The nationwide median error rate for the Zestimate for on-market homes is 1.9%, while the Zestimate for off-market homes has a median error rate of 7.5%.  

Now don’t get me wrong, my calling out of the inaccuracy of Zestimate’s off-market pricing is not a dig at Zillow. I am a big fan of Zillow, it’s marketing capabilities, and the forethought the company has to how real estate will be acquired in the future. As an agent, landlord, buyer and seller I too use Zillow and the innovative tools it offers it’s visitors. Homeowners and buyers have become accustomed to the process of engaging with Zillow before they even think about engaging with a real estate agent or lender. Because of the technology and simplicity Zillow provides, sellers can do their own homework on the potential list price of their property compared to other properties in their neighborhood. Buyers are able to visually see what homes they may be interested in purchasing or not purchasing. These are all actionable steps that help an agent down the road when the listing and buying process beings.

There is a gap though. A gap of about 7.5%. On a $400,000 house that 7.5% error in pricing is $30,000. Would you buy a home that is listed $30,000 more than it’s true value? I would guess not. Data goes like this….. junk in, junk out and Zillow’s data shows just that while they are using the information that is currently available to them. So while Zillow is gathering more accurate input, Zillow is working toward delivering a more accurate output. But until the day comes that Zillow can close that 7.5% gap, it is your real estate agent that is going to get you to a listing price that aligns with the market and your objectives.

When working with my clients, Zillow is always a discussion. I come to the table with my numbers and my sellers comes to the table with their (aka Zestimate’s) numbers. It is my job to help my client see the true value in their home. Zillow only uses data, they don’t take into consideration the amount of funding that is going into your community to build new schools, or the concrete plant that is being built between your million dollar home and that breathtaking mountain view that adds a significant premium to your home’s value. Real estate agents are equipped to advocate for their clients, to do the in-depth research that Zestimate cannot and establish realistic prices. Continue to use Zillow and Zestimate, but know that your agent is necessary in helping you set a fair-market price and navigate the process of negotiating against that price. 

There are many key performance indicators that investors use when determining if a property is worth buying or not. However, when running an analysis on any investment property, my standard measurables are Cash Flow and After Annual Tax Yield (a KPI that considers appreciation). I’ll focus in on Cash Flow as it is the primary metric used by most investors in residential real estate. 

Cash Flow, measured on a monthly and annual basis, is a property’s income minus it’s expenses. Obviously, an investor would want a property’s income to outweigh the expenses, so that money can be put in the bank every month and used for future investments.

There is a sizable list that goes into property expenses; which I will cover extensively another time, but understanding and including all expenses in the initial analysis is key to calculating the correct cash flow and keeping you out of a bad deal.

In areas like Windsor, Fort Collins, Greeley, and Loveland, as well as anywhere in and around Denver, home affordability can be challenging. Therefore, rent can be equal to or lessor than that of a mortgage. So what would make it so appealing for an investor to invest in Colorado? Appreciation. Colorado has been on a strong trajectory with home appreciation and when homeowners and/or investors sell their properties they walk away with a generous profit.

Appreciation is just the “icing on the cake”. If your are losing money on your investment every month with a negative cash flow, then your investment isn’t a good one. Therefore, cash flow should be considered over appreciation.

To learn more about Cash Flow and setting expectations for your financial portfolio, please message or contact me  at 970.775.4030 or justine.marx@windermere.com.

How will COVID-19 impact the national housing market? 

Take-aways from Chief Economist, Matthew Gardner

Housing Market

• Expect a 10% -15% contraction in the number of home sales for 2020 
• Contraction is anticipated to be brief and pick back up quickly
• Qualification and financing is going to more achievable than ever
• Low supply in new construction, but households are still being created which puts upward price pressure on housing stock

Buyers

• Mortgage Interest Rates continue to remain extremely low and are expected to remain low
• Buyers are influenced by the economy and with 70% of the US economy being influenced by consumption and the stock market declining, buyers concerns of job security arise and the option to obtain a down payment from selling stocks is limited
• Take Action: Buyers, look for lending options that offer achievable money down and doesn’t create a risk for leveraging stocks or completely deplete savings during this uncertain time. Leverage the low interest rates while they last and understand how a decline in interest rates can significantly change your monthly mortgage, making home ownership more achievable in the long term.

Sellers

• Inventory may drop as, depending on market, sellers may be hesitant to list
• Sellers may be cautious to open their home to potential buyers
• Take Action: Discuss virtual safe tours with your agent to keep your listings moving and buyers looking.

Recession

• Will we experience a recession in 2020? Yes, if the economy continues to see a shirk through Q3.
• How long will it last? Because there is nothing systemically wrong with the market, if a recession occurs, it will be a short term impact.
• The economy is expected to recover and to be much healthier than in the second half of 2020 than what is experienced in the first half.
• Note – A recession is two or more quarters during which the economy shrinks.

Most importantly! Order take-out, get coffee to-go, buy gift cards and find every opportunity to continue to support your small businesses and stimulate the overall economy. Action now will lessens the impact when we fully recover from COVID-19.

Common and urgent reasons to unload your investment property:

If Real Estate Is Too Much of Your Net Worth

Experts recommend holding investments in at least three or four different asset classes, with a roughly equal portion of your value in each class. If real estate is more than half your net worth, you might want to consider diversifying.

If Long Term Tenants Move Out

Long-term tenants don’t always a allow for continual upkeep on your rental. If your tenants move on, and the market looks strong, you might want list your rental in place of exhaustively upgrading.

Increase in Property Taxes

A times, property taxes go up right alongside home values, sometimes even outpacing them. When property taxes increase, landlords have to pay them out of their rental income, so either their profits go down, or they’ll increase rents to make up the lost revenue. In either case, the situation can get complicated; higher rents mean a smaller tenant pool to draw from, and smaller profits means, well, less money. Only a few successive property tax hikes can make an investment property financially unfeasible.

Reset the Depreciation Clock

Depreciation can play a big part in an investor’s financial strategy. When properties no longer offer any potential depreciation, it’s time to sell, and buy newer properties, thus resetting the depreciation clock.

Seller’s Market

If you’re a short-term investor or have reached the financial capacity of your property, leverage a favorable seller’s market to get the highest return. Work with a knowledgeable real estate broker that understands the local market and its trends, so you know when the best time is to sell.

A Bigger, Better Opportunity Presents Itself

If you’re looking to turn your present investment into a larger one, a 1031 exchange is a valuable tool. The 1031 essentially lets you trade one property for another, a more valuable one, while temporarily deferring capital gains taxes.

An investor can exchange a small duplex for a larger six-unit property, using a 1031 exchange, and then flip that six-unit property for a full apartment building with another 1031 exchange, and defer capital gains from all the transactions. Since capital gains taxes can take a huge bite out of your profits when you sell, being able to delay this tax bill, potentially indefinitely, is incredibly valuable.

This article is highlights from Thomas O’Shaughnessy article, How to Know When It’s Time to Sell Your Property and Buy Another.

What a view! In addition to the beautiful mountain scenery and glass water that mirrors Colorado’s amazing skies, Windsor Lake offers peace and tranquility to its visitors. The lake is surrounded by a well-maintained paved 2.25 mile trail connecting to miles of extended trails that run through the lovely town of Windsor. Walk your furry friends, run, bike, fish, bird watch, or just simply relax. Spend your summer days boating, swimming, barbecuing, or buying fresh goods at the occasional Farmers Market at Boardwalk Park. Enjoy summer nights accompanied by family and friends with live music, food trucks, outdoor games, and movies in the park. We in Windsor are fortunate to have Windsor Lake as part of our community and home.

Don’t be just be a visitor; live just feet from Windsor Lake and be the first to enjoy the unique opportunity of waking up to breathtaking views in our newly built condominiums. Located on 6th and Cedar in Windsor’s Downtown District you will have immediate access to restaurants, shopping and entertainment. Each unit offers high-end finishes, over-sized double pane windows, and a large patio or balcony to enjoy everything the lake has to offer.

Learn more about this development by contacting Justine Marx at 970.775.4030, Windermere Real Estate, Windsor.