening.. then the waynesboro trend might change.

    All that said, I’m really just an armchair QB on that subject.

    As for my initial reason for commenting:

    And don’t kid yourself: If you have a cash-flow problem now, it could get a lot worse. What if you have trouble finding tenants, or your tenants stiff you on the rent? If the property is already a cash drain, imagine how grim things could get without any rental income coming in.

    Those problems usually can be avoided. If you’re new to the rental game be smart, use a property manager to properly $creen your tenants. If your property isn’t renting then you need to consider maybe it’s priced too high. And most importantly after you’ve made the mortgage payment put anything extra into an emergancy fund (above and beyond what your property manager wants from you for his account) in your own separate account. And never touch that money. That way if the tenant stiffs you or that unexpected big repair needs to happen, you have the cushion to fall back on.

  3. Jim April 16, 2006 at 21:29

    I have been talking about the Waynesboro market so much recently because I think it is the next frontier. Real estate is far, far less expensive there … I was hoping to make a little announcement here (and I still will) but I am entering the Waynesboro market. I have finally convinced my Broker to join the Board so that I can start selling there as much as I do here in CharlAlbemarle. Waynesboro is 17 minutes from Crozet and 35 minutes to my office on Emmet. It is definitely an option. More later when I have joined an analyzed some of the market data.