Bubble, Bubble...Are You in Trouble?

The housing bubble has begun to deflate. But have no fear: Our team of local experts helps you decide whether to buy, sell, or just sit tight.



Real estate advice for everyone, from first-time buyers to retirees.

Don't stress...we've got expert advice Illustration by George Thompson 

 

Nervous Newcomers

You’re currently renting, but are eager to join the legion of happy homeowners. Is now a good time to buy?

 

In a word, yes. Market conditions are perfect for first-time buyers, says Amy Levine, a broker with the Stone Ridge office of Westwood Metes & Bounds in Ulster County. “Now is the first time in the last ten years that local people are able to afford houses here,” she comments. The county currently has a fair number of houses available in the $200,000 range, she notes, and many priced around $350,000 in areas like Rosendale and Stone Ridge — a marked change from just a few years ago.

 

“First-time buyers should absolutely be in the market,” agrees Linda Michetti of RE/MAX Realty Center in Poughkeepsie. She adds that, if you can swing it, it is always better to pay a mortgage and build equity in your home, rather than throw rental money down the drain. But what, ask nervous Nellies, if the prices dip even further? Though longtime residents can certainly remember when the Dutchess County market took a hit in the wake of IBM downsizing in the early ’90s, that was a rare occurrence, Michetti asserts. “With all the industry that has come into Dutchess since then,” she says, “this is very unlikely to happen again.”

 

Renovating for Resale

You’re thinking of putting your house on the market. Which renovations will help make your home more attractive to buyers?

 

The rule “if it ain’t broke, don’t fix it” does not apply to real estate, stresses Michetti. “Old kitchens, bathrooms, and flooring only decrease the value of your home when it comes time to sell,” she warns. “Homes that are dated and functionally obsolete sell for much less than the same house with modern updates.”

 

While updating kitchen, baths and siding is always a good idea, Levine cautions that each house is different. “If the floors in your house are looking a little worn or your carpet has gone out of style, then you might want to spend your money on new flooring.” And Bert Freed of the Kinderhook Group (which has offices in Chatham and Valatie in Columbia County) warns sellers to think locally, noting that in his area, garages are big selling points.

 

Sheryl Vogel of Keller Williams Hudson Valley Realty in Rockland County recommends “neutralizing” your home: removing magnets from the refrigerator, paring down the number of family photographs, hiding toys, maybe even repainting walls in a neutral shade. “None of these measures are costly,” she says, “but they sure can make a world of difference.” Your ultimate goal, she says, is to make it easier for potential buyers to visualize living in your home.

 

Empty Nesters

The kids have finally flown the coop, but you’re not quite ready to retire. Should you downsize? 

 

“If pre-retirees have a house that is ‘too big’ for them, then to sell is a question of their personal convenience and cash flow,” says Lisa Hayes of Creative Financial Planning in New City, Rockland County. “Cash flow matters, because the amount of money you have coming in monthly — through Social Security, investments and perhaps pension — will determine the maximum expenses you can spend every month.”

 

Bert Freed thinks it’s a great time for empty nesters to sell their homes. “Big houses are being bought by the baby boomer generation,” he declares. In his sales area, these eager buyers include second-home owners, Albany commuters, and people involved with the Rensselaer Technology Park and the NanoTech complex at the University at Albany. There are even a surprising number of foreign buyers. Not long ago, Freed sold a large architect-designed home in Chatham to a couple from Italy. The buyers were in their 40s; the sellers were empty nesters in their 60s. What’s motivating these overseas buyers? “The dollar is quite cheap compared to the euro or the pound or the yen,” Freed says, making American real estate a bargain.

 

Cashing In

If you need money now — say, for a kid’s college education — should you borrow against the equity of your home?

 

“With interest rates rising, now is not the most opportune time to be securing a home equity line of credit,” says Hayes. “That’s because the monthly payments can go up as interest rates go up.” In other words, in this market, it is probably best to bite the bullet and take out student loans. But if you do decide to borrow against your home equity, the amount of money available from the bank will depend on what your house is currently worth, notes Michetti. “In a market such as this,” she suggests, “the bank appraisers will tend to be more conservative.” But as long as you aren’t looking to max out your equity, she says, it really shouldn’t matter.

 

Looking towards Retirement

Is investing in real estate a good retirement strategy?

 

“Real estate as an investment is one of the tools for building your retirement over the long term,” says Paul L. DeLisio of Kingston’s Main Street Financial. “But you have to have the cash flow to make it through the tough times.” On the plus side is the fact that by the time most people reach retirement, they’ve typically paid off their mortgages. Speaking of retirees, DeLisio says, “If they have real estate that they own and rent out, it can be a nice stream of income.” In addition, if you’re the type of person who has trouble socking away money, then the discipline of paying a mandatory monthly mortgage may be just what you need to “save” for your future retirement. “Real estate is like forced savings,” he declares. Another bonus: when you’re ready to sell your home, you’ll enjoy a significant tax break. A couple selling their primary residence can make a profit of up to $500,000 and not be required to pay capital gains taxes, he says, giving them that much more money to use for their retirement years.

 

However, Hayes warns against using your primary residence as an investment. “Your home is an asset, true,” she acknowledges. “However, it is not to be bought and sold based upon economic cycles. After you have your home, and you’re looking to invest in real estate, there are many ways to do this. There are real estate investment trusts (or REITs), there are mutual funds, and yes, there are direct investments such as buying a home or piece of land. But to do the latter requires much patience, information, and ideally, experience.”

 

Similar to an investment company in some respects, REITs concentrate their holdings in real estate; the yield is generally liberal, since these trusts are required to distribute as much as 90% of their income. DeLisio also thinks they are a good bet for those looking for a relatively painless way to invest in real estate. “That way, investors don’t have to bother with the headaches of home ownership, whether that means fixing the roof, replacing the boiler, or finding responsible renters.” The downside to REITs is that they provide little, if any, capital appreciation.

 

Fixing to Flip

Is now a good time to buy a fixer-upper and try to flip it?

 

Flipping isn’t always an easy proposition, because real estate doesn’t always go up in value, notes DeLisio. If you are considering flipping, Hayes suggests asking yourself, “Does the house make economic investment sense, knowing that a fixer-upper requires capital and time?” Say you come across a house that needs a lot a work, but is being offered at a price that’s way below the assessed value of comparable homes in the surrounding area. If it still looks like a good deal once you calculate the cost of labor, materials, and carrying costs, then it just might be a good investment. “There are always opportunities in any market, if one is vigilant and looking,” Hayes concludes.

 

Levine points to a four-bedroom, two-bath home located on six acres in Rochester, Ulster County, as a perfect candidate for flipping in the current market. The 1,950-square-foot home, damaged in a fire, was recently snapped up for $235,000. “You couldn’t touch anything for that price before,” she says, suggesting that the buyers would be able to make a handsome profit reselling the house after making relatively minor repairs.

 

Linda Michetti of RE/MAX says that buying a fixer-upper is a good bet, even in today’s market conditions. “Any market is a good time to buy a fixer-upper,” she says. “Buyer’s markets are even better. With the market leveling, most homes in need of repair are the last ones to sell, making them an even better opportunity for an investor who is looking to flip.”

 

Not so fast, says Bert Freed. “Right now is not a good time to flip,” he declares, because “the market is not distressed.” In his opinion, “The market here is a lot better than the national market. From Glens Falls/Saratoga all the way down to New York City, the real estate picture is pretty good.”

 

In Conclusion... 

In the long run, real estate markets tend to be cyclical: they go up, they go down, they level out, and eventually go up again. But it’s important to remember that for many of us, home ownership offers significant emotional  benefits. Our home is where we raise our children, plant our gardens, cultivate our friendships, and make memories that last a lifetime. And you can’t put a price on that. 

 

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