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Perception Versus Realty

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Real Estate is local but…

Last week as I was getting ready to attend business meetings in California, I stopped at my local credit union to get cash a couple of checks for the trip. I’m friendly with most of the tellers, and they all know I’m in real estate so at some point the conversation always seems to get around to the market. My teller asked how business was and I told her that it was fine, people were buying homes, and that as we went into spring the activity seemed to be increasing. She then said.”I guess that’s because all of the prices are coming down so much, huh?”. And I was (brace yourself) almost at a loss for words.

Our market in Philadelphia saw great appreciation during the peak of the market, but not the levels that some markets saw like Las Vegas, Phoenix, SoCal, Miami etc. As a result, our market has not seen the price reductions that have become part of the landscape in some of those areas. In fact recently Philadelphia Magazine , a large local magazine that prints a housing issue every March, had just had an entire issue telling local residents that our market was not suffering, but was in fact pretty healthy. The article, “Everything You Know About Philly Real Estate is Wrong” demonstrated that the market was stable in price though the number of properties sold had diminished in the past year. Even our local newspaper had recently had a few articles about the stability of our housing prices, and I thought that perceptions might have shifted. But here, this bright working woman seemed to have missed that local message. It sort of makes you wonder doesn’t it? At least it made me wonder.

Most Really Significant Media is not…

Lawrence Yun, Chief Economist for NAR has become associated with his accurate and meaningful mantra “All real estate is local”. And those of us in the real estate industry know that to be true. But most people get their information from media that is not local. They get their information from the sources that are easiest to access, or from sources that are “in their face” the most. And those sources are television, radio, and syndicated journalists. And these media all generally tell the same story because they are not real estate experts and its easy to get into a herd mentality since opinions seem more valid when they are echoed by a group of people.

For many years their message was, “real estate is great“, “real estate means wealth“, “real estate is how to get rich quick“, “anything you buy today will be worth more tomorrow” (or maybe later this afternoon). Then their message went to “it can’t be as good as we’ve been telling you it is“, “when will the bubble burst“, “watch out the bad times are here“, and”the sky is falling, the sky is falling!” Then we entered the third phase when there were real price adjustments and trouble in specific real estate markets around the country.”the end is here!”, “the bubble has burst“, “real estate (everywhere) is plummeting“, and “see how smart we are, we told you so!” All of which was compounded by the “sub-prime debacle”, which became the “mortgage meltdown” and led people to believe that “everyone is going to lose their homes”.

All of this was exacerbated by the need of the media to fill the network TV shows, the cable TV shows, news radio, talk radio, the newspapers , the financial magazines, the podcasts and blogs of the financial pundits, and the podcasts and blogs of the journalists who follow the economy. For goodness sakes, Jim Cramer from “Mad Money, a stock expert who has no real estate background, made the flat unilateral statement that no one should buy real estate for the next year or two – under any circumstances- not no way – not no how (apologies to the guard in the “Wizard of Oz”) . We can put his advice into perspective by remembering that this was the genius who specifically told people not to sell Bear Sterns just before that stock plummeted through the floor.

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Now is the Best Time to Buy

Please don’t misunderstand me. I am not saying that we’re not experiencing some price adjustments, or that the real estate market in many places has not resembled a Nuclear holocaust (I know a broker in a Southern State whose company went from 58 Million dollars in Commission income in 2006 to 27 Million in 2007- and while that’s still a lot of income, that’s a huge hit for any company or individual to take as well as a tribute to that owner who is still stable and operating a fine company) But its just not the case everywhere, and when consumers don’t realize this they create the myth of a national real estate market which does not exist.

I’m one of those people who still believe that real estate is a good thing to buy if you have a need for housing. I think that over a term of years, people benefit from owning their home both emotionally and financially. I also believe that real estate is a good investment if you buy using common sense and follow some basic rules of real estate investing.

If you buy a property and obtain a rent that matches or exceeds the costs of financing and operating the property you will make money. Over a period of years, you will receive income from your rental (which will generally increase over the years), increase your equity as the rent pays down the loan, receive a tax benefit from depreciation, and possibly experience some appreciation over a period of time if you are patient. And if you don’t get the appreciation, the other three are still pretty decent returns, especially when you calculate the benefit of leveraging your down payment to control the larger amount of money representing the value of the property. Even though that down payment may need to be larger, you will still be controlling as much as 3 or 4 dollars for every one you invest. Remember, the concept of an investment is that you invest money – not that you borrow the entire value of an asset and then hope for appreciation.

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And I hasten to point out that this isn’t just theory for me. I am an active real estate investor buying property right now. I know that as long as people get married and divorced, are born and die, people will continue to need housing and real estate will be rented, bought and sold.

The Quick and Easy Answer is…

That there is no quick and easy answer. People who having housing needs should buy property to satisfy those needs on the best terms and at the best price possible, understanding that purchasing a house is a long term commitment. The old rules apply – a property that satisfies the needs of the buyer, with a good design, priced well, in a well maintained area with good pride of ownership is probably the right thing for the buyer to own.

Investors need to buy properties based on the reality of the marketplace they work in. Maybe they should buy to rent, and maybe they can still buy the property, add value through improvement, and realize4 an entrepreneurial return on their effort, but they can;t just buy a property for the asking price and expect to resell it for a profit based on anticipated appreciation. But with CDs and Money Markets at 3 or 4 percent, real estate is still a superior return for most people who can sacrifice liquidity for a higher return. And some people should just not sell right now, or possibly buy if they don’t have a real need, or the money to invest in real estate.

Each one of us should look for the articles about our marketplace analyze the information and then tell the truth of the market to each person we want to to work with so that they might better understand what that marketplace really is. I think we need to make comparisons with the national media and explain how the information provided by those media compare to the real local picture. We need to use our blogs and newsletters, and e-mail campaigns to spread the word in clear concise easy to understand terms so that consumers know what the real deal is where you are- and why this might just be the best time to buy real estate.

After all, everyone who has a monthly housing expense is paying someone’s mortgage, so it may as well be their own.Unless they are my tenants – in that case they should continue to rent and pay off my mortgages.

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Written By

Bill is an unusual blend of Old & New - The CEO Century 21 Advantage Gold (Philadelphia's Largest Century 21 company and BuzzBuilderz (a Social Media Marketing Company), He is a Ninja CEO, blending the Web 1 and 2.0 world together in a fashion that stretches the fabric of the universe. You can follow him on twitter @Billlublin or Facebook or LinkedIn.

10 Comments

10 Comments

  1. John Lauber

    April 6, 2008 at 5:05 pm

    I read those articles and forwarded them to my sphere when they came out. Being in your market, I’ve heard those same questions/concerns. I feel like I’ve been saying the same thing since 2006 or so, “This area is not as bad as the media would have you believe. All real estate is local and we’re OK.” I read all the articles in Philly Magazine and thought they could only help and we’ve been seeing plenty of action in our office since January (before the articles came out). I cringe when I hear Cramer and other “experts” make simplistic, across the board statements. We need more articles like Art Heavens wrote in early March (when that Philly magazine came out).

    It’s like someone who keeps saying you look sick, that you think you may be sick. Some people I speak with do understand that they’re not “sick”. Those are the people I’m enjoying working with now. Now, if only a few more would take their medicine, I can keep paying my mortgage 🙂

    Thanks for the post.

  2. Suzy Trotta

    April 6, 2008 at 5:50 pm

    I love your final comment about renters paying someone else’s mortgages. I posted it over at my blog. Enjoyed the article!

  3. Bill Lublin

    April 6, 2008 at 9:33 pm

    @ John- Didn’t mean to ignore Al, but he’s said lots of negative stuff before reaching that epiphany!
    @ Suzy – Thanks, I’m honored! 🙂

  4. Bob Schenkenberger

    April 6, 2008 at 10:26 pm

    Love the video, I will be sharing it soon on my blog! Thanks for the post!

  5. John Lauber

    April 7, 2008 at 4:25 am

    Bill and all – I mistyped the name above in my prior comment. It was Alan (not Art). I even double checked my comment. Too bad you can’t edit comments.

  6. West Toronto realtor

    April 7, 2008 at 5:48 am

    Love this one! Sometimes I have feeling that there’s, much more fun, when working as realtor on US market now. It seems nobody is knowing what’s going on and everybody is talking just the right opposite and many “experts” emerged, while real professionals are just smiling. I am working as a West Toronto realtor team member and situation here is much calmer. However, you can find some (and there is still more and more of them) prophets, telling that “the crisis will cross Canadian borders in few weeks!” without providing any facts…

  7. Janice Bovee

    April 7, 2008 at 8:00 am

    You make many good points, “All real estate is local” has been my mantra for at least a year now. I think a lot of people are into doom and gloom scenarios. I’ve been an investor in Philadelphia and New Jersey real estate for 25yrs now and I say amen let them pay my mortgages.

  8. Matthew Rathbun

    April 8, 2008 at 8:50 pm

    ::deep bow:: I stand corrected – I am still the rookie writer on the blog 🙂

    Incredibly important points here. Too often practitioners relegate their need to be a micro-market professional. They try to utilize national publications or bias to justify their advice to their client. Not only is real estate local, but each consumer has different needs and desires that makes them unique.

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