One of the downsides to an expensive real estate market is that buyers get more focused on location then on the condition or the age of the home. Denver has definitely become one of these markets.
The issue isn't that there's a lack of interest in fixing up these homes, it's that there's no one has any money left to do it once they purchase their home!
I told many of my friends back in 2015 that they should buy before they are priced out of the market (especially at a budget of $350,000) --- I mentioned it again to them in 2016 --- again in 2017 and 2018, and now that they're finally coming around to the idea of buying in 2019 the average home price is a whopping $550,000 for a single-family home and they're literally moving out-of-state so they can start a family or just continuing to rent.
Well that sucks!
It's not that I want to tell people "I told you so", but I wasn't trying to pull the wool over their eyes in 2015 just so I could make a sale (that's not me!). And even now when some of my friends were able to purchase a home at $550k, there are plenty of less than stellar homes to choose from that have ugly, low basement ceilings, unlevel floors, beaten up exteriors, old windows, insulation issues, and are almost in need of being torn down.
When someone does decide to over-extend their budget on a home that needs lots of work just so they can live where they want, they end up leaving things exactly the way they are currently and not fixing the problems. The house is in a livable-enough condition, but you're certainly not helping the progression of your neighborhood by having an "if it ain't broke, don't fix it" attitude.
In New York City, there are plenty of old, architecturally marvelous homes that deserve preservation and upkeep like the classic Brownstones in Brooklyn or the townhomes of Harlem. Denver also has a lot of historic homes worthy of it as well like Tudors, Queen Annes, and government mansions --- but let's be real:
This is the reality of what's happening city-wide, and this is why some areas will likely hit a ceiling on appreciation for older homes. Let's say you own the above old, bland home and do nothing to the outside or inside while you live in it for 15 years; just general upkeep to keep it livable for you and your family. You turn around to sell it, and your real estate agent tells you that you need to spend $150,000 to get it up to market standards. You don't have that money, so you decide to list your property as-is, where-is and with all faults.
Your home is essentially a fixer-upper. Now, you may find the right buyer that shares your own interest of just buying a home for the location and foregoing what the interior looks like, but that could take a long time depending on how hot the market is. What you're most-likely to get are a bunch of low-ball offers from flippers that are looking to undercut you and seal in profits for themselves on a future sale.
The difference between fixed up and not fixed up can be huge. I've purchased homes for $350,000 that are just okay, and then I've purchased the same home with the same floorplan all fixed up for $650,000. It may not make much sense as to why people are willing to pay so much more for it, but needs are needs, and a move-in ready home with premium finishes is MUCH more valuable and marketable then an old house.
Now let's say you sit on that old house for another 5 years because you couldn't sell it for what you wanted, and the rest of the street has stayed the same, as well. In that amount of time, however, the neighborhood just east of you had a huge surge in real estate prices because over the past 5 years new construction, tear-downs, and great renovations have drawn in the more expensive buyers in the $1+ million range. Too bad for you because your street hasn't changed --- you're still around the $450,000 range because your block wasn't able to attract that kind of clientele over time.
Well, what's a homeowner to do? You can't help the randomness of real estate booms. You just need to be wise in choosing where to live from the get-go. Real estate is tangible and can be seen, and the energy of a neighborhood gets discussed by your friends at a happy hour or restaurant. "I looooove Highlands Squaaaaare!" says a lot of people that go there, obviously.
You know where the hotspots are in town that you want to visit. Most of you know when something new is going into a part of town you thought was lame before (like RiNo about 5 years ago, wtf, right?). Long story short, things change for the better and usually not for the worse.
I would advise against moving into a place that exchanges a pawn store for a check-cashing business, however. You will also intuitively recognize when an area is bleeding: businesses closing doors, crime increases, and more and more shady characters start popping up and scaring people away from the places you used to know and love.
If you are investment-focused, like me, you'll find an okay house that has just enough going for it to be livable, buy it, and then fix it up and make it look nice while you live in it. That way, when you go to sell it you're not just sitting on a home that needs work. Or if you're home is in market-ready condition when you buy it, just live in it and watch the appreciation grow! Then you can utilize your equity (via a HELOC) and live an amazing life!
--- but getting back to the issue at hand: "what is Denver going to look like in 20 years with all these junky, non-architecturally relevant homes?" I honestly don't know. There are always junky eye sores of homes in every major city, but what you could see is that a new neighborhood pops up and everyone knows that it's the ugliest neighborhood within the Denver metro area, so most people avoid living there and opt in for a nicer neighborhood that totally devalues your homes list price because you're home happens to be located in that new neighborhood. That's what's happening with on of my rental properties, unfortunately. It's so old that it's just not appreciating anymore without someone coming in and doing a major overhaul on the entire neighborhood.
So all in all, don't get sucked in to an overpriced home you can't afford to fix up. I actually advise settling! Settle for a home you can afford to live in AND fix up. If you get 60-70% of what your dream home looks like YOU ARE DOING GREAT IN YOUR HOME SEARCH! Then you fix up the home to be what you want over time. That is how you avoid being the worst house on the nicest block, or avoid living in a neighborhood that is full of people that can't afford to make changes. By showing pride in your home, fixing it, and making it look BETTER than when you bought it, you will inevitably attract like-minded neighbors and people to move in to your neighborhood.
We real estate agents love to say things like "the neighborhood is changing", or "the governor just approved 'x' around here", or "there's so much growth potential around here". That's all totally fine to say, but our words do influence how people view a neighborhood. As long as there is a clear sense of homeowner pride in a community, you will see growth in it from an investment standpoint. So re-think about what's important to you; location doesn't have to be everything!
***And stop waiting, you will ALWAYS buy your home at the top of the market in a positive, appreciating market. That is how real estate works! Even in a down-turning market, you're never going to catch the absolute bottom unless you're REALLY lucky, but to believe you're going to avoid a downturn simply because you wait is a bad assumption.
You may wait 5 years for the inevitable downturn you've been scared of, meanwhile the home has appreciated 10% a year for 5 years, and finally took a 20% hit in year 6. Here's the math: 110% - year 2, 121% - year 2, 133% - year 3, 146% - year 4, 160% - year 5, AND FINALLY WHEN THE DOWNTURN HAPPENS 128% - year 6. Oh look, you still hold on to 28% real estate growth even in a 20% downturn in year 6.
The math works the same way in an early downturn. Unless your real estate market is horrendous and about to completely tank like Detroit, you'll generally only go through one major downturn every 7-10 years. So here's the math with the downturn hitting IMMEDIATELY in year 2, at a 10% growth with a 20% downturn. 110% - year 1, 88% - year 2, 96% - year 3, 105% - year 4, 115% - year 5, 126% - year 6. YOU END UP IN ALMOST THE SAME PLACE!***
So stop worrying about it, just choose a spot you believe in and dive in. That's it. Don't buy junk, buy what you can afford, and fix it up as you go along. You won't be disappointed!
---oh, and of course, give me a call when you're ready ;)
-Derek Chisholm
dchisholm@livsir.com
720.446.8559
Comentarios