Scenario: A Buyer's Broker looks at the dollar difference in a mortgage between a $90,000 investment property, a doublewide, and a stick-built $135,000 property. Although the appearance of the properties is similar, (see photos) she notes differences including an Energy Star Rating on the more expensive property. The investor/client plans to keep the property for about five(5) years. Neighborhood appreciation rate over that period of time is of serious interest. The difference in mortgage payments between these two properties would be around $300/month.
STICK-BUILT
Discovery: How much and how fast could the properties of interest appreciate ? Will this offset the difference? Which property could be a wise investment?
Having explained to her clients that she is not a financial analyst/consultant, so it would beyond her scope as REALTOR® to advise in-depth about appreciation rates, the Broker, who is knowledgeable about value-added factors, completes her overview of the situation and refers her clients to tax/financial experts as per Article 11 of the REALTORS® Code of Ethics :
"REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth."
Insights: On first glance, as the client/investor and Broker factored in that in five years the $135,000 property would have to appreciate $18,000 more than another, less expensive, there were a few raised eyebrows. Given the current rate of appreciation in the area, it looked as if the $135,000 would have to appreciate approximately $3600/year more when compared to the less expensive property.
But certain insights are apparent when she looked a little deeper...
1) in spite of fluctuations, stick-built properties have been shown to appreciate (from the base year) at a higher cumulative rate than doublewides...
2) the purchase of the average home in the sustainable, "green" community, according to research, will yield a higher rate of return on investment than one in the conventional development, despite the nearly 2:1 lot-size differential. The $135,000 property is in such a community. It is in a new development where it appears the goal is to maximize building space and avoid the more land consumptive, conventional housing pattern. This adds up to a higher rate of return on investment.
3) the property is in the Asheville, North Carolina market where home-buyers, speaking in dollar-terms through the marketplace, have demonstrated a growing demand for homes with less land-consumptive attributes, and more "green" advantages. From looking at trends in the marketplace and those across the USA this demand to be on the rise.
4) Real estate transactions have proven that the City of Asheville , where both properties are located, continues to be one of the best communities in which to live and work. (named # 1 for investing in Second and Vacation homes)
5)Property sales continued to be strong during calendar year 2006,.so the likelihood of the trend working in the investor/client's favor is excellent.
6) According the mortgage loan calculator at REALTOR.com...
$90K at 4.25% = $443.75/mo
$135K " = $664.12
$ 212 difference
7) We could look for appreciation of about $2,500/year according to an examination of appreciation in the Asheville market as seen at this link
Outcome: Investor bought more expensive property. Would you have? Let me know what you think.
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