What is Charleston Real Estate Doing for YOU?

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

Month Year Monthly Sales Avg ListPrice Avg Sale Price % Diff Sell/list Avg DOM Curr Inventory Months Inventory
January 2006 16 $238,934 $241,128 100.92% 33.0 61 3.81
February 2006 15 $289,101 $290,911 100.63% 53.0 71 4.73
March 2006 31 $261,601 $262,916 100.50% 32.0 74 2.39
April 2006 15 $274,717 $274,393 99.88% 23.0 99 6.60
May 2006 16 $296,313 $295,427 99.70% 29.0 106 6.63
June 2006 29 $240,618 $239,983 99.74% 0.0 118 4.07
July 2006 23 $274,470 $273,347 99.59% 25.0 125 5.43
August 2006 15 $249,883 $247,937 99.22% 28.0 140 9.33
September 2006 21 $287,836 $287,232 99.79% 59.0 134 6.38
October 2006 22 $313,872 $311,602 99.28% 68.0 131 5.95
November 2006 25 $308,602 $307,413 99.61% 44.0 129 5.16
December 2006 21 $313,388 $312,716 99.79% 82.0 119 5.67
  
January 2007 24 $302,380 $299,562 99.07% 18.0 108 4.50
February 2007 19 $306,716 $301,646 98.35% 67.0 98 5.16
Current 2007 6 $246,653 $242,902 98.48% 134.0 109 18.17
  

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

Month Year Monthly Sales Avg ListPrice Avg Sale Price % Diff Sell/list Avg DOM Curr Inventory Months Inventory
January 2006 49 $203,402 $202,739 99.67% 0.0 84 1.71
February 2006 37 $210,851 $209,406 99.31% 0.0 99 2.68
March 2006 34 $208,548 $208,211 99.84% 18.0 118 3.47
April 2006 40 $202,046 $201,517 99.74% 38.0 123 3.08
May 2006 37 $215,245 $213,275 99.08% 20.0 123 3.32
June 2006 54 $225,640 $224,310 99.41% 15.0 120 2.22
July 2006 39 $222,414 $218,772 98.36% 27.0 123 3.15
August 2006 45 $215,513 $214,825 99.68% 49.0 125 2.78
September 2006 28 $213,395 $204,643 95.90% 89.0 119 4.25
October 2006 22 $208,676 $205,628 98.54% 52.0 136 6.18
November 2006 29 $231,124 $224,566 97.16% 95.0 119 4.10
December 2006 22 $214,491 $209,704 97.77% 69.0 122 5.55
  
January 2007 6 $218,691 $205,414 93.93% 80.0 116 19.33
February 2007 10 $265,815 $259,090 97.47% 70.0 133 13.30
Current 2007 8 $220,533 $209,361 94.93% 132.0 138 17.25
  

 You have to be careful what you do with averages, but the point is, to look before you leap.  You may think that you’re fine just talking to the listing agent, or the new construction sales agent, but you may want to consider hiring someone to tell you the whole picture that is going to look out for you. 

The language of business is numbers, so if you’re going to make a good business decision, find a trusted advisor that’s good with numbers, and not just the first agent you meet who’s likeable and hardworking. 

Interest rates, (sorry I can’t seem to be able to get this bold type to shut off) are almost back down to where they were in 2005, so the time is right to make a move if you’re armed with the right information.  If you’re up North or down in Florida, it might be time to take the plunge and make that price reduction, so you can get into this market at the prime time.  It’s not going to get much better here in Charleston. 

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