Buying a Second Home

If you are looking for something to invest in, a second home may be a great option. We all know that the value of real estate never goes down, right? Since we are coming up on the 10th anniversary of the start of the Great Recession, we are reminded that the value of real estate can go down, dramatically. And second home values in vacation areas usually go down first and farthest. But, we are talking about investing here so a longer-term outlook is a factor. And long term, real estate properly located is a solid investment.

Real property ownership is considered an illiquid asset so real estate investing needs to be coupled with other reasoned commitments. Unlike stocks, bonds or bitcoins, there are no apps you can download that allow you to move in, out or around your investment. You need to have compelling reasons to invest in a second home other than a place to put your money where it can grow. Reasons like:

  • I like to vacation in the area where the home is located.
  • I wouldn’t mind eventually moving there later as my life style changes.
  • If I had a vacation home by the sea I might see my grown children more often.
  • I live in town so a home at the ocean or in the mountains would be a nice get-a-way when I need that.
  • I’m really quite handy and I’m always looking for something to do.

It has been suggested that the sweet spot for a second home purchase is when folks are in their fifties. The kids are through school, managing their college loans well enough and pretty certain not to be moving back home, the mortgage on the house is paid off, you have no desire to own a boat and the Jones’s just bought a place on the Cape.

Once you have convinced yourself with the help of a spouse and other family members that a property purchase is the right move, and your financial advisor hasn’t been able to talk you out of it, you can move to the next hurdle; how to pay for it. Banks are happy to lend on a second home. Be forewarned, they usually require higher down payments and charge higher interest rates on those loans. A home equity loan on the big house is cheaper and borrowing from yourself using a line of credit on your investment portfolio, cheaper still. Projecting an income stream from the property will work with some lenders to help make a mortgage deal.

Because we are talking investment, there needs to be fail safe mechanisms built into the ownership of a second home. After funding the purchase/mortgage, the first analysis to consider is operating expenses. Schedule what you think you will need, then add a factor. You have taxes, insurance, utilities, maintenance; everything the big house costs and a little more because you will be tending to the property remotely and concerned about security and broken water pipes. If you plan on using the place less than 14 days during the year, expenses become deductible, though property taxes and loan interest are capped under the new “Tax Cuts and Jobs Act.”

Not a bad idea to have six months of reserved cash on hand for the bad times. And even though you may be intending to use the place year-round, think about a mid-course correction and turning the property into leased housing. Know the market for rental housing in the area and be ready to lease the home under a worst-case scenario.

I’ve saved the best advice for last. Don’t even think about purchasing a second home without the help of a Resident Expert(sm). Even if you are considering a purchase by the ocean, on a lake or in the mountains, your Resident Expert(sm) has connections everywhere and can make a referral to the best real estate agents and companies across the country or around the world. Enjoy the adventure!

Accessory Housing – The Time Will Come, Soon

My great grandparents lived in a small cottage behind the big house where my father lived. When he was a boy, my father worked in the garden beside the cottage with his grandfather. He remembers spending a great deal of time with him. Grandparents still provide child care; sometimes a lot of it, but most don’t live at the same address as their children, as was the norm in this country until after World War II.

By then, Social Security, greater overall prosperity and single family suburban living began to erode extended family living. Some are beginning to question the wisdom of this separation for both economic and social reasons. When it’s time to adjust to an aging lifestyle, assisted living is an option if you have the funds and then there is the nursing home where having no funds works just fine. But a visit to a nursing home, even a good one will have you wishing it never happens to you.

Most communities have provisions in their zoning bylaws for accessory dwellings. All come with restrictions with respect to size, appearance, occupancy and other limitations. However, presently the demand for such housing isn’t there. A house with an “in-law apartment,” will occasionally come on the market, though less often then a buyer with that need. New construction with a first-floor master bedroom is about the only nod to the housing needs of older folks that you will see coming to market, and that is not often. With the limited supply of existing and new housing inadequate to meet current demand, you would think that the accessory dwelling unit option could fill some of the gap.

The only remnant of innovation making the news is the tiny house movement. Like an accessory dwelling unit, the tiny house is small, yet clearly not fit for anyone with mobility issues. But unlike the tiny house, accessory dwelling units cannot be separately owned from the main house. Which is probably why the economics of converting or building new is not happening.

But, and you read it here, that will change. Spoken as an aging baby boomer at the vanguard of a major housing crunch; just as my selfish generation has always grabbed for all we can get, we will require our children to take us in! Contractors will specialize in adapting the big colonial into a multigenerational duplex and our children will find no better way to tap their inheritance.

We cannot be expected to give up our privacy, so only a well-appointed accessory dwelling unit will do, better still, that cottage behind the big house with a garden sounds much nicer.

Not All Real Estate is Bedrooms and Baths

What does a dog groomer and a medical marijuana dispensary have in common? Besides being services that you cannot get on line, they are both new businesses in the community. Someday, the Canadians may be able to send prescription cannabis to you through the mail, but for now, when they open later this year, you will need to get up to Natures Remedy on Great Road for your meds, and the pooch can have his or her day at the PinkDog Grooming and Spa on Central Street.

While your doggy is being served you could pop in next door at Ripped by Jules for a bit of personal training; never too soon to work on those abs. Or, if you really need to decompress, you might run over to 1 on 1 Self Indulgence Spa & Sanctuary for some pampering for yourself. If you find all this drying you out and you’ve worked up a thirst, head down the road to the local grocer for some of the very best cider in the world pressed in Leominster (home of Johnny Appleseed) by the New England Apple Products Company.

If you need a little company while you get in shape, you can find just the right group at Fitter Female on Main Street. And speaking of groups, lots of folks are gathering at Periwinkle Glassworks on Massachusetts Avenue and learning how to make awesome stained glass works of art and other projects. So, we all know that learning how to do new things never stops, though sometimes it’s the young ones who push the envelope. Take for instance Code Wiz in Westford where children as young as five years old, take one hour lessons in how to write computer code or even build a robot.

Then there is the Silver Unicorn Bookstore on Spruce Street doing a great business by offering something Amazon will never master, the joy of meaningful human interaction, especially for children and the authors who write for them.

But not all is relaxation, learning or catering to our pets. Sometimes we need to think about keeping warm or cool and that’s where Nashoba Air and BoilerWorks comes in. They will even make sure you can generate power when the grid fails you. Some of our needs or the needs of loved ones are more life changing and for that we have TaraVista Behavioral Health on Devens to help us through those trying times.

And there you have it! A blog about commercial real estate, far from the mainstay of our business at Acton Real Estate but an important part of what it takes to make community work. These are some of the businesses we have helped find properties in our area over the years who really needed a Resident Expertsm.

Reflections on Memorial Day

For the past seven years, I have been writing a blog nearly every month. My May blogs, which I’ve never missed, have covered topics including downsizing, tiny house living, student loan debt and even something called “net zero houses.”  And there are plenty of housing related seasonal topics I could choose for this May like “getting your house ready for sale”, or “wishing I’d started getting my house ready for sale sooner,” or “dealing with multiple offers” or “why haven’t I gotten any offers on my house,” or “should I worry about rising home mortgage interest rates.” Though our blogs are posted near the end of the month, none of the previous submissions has ever made mention of Memorial Day.

Unlike many of our national holidays, Memorial Day was not conceived by a greeting card company. Although it was not established as a federal holiday by Congress until 1971, its origin goes back to the Civil War era. The Civil War ended on April 9 1865.

On May 5, 1968, under the leadership of Major General John A. Logan, an organization of Union war veterans and the Grand Army of the Republic established Decoration Day.

It was to be a day for the nation to decorate the graves of the war dead with flowers. Logan selected the official date as May 30th because by then, flowers would be in bloom all over the country.

According to the United States Department of Veterans Affairs, more than two dozen communities claim to be originators of the holiday. It is not surprising that there would be widespread interest commemorating the great human sacrifice, given the magnitude of the loss of life during the war. War dead on both sides totaled over 620,000 men. And they were mostly all men. Some historians estimate that there may have been as many as 1,000 women who died in the war, most having disguised themselves as men in order to get into the fight.

According to the federal census, there were only 34 million Americans in 1860, less than 7 million men between the ages of 15 and 40. One in 10 men of fighting age, died in the war. Tens of thousands of black men also died but were considered civilians and not included in the official count.

Acton Memorial Library is dedicated to those who fought and the 29 men from Acton who died during the Civil War. More Americans died during the Civil War than died in all other American wars, including both World Wars, Korea and Viet Nam. Sadly, soldiers are still dying in war: 33 last year.

So, as we take some time off to enjoy the nice spring weather, the long weekend and a short break from selling houses for some of us, let’s reflect on the great sacrifice made on our behalf so that we may enjoy all those flowers in bloom.

Net Sale Proceeds and the Real Estate Commission

It is not higher math to multiply the real estate commission rate by the expected sale price to come up with the commission cost. It is a significant number, to be sure, and it attracts considerable attention early on in the home selling process, often focused on reducing the commission rate. But commission is not the only item that affects how much a home seller walks away with from a closing.

Home selling is a lengthy process, even in an active market, with many aspects layered upon one another; serial in nature yet highly interactive. Here’s a list of ten major elements of that process:

  • Agent/Brokerage Selection
  • Pricing
  • Preparation/Staging
  • Marketing
  • Showings
  • Offer Negotiation
  • Contingency Management
  • Third Party Vendor Selection
  • Financing Contingency
  • Closing Coordination

Unless they have sold many homes, most sellers rely on their real estate agent to manage this process efficiently.

Unfortunately, the financial impact of not managing these steps correctly is often not apparent to a home seller until closing time when all of the home selling costs, including commission are known. Many of these costs are shown in the closing statement, but not all.

As part of a listing consultation, many real estate agents will prepare a “net sheet.” This is a document that takes the list price of a property and reduces it by certain fixed costs associated with the sale. Costs like recording fees, transfer taxes, attorney fees and commission. The variable is the conversion of the list price into an actual sale price. The other costs, with the exception of attorney fees, are a percentage of the sale price. This a reliable representation of what the seller can expect to walk away with from the closing table. But there is also a list of variable costs that can have a major impact on the “net.”

Even in active markets, the expected time between receiving an offer and the resulting closing is likely to be 45 to 60 days, owing to satisfying various contingencies including buyer financing. However, additional time can easily be added to these days, and with added time comes greater opportunities for costs to mount. Home sellers are wise to consider the experience and track record of the real estate agent and brokerage they hire to sell their property.

The graphic below shows the cost implications associated with a poorly managed home selling process. Each of the items listed in the left-hand column below the final sale price will reduce the funds a seller will receive from the sale of their home. This is an expansion of the standard “net sheet” and includes items like inaccurate pricing, poor offer negotiating, un-needed home preparation costs and badly defended items from the home inspection. All of these items are directly or indirectly affected by the performance of the agent hired to manage the sale of the home.

In order to demonstrate how a lowered commission rate should not be the only consideration to affect the “net,” the column of expenses under the 30-day heading include a reduced commission of ½%.

In this example, adding 30 extra days to closing along with less then perfect management of the selling process, results in $3,784 less to the seller even with the lowered commission rate.

Experience, training and administrative support matter. When making the decision on who to hire, you should consider who is more likely to:

  • Sell your property and return the highest net price,
  • In the shortest amount of time to closing and
  • With the least amount of hassle.

While hassle is not easily monetized, it is worth a great deal to be avoided.


Property Assessment, Zestimates® and The Value of Your Home

The house across the street from my house is up for sale. I’m reminded of that every time I leave my driveway and I am curious to see how long it will take to sell and at what price. I’m curious not because I’m going to sell my house any time soon, but just because, well, I’m curious. It’s a rare homeowner who doesn’t regularly wonder what their home is worth.

This time of year, homeowners receive their third quarter property tax bills which contain the “actual” assessed value of their homes. Homeowners are billed during the first six months of the municipal fiscal year (July 1st through December 31st) based on the previous fiscal year’s assessed value. So how accurate is that new value?

The “actual” assessed value received in January 2018 is based on the home’s value on January 1st 2017, using sales that have occurred during the year 2016. That assessed value will remain in the public domain for the next 12 months. Meaning that the assessed value of a home in Massachusetts in December of 2018, is based on sales occurring between 24 and 36 months in the past, almost guaranteeing that the “actual” assessed value is not the correct market value.

Submitting the assessed value of a home is a required field in the multiple listing service so there is no getting away from that number even if it varies significantly from the current list price. Individual assessed values enter the public domain as a public record published by every town as required by law.

Good luck getting a local assessor to change that value; it does happen, but rarely. Local assessors are required by state law to assess property at its “full and fair” value. If you have ever talked to an assessor about the process they use, you will come away believing that they have done just that. Of course, time-frame is everything. What assessors are actually trying to do is establish a value for your home relative to your neighbor’s home and every other home in town. Most towns revalue properties every year, though they are only required to do so every three years. Year three values must be reviewed and certified by the state.

There is a dilemma in the residential real estate business that agents often are confronted with: The highest value ever published is the correct value of a property. This is almost never accurate. In an active, appreciating market, this value may be low; more often third-party providers of estimates like Zillow, or Redfin using proprietary algorithms, compete to provide value estimates that regularly vary from each other by tens of thousands of dollars.

These third-party providers admit that their estimates are not capable of directly taking into consideration the aesthetics of a home or its precise location and the accuracy of their estimates are off by 4 or 5 percent at best, which is not insignificant.

The estimates given for my house varies by $119,000 from one of these sites to another. So, you know where this is going. Why rely on an algorithm or some form of artificial intelligence when you can have real time intellect and the practical experience of a Resident Expertsm?

Breaking News – Unicorn Found on Spruce Street?

You may have heard that Amazon has opened brick and mortar bookstores, eleven actually, all across the country. Is Jeff Bezos hedging his bet on the original Amazon staple? Or just offering a different experience. Paul Swydan thinks he knows and will be bringing his Silver Unicorn bookstore to the Village, here in West Acton.

While the digital age has changed how we shop for items like homes and books, some underlying principles have been rediscovered. About seven or eight years ago, Google began to notice a trend in how folks were searching for goods and services, more precisely, how they were qualifying their searches.  Phrases like “near me,” “closest” and “nearby” began to appear more and more frequently,  thirty -four times more often to be precise, over that time period.

Characteristic of Google, they began to alter their algorithms to respond to consumer demand for the hyper-local intent. Not to pass up an opportunity to sell favorable search positioning in response to this newly found phenomenon, companies found themselves organically or purposefully showcased in searches like this:

While the pay per click ads provide favorable positioning on a limited basis, having original hyper-local content that Google recognizes as such, serves as the best way to get selected  among  the three or four highlighted firms.

Marketing by local companies has changed as the internet has grown. Still, some companies do not display their physical address as if admitting to being in only one place was a handicap. National brands once touted their broad reach as a positive differentiator. It is pretty much recognized by everyone now that the internet has leveled the playing field for marketing goods and services, like real estate and books, and the appeal for local connection has become a greater good.

Forces operating in the digital age do not give up easily on any challenge, satisfying the demands of the hyper local consumer is no exception. Enter Virtual Reality and the quest to create the hyper local experience remotely. Is VR truly satisfying, or merely cool? For some of us, it is hard to imagine virtual reality ever replacing actual reality, including reading books.

If you own a home, you are by definition, invested in your community and when you go to sell that home, you need to know that whoever is working for you is able to convince buyers that the community is worth investing in. Having restaurants, a coffee shop, some retail and now a bookstore in the neighborhood trends positively.

In the retail world, while local independent stores may lack a pricing advantage, survey respondents generally consider neighborhood businesses to be more trustworthy and better able to deliver on a quality experience than the national brand, big boxes. The polling company, Neilson, found that 75% of respondents to a larger, international survey, prefer to do business with firms with a nearby brand origin. And if you look, you’ll find that it’s Independent businesses that contribute more to the economy from their support of non-profits as well as enlisting other local businesses for its day-to-day needs like print services and marketing for example.

The continued interest in Acton Real Estate as a community based independent company by hyper-local consumers is of obvious importance to us. But we also hope for similar success for all of the businesses in the West Acton Village which will soon have a book store on Spruce Street. We helped Paul Swydan negotiate his lease and wish the Silver Unicorn Bookstore much hyper-local success.

Residential Real Estate Just Got a Bit More Complicated

By: Victor Normand

We have a dynamic economy in the US influenced by consumers, business interests and government actions. Housing is one of the largest sectors of the economy, comprising about 15% of our Gross Domestic Product. Sometimes changes happen at a slower pace that are easy to comprehend and manage, other times not so much. As we enter the spring market, Homeowners, Buyers and Sellers have big changes to consider.

The two significant areas of concern are accelerating home values (appreciation averaging around 6% annually) and the effects of the recently passed tax reform. Both come to bear regardless of where you might be in the housing market, even if you have no plans to change your circumstance at all.

As home values appreciate, you will feel more wealthy and tempted to spend (credit card balances are on the rise) or borrow against the new higher home value using a home equity loan (HELOC), That’s the up side for many of us. The down side comes from government actions to share in your new-found wealth by potentially increasing your local property tax bill, and taking away your ability to deduct interest paid on your HELOC on your federal taxes. And of course, your home is not the only one now worth more money; the home you may be hoping to up-size or down-size into, has also gone up in value.

Coping with rising home values is not completely new and we all know strategies to deal with that. What IS new and different is the new tax reform law. Here, the economic dynamics is very personal. In fact, it is so unusual, the IRS is requiring that everyone who receives a paycheck complete a new expanded W-9 with their employer. We will all be turning to tax accountants and lawyers to help us sort things out. Full disclosure, I am neither so take what I have to say as merely conversation starters.

On the upside, if you do not own a home, you do have a spouse and children and receive a pay check for your work, you will be getting more cash in the envelope. Of course because you do not own a home, you have nothing to appreciate and some of your tax cuts are effectively off-set.

If you have plans to move to a state with low housing costs and no income tax, the new tax law will be very good to you unlike your neighbor who stays in the big house, has no children, a HELOC and draws a big salary.

So, the big question for someone interested in buying a home, comes down to the ability to afford the monthly payments, taking into consideration debt servicing and tax benefits or lack thereof, along with the overall impact of the new tax law as it provides and diminishes various benefits. And then there is the market appreciation factor to consider and its ability to make a purchase worthwhile in the long run.

None of the above takes into consideration all of the other really good reasons for living where you live in a home you love. Hard to put a price on that. As always, you do not need to be alone as you navigate the emerging and confusing real estate landscape. Talk to a Resident Expertsm at Acton Real Estate, they are there to help you sort things out.

A Christmas Story

By: Victor Normand

Around the holidays, the real estate business slows down. For a while we put aside the tips on staging your home, decluttering advice, valuable home improvement suggestions and the like and we get a little sentimental. Thoughts turn inward to hearth and home, being with family and friends and memories of Christmas past.

Personally, I still believe in the spirit of Santa Claus though my faith was challenged one Christmas time when I was six years old. My cousin Donny, who was eight and considered himself more “in the know” came for a visit before the holiday with big news he shared only with me. He told me there was no Santa Claus, and more to the point, it was actually our Uncle Walter all dressed up.

My mother was the second youngest of twelve children of Adam and Mary Ruszczyx. Except for Joe who died during the war, all of my aunts and uncles along with all my cousins gathered for a traditional Christmas Eve meal at my grandparent’s place. Back then we lived a few blocks away in a tenement building on South Bridge Street in Holyoke. The whole family lived in Holyoke as well. Extended families should be so lucky these days.

After the meal was over, tables cleared and dishes washed, the main event would occur. Santa would arrive with big bags filled with gifts for all the children. As you can imagine, the run up to Christmas Eve was a much-anticipated event. As children, we felt doubly blessed to have this extra visit from Saint Nick, so Donny’s news was very confusing and of great concern to me that year.

It was a secret I could not keep to myself. I told my mother what my cousin had said; she assured me that his information was not correct. This put my mind at ease though I remained a bit unsure wondering why Donny would have said what he said.

Finally, the big night arrived, the meal consumed and everything made ready for the special visitor. We gathered in the living room in a big circle nervously waiting. The phone rang. It was Santa himself announcing that he was only a block away. The air was electric!

As I fidgeted in my seat ready to jump out of my skin, I noticed who was sitting right beside me – Uncle Walter! Then Santa came through the door; his jolly old self carrying big bags filled with toys and shouting out Merry Christmas as he handed out gifts to each child gathered around the room. When he got to Donny, the room grew quiet as he presented the unfortunate lad with a big plastic mesh stocking filled with charcoal.

Later in life my mother confessed to me that because of Donny’s misguided, though admittedly accurate information, plans for that night changed and my Aunt Jenny padded up and became the jolly old elf.

As for Donny, I can attest that he was not scarred for life though lessons were learned that Christmas Eve.

It has been a very long time since Santa stopped making his visit with the grandchildren of Mary and Adam but the memories of Christmas past live on, fondly in my heart.

Merry Christmas

Challenging Group Think

By: Victor Normand

According to the Urban Dictionary, the expression “Do the math,” means to figure something out. To come to a solution or conclusion based on other facts. But my training, going back to my earliest experiences in the world of work literally means to do the math. Whenever I read an article with numbers in it, I do the math often discovering that something just doesn’t “add up” or that the verbiage doesn’t match the math. Or that the numbers have become group think detached from reality.

Tax Reform

The latest disconnect between the word on the street and the math has to do with tax reform. The group think within much of the housing community, including the National Association of REALTORS® has to do with changes to the mortgage interest deduction “eviscerating” the program and bringing home sales down and endangering the economy.

First of all, nothing yet has been turned into a bill let alone passed into law, so injecting panic into the marketplace is chilling and ill advised.

Secondly, even considering the most severe reduction from $1.0 million to $5 hundred thousand in mortgage debt, the reality is it will affect very few new homebuyers, mostly those buying big houses with big incomes. The average mortgage debt nationally is less than $225,000 and even in high cost markets, having a buyer’s tax liability rise by a few thousand dollars is not likely to be the go or no-go metric on a home purchase.

Down Payment Requirement

This still keeps coming up. Common knowledge among first time home buyers, reinforced by the printed word is that it takes 20% of the purchase price in cash to qualify for a mortgage. One of the Agents in the office asked a friend why she thought that way. Her response was that every time she went to her favorite real estate website and checked in with a mortgage calculator, the assumed number for down payment was 20%.

In actuality, according to the National Association of REALTORS®, about 60% of first-time homebuyers put down less than 6% on a home mortgage and in Massachusetts, there are programs that allow even less for qualified buyers.

Student Loan Debt

Seventy-five percent of all student loans are government loans and government loans provide for re-payment based on income which means that monthly payments are not necessarily tied to the amount of the loan but rather as low as 10% of the borrower’s income.

Lenders make loans in part based on debt to income ratios though it would be more accurate to say debt “service” to income ratios. From the lenders perspective, the amount of unsecured student loans a borrower has doesn’t matter but rather how much they pay each month on those loans.

Challenge everything; it’s a good practice and you will be surprised at how often the numbers don’t add up. It’s not a grand conspiracy; perhaps the media or word on the street picks up on a small or partial truth and runs with it because it seems to make sense and it very well may sometimes. Don’t be satisfied until you can relate the information to your personal circumstance. While the Resident Experts(sm) are not lenders or tax accountants, they know when you should be talking to one.