Living and Working in Charleston SC

I recently recieved a call from a woman who had been working with another agent for a couple of days looking at houses,  but wanted my direction about making a decision.  Let’s call her Sheila.  I could tell that Sheila really wanted to buy, perhaps because of the much larger selection but she informed me that she was only going to be here for two years; and that she wanted to live in Mt. Pleasant.  Right now, there is about 14 months of inventory in Mt. Pleasant, and no matter how deep you drill down, all the way to street level, there is a lot of inventory out there.  The answer is pretty simple.  Unless Sheila enjoys letting strangers come into her house for 6 months, even if the market were such that she could break even, it’s pretty obvious that she needs to rent. 

There are a few factors that should go into your decision:

1.   The projected three to five year appreciation in the specific part of town in which you’re looking.

2.   The projected appreciation for the time you’re considering renting.

3.   The current and projected interest rates.

4.   The cost of selling your home; including having to move your stuff twice if you aren’t going to be able to get it sold in the right time frame. 

5.   The amount of time you’re going to be living in the home if you buy.

6.   Your complete tax picture. 

7.   How well you know the area and the local market.

Some people want to wait so they can get to know the area, but mostly becuase they want to reduce their risk.  Depending on the answers to the above questions, the cost of waiting to buy, well actually, there could be a benefit to waiting, will vary.  Now, I am a local Realtor here in Charleston, so I want you to decide to buy.  But the questions are the same…the puzzle is…how to find the answers.  The answers are guesses in a few cases.  So here’s my take on Charleston….bearing in mind that I make zilch for now if you come here to rent. 

Questions 1 and 2.  We’re in a temporary stall here in Charelston, not a down market.  You will experience solid appreciation here in Charleston if you pick the right neighborhood.  If you check the facts, prices are not going down, the are going up in Charleston…still.  Even after months of high 6’s interest rates.  Now, if you’re talking Mt. Pleasant, things could only go up so high.  There had to be a correction at some point.  Yet the average sales prices in Mt. Pleasant are still increasing from 2005 to present.  If you doubt me, I can send you quite easily, an actual sales and inventory history report directly from the MLS.  With the increased inventory, there are definately incidences of motivated buyers selling below market value or reduced prices, no question about it.  Sales units are definately down in Mt. Pleasant because the supply of buyers from up North has been choked off a bit from the high 6’s interest rates.  But interest rates are in the low 6’s now, so I predict that things will loosen up quite nicely over the summer.  Based on market facts, this is a great time to buy in Charleston and to find a good agent to help you get a deal.  The first big check mark on the side of buying versus waiting.  What’s a good agent?  Ask me about my track record recently in negotiating for buyers.  It takes a strong stomach to keep looking at houses until we find three to five really good choices to help us negotiate from a stronger position. 

 Question 3.  Interest rates are great right now, in the low 6’s.  I’ll leave it to my mortgage cohorts to chime in here if they like.  It is decidely unlikely that the rates will go any lower and if so, not by much.  This is one big check mark on the side of buying now instead of waiting. 

Question 4.  This is always a check box for waiting or renting for pretty much everyone.  Having your house on the market, when you have a situation that requires you to move is just a very stressful situation.  If you are going to have to move in a few years, because your industry, specifically the military, requires it, then this is a reality you have to deal with.  The alternative is to spend your entire career and get to your retirement having never had the opportunity to use real estate to gain equity. 

Question 5.  If you’re only going to be here in Charleston for two years, then you’re probably better off renting for the reasons stated in the example above.  If your house doesn’t sell quickly, you could end up holding the bag and loosing money.  If you’re going to be here for three years, I think it’s a pretty safe bet.  Keep in mind, if the average appreciation is 9%, which it’s been for many years here in Charleston, not everyone gets that.  Some people don’t get any, and others get double digits.  So make sure you work with someone that knows the in’s and out’s of what’s coming up.  And whatever you do, don’t buy from a site or a listing agent.  They are hired to work for thier clients, and you are just a customer.  Buy through a buyers agent that knows how to measure market trends and can help you gain an advantage.  If you’re going to be here for four or more years, then the only thing that’s going to change in the next year is that…well… we really don’t know what interest rates are going to do.  And home prices are only going to go up, generally speaking, unless interest rates go up again, in which case you will definately be moving backwards.

Question 6.  If you are in the 25% tax bracket, then this is a big check.  If not, then it’s a smaller check on the side of buying now. 

Question 7.  How well you know the area and local market.    The papers are always going to print bad news, and most of the real estate agents are going to try to get you to sniff some of their happy gas.  Facts are facts.  The market is in a temporary stall.  Challenge me to back that up with facts, I’ll run you any kind of report for any neighborhood or part of town you’re considering, and either email it to you, or post it right on the blog.  Do me a favor, don’t email your question.  Post it as a comment on the blog so everyone can see it.  Or when you email, let me know if it’s OK for me to copy and paste your question, you don’t have to include your name.  Even if I know who you are, I won’t tell, I promise. 

Better yet, meet me at my office, look me in the eye, shake my hand, and see if you don’t think I’m someone you can trust. 

I remember my Dad telling me this story about how he was renting in Queens, NY and wanted to buy a home on Long Island.  He didn’t know Long Island very well, and Long Island is a big place, but he ended up in Freeport.  As it turned out, the agent always drove him through the nice neighborhood to get to this really cute little two bedroom house.  Just up the street was the pretty rough part of town, which he (and I) found out about a few weeks after we moved in.  I got in more fights the three weeks/year I spent with my Dad in NY than the rest of the year in Virginia.  Maybe it was my slightly southern accent.  They called me “country boy” and never  seemed too impressed when I told them I lived 10 miles from the Nation’s Capitol.  I asked him last week if it was the agent’s listing, but he didn’t remember.  The point is, the agent shafted him to make a sale.  I don’t have any idea how long she was in the business, or stayed in the business.  Maybe she just needed to make a sale that day to make her house payment, I don’t know. 

So maybe you’re thinking the same thing, that you’re going to meet this very friendly person that seems nice enough, but maybe is a little desperate and needs to make a sale.  One thing that all real estate agents have in common is that we’re all on 100% commission, and we all have expenses to cover.  So there is a conflict of interest from the very start; and I don’t expect that’s going to change anytime soon.  I encourage you to speak with my past customers, challenge the facts I present, whatever it takes so that you can get a handle on things.  And if you need to take a year to be more comfortable, maybe that could be the best thing for you.  I certainly don’t claim to have all the answers, and I certainly don’t have a crystal ball.  But I do know that it’s good to make decisions based on all the factors, not just one or two.  And the questions hold true no matter where you get the answers.  So I hope you’ve found this article helpful.  If not, hey I took a shot. 

Real Estate,  even your personal residence, is a great way to get ahead financially, especially if you’re in Charleston.  But only if you make the best decisions understanding the pros and cons of different options.  New Construction is a great option if you have the time to wait, or if you can find a property that fits that’s already started.   The costlier replacement items are all brand new; air conditioning, roof, siding, carpet, all the things that get dirty and wear with age are all new.  Aesthetically speaking, new everything, and the more modern finishing touches speak very loudly. Smooth ceilings, moulding, garden tubs, up to date wall coverings…it all adds up to a pretty tempting combination.

Another reason people pick new is because of the offer to pay for closing costs if you use the preferred lender.  Many times, this is the best deal.  And if you don’t have any money to put down, it can be the only way to go as far as financing if you want new construction.  However, if you do have money to put down, and to cover closing costs, you’ll want to make some comparisons before assuming that the $3000 or $4000 closing costs the builder is going to pay, is going to be the best deal in the long run.  The point is…to make your decision based on all the pertinent factors, not just one or two.  We’re working on some visuals to support our discussion that will be ready soon, so keep your eye out for future posts.  It’s possible, if you weigh all factors, that the preferred lender may not be the best choice.  What are the other factors?

Private Mortgage Insurance:  Unless you’re putting down 20%, the chances are good that you’re going to have to pay private mortgage insurance.  This is actually insurance to protect the lender, which you are required to pay.   It doesn’t sound fair, but if you want to use the lender’s money, it’s their rules.  Premiums can vary wildly from $70/month to $133/month for the same coverage. 

Interest Rate The interest rate offered by the preferred lender may be competitive.  And it may not.  You don’t know unless you check and get Good Faith Estimates from more than one lender. 

Closing Costs Can vary as well with all lenders.  Attorney’s fees, brokerage fees, Loan Origination Fee, Discount Points.

80/20;95/5 etc.  There is usually a higher interest rate for the second mortgage or line of credit or whatever they’re calling the smaller note.   This needs to be factored in.  What 80/20 programs do for you is eliminate PMI.  Their downside is the higher combined interest rate.  So, you need to make a side by side comparison. 

 What about Adjustable Rate Mortgages and Interest Only Mortgages.  First, the ARM.  An ARM is good if you’re going to own the property for a short time, becuase the rate is usually fixed for a predetermined number of years.  Interest Only is good if you have good knowledge of the market for the neighborhood in which you’re going to buy, and you’re reasonably certain that the appreciation is going to be solid.   

Mortgage Companies don’t like to be shopped.  And so if you want all the factors out on the table, you might have to be persistent and know what you’re asking for.  You need to know the rate, the closing costs, the PMI, everything that goes into the deal that is going to factor into what you’re going to be paying as long as you’re holding this mortgage.  You then need to be able to look at this information side by side, muliple options with multiple lenders. 

I have a great offer for you!  If you’re planning on buying a new home in Charleston, or any home anywhere for that matter, we will help you make the comparisons.  We have a computer program where we can take the information from multiple programs from multiple lenders that shows your actual costs over time on a graph.  We’ll have some examples in future blog entries…it’s not quite ready to go public yet.  But this simple program can save you thousands of dollars. 

So, please get in touch with us if you’d like to make a fair comparison that will calculate, based on the assumptions you enter, what your costs will be over time. 

If you ever talk to a real estate agent, they all work on 100% commission, and so it’s painfully obvious what they want from you.  They want your business so they can collect a nice commission.  So you know what it’s going to do for them, right?  But do you know what real estate can do for you?  I mean, do you really know?  These days, most avenues to get ahead in this world involve blood sweat and tears, usually making trade-offs that people look back on as not really worth it.  We spend much of our lives working for others, and real estate is one of the only ways most people ever have to have something working for them.  This article is about looking at your home as a business opportunity.  Every time you sell, or buy a home, it involves biggest business decisions you’re going to make in any given decade, other than who you’re going to choose as a spouse, career changes, and anything to do with children.   THE LANGUAGE OF BUSINESS IS NUMBERS!  And so when you’re making real estate decisions, you need to know the numbers.  The two most important numbers in real estate are appreciation and tax savings.  So let’s take just a few minutes and talk about those two things. 

One of the most common misconceptions about tax savings is that purchasing a bigger home or buying a second home will get you ahead because of the tax benefit.  It’s true that owning is much better than renting, becuase you have to pay for housing, and if you own your home, you get to write of the interest on your mortgage.  And the tax savings can be pretty substantial.  Furthermore, if you have a gain on your primary residence, you probably will not have to pay taxes on that either, unless that gain is very, very large.  Buying a bigger home to save money on taxes is simply trading a dollar for 35 cents.  Your tax bill will be lower, but your interest bill will be much higher.  So unless you really need that larger home, you’re just over spending.  The savings depends on which tax bracket you’re in, so if you have $12,000 in annual interest expense, and you have $12,000 of income in the 25% tax bracket, your savings will be $3000/yr.  If your annual interest is $6000 year, then based on the same income, you’d save $1500 on your taxes.  But, you only paid $6000 in interest, and so your total exposure, expense minus savings is $4500.  In the former case, your total exposure is $9000.  So, you spent $4500 to save $1500.  So, you traded a dollar for 33.3 cents.  Don’t buy a bigger house to save money.  It does’t work that way.  Sounds silly doesn’t?  Yet people do it all the time.  People hate paying taxes, so I guess they’d rather give their money to the mortage company than to charity.  Or maybe people really do knowbetter and it’s just a rationalization to buy a better, bigger house. 

 Now, let’s talk about appreciation.  In Charleston, we have weather to die for, and only so much coastline, and so property values are going up.  2005 was very, very hot, and 2006 is more normal, and actually…more stable.  You really have to look at it over about 10 years, and Charleston, year to year, has appreciated at about 9%.  Now here’s the catch.  Some people’s homes didn’t appreciate at nearly that rate.  Others appreciated at 100% plus.  You can fall somewhere in the middle if you do your homework.  Some neighborhoods and parts of town appreciate more rapidly than others.  You need to know how many months of inventory are in a particular part of town, what are the days on market, things like that.  And it’s good to know where improvments like road expansions and extensions are going to occur.  You can beat the market and have 15% ++ appreciation.  You can also avoid buying in an area that isn’t going to appreciate.  Let’s look at two examples. 

 Here’s a sales and inventory history for Legend Oaks Plantation showing the average sales price escalating.  The days on market is increasing due to the overall market and the recent increase in interest rates, but not at the same rate we’re seeing in other areas. 

Category – Residential

And here is Wescott Plantation where the average sales price has stayed about the same and the days on market is increasing more rapidly.

Monday, March 19, 2007
Category – Residential