Simply defined, real estate is a property consisting of land or buildings. Making a profit and understanding the concepts behind real estate however is a much more in depth and intellectual process, something Nick Vertucci always stresses upon his students. There are two primary types of real estate – residential real estate and commercial real estate. Residential real estate consists of single family homes, condos, ranches, beach cottages, apartments etc.
They are units that individuals reside in for housing. Commercial real estate however is used for commercial purposes and consists of office buildings, apartment buildings, multi and single tenant retail properties, and mobile home parks. These assets are either for business operators or for investment opportunities. In this article we will review residential real estate, outline factors that impact this market, and identify how to become an investor.
Is Home Owning or Investing Right for You?
Purchasing real estate isn’t just a day of shopping. It takes preparation and research. It is imperative the before you venture into purchasing a personal property or an investment property, that you understand the market and the process of acquiring real estate. Once you have a basic knowledge, you are ready to take the next step.
Understanding What Affects the Real Estate Market
Market Trends. Knowing the basic market trends is an important avenue to understand real estate transactions. Market trends include listing prices, sale prices, inventory, rental rates, construction rates, and any other aspect that affects the trends in home sales. Currently, California is in a sellers market – high listing/selling prices and low inventory.
Micro-factors. The first aspect of assessing this market is by looking at the micro factors, which are small factors that affect the market value of a house. These are the most basic concepts of creating a market valuation and include a properties location, amenities, master plans, orientation, building style, and layout.
We have all heard “location, location, location” – but what does this mean? Location is key in selling an asset because it produces higher value of the land. If something were to happen to the home, land in a prime location would be worth more than land in the middle of a desert. This is one reason that property value along California coast is considerably higher than the median national price.
Looking outside the location, additional aspects that affect the home value include the quality of schools, proximity to local employment opportunities, proximity to shopping and entertainment, and upgrades on the house.
Inventory is another factor. As real estate inventory declines, housing prices increase. Currently in California, it is a sellers market – indicating homeowners are getting premier prices for their houses. However, less houses are continuously being seen on the market. This is caused by the rental market. Many individuals are holding onto their investment properties and renting out units to take advantage of the high rental rates in California, which are currently at $2,600 per month. Additional causes for lower home sales include fewer first-time buyers, lower homeowner turnover as a result of negative equity or delayed retirement, and unemployment; all which will be described later.
Macro-Factors, or large scale factors. These factors of real estate assessments go beyond market comps and house amenities, but delve deeper into the United States economy, government, and financial institutions. These factors include debt, interest rates, government policies, and the economic trends of the United States.
It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.
— Nick Vertucci (@NVREA) February 16, 2017
Debt. Debt is the amount of money that is due. Approximately 3.2% of mortgaged homeowners are unable to get out of their property because they are under in their investment. They owe more than their house is worth. This is restricting turnover in the market, as these homeowners cannot sell or relocate. If they were to sell, they would have to sell below market value in a short sale.
Interest Rates. If you are interested in buying a home, most likely you will be taking out a loan (unless you are purchasing all cash). Changes in interest rates can fluctuate and create challenges for people to purchase a home. If interest rates are high, it means that the monthly mortgage (interest plus principal) will be higher. Interest rates also affect the demand for houses on the market. As interest rates go down, demand goes up. This can create an increase in listing prices. Currently, interest rates in California are hovering at 4%, displaying a general increase since 2017. Although rates are still relatively low, some potential homeowners are gearing up for renting to avoid any additional inflation in interest rates.
Government Policies. Government policies can vary and largely impact the real estate market because these policies typically deal with tax credit, deductions, and subsidiaries. On December 22, 2017, President Donald Trump signed the “Tax Cuts and Job Act.” The recent bill is anticipated to drive homeowners into renting properties, and increase the number of individuals into becoming first-time real estate investors. Essentially, individuals will benefit from renting a property but will need to pay more in taxes if they own and live at a property.
Economy. This is a major key player in how the real estate market is performing and is generally measured by economic indicators. Major economic indicators include:
- Gross Domestic Product (GPP), or the total value of production by a countries people and businesses.
- Money supply (M1 and M2), or the total amount of monetary assets available in an economy. It can dictate inflation and interest rates.
- Consumer Price Index (CPI), or the weighted average of prices of consumer goods, such as food, medical care, and transportation.
- Current Employment Statistics (CES), the breakdown of employment statistics by industry, including hours, earnings, and workers.
- Retail Trade Sales and Food Services Sales, or the total sales in stores receipts.
- Producer Price Index (PPI), which measures the average change over time in the selling prices received by domestic producers for their output.
- S&P 500 Stock Index, which is a stock market index and one of the most influential benchmarks to assess US equity markets.
The economy and the real estate market are directly correlated. If you can understand the above aspects, you will be able to leverage your knowledge to invest in real estate.
Take a look back at the Great Recession, which occurred from 2007-2009. This time-span represents an event that created an economic slump in the US. In the mid-2000’s financial institutions began approving unqualified individuals to obtain loans for housing. Then in 2006, when interest rates spiked, and mortgage rates increased, thousands of individuals were forced to walk away from their homes, losing all profit and ownership. This event directly correlated to the trends of the US economy.
In reality, the overall strength of the economy is what determines the strength of the housing market. The 10 year treasury yield directly impacts mortgage loans. If the economy is booming, and job availability is high, then real estate market trends upwards. On the contrary, a poor economy will have a negative impact on the market.
According the the United States Department of Commerce, Bureau of Economic Analysis March report, the economy is doing well:
- Gross Domestic Product (GDP) increased at an annual rate of 20% in the first quarter of 2018.
- Real disposable personal income increased 0.2%.
- Durable goods, manufacturing, and construction, and professional, scientific, and technical services were the leading contributors to the increase in U.S. economic growth in the fourth quarter of 2017 – 16 of 22 industry groups contributed to the overall 2.9% in real GDP in the fourth quarter.
Not all statistics however support a strong economy in California. Job recovery in California has been a hot topic for the last eight years, however unemployment is still higher than pre-recession employment levels (before 2008). As of March 2018, it was at 4.3%. Even with a continued decrease in unemployment, wages are not matching the inflation rates. These two factors are drastically affecting homeowners.
With the various amount of information and factors, it can be challenging to get a strong grasp on the market. However, with the right mentorship and direction, these variations and statistics can help an individual grow wealth.
Know the News. Just as any investor or home buyer should be familiar with market trends, it is also important to know what is breaking the news in real estate.
For example, in April 2018, a home sold in Los Angeles County for $110 million. Why is this important? This is the highest selling home in the history of Malibu sales, even for luxury homes. Setting a new record high can have an impact on general trends in market prices. This one sale will affect median prices in this market area, specifically sale prices and price per square foot. Information such as new highs or new lows in any one specific market directly affects the price of the surrounding homes.
Another recent news story worth mentioning is that homes in Orange County have hit an all time high for selling prices in March. The median price for a home in Southern California hit $519,000, which is 8.4% higher compared to March 2017. Prices also hit an all time high in San Diego, up 6.8% over one year, and Los Angeles County, up 6.6% over one year. Once again, how does this affect the future home buyer or investor? This creates an uncertainty on whether March is a strategic time to buy.
The last big question pending in the new is “Is the Real Estate Market Going to Crash?” Following the real estate market crash of 2007, people have much fear about what their future will look like. However, there are many differences in today’s market compared to the market of 2007. It is important to know and understand these differences and similarities to predict if it is a beneficial time to invest. If the market will crash and you have the funds, should you wait to buy low? Or if the market continues to trend upwards, should you buy now and sell high later? These are the inevitable questions of all homeowners and investors, and no answers can be guaranteed. Here are some facts to consider when analyzing if the market is going to hurt or help you:
- The subprime loans in 2005 totaled more that $620 billion and made up 20% of the mortgage market. In 2015 however, they totaled $56 billion and made up 5% of the market.
- Lending standards have improved since 2005, and noteworthy credit is required.
- Lenders will only provide 55% of the home’s value if a home is intended to be flipped, where in 2006, lenders gave 80%.
If you can understand and analyze the importance of the above statements, you have a basic knowledge of the differences between market analysis.
It is the Right Time to Buy?
Knowing if it is the right time to buy according to the market is one consideration; the second however is looking at your personal situations prior to moving forward with a purchase. Some initial questions to ask yourself are:
- Am I going to live in the home or am I looking to invest?
- Do I have the money for the initial investment?
- Do I have the down payment?
- How do I move if I already own a home?
- What are the steps of buying a home?
- How do I get pre-approved by a lender?
Are you an Investor or a Homeowner?
There are two different reasons an individual would become involved in the real estate market: to become a homeowner or to become an investor.
A homeowner is someone who is purchasing a property for personal use. This may be their primary home or vacation home; but in this case, they are not planning on creating a profit from the purchase.
An investor on the other hand is someone who plans on purchasing an asset with the expectation of obtaining additional income or a profit (this could also be considered when reviewing vacation rentals for homeowners). Investing is a business for those who are looking for the opportunity to gain from their financial assets. Often times you need money to make money. However, working in real estate provides investors the opportunity to work with other investors, who can provide capital, to develop a strategy to build wealth. In layman’s terms, one investor provides the strategy and one investor provides the money, resulting in both building wealth.
If you are looking to become an investor, and feel you are ready to take the next step, it is time to learn from Nick Vertucci.
Who is Nick Vertucci
Nick Vertucci recently published his first book Seven Figure Decisions: Having the Balls to Succeed – a book about his journey through real estate and an outline on how he developed a successful real estate business.
Nick Vertucci has been through two major economic downfalls. First in year 2000. At this time, Vertucci owned a thriving computer reseller business. He started the business when he was 18 and slowly worked his way to becoming a millionaire. However, in the dot com crash of 2000, he lost mostly everything. He then transitioned into real estate and continued to develop his business and wealth. Through the years, Vertucci was able to accomplish becoming a millionaire, again. In his real estate career, Vertucci went through the real estate crash of 2007. This time however, Vertucci did not lose everything. After spending years learning the market and understanding the economy, Vertucci was able to push through the crash and came out stronger.
Following the crash, in year 2013, Vertucci opened his academy, the Nick Vertucci Real Estate Academy, where he devoted himself to helping others gain economical growth and financial freedom through the real estate market. You will hear him share about his experiences, and emphasize the mental strength it takes to succeed. It takes dedication and determination – with the ever changing market, there is always something to learn. AT NVREA, Vertucci provides students with the basics of investment real estate, followed by providing details on:
- Wholesale and flipping contracts
- Rehabbing and flipping properties
- Buying and holding properties for long-term cash flow
- Commercial investments
- Leveraging your IRA and 401K to fund investments
- Asset protection
Along with information about investing, his academy educates students on the benefits of investing:
- Cash flow – building a passive income for your future
- Tax benefits of investing (and why it is important to understand the “Tax Cuts and Job Act”)
- How your rental property is being paid by your renter (the loan pay down)
- Appreciation and inflation proofing – keeping up with market inflation
- Having control of assets (finding better deals, learning to take advantage of the market)
Real estate is powerful. It can change anyone’s life, helping them transition from lower and middle class to the millionaires club. Nick Vertucci’s education will do just this – change your life. It is worth the investment in his book, attending one of his free seminars, or contacting his academy, the Nick Vertucci Real Estate Academy on Facebook.