Top Tips for New Real Estate Agents

As a new real estate agent, you may find yourself overwhelmed with prospect of running your own business.  Between obtaining new clients, managing listings, and staying in the red you’ve got a lot on your plate.  But don’t worry we put together a list of tips to make sure you become the successful agent you want to be.

adult-arrival-beard-4292481.      Find a Mentor

Sounds simple enough, right?  Finding an experienced agent to mentor you is a great way to learn the ropes and keep yourself accountable.  Whether your working for an office/brokerage or freelancing, a mentor will make you a better agent.  Seek one out as soon as you can.  adult-architect-blueprint-416405

2.      Shadow Great Agents

Tying in with our first tip, find an agent to shadow.  Following, and adopting practices of successful agents can really jumpstart your career.  Target agents that have a strong social media presence, and a large book of clients.  Use their roadmap, they found success by sticking to what works.

adult-beautiful-blur-9357563.     Continue your Education

You already obtained your license, but your education does not stop there.  Commit to learning more about your craft through online seminars, books, and agent meet-ups.  Many agents suggest treating your first year in real estate as grad school.  Focus on learning and building for the future.

adult-beautiful-caucasian-9149314.     Fill your Pipeline

The key to making money in real estate is constantly adding clients to your pipeline.  Having a full slate of work lets you avoid the common mistake of putting all your eggs in one basket.  Perfect deals can fall apart, and it is easy to get discouraged.  You can’t assume all your deals will go through so always have a backup.

architecture-buildings-business-3031595.     Build your Brand

Your brand is everything in real estate.  It gives you clout, makes you marketable, and draws more clients to you.  First step to building your brand is to establish a strong social media presence.  Create professional pages on Facebook, Twitter, and Instagram and reach out to clients.  Offer advice and get involved with discussions.

adult-agreement-beard-5735656.     Stay Flexible

Being open to criticism and embracing change will lead you to success.  You are your own business now, so you will want to be flexible and adapt to the ever-changing real estate market.  Keep an open mind and an open schedule and find your way.

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The Next Generation of Renters

As millennials continue to bore into the real estate market, renting has become the mainstay of the younger generation.  Inability to save and lack of a strong credit history are key contributors to homeownership rates dropping.  If this trend continues the next Generation, Z, will be absolutely forced into renting.

RentCafe recently released an incredibly detailed study indicating that Generation Z will pay over $102,000 in rent by the time they hit age 30.  This is based on millennials spending approximately 45% of their income on rent, which averages out to $92,600 by the time they hit 30.  Compare this to Baby Boomers who paid approximately $66,900 in rent before turning 30.

Florentina Sarac states “Given their overwhelming student loan debt, younger Millennials may carry on renting, simply because the prospect of buying is not yet attainable.  On the other hand, older Millennials are starting to slowly shift towards home ownership.”

Rent burdens have been the hardest on younger Millennials, aged 22-29, with 47%.  Older Millennials clock in at 44%.  With a substantial amount of income dedicated to renting, Millennials will not be afforded the luxury of owning a home easily.

Furthermore, Millennials earn and pay more in rent than both Generation X, and Baby Boomers.  The income difference ranges from $4,500 to $10,900 while the rent difference ranges from $10,400 to $21,600.

“It’s worth noting that the rent difference between Millennials and Baby Boomers is twice as big as the income difference.”

Without a drastic shift in the real estate market, it will become more and more difficult for Millennials and subsequent generations to make the leap from renting to home ownership.

How to save money furnishing your apartment

So you’ve got the apartment, what are you going to put in it?  Are you going to venture into your grandmother’s basement to find that dusty, 1920’s armoire?  Maybe your old beer-stained college couch?  Probably not.  How can you fill your new place without breaking the bank?  We’ve got you covered.  

If you plan on buying furniture, it’s best to know where to look and what to look for. 

Look for sales and consider using a credit card that offers free extended warranty options on furniture.  Ask to purchase the floor model as these are often considerably cheaper.  Shop at second hand stores, flea markets, and yard sales to find a good deal.

(Check college campuses for leftover furniture.  As semesters start and end there will always be excess furniture.  Make sure to clean it first, though)  

If your more of a “Do it Yourself” person, you can repurpose old furniture or even build your own.  Cleaning, sanding, and adding a fresh coat of paint will have any of your old furniture looking like new.  Get milk crates and fruit boxes from supermarkets to convert into shelves.  Old tables can be repurposed to be used as desks.  

Home Ownership & Wealth Generation: Should you be renting?

A recent study has suggested that renting an apartment can make you more money than owning a home.  As shocking as this may sound, a thorough review of the data, reveals you should take your time before doing anything drastic.

A Revision of the American Dream of Homeownership,”published in 2017, does not outright tell us that renting is more profitable, but sobers us with the fact that property appreciation is not as wealth generating as we have come to believe.

pexels-photo-572056.jpegHome owners tend to accumulate wealth more than renters, now, due to the accumulation of a strong down payment for a house.  From saving for a down payment to switching to home ownership, owners generate wealth easily while renters do not.

The study however, suggests that renters who invest in the stock market could easily outperform homeowners that do not.  “When you assume that those monies are reinvested at a rate of return, renting, on average, wins in terms of wealth creation,” states the study’s authors.

Also noted by the study, is that “the difference in wealth between renting and owning can be most affected by choices within the scope of the individual rather than through the impact of exogenous market variables.”

Millennials and Home Buying: A Look at Credit Scores

A young 3D woman debt consumer works to build up her credit scorAs the millennial generation continues to head-butt its way into the housing market, credit scores are creating a sizable burden on their ability to purchase a home.  A recent Rent.com survey stated that 78% of the millennial generation renters do not plan on buying a home soon.

Many cite the benefits of renting as their mainstay against home buying.  However, in a recent TransUnion survey, 43% of those aged 18-34 blame subpar credit scores.

So why aren’t millennials buying houses?

Inability to obtain a fair mortgage and a general disinterest in buying.  Credit score is the biggest hurdle for the younger generation, as most mortgages have a minimum requirement of credit score.

TransUnion found that one third of adults aged 18 to 34 have a credit score in between 300 and 600. A credit score of 620 will score you a mortgage, but anything lower is a crapshoot.

On average, millennials have a shorter credit history, which means there is more gravity in a missed payment as opposed to an older home buyer.  Millennials do not have the cushion of a long credit history, so their mistakes are more prominent, resulting in lower scores.

Another thicket to cut through is the initial cost; the down payment.  TransUnion found that nearly 60% of consumers aged 18-34 worry about obtaining a down payment.  Coupled with lower credit scores, the task becomes daunting, forcing millennials to stay renting.

It will be interesting to see how the housing market adjusts to masses of millennials renting, and putting off their first home purchase.

Will home prices come down to make up for missed capital or will rents skyrocket and force millennials to reconsider?

Is the American Homeowner’s Dream Dead?

Is the American Dream of homeownership dying with Millennials, and do they even care? Will the proposed tax reform be the death knell?

Minneapolis a Top City for Millennial Homeowner Growth

Let’s start with a quick review of current housing market conditions:

  • Homeownership rates are hovering around a five decades low.
  • Low inventory rates are making it hard to find a house to buy; compounding this issue, rental inventory has become an increasingly appealing option for would-be buyers.  It’s no longer hard to find a rental unit with the bells and whistles of a million dollar house… this makes it easier for would-be buyers to “park” in a rental and shop longer for that perfect house.
  • Interest rates, by historic standards, are currently favorable for borrowing. Rates will almost certainly go up from here. Likely in 2018. This will make borrowing harder and will add to the debt burden of student loans (and credit card debt, car loans, etc.). This will hit Millennials particularly hard.
  • At approximately 85 million people, Millennials are now the largest generation; they will have an increasingly large impact on the housing market as they reach prime buying age and Boomers begin to age out.
  • Millennials have already started to take their position as the drivers of the housing market: 34% of all homebuyers today – by far the largest group of buyers – are Millennials. And, this number is expected to grow significantly in the next 3-5 years. Millennials already represent 66% of first time homebuyers, according NAR.
  • The tax reform bill working its way through Congress will potentially eliminate the appeal of the mortgage deduction.

So, what does it all mean?

Picture1There does not seem to be any major change on the horizon that will improve homeownership rates in a meaningful way. This is doubly true given the increasing importance of Millennials in the housing market and the reality that most home ownership headwinds will hit Millennials particularly hard.

Expect a continuation of low homeownership rates. Sure, most of us still want to own a plot of land to call “home.” But, the decision to own versus rent has become increasingly blurry; there are attractive rental options to ride out the low inventory environment and buying is unlikely to get easier or more attractive from a purely financial perspective.

For real estate agents, they must understand and adjust. The message is simple: there is only one “housing” market. Increasingly, your clients will debate rent versus purchase. You need to be able to service both options. Many real estate agents seem to understand this. They are starting to service the large and growing renting population in order to build long-term relationships with future home buyers; agents are also using rentals to diversifying their commission revenue during a softer sales cycle, especially agents who are new to the business.

Let me leave agents with this: as part of its 2017 housing trends report, Zillow found that 57% of first time buyers considered renting and 50% of all eventual renters considered buying.

What do you see when you read the tea leaves?

The following is some additional information for readers intended to help assess whether home ownership rates may rebound in a meaningful way:

Inventory
Picture1In 2017, national housing inventory hit some of its lowest levels on record. According to Trulia, the number of homes on the market dropped for eight consecutive quarters leading up to Q1 2017, falling 5.1% over the past year. Across different housing segments, starter and trade-up home inventory fell 8.7% and 7.9% year-over-year nationally. Meanwhile, the stock of premium homes remained relatively unchanged since last year, having fallen just 1.7%.

The disproportional drop in inventory of starter homes is driving home prices higher, which in turn makes homeownership less affordable.

Interest Rates
Population2Interest rates have been hovering at or near historic lows for the past few years. Buyers – especially first-time homebuyers –  should be very motivated to borrow at today’s rates. However, credit has tightened and borrowing a mortgage requires much higher credit scores and larger down payments.

Interest rates seem to be on an upward trajectory, likely impacting buyers in two meaningful ways:

  1. Mortgage rates will increase, which makes any purchase and carrying cost, more expensive. This will compound an already high price environment caused by tight inventory constraints (more on this later).
  2. Student loans are paralyzing millennials. More than two-in-five (42%) millennials between 18-29 years old report that they, or someone in their household has student loan debt. 58% of college graduates report having student debt according to a recent Harvard IOP study. The more expensive it is to service that student loan debt, the longer it might postpone the home buying decision.

Tax Reform
PopulationThe tax reform currently being proposed by congress will cap – and all but eliminate – the mortgage interest deduction. Given the increased standard deduction ($12,000 for single and $24,000 for married taxpayers), many more taxpayers will forgo itemizing and take the standard deduction. The mortgage interest deduction is perhaps the single largest tax deduction folks make on their personal income tax return each year. Losing that benefit could present a serious disincentive to becoming a homeowner.

Residential rental properties, like owner-occupied housing, currently receive tax subsidies under existing tax rules, but the newly proposed tax plan significantly shifts the tax system to favor rentals over owner-occupied homes. This could result in increased cost of home ownership and lead to more people deciding to rent. The dramatic increase in the relative tax advantage for residential rental real estate could lead to increased home rentals in your neighborhood. Maybe it will be cost-advantageous to sell your home to a residential real estate firm and lease it back?

Finally, if the mortgage tax deduction is eliminated, Moody’s Analytics estimates that it could cause home prices nationwide to drop between 3-5%. This would likely further tighten inventory as sellers will likely balk at accepting losses in the near term.

Household formation
According to the census bureau, the muted housing recovery in recent years can be traced, in part, to slower household formation among young adults; analysis suggests that the boom and bust in housing has been a key factor. Recent weakness in household formation relative to population growth among young adults represents a reversal of the unusual strength during the boom years. The net effect has left shares of current young adults heading households at levels similar to those in the mid-1990s before the housing boom.

Population

Source: U.S. Census Bureau, Housing Vacancy Survey and Annual Population Estimates; annual rates reflect July year-over-year percent changes.

Headship and Homeownership as share of age group population

Population2

Source: U.S. Census Bureau CPS Annual Social and Economic Supplement, Annual Population Estimates, and Housing Vacancies. Author’s calculations.

Ishay Grinberg

Suburban Rent Prices on the Rise

Screen Shot 2017-10-23 at 2.18.55 PMWhen you think of more affordable housing, you think of the suburbs; more space, more land, better prices from homes to rentals.  However, as millennials begin to wiggle their way into the real estate market, pricing in the suburbs seems to be suffering.  

In the last year the cost of renting a home in the suburbs has risen higher than the cost of renting in the city.  In a new release by Zillow, median monthly cost of suburban rents rose by 2.5% while urban rents only rose by 2.3%.  

This is a stark difference from last year where urban rental prices were up 5% while suburban rental prices were closer to 3%.  The cities that are experiencing the fastest increases are Portland, Seattle, and San Francisco.  San Francisco experienced an urban rental price drop of 0.4% and a 2.6% increase in suburban rental price.      

The more prominent examples of this trend reside in cities where rent affordability is a main issue.  Renters who are paying more than 44% of their income in rent, like San Francisco, are the driving force here.  

Screen Shot 2017-10-23 at 2.18.55 PMAs rent continues to rise in cities, renters will either have to make due or forfeit their apartments for cheaper options elsewhere.  Choosing a longer commute for a drop in rent prices seems to be the main solution.  

While these statistics only define renting, home ownership plays a huge part in it.  Most millennials would like to buy a home but lack the assets, especially the down payment, to realistically make the jump.  With rent prices on the rise, and the inability to buy homes, there is no reason to not expect this trend to continue into 2018.     

Will we see a mass exodus of city renters transitioning to suburbs?  What effect will this have on the pricing of rentals and homes?  Only time will tell.