To Buy or to Rent, That is the Question…

By: Victor Normand

There are many considerations when trying to decide whether to buy or rent a home and there is no right answer that will suit everyone.  This blog will deal only with the economics of the decision using a realistic set of assumptions and current market conditions.  It’s a good place to start and allows for other life circumstances to inform the final decision.  Just under 65% of Americans are homeowners and a majority of those who do not own homes would like to some day, according to the National Association of Home Builders. It’s still a big part of the American Dream.

In order to conduct the analysis, a standard model was used to compare both the short term and long term costs and benefits of both owning and renting.  The specific numbers used to populate the model come from  recent sales and rentals as published in the local multiple listing service (MLS PIN). A time period of five years was chosen as the length of occupany for both the renter and the buyer. The metrics used for both the sold and rented units were:

We found 23 sales and 25 rentals that met these criteria.  The median sale price was $185,000 and the median rent was $1,550. The simple average was $177,661 and $1,541 respectively  The median was used because there are as many sales below that number as above, so extremes do not effect the selected values.

For the rental units, we assumed rental insurance of $240 per year and annual rent increases of 4% which seems to be the market for two bedroom units.

For the sold units, we assumed 5% downpayment, a 30 year mortgage interest rate of 5.0 (FHA),closing costs of $6,000, property taxes of $2,123 annually, condominium fee of $393 per month, mortgage insurance at .5% of the mortage amount, and condominium unit owners insurance of $240 annually.  Property taxes and condominium fees were also increased by 4% annually to be consistent with rent increases.

Based on these criteria, the total monthly cost to buy was $1,607 and the monthly cost to rent was $1,570.  Over a five year period of ownership, the cash paid out for the buyer would be $97,879 vs. $101,944 for the renter. So, if you are paying more than $1550 per month and you can find a nice condominium for anything less than $185,000, buying is your best economic option.

There are two real sweetners for the buy option.  Assuming a combined state and federal tax rate of 20%, a five year tax benefit of $10,752 would be realized by the homeowner.  Additionally, the homeowner would have paid down the mortgage loan by $14,361 and can expect the property to have appreciated in value by $40,081 over that time period.

As they say in investing, past performance is not necessarily an indicator of future returns.   The same holds true for real estate investing, including the purchase of a primary residence.  But unlike stocks and bonds, it’s easier to ride out the slow or down years simply because you need to have someplace to live.

So, if you’re secure in your job, have managed to save for a down payment and have a good credit score,(680 or above) a closer look at some available real estate may make sense at this time.  And as always, while formulas and rules of thumb are a good place to start, get a professional like a Resident Expertsm  to work closely with you on this journey.

Hominis Ambulantes

By: Victor Normand

Acton Real Estate_092814-4803I walked to the hardware store last week. For me, and I believe I am not alone, this was not an expected mode of transportation; the hardware store is 1.1 miles from the Acton Real Estate office, my point of departure. I need to get more exercise and the idea to take this walk came to me earlier in the week and actually became a bit of a compulsive event. Once I decided to do it, there was no turning back. Of course, I have taken my share of nature walks, but to forgo my car for such a trip as this during a workday was uncharacteristic and the idea could easily have been set aside.

On the appointed day I had prepared for the journey by wearing comfortable shoes and I assessed good weather conditions. I told no one of my trek ahead of time for fear that it would not be fulfilled. Out the front door I went with the simple comment “I need to run an errand.” I had previously determined that there would be sidewalks available to me throughout my mid-day walk. For the entire distance back and forth, I passed only two other pedestrians, though several young bikers did zoom past on occasion. I have to admit to feeling self-conscious. More so on my way to the store when I had the companionship of neither man nor beast, and I was emptied handed. Returning with my purchase, a trivial item of no urgency for the office, I felt comfortable with an answer to the question “What could that walking man, wearing business clothes be up to?” which I imagined every motorized passerby to be asking themselves.

The total elapsed time for both the walk and the shopping was just under one hour; which would have been twenty minutes by car. This effort helped my heart and lowered my carbon footprint, but cost me 40 minutes. To be honest, my work product for the day did not suffer.  Walking around eschewing the automobile is not practical or even possible for most of what we do these days, but it is becoming more popular and, from a real estate perspective, more desirable.

In a way, we seem to have come full circle in the relationship between housing and transportation. Until the middle of the nineteenth century when rail transportation emerged on the scene, (Acton had no less than three lines passing through town) most folks needed to live within walking distance of work and commerce. The automobile changed all that of course and we began to spread out. And indeed we did, building homes further and further away from where we worked and shopped, adding more roads and highways to accommodate the migration until we found ourselves at the practical limits of time and road capacity. So we are coming back to the rails and the “walkable” environment.

We are building houses closer together, though not necessarily any smaller, embracing infill locations and increasingly finding urban and town center locations more desirable. As it gets more and more stressful to drive anywhere (does the Sunday drive exist anymore?) I am happy to be evolving as a walking man.

A Move in the Works

By: Victor Normand
Published: August 2015

Acton Real Estate

Acton Real Estate Company is moving to new offices in West Acton Village. The new space will be in the recently built Villageworks complex on Massachusetts Avenue, in an area fast becoming the most active and interesting commercial center in town.

Just as living space needs for individuals and families changes over time, spaces for businesses evolve as well. Sometimes the current space is too large or too small, sometimes the type or arrangement of spaces has changed, a location closer to amenities becomes a consideration, and sometimes we just need a change.

Businesses, like families adapt their needs to whatever space they are in until they have reached the point, for any number of reasons, where something just has to be done and then the wheels of change are set in motion. Once that happens, the urge to move begins to build and all the pros and cons get listed to see which list will be longest and prevail.

For a business like a real estate office, the space has to be functional and efficient, but it must also reflect the way workers and clients expect to do business today. Work environments for customer service businesses are more open and inviting these days, physical barriers between workers and customers have fallen. Those who sell goods and services are no longer the fount of all wisdom they once were. The information age has armed consumers with abundant information, now it is all about forming trusting relationships along with a demonstrably superior knowledge of the product or service.

The new space we are moving to, first of all is new, and that is almost always attractive to staff and customers, not unlike the appeal of new homes over older homes. And it is not just that new is shining and bright; new is able to respond to the latest technologies, current design trends and proven innovative concepts. The new space and new furnishings convey forward thinking, an openness to all that is new and creative.

The decision to move Acton Real Estate was not made easily. The company has operated from 371 Massachusetts Avenue for almost exactly 60 years since it began as a business in 1956. The move to 525 Massachusetts Avenue is barely a mile down the road but the look and feel of the offices as well as its village setting will be a world of difference.

The means to access services now is almost exclusively by automobile; the new location accommodates parked cars nicely, but is in the midst of a walkable environment. The present location is a free standing building; the new office is among other service, professional, retail, food businesses and event spaces. A lively, interesting gathering of busy people makes us all feel social and engaged.

Now that we have made the decision to relocate, and construction has begun on the office fit-up, we are all anxious to be working in the Village and welcoming our friends, neighbors and other clients to the new home of the Resident Expertsm. You can check on the progress with weekly updates on our Facebook page and then come by when we open the doors early this fall.

Dealing with Stuff

By: Victor Normand
Published: January 2015

Sometimes the spring market for homes sales begins in February. If there is no snow on the ground and the sun is out, so are the buyers. Even if spring waits for the calendar, it’s not too soon for sellers to start getting ready. Preparing a home for market involves everything from dealing with deferred maintenance items, updating mechanical systems, remodeling in minor or major ways and considering the use of staging. All in all it can be a daunting but necessary undertaking. The first step however, which is often the least expensive but arguably the hardest to do, is getting rid of stuff.

Houses are bigger today by more than a factor of two since the middle of the last century and we have all taken advantage of that added space to accumulate stuff. Today the weight of household items for a typical four bedroom home is about 11,000 pounds compared to 2,500 pounds in 1950. Someday, someone will eventually deal with all of our stuff if we don’t take care of it. Moving to a new house, even if the new house is the same size as the old house is a good time to shed a few pounds.

Consider this; the cost to move one pound of stuff from Acton to Raleigh, N.C., a distance of about 600 miles, is about 75 cents. Getting rid of 10 percent of our stuff could save over $800 in shipping costs. And who doesn’t believe that we couldn’t lose that 10 percent without missing any of it and actually feel GOOD about living with a bit less clutter? Some experts say that most of us actually use only about 20% of all the stuff that we own. The de-cluttering concept is sound but the execution is difficult.

Here are a few ideas to get you over the hump and on your way toward minimalism:

• Get in the right frame of mind. Imagine your surviving family members going through your stuff and wondering why Grandpa would keep something like this? You don’t want to embarrass yourself posthumously; get angry and get going.
• Start at the end. Clean out the basement by just moving everything into the garage. See how great the basement looks? Now you are motivated.
• Get a sponsor. If it works for AA, it can work for de-cluttering. Find a friend to work beside you who is not connected emotionally to that old rocking chair with the broken seat. You don’t have to face this alone.
• Go with your inner self. If you are hyper-sensitive about parting with your belongings, focus on re-cycling if you can’t bear the thought of your stuff ending up in a dumpster. Hire a clean out company who promises to re-cycle “most” of the items they take away, and there’s always eBay, and the Virtual Garage Sale on Facebook where your “friends” get first dibs on your stuff.
(See the list below for some other options for re-purposing things)

advance
Advanced Electronics Recycling
43 Broad St.
Hudson, MA 01749
Phone: 978-568-3444
Website
Takes: Old computers, miscellaneous electronics, CRT monitors and TV’s.

staples
Staples
145 Great Rd.
Acton, MA 01720
Phone: 978-263-6150
Website
Takes: Desktops and all in one computers, laptops, tablets, ereaders, monitors, printers, copiers, scanners, faxes, shredders, UPS/battery backup devices, mice, keyboards, modems, routers, computer speakers, mobile phones, MP3 players/iPods, calculators, GPS devices, digital camera, camcorders, cordless phones, digital projectors, CD/DVD/Blu-ray players, gaming devices, A/V receivers, video streaming devices, cable/satellite receivers, external hard drives and small servers, rechargeable batteries (11 pounds or less)
Will NOT take: TV’s, floor model copiers and printers, appliances, large servers, large speakers or speaker systems, alkaline or lithium batteries, lamp and bulbs.

hgrm
HGRM
530 Main St
Acton, MA 01720
Phone: 978-635-1710
Website
Donation Hours: Tues, Thurs & Sat: 9am-Noon
Takes: Metal bed frames, mattresses & box springs, dressers & bureaus, nightstands, kitchen and dining room tables & chairs, sofas &loveseats, sofa beds & recliners, coffee & end tables, dishes, glassware, pots & pans, flatware, cooking utensils, baking pans & casserole dishes, toasters & toaster ovens, coffee makers, mixers, blenders, countertop microwaves, sheet sets, blankets, comforters & towels, new or like new bed pillows, area rugs, framed prints, mirrors, fans, space heaters, vacuum cleaners, TV’s (10 yrs or newer, radios, irons & ironing boards, shower curtain liners, brooms & dustpans, small trash cans.
Will NOT take: Clothing or food

salvation
The Salvation Army
Phone: 1-800-728-7825
Website
Takes: Appliances, automobiles, men’s, women’s & children’s clothing, furniture, household goods, miscellaneous items
The Salvation Army provides receipts for tax deductions

nstar
NStar
Phone: 877-545-4113
Website
Takes: Old or second refrigerator & freezers. Must be between 10 and 30 cubic feet using inside measurements, cannot be your primary refrigerator or freezer, clean, empty and in good working order, accessible with a clear path for removal. You MUST be an NStar customer. Offers Rebate.

mass
Mass Save
Phone: 877-545-4113
Website
Takes: Old or second refrigerator & freezers. Must be between 10 and 30 cubic feet using inside measurements, cannot be your primary refrigerator or freezer, clean, empty and in good working order, accessible with a clear path for removal. Offers Rebate.

kars
Kars 4 Kids
Phone: 1-877-527-7454
Website
Takes: Cars, boats and water craft, motorcycles and dirt bikes, RV’s, campers, and trailers

boston
Boston Building Resources
100 Terrace St
Boston, MA 02120
Phone: 617-442-2262
Website
Takes: Cabinets, countertops, sinks & faucets, appliances (showroom condition, less than 5 yrs old), vanities, tubs & enclosures, low-flow toilets, ceramic tiles, accessories (towel racks, etc.), lead paint free windows (vinyl & wood replacement, insulated double hung units, awning & hopper), lead paint free doors (interior minimum width 30”, exterior, storm doors with frame & hardware, locks, knobs , hinges), dimensional lumber (6’ min. length, no scraps), moldings, plywood (half sheets or larger), drywall (half sheets or larger), exterior house shutters (wood, no lead paint), carpeting & carpet tiles, ceramic & vinyl tile, sheet vinyl, wood flooring, residential surface-mounted light fixtures, paddle fans, latex paint (full containers, cans must be clean and paint in good condition)
Call for items they will NOT take

Books: Can be donated to the library, Salvation Army, HGRM, or any of the book drop off boxes that are located throughout town.

For many, the task may appear difficult at the beginning, but as they progress, the process of tossing out stuff can feel exhilarating. I feared the roller coaster as a kid, but I kept getting on and soon began to crave the thrill of being momentarily weightless.

And then there is the joy that comes with starting over. I knew a man who was only able to save a few family albums when his house burned to the ground. Afterwards when a reporter asked him what it was like to lose everything he thought for a moment and simply said “liberating, in a way.”

So, consult with a Resident Expertsm on everything you need to do to prepare your house for the spring market, even if it’s the spring market next year. Start off by not purchasing anything new, even if it is on sale, and then digging in to that collection of stuff. You will feel so good when it’s done!

Higher Education Debt and the First Time Home Buyer

By Victor Normand
Published: April 2014

Last week I got my credit card statement from American Express. The statement showed current balances of $2,540 which will be paid by the due date as I usually do. In the event that I would like to stretch out payment, Amex provides a schedule showing that if I only made the minimum payment of $35, and assuming I did not charge anything else on the card, it would take over 9 years to pay it off and I would have paid them $4,400.

All credit card companies are required to make this disclosure, perhaps student loans should come with similar disclosures. I do remember my daughters having to participate in an online tutorial before getting their student loans approved.   My recollection is that the purpose of the tutorial was to stress the student borrower’s obligation to pay back the loan and what would happen if they did not. No student or parent of a student looks forward to borrowing money, but I am not sure the impact of those loans is fully comprehended on all levels.

Paying off a student loan every month is a great way for graduates to build a good credit score; unfortunately all student debt is included when establishing the debt to income ratio for obtaining a home mortgage. Many first time home buyers, those typically between the ages of 25 and 34, are finding it difficult to buy homes because of their student debt. According to Lawrence Yun, chief economist for the National Association of Realtors, nationally, fewer than 30 percent of all home sales are to these first time buyers. Historically, it should be between 40 and 45 percent.

Currently, student loan debt at over 1 trillion dollars exceeds all credit card debt. Over 70 percent of recent college graduates carry debt averaging $29,400. The simplified example below shows the impact of this debt burden on a young couple each carrying such debt.

april blog 1

The disturbing aspect of this trend is its direction. Over the past 20 years, student debt has doubled, increasing every year while real wages adjusted for inflation for college graduates has been flat for the past ten years.

april blog 2

All this is not to say that getting a college degree may not be worth the cost. Lifetime earnings for an individual with a college degree are 70% greater than an individual with only a high school diploma, and the unemployment rate for young college graduates is half that of their contemporaries with only a high school education. Still some full disclosure and a bit of cost-benefit analysis wouldn’t hurt.

As for the effects on the housing market, it is too early to tell. For the time being, in our market, buyers of all ages outnumber sellers so while some first time buyers are missing in action, their absence has not been felt. But in the long run, the inability of these first time buyers to get a stake in the housing market or their delayed entry will have a dramatic effect on their wealth accumulation through home ownership. And that goes to the heart of the American Dream.

The Effect of Inflation and Personal Income on Long Term Home Price Appreciation

By: Victor Normand
Published: October 2013

The past year has been a good year for home sales and appreciating values.  In general, the Acton area has experienced home sale prices about 10% above last year’s level.  This makes home owners feel good and a bit wealthier and home buyers anxious, with both sides wondering where prices are headed.  Are we in a period of prolonged rising home prices?  Or are we in a bubble that could burst suddenly and send prices crashing back to earth?

Predicting the future of home prices is like predicting anything, nobody knows for sure what tomorrow will bring, but we do have history and past experience to point us in the right direction.  Local markets can vary wildly from one another and sometimes move in the opposite direction of the larger market over the short run. However, time tends to smooth out the rough spots.  Fundamentally, home prices must mirror inflation and changes in personal income. If home prices increased greater than the rate of inflation and per capita income, eventually, no one would be able to afford to buy houses.

As the chart shows, over the past twenty years (and I am sure for longer than that), home prices have indeed matched the general rate of inflation in the U.S.  If anything, they have lagged somewhat which makes sense given the prolonged period of depressed housing markets in many parts of the country.  So, in general, look for home prices to continue to play catch up.

blog chart
The other factor fueling home price increases is personal income.  If personal incomes increases faster than the rate of inflation, home prices can be expected to rise above the rate of inflation.  That helps to explain why the twenty year home price experience in Acton has outpaced the average for the rest of the country for both inflation and the general Home Price Index.

Over the past 20 years, per capita income in Massachusetts has increased at a greater rate than the country as a whole and the per capita income in Acton has consistently been higher than the statewide average. .  So, it is not surprising that states and communities showing patterns of greater income growth would also have higher home price appreciation.

Per Capita Income*

U.S.

 Massachusetts

Rate of Increase

1992

$20,799

$24,422

+17%

2012

$42,693

$54,687

+28%

*http://bber.unm.edu/econ/us-pci.htm

 Where are we headed?  Once the local housing market reaches equilibrium where the current supply shortage is corrected, expect price appreciation to continue, but at a slower pace.  Given the past history as well as the prospects for continued growth in incomes in the area, an extended period of steady 4% home price appreciation should not be unexpected.

As we said, predicting the future is not a perfect science.  So, the best advice is to keep in touch with a Resident Expertsm for the latest in market trends.

Great Information from Service Professionals for Home Sellers

shutterstock_141754537 [Converted]By: Victor Normand
Published: September 2013

You may have heard a lot about the shortage of homes for sale in many communities, including many of the towns in our area.  While it is a fact that the number of homes being listed is down and the competition for well-marketed homes has become more intense, the outlook is that more homes are likely to come to market this fall and certainly next spring.

A big reason why more homes will come to market is that higher selling prices are occurring.  And higher sale prices mean many potential home sellers now have sufficient equity in their properties to make selling a realistic economic consideration.

Selling a home is a complex undertaking that gets more complex as you become familiar with the required steps   At Acton Real Estate we have tried to make the experience  more manageable by breaking things down to ten basic elements (contact us for a copy of  “The Home Selling Process”  which details how we go about selling homes).   The most important steps are pricing, staging, marketing, negotiating, and closing, among others.  Another key step is vendor coordination, which relies heavily on the agent’s knowledge and experience with actual property service providers.

In order to bring some clarity and efficiency to the process, we’ve gathered our trusted Vendor Partners together at an event called,  “The Agents Roadshow for Home Sellers”.  This tradeshow will be held at The Holiday Inn in Boxborough on Wednesday, September 25 from 5:30 to 8:00pm.   Here you will be able to meet with the pros and have all your questions answered.

You may recognize some of the vendors who will be at the event.  We have worked with all of them; they are among the best around because they always get the job done well. We can help answer your questions about:

  • Credit and current interest rates
  • What kinds of upgrades buyers expect
  • Which rooms could use remodeling
  • Increasing curb appeal with landscaping
  • Choosing the right paint palette to unify your home
  • Straight talk about environmental issues (mold, radon, etc.)

Whether you have questions about these issues or others, you will find advice from these folks helpful for all these topics.

So, if you are thinking about selling your home now or sometime soon, this is the “one-stop shopping” forum that will help you put all the pieces together. There will be no formal program or presentations, just you and your neighbors in the company of these service professionals.   Of course, the Resident Experts sm will be there as well to talk about the current market, and how to take the next steps along the way to a successful home selling experience.

The Extended Family Is Coming Back

By: Victor Normand
Published: August 2013

What do McMansions, boomerang kids, and the Great Recession have in common?  Think multigenerational housing and the days before WWII when it was common for several generations to live together under one roof.   Today over 50 million Americans, or 16.3% of the population live in households with more than two generations according to the U.S. Census Bureau, and the trend is increasing every year, though far below the 25% of the population living as extended families in 1940.

The housing boom after WWII saw large tracts of land developed for housing in all parts of the country, and little of it was built for the extended family, just housing for parents and their 2.3 kids.  By 1980, the number of extended family households had shrunk to half of what is was, just 40 years previous.

Since 1950 the size of the average home has grown by 240% while the average family size has decreased by 30%.  According to the National Association of Home Builders, the average size of an American home has increased from 983 square feet in 1950 to 2,349 SF in 2002 with the Northeast leading the way with an average of 2601 SF.

The housing plan envisioned by many Baby Boomers who bought all those big houses, involved selling that big house when the kids left the nest and downsizing to smaller quarters.  The flaw in that scenario is twofold.  Though the kids did leave the nest, often, very often, they came back, and flaw number two: where to find the smaller house to down size to?

Presently, there are 2,748 single family homes on the market in Middlesex County; of those only 203 have fewer than three bedrooms, and of those, only 37 were built after 1980.  The alternative is newer, age restricted developments that often do not provide all of the economic relief hoped for by retiring Boomers.

As for the Great Recession, it seems to have imposed a reexamination of the social benefits of the extended family.  Single and married children living with parents clearly has powerful economic benefits,  as does providing housing for elderly parents who can free themselves of their larger homes.  So, the problem of what to do with the big house may have its solution in accommodating some major social and economic changes.

Indeed a niche has developed among home builders who are designing homes to provide for the extended family.  Also, home owners are re-designing existing McMansions to provide interior living spaces for the comfort of the extended family members.  Now the challenge is zoning which often makes it difficult for homeowners and builders to create in-law apartments or accessory buildings.  Only California has a law which allows such housing by right.  But there are options in the marketplace and then, of course, there is a Resident Expertsm who can help with your multigenerational needs.

 

First Time Home Buyers – A Call to Action

By Victor Normand
Published: July 2013

The 25 to 34 year old demographic typically makes up the largest percentage of first time home buyers, but they are largely absent from the scene nationally and in our market.  Beset with student loans, challenging job circumstances and a conservative lending environment, these future homeowners are holed up at home with their parents or in rental units waiting for things to change.

The economy is improving, but not fast enough to deal with the unemployed or underemployed who might like to own their own homes.  And lenders are cautious in making loans to those who might have good jobs with good incomes and good potential for advancement, but they have education debt (which they are managing) and only a little cash for a down payment.

That’s not to say that programs aren’t out there to help.  The Governor recently announced a new initiative called the “Home Ownership Compact” to help first time buyers.  Six banks in the State of Massachusetts have signed on to this initiative, which should be rolling out very soon.. However, the major players behind almost all of the mortgages made in the country — Fannie Mae, Freddie Mac, and the FHA — are effectively on the sidelines when it comes to first time home buyers as we have described them.

Expect that to change at some point, now that interest rates have begun to rise and the refinance market has come to a near halt. The big banks seem to have more influence on the aforementioned government-backed entities than your average consumer, and soon they will look for new markets to replace their lost refinance business. For those first time buyers who have good jobs, less than perfect credit (as in paying down student loans), and little cash, some creative borrowing may be in order.

In the past we have suggested that borrowing from parents may be a good option.  Most 401(k) employer sponsored programs allow participants to borrow from their own accounts; often with very low interest which accrues to the participant.  Even IRA’s funded by a potential first time home buyer allows contributors to take penalty free distributions for the purchase of a home.  Given the low rate of return on these accounts, an interest bearing loan to a first time home borrower can be a good investment.   Get the facts to see if it’s a good option for you.

Recently, we have shown that the purchase of a condominium can be a good investment.  In fact, in our market, most condominiums priced under $175,000 are being purchased by investors, usually with cash.  Unlike recent single family home sales, which have been showing increasing price appreciation, condominium sale prices continue to decline, while rents on these units have been increasing.  On the basis of an income approach to value alone, sale prices for condominiums will eventually rise.
Every real estate deal is unique with different criteria involved depending on the condo complex.  Ratios of Owners vs. Renters come in to play along with knowing what specific type of financing might be available. Trust a “Resident Expertsm,” to apply their knowledge and expertise to insure a smooth transaction. You’ll move quickly through the potential pitfalls and learn something about the real estate market. It’s what we know that makes the difference.

A Condo May Present Income and Growth Opportunities

By: Victor Normand
Published: March 2013

About this time each year we like to see what is happening with the condominium market.  To begin with, we found that the overall number of condominiums sold and the number rented has remained relatively constant for the past several years.  In Acton, during the” post-bubble” period,(after Sept. 2008) about 25 to 35 condominiums priced at or below $175,000 have been sold each year, and t between 55 and 70 rented.

For the purpose of this article, we will be using a maximum sale price of $175,000.  This price is consistent with local affordable housing guidelines making this sale price within reach of family incomes at 80% of the median,  or about $80,000 per year in Acton.

As we have done in the past, we looked at both the home ownership and the investor perspective for our analysis.  The assumptions made for the study include:

  • The statistical period runs from March 1, 2012 to March 1, 2013.
  • All condominiums sold during that period under $175,000 were included and the average sale price used in the analysis.
  • The average rent for all condominiums rented during that same period was used.
  • Similarly, the association fees and property taxes were averaged for all condominiums used in the study.
  • The average mortgage interest rate for the past 12 months of 3.59% was used.
  • Rent levels, condo fees, and sale price are typically set to reflect the treatment of utility costs; consequently, no cost line item is included for utilities.

First Time Buyer/Investor Condominium  in Acton

                                                    First Time Buyer

     Investor (Cash Buyer)

Sale Price

 $116,559  $116,559

Down Payment @ 20%

 $23,312

Loan Amount

 $93,247

 

 

Term of Loan (years)

30

Loan Rate

3.59%

Monthly Payment

 $423

Taxes

 $205  $205

Condo Fee

 $331  $331

Monthly Costs

 $959  $536

Average Rent

 $1,143  $1,143

 Net Monthly Cash

 $184  $607

Annual Return on Cash

9.5% 6.2%

Given the challenges of financing a condominium purchase requiring government insured mortgages, we have abandoned that method and instead  are relying on conventional financing with 20% down for the home ownership analysis.

If a buyer is able to find a condo to purchase that meets or beats the metrics used in our hypothetical model, the economic returns are significant.  A home buyer who has been able to save up for the down payment can enjoy significantly lower monthly  housing costs and a greater effective return on the cash used for the down payment than any bank now pays on deposited funds.

The investor, who transfers available funds from any insured investment to the purchase of a condominium, will similarly see a very good return on their money.  Even greater returns might be realized depending on how an investor is able to fund the purchase.  A line of credit against other financial assets or a home equity loan usually comes with even lower interest rates than are used here.

Finally, all this good investment strategy comes at a time when condominium values are still depressed.  An improving housing market, the beginnings of easier credit and the lack of new inventory, all bode well for higher values in the not so distant future.

Why not start working with a Resident Expert smto find your good deal?