Robert Darrow, @properties

Archive for the ‘Advice’ Category

A reader and client wrote to me today to ask:

How long will an older building (say built in the 1930’s) last before it deteriorates to the point beyond repair? And what would happen to one’s ownership of the condo if a building is determined no longer inhabitable?

And then later, the client followed up:

The question of the lifespan of a building may strike you as weird, but this is a totally normal question coming from a place like China, where buildings start to show serious problems after only a couple of years and then crumble after a couple of decades. In China, when a building needs to be demolished and rebuilt, the residents have certain rights to receive compensation in the form of new housing, cash, etc. In this context, the question of what owners of American condos constructed in the 1920s and 1930s do if the building deteriorates beyond repair is entirely natural. I actually don’t know the answer. I’ve never heard of such a situation, which of course doesn’t mean it hasn’t happened.

What a great question, and one that I never considered before.

Chicago is no Rome

I’m always impressed when watching House Hunters International and the episode features some adorable European city with buildings and apartments that date back to the 1700’s.  The charm and grace of some of the old apartments can be breathtaking. 

Here in Chicago, we don’t have any housing that dates any earlier than the 1880’s, primarily because the city burned to the ground in 1871.   A few structures survived the fire, but the Chicago Water Tower located at Chicago and Michigan Avenues isn’t a residential structure.

Homes and apartments in Chicago can date back to the late 1880’s, 1890’s and early 1900’s, but Chicago’s oldest condominiums date back to the late 1910’s and 1920’s.  So let’s look at those buildings and see how they are behaving as they age.

Brick buildings from the 1920’s

One example shown here is your classic Chicago courtyard from the 1920’s.  The construction technique used when building a Chicago courtyard would be an all-brick building on a brick foundation, or maybe a concrete foundation if newer.  The walls would be three or four courses of brick thick, and the outer course of brick would be a fourth or even fifth course added as decoration.

Brick buildings are long-lasting, durable, and require very little maintenance.  The decorative outer skin of brick will require maintenance every 20 to 30 years, and if it were to fall into serious disrepair could be completely removed and reinstalled.  This drastic measure is rarely necessary, and most brick maintenance involves tuckpointing and taking care of the aging windows.  The other major component of brick buildings like this one is the roof.  Flat roofs in Chicago typically last 10 to 20 years.  And can be rather expensive to replace.  However keeping up with the roof and the brick can ensure that a brick building can last virtually forever.

Older high rises in Chicago, such as the Rookery Building shown here, can be either all concrete block construction, or concrete over steel frame. 

Concrete block buildings have walls that get thicker and thicker closer to the ground to support the massive weight of the building above.  Steel frame buildings can be clad in concrete block without needing the additional thickness of their walls near the ground.

Both styles of buildings are nearly maintenance free and durable.  The most common defect found in buildings such as these can be the decoration that can fall off if not maintained properly.  Maintenance of the roofs is similar to that of the classic Chicago courtyard, but on a larger scale.  The same can be said for the maintenance of the exterior.  The giant concrete blocks are just larger versions of the common brick of the courtyard style building.

The old Standard Oil, then Amoco Building, currently the AON building, offers an interesting maintenance history.  By no means “old” by Chicago standards, the Amoco Building was constructed in 1973.  It was originally clad in shimmering Italian Carrara marble which gave the building a gorgeous warm glow in the sunshine. 

Unfortunately, the thin slabs of Carrara marble did not handle Chicago’s change of seasons very well, and after only a year began to warp, bow and crack.  Steel straps were installed to attempt to hold the marble in place.  But eventually the marble crumbled and in 1990 a project began to re-clad the entire building in white granite.

Even with this dramatic defect, the underlying structure of the building remained completely stalwart. 

Probably one of the most dramatic instances of building neglect, and a situation that nearly describes the situation the client asks about in her email above is the situation at Marina City during the 1980’s and 1990’s.

Converted to condominiums in 1977, the Home Owner’s Association did not adequately plan for the maintenance and upkeep of the towers, and over the years the building and some of its systems fell into disrepair.

By the mid 1990’s the concrete exterior badly needed attention and chunks of concrete could be seen falling from the building, parts of the parking garage were closed because it was not longer safe to park cars in some areas, the roof was leaking leading to damage to the condominiums on the upper floors of the towers, and the elevators stopped working frequently.

When the Home Owner’s Association actually went insolvent, a court ordered receiver took over and began the process of revitalizing the property. 

To my client’s question above, and as a “worst case” scenario, what happened at Marina City was that the new management company levied Special Assessments to make the major repairs to the building.  Some of the Special Assessments actually exceeded the purchase price of the units that some of the owners paid when they bought their condos.

Today, Marina City has been completely revitalized and enjoys a solid reputation as a building owners truly enjoy living in due to the building’s myriad of amenities and superb location on the Chicago River.

Could Capitalism be a factor?

Throughout all of the United States (and most European and Western countries) the building construction materials are of a quality that have an indefinite lifetime with maintenance and care. I think it has to do with the fact that as capitalist economies with an emphasis on property ownership, it is completely normal for the individual home owner to property maintain his or her property in order to preserve the value inherent in the ownership of the property. And that translates into the same instinct for condominium buildings where the Boards, the managers, and the homeowners all strive for the same ideal as well.

From a home inspector’s perspective

I called Michael Massart, a home inspector from Speaker of the House Inspections to ask him whether he ever heard of a condominium building falling into disrepair, and here are some of his thoughts:

• Most of the housing stock in Chicago is 140 years old or younger.
• The question from our client above would be a great question if the property in question were a frame house, especially a frame house in the suburbs constructed shortly after World War II as many of those homes were quite hastily constructed.
• Your Chicago brick condo building from 1890 through 1960 were constructed of solid brick, not hollow bricks, and therefore feature more clay or concrete, and as a result it is very unlikely that this type of building would ever deteriorate during our buyer’s lifetime.
• Chicago’s soils are very stable, made up of mostly clay and sand.  ‘our soils are clay and sand and don’t settle or heave greatly, or as severely as they may in other parts of the country or the world…. Our soils DO settle and it causes a fair amount of hardship for people; they just don’t settle greatly, i.e. bldgs. don’t tumble over because of it; our soils will subside to an extent especially in draughts, but not as much as say, Texas, where there are expansive soils and people have to water their foundations.
• In over 8,000 inspections, about the worst Michael has ever seen are in two situations:
• Buildings built right on top of the water – like on the Chicago River or on the lakefront.  Sometimes there is evidence of settlement in those buildings.
• Buildings that have had their foundations compromised by malfeasance – such as construction immediately next door that undermines the foundation of the nearby buildings.
• Chicago is the home of the Sky Scraper, and most of the world’s most experienced architects come from Chicago architecture firms.
• High rise foundations in Chicago normally feature caissons that drill down as far as the underlying bedrock which makes the construction extremely stable.

The short answer

I haven’t heard of a situation where a condo building has fallen into such disrepair that the building could not be repaired.  Based on my experience and the comments from Michael above, I think our client can be quite comfortable that any condominium we purchase can be expected to easily outlive them.

How about if the building is destroyed?

In the event that a building DOES get destroyed by some catastrophe, such as a fire, your home owner’s insurance would pay you for your loss. And if a building was completely destroyed by a catastrophe, such as a REALLY BIG fire, the home owners that lived in the building would get together to decide whether to re-build the building, or take their insurance money and go somewhere else.

It’s August in Chicago. And that means it’s hot. But when it comes to housing in Chicago the words "hot" and "real estate" rarely appear in the same sentence. Nevertheless, in deference to summer, we’ve come up with a list of what really is hot in the city real estate market. And believe it or not, we filled the page without breaking a sweat.

Low Interest Rates

In June, 30-year mortgage rates averaged around 4.75%. Less than 60 days later, the average rate on the 30-Year Fixed has dropped below 4.5%, its lowest level since Freddie Mac began surveying rates back in 1971. That’s not hot; that’s scorching.

Skip a Step

Low prices and the prospect of slow appreciation have many buyers taking a longer-term view of their home purchase. Buyers today are thinking about how the home they buy will meet their needs five to 10 years down the road versus the three- to five-year window that was common during the boom. As a result, many buyers are skipping a step on the housing ladder and purchasing larger homes they can grow into.

New Construction Deals

Price cuts and special financing programs have been effective in whittling down excess new-construction inventory in several areas including River North, the West Loop and the Loop. By the end of next year, new construction in these neighborhoods should be largely absorbed, with no new product scheduled to come online. Translation: if you like new, your time is now.

Shrewd Buyers

Buyers today are approaching the market not only with more information but also with a totally different psychology. The focus is on location and space, and value is the watchword in every price range from $200,000 to $2 million. If you’re selling, be prepared to demonstrate that your home is the best in its class, because today’s astute buyers won’t settle for anything less.

Putting Down Roots

A large home, in good condition, near top-rated city schools is suddenly attainable for the first time in years. That’s causing many homebuyers to rethink typical suburban migration patterns and put down roots in the city. And the neighborhood improvements that can result from long-term investment might just be one of the most positive outcomes of the housing bubble. That’s hot…and very cool.

Buying, selling or just looking for more information — I welcome the opportunity to help. And please remember that referrals are always hot.

As it has come up in several conversations with my clients over the last week or so, I thought it was worth sharing with you as well.  What can we expect during the month of August while our house or condo is on the market?

I happen to have a lot of one bedrooms in Lincoln Park and Lakeview for sale at the moment.  The remainder of my inventory is mixed between townhomes, houses, condominiums in various neighborhoods and a commercial condo.  With the one bedrooms representing a hefty chunk of my inventory, let’s take a look at what’s going on from that perspective.

Historically, the month of August is slow.  This is the month that most Chicagoans realize that  the days of summer are numbered, folks leave town for vacation, and otherwise people simply don’t pay a lot of attention to real estate.  Buyers that needed to have a home selected in time for the start of the school year did their shopping in late Spring and early Summer.  There were a lot of July closings and a few more closings to take place in August.

The economy is also dealing the real estate market a one-two punch.  Illinois’ unemployment is higher than the rest of the nation’s at 10.4%.  And the banking crisis, or the leftovers of it, make it challenging to get a mortgage even though rates today are at historic lows (Guaranteed Rate is offering a 30 year, fixed, conforming, loan at 4.375%!)

In a strong economy, studios and one bedrooms are strong sellers.  In a weak economy, demand for studios and one bedrooms falls off.  Demand for buying a studio or a one bedroom falls off even more.  This happens as fewer people can afford to live alone and start doubling up in larger units such as two and three bedroom apartments and condos.  The economy also removes a large section of people from the market as their purchasing power is diminished. 

Figures for the end of July tell a striking tale:

In Lincoln Park and Lakeview, combined, for the month of July, about twice as many two bedroom condominiums sold as one bedrooms.  The same ratio holds for properties that went under contract – or pending sales.

July 2010, one bedrooms, pending sales = 38

July 2010, one bedrooms, closed sales = 36

July 2010, two bedrooms, pending sales = 65

July 2010, two bedrooms, closed sales = 70

You can expect that traffic will be lighter than you have experienced in June and the first three weeks of July.  Traffic will stay light until the first weekend after Labor Day when buyers come back out shopping during the fall market.  This fall most Realtors are expecting a better fall market than last year’s and better than the Summer Market. 

The expiration of the buyer tax credit is far enough back in history that the “pulled forward” demand for homes should be exhausted.  And as the economy improves, though slowly here in Chicago, there are some folks relocating to Chicago, expanding their families, and needing to choose new housing.  We’re expecting demand to increase from “weak” to something even better than perhaps “tepid.”  Certainly nowhere near “blistering” by any stretch of the imagination.

During the month of August, while we have the time, it’s a good idea to have me, or your Realtor, prepare a new Market Analysis for your property.  If there are any new strategies to implement, or price changes that need to me bade, having the decision made during the slow month will allow the change to made promptly on Tuesday after Labor Day.  Expect a call from me in the coming days to set up an appointment to get together to go over the new Market Analysis.

Your guide is helping an overseas investor pick out a nice studio or one bedroom to purchase from far away, and hopefully move into in a few years when they come to Chicago.  They are inspired to act at this time, rather than waiting until they arrive by the temptation of some very good prices for condos in some very swanky neighborhoods. 

These buyers have been scouring the websites and sent me a list of some seemingly good deals.  Including a list of buildings that all seem to have one common characteristic.  I’ll refrain from publishing my laundry list here on the blog as I don’t want to alienate a whole bunch of other clients, other happy homeowners, or tarnish any reputations.  But I’m happy to share the same advice with my readers.

What all of these buildings have in common: they were all converted to condos around the year 2005 – give or take a couple years. Though these buildings are all different ages (some old, some middle age, some relatively new), all were apartment buildings first, then a developer decided to convert to condominium.

What happened to these buildings was a two-fold WHACK:

1. They sold a LOT of units to INVESTORS. During the late 1990′s and early 2000′s, it became normal for nearly anyone, and their grandmother, to put money down on a condo. And nearly as soon as the condo was ready, or a year or 2 later, you could "FLIP" it for a profit. And most of the time, you could rent the unit out and make money on it while you owned it.

2. Everyone who bought around that time is upside down. Starting in 2008, continuing through 2009, and up to today, real estate values dropped like a rock. This doesn’t matter much if you bought your home, condo, or other real estate a LONG TIME ago. Like 2002 or earlier. If you did, you probably still have some equity. For example, I bought my home in 2001. My price was $434,000. Prices in my townhouse complex went UP, UP, UP and at the high point it was worth $625,000. Then in late 2007, prices started falling. And now my next door neighbor has his unit for sale – exactly the same as mine – for $499,000. But I’m okay because I didn’t LOSE $125,000, I just won’t MAKE as much if I had to sell right now.

The problem: buildings like the ones these delightful overseas shoppers asked me about are filled with two types of people: (A) Investors and (B) young home buyers. Both categories of owner are currently upside down.

(A) Investors – they are having a hard time making payments because RENT doesn’t cover EXPENSES anymore. Because they can’t afford these units anymore, they are walking away from their units in great numbers. Hence the high number of foreclosures and short sales.

An interesting twist in this story: One big developer had a "Special Program" for investors to generate more sales. They would GUARANTEE the payments for investors. What they would do – sell to investors, and guarantee that the rent payments would cover the mortgage, assessments and taxes. So if a person bought a 1 bedroom at The Sterling, and the payment of mortgage + tax + assessment was $1,700, but a renter was only paying $1,500, the developer would make up the $200 per month shortfall. And the guarantee went for two years. Of course, everyone believed that rents would continue to rise at 10% per year, just like it always had. Instead, rents plummeted. And ALL those investors got stuck with condos that cost $300, $400, $500 and more, every month, than the rent paid for. That one big developer offered that same program at several buildings. This resulted in THOUSANDS of units being sold to investors who couldn’t make payments on them in the last 5 years.

(B) Young Owners – they bought a condo thinking they would make a ton of money from appreciation. But instead have seen their down-payments vanish, and their payments skyrocket as their adjustable mortgages rise.The double-whammy for Young Owners is the economy. Unemployment in Illinois is still close to 12%. Lots of these poor young buyers have lost jobs, or been forced to take pay cuts. Hence the high number of foreclosures and short sales.

What to do for my buyers?

I’m going to try a three-prong approach. 

1.  Choose carefully for some better examples from their suggestions.  A couple of the buildings they asked about really are quite lovely.  And some of my research shows that the buildings are slowly recovering from the glut of foreclosed units in the building.

2.  Recommend some alternatives.  For a building that they loved, I might suggest another more established building around the corner.  The Gold Coast and River North are filled with mature buildings whose financial outlook is rosy, yet values are down because values are down throughout the rest of the neighborhood.

3.  Search out other great deals.  There are plenty of ways to search for units that have had massive price reductions.  And even some established buildings have an occasional short sale or foreclosure.  All these criteria can be searched for in our MLS.

What to do now

So the Housing Tax Credit has come and gone. The Treasury Department estimates that 1.8 million people took advantage of the credit at a cost to the government of about $13 billion. For those who missed out on the credit, there may be a tinge of disappointment. But in the days following the deadline we at @properties have been reassured by healthy market activity in showings, listings and contracts. Still, with the tax credit in the history books, it’s a good time to ask, "What should I do now?"

If you’re a buyer who was in the market prior to April 30, you’ve answered an important question. It’s not just about finding the right deal. It’s about finding the right home. The fact is buying a home today is a longer-term proposition than it was a few years ago, and a home has to work for you not only as a place to invest but as a place to live. From that point of view, $8,000 probably isn’t a make or break. Of course that doesn’t mean the right deal isn’t out there – especially with today’s low mortgage rates and plentiful inventory.

If you’re a seller now is a good time to step back and evaluate pricing and positioning. With the increase in recent transaction volume, there are more comparable sales today than six months ago. If your home has been on the market for a while, it’s a good idea to revisit the comparative market analysis. But it’s also important to point out that we at @properties do not subscribe to the notion – as some brokers do – that sellers need to fill the government’s role as a provider of homebuyer subsidies by automatically dropping asking prices or offering cash credits. The market needs to stand on its own, and we believe it can and will.

If you have questions about the real estate market, post tax credit, please contact me.

Celebrating 10 years and a new office

Finally, last month brought two important milestones for @properties. First, we announced that we will be opening a new North Shore office in Winnetka. We are set to begin construction on the office on Green Bay Road this month and should be open by late summer 2010. We are excited about serving the North Shore from this new location.

April also marked @properties’ 10th anniversary. We opened our doors back in spring 2000 with one goal: to provide the best real estate brokerage service in Chicago. Today, we’re the #1 broker in the city and the fastest-growing firm on the North Shore. Most importantly, our goal remains the same, and we’re working harder than ever to see it through. Thank you to all of our clients, associates, partners, family and friends for making @properties a success.

One of our regular readers wrote to ask:

Do you have any advice (guidelines) for me when you have 2 tenants that are always complaining on each other?  The biggest problem I have is that it is usually hear-say with no supporting proof.  How do I handle?  How do I get this to stop?

Ahhh, feuding tenants.

If you feel like it, watch a couple episodes of “Super Nanny” to bone up on your parenting skills.  Sometimes keeping tenants is like having two-year-olds.  Don’t you wish you could have a “time out?”

Try to keep it simple, and try to stay out of it.  You are not a referee.

1. Tell your tenants that their first recourse if there is a disturbance that is serious is to call 9-1-1.  The police should break up a loud party, a domestic argument, super-loud stereo blasting.
2. Tell the tenants that they need to work it out amongst themselves.  Tell them you are not their parent.  And tell them to get it straightened out soon before you start receiving complaints from other tenants.
3. Finally if the two steps above don’t work, tell the tenants that if the complaint is serious, to write you a letter.  With specific details.  The day, the date, the time, and a very accurate description of what the other tenant did to disturb them.    With a detailed written complaint, you can issue a “10 Day Notice.”  You will write a “10-Day Notice” and deliver it to the offending tenant.

A “10-Day Notice” is a scary looking notification that basically tells the offending tenant that they have 10 days to “knock it off.”  If there is another disturbance within the 10 day time period from when you give the 10-day notice, then you can cancel their lease and tell them to move at the end of the month.  But if the offending tenant doesn’t cause any disturbance in the 10 day period, then the notice expires.  And then you start all over again.

The “10 Day Notice” is a specific form. (Email me if you need your own copy of a 5-day/10-day notice.) Some highlights on the form for you to pay attention to:

• you will check box #2,
• date it approximately midway down
• Sign where it says “Lessor.”

On the “Proof of Service section:

• Fill in your name (or the name of the person you hire to deliver the notice)
• Date the next line
• Check the box for “By delivering a true copy…”
• And EVERY TIME you visit the property to try to give this “10 Day”, you will write in the date and time under “Attempts at Service” including the time you actually deliver the notice.
• Sign the blank line at the bottom.

You will bring TWO COPIES to the building each time.  1 copy in case the tenant is home.  Leave 1 copy with the tenant.  Take one copy with you.  They need to be the same. 

And if it turns out you will want to terminate one of the leases, you will need your copy to bring to court and show the judge to prove that you gave the notice to the tenants.

A regular reader wrote with a great question, so I thought it would be a great post on what to do when you wish to convert Month-to-Month leases into standard 12 month agreements.

My father owned a 2 story house with an attic and  basement. He lived in the attic area and rented the basement, 1st and 2nd story. He recently passed away late 2008 and I have been managing his estate since that time. The middle of last month (March) the estate was finalized and I am now the new owner of the building.

There are currently 3 renters in the apartments however my Dad did not have a lease agreement with the tenants. They have been renting month-to-month. Another fact is that 2 of the renters have dogs.

Now that I am the owner of the building I want to ensure that I am in complete compliance with all the rules and regulations (thanks for all your material) required in the Chicago area.

The first think I want to do is establish lease agreement with each one of the tenants.

Questions:

1. Since they are currently month-to-month do you foresee any issue with me issuing lease agreements since now I am the new owner? How much time to I need to give them to review?
2. I would like to indicate in the agreement that pets are no longer allowed. How long do I have to allow them to comply with this new requirement? Or would I have to grandfather the existing ones?
3. Do you have any other advise that I may need to consider?

Month to month leases run from the beginning of the month to the end.  And the terms can be changed at any time before the next term ends.  For example, today is April 8.  You could send your tenants new written leases right now, and the terms would apply on May first.  You are not required to give any more notice to change the terms of the month-to-month lease than the beginning of the month.

But if you wished to demand that the tenants move, you might be required to give 30 days notice, and you can’t cut a lease term in half.  So if you wanted the tenants to move out, you could give notice any time between now and the end of April that the tenants are required to move at the end of May.

Yes, you can tell your tenants that you don’t allow dogs.  And you could tell them that the dogs are not allowed effective May 1.  In reality, your tenants are probably not going to get rid of their dogs.  And if they did, it would take longer than the next three weeks to do so.  So you may try one of two options.

1. Notify the tenants that you don’t allow pets anymore.  Their current pet is "grandfathered" in the lease.  But they are NOT permitted to get another pet, or any more pets.
2. Notify the tenants that you don’t allow pets anymore, and you want them to get rid of their pet in 30/60/90 days.  But there’s a chance the tenant won’t want to give up their pet, and they might move out.  That’s a risk.

You should deliver the new written leases as soon as you can.  Do so whether the new lease is a month-to-month or a 1-year lease.  And include a letter that tells the tenants that their current leases are terminated.  And that if they do not return the new written leases, their current leases either (a) terminate at the end of May or (2) the rent goes up by some ridiculous amount of money.  You choose one or the other. It doesn’t matter which.

Your Guide has been fortunate to sell a lot of investment real estate over the years.  And even pick up a little condo or house here and there himself.  A couple conversations with clients has inspired me to compose a little pep talk about the fundamentals in investment real estate.

This is not intended to diminish the pain that some of you, and some of my clients are feeling.  It can be quite scary as one watches rents decline, vacancies rise and the prospect of making some mortgage payments on empty condos or apartments looms.

Three out of four fundamentals still apply

The first fundamental of investment real estate is leverage.  In most circumstances, investors buy real estate with a mortgage.  Not as large a mortgage as a home buyer.  But normally, it makes sense to borrow 50% to 75% of the cost of the property.  The reason is simple:  You’re buying something that your renters will help pay for.  This is still true in the current real estate environment.

There really aren’t many other avenues where you can buy more investment than you have cash on hand.  In the stocks and bonds universe, they call it “Buying on Margin.”  But just look at your stock broker’s face if you ask him to purchase $250,000 in stocks with only $25,000 down.  He’d say you were crazy.  And you would be to try.

The second fundamental of investment real estate is someone else pays your mortgage.  Notwithstanding the vagaries of how much you put down, your interest rate, and other expenses; generally the goal is to cover all the payments by having a renter pay more than those expenses.  And if you hold on long enough, the rent should increase while expenses stay stable.  Mostly.  And if you are truly in the game for the long term, you’ll have an investment that’s paid off.  Then starts the gravy train.  Nearly every dollar that comes in as rent is cash in your pocket.

The third fundamental of investment is the passive income and depreciation.  No where else in the tax code can you take expenses, and deduct them from income.  With investment real estate if you bring in $1,500, but spend $1,000 on your mortgage, plus $200 in expenses and another $200 in taxes, you earn $100.  That’s it.

In the real world, if you earn $30,000 in salary, but spend nearly all of it on your home, your utilities, your car, your family, your clothes, and everything else, you still get taxed on your income.  Of course it’s not quite that simple, but the comparison to investment real estate is nearly that stark.  Every dollar you spend can offset income.  Heck, if you spend MORE, you can even start making reductions in your personal income!

And real estate is depreciable.  The tax code even allows investors to rapidly depreciate investment property during the first few years of ownership affording some extremely dramatic tax benefits.

The missing fundamental in the current market is the appreciation.  In any ten-year period from around 1850 to today, you could point to a spot on the timeline and see values in Chicago double.  Sometimes more, sometimes less.  But roughly – you could count on your real estate to double every ten years.  Another way of looking at it:  every time you made a mortgage payment, you’d get another of equal value in appreciation for free.

It seems those days are over.  With the recent tumble in property values, there hasn’t been significant property appreciation in Chicago since 2005 – and we’re already at 2010.  I think this will be the “lost decade” in property appreciation.  I predict that it will take several more years before we get steady appreciation again as the recovery from the financial mess is going to take a few more years.  That takes us close to 2015 – truly a decade of lost appreciation.

Three out of four aren’t bad.  Investors have been spoiled with all the benefits to investment property ownership.  But even if you take the appreciation out of the equation, investing in real estate is still a great way to build equity and guarantee income for later years. 

To quote one of the founding fathers of Chicago, Marshall Field, “Real estate is not only the best and quickest way to make you wealthy, for the average person, it truly is the only way.”

The past 18 months have taught us many things, not the least of which is that we don’t have control over a number of variables that affect the real estate market. However, we do have control over the actions we take to prepare for and react to these variables. During the next 60 to 90 days, some significant housing-related changes are imminent. We can’t control those changes, but to a certain degree we can control how they affect us.

Can’t Control: Expiration of Federal Housing Tax Credit
Can Control: Purchase Date / Closing Date

While we can’t control how the expiration of the Federal Housing Tax Credit will affect the real estate market, it is an absolute certainty that qualified first-time buyers will receive up to $8,000 and qualified repeat buyers will receive up to $6,500 if they enter into a purchase contract by April 30 and close by June 30. With less than 90 days until the expiration of the Federal Housing Tax Credit, buyers need to be in the market now.

Can’t Control: Mortgage Interest Rates
Can Control: Locking in Today’s Rates

No one knows what will happen to mortgage interest rates when the Fed ends its $1.25 trillion purchase of mortgage backed securities in a few weeks. But one thing is for sure. Home buyers who lock in their interest rate today will benefit from some of the best mortgage financing conditions in history.

Can’t Control: Selling Price
Can Control: Asking Price

If you’re a seller, the price you paid for your home or the amount you owe on your mortgage has no bearing on your home’s ultimate selling price. What does determine that price is the market. And today sellers must show consideration for the market with correct pricing right out of the gate. The chart below shows just how important Original List Price (OLP) is to selling your home for the highest possible price in the shortest amount of time.
2009 Sales Data

Source: Agent Metrics, MRED LLC data, 2009, Selling Price to Original Listing Price, City of Chicago.

One more thing you can control is your choice of real estate agent. Thank you for allowing me to serve you, and please contact me if you or anyone you know needs help navigating today’s real estate market.

Your Guide received this email this morning from @properties founder Thad Wong:

The worry price is the price at  which a home is offered where a potential buyer will say, " I am worried that someone else may buy this!"

This is very real, and where your listings need to be priced if the goal is to sell them. Buyers today are setting the pricing for which homes will sell.  They will also pass on a home because, in most of our neighborhoods,  there are more than a few homes available in that same price range with similar amenities.  Your listing needs to be the best priced home within the category it is competing against, or, if the home has a defect similar to backing up to the El or expressway, it needs to be priced where the competing homes are smaller and in much worse condition giving the buyer a valid reason to buy a home with a defect in today’s market.

Today’s market, by the way, is at the 35 year average with 5% of families actively in the market.  So, here we are:  in an average market with above average financing challenges that are gradually becoming easier; ever so slowly I will admit.

Great advice.  You can bet that if you invite me over for a listing presentation in the next few weeks, you’ll hear this in some form or another.