The Last Word… no really, the last one

THE FINAL WORD…So it’s the last Insider. When I began writing this in 1985 or so, I never anticipated this moment 32 years later when it would be the final issue.
If my message in this one seems familiar, though, it’s because my message has been essentially the same since 1985 and has proven to be true.
If you are in it for the long term, Summit County has been and continues to be a solid investment in both financial and lifestyle terms.
I hope all of you have enjoyed and profited from my analysis for all of these years. Thank you for reading it.
You’re on your own now.
Chuck Leathers, CRS
owner/broker

                                                   Dotti Augustine and Chuck Leathers      

                                Thanks from both of us for your three decades of support and patronage!  Now get out there and enjoy the mountains.

Double Digit Price Increases Return… We’ve seen this movie before

First Quarter sales dropped slightly for the first time since 2012 from 391 last year to 358 this year. After the Lost Decade that began in 2009, first Quarter sales, and sales in general, have never recovered to the high point reached in 2006.
In 2006 first Quarter sales reached 543 properties and there were routinely around 3000 total sales per year in the mid-2000’s.

You can only analyze it so much…
This is why we live here after all!

Last year 2258 properties sold in Summit County, 24 percent fewer than in 2006.

Prices, however, have been on a rampage increasing by over 15 percent last year alone, the largest one year increase since 2007. Lack of inventory has exacerbated the inflated prices.

Each new listing hits the market with perhaps 400 automatic notifications going out to buyers who have been waiting for new inventory. This has made multiple offers routine with outrageous terms like escalator clauses, huge down payments and waived due diligence.

Understandably, new buyers feel whipsawed by the quick action required and the prices and terms they need to match on the first couple of tries. Then they either decide this market is too crazy for them or they get aggressive.
More of them are choosing the first option and the number standing in line is diminishing. That is another reason sales have been flat for three years.

This is exactly the kind of market we saw in 2005, 2006 and 2007. Buyer frenzy for scarce inventory drove double digit price increases. Then came the Bush Depression of 2009 and by 2011 the average price had dropped by 20 percent and sales by more than half.

That was the first time ever that prices had declined by more than 5 percent and for more than one year in Summit County. There had been a couple of dislocations like 9/11 and the Dot.com bust that had caused soft prices for a year, but prices were essentially flat.

That has changed now. Although our society seems to have adjusted to chronic chaos and uncertainty, the overwhelming confidence that characterized the 25 year period from 1984 to 2009 is certainly gone.

Summit County is a luxury second home market and as such depends almost entirely on consumer confidence and growing disposable income. Economic uncertainty causes consumers to think twice about luxury purchases.

Because there are twice as many Americans as 50 years ago, there are also twice as many with the resources and confidence to buy second homes. But many are Boomers who have done so already. Our buyer market is now largely made up of those wishing to move up from the entry level properties and a lower number of affluent youngsters than during the Boomer years.

Those who have their place in the mountains are generally going to keep them now that their retirement plan is in place. So the immediate future is probably characterized by continued low inventory and fierce competition for it until the next economic cycle begins. That could be tomorrow or ten years from now.

Don’t get caught up in the frenzy just because everyone else is.
Buyers and sellers in this market should act based on their own desire to be here in the mountains, to enjoy the life here.
Get informed, but don’t try to outguess or overthink this.

Do what makes sense to satisfy your own needs and dreams then enjoy the results.

 

 

Dealing With a Raging Seller’s Market Requires Strategy

Trying to buy a property in Summit County? Here’s what to expect.
Since October of 2017, there have been the fewest number of properties for sale in history. The number of properties priced under $700,000 has hovered around 100 for six months. A thousand will be sold this year.
For the past six years, the inventory has declined steadily each year. In the first half of the year, we should have about 1500 properties of all types on the market. The inventory should peak at around 2000 properties in July. This year we have under 550 properties for sale and last July the peak was under 1000. This year it will probably be less than that.
Buyers for the lower half of the market have been waiting for the next property to be listed. Every active Realtor in Summit County has several buyers on automatic notification so that they know instantly when a new property appears. New listings routinely get four or five hundred notifications sent out.
A couple of dozen buyers respond, several travel to see the property in its first few days on the market and often a couple of those make an offer. Sometimes the offer comes from a buyer who has not seen the property but has their broker walk through for an iPhone video.
Usually an accurately priced property is gone in a day or two. Only the most unrealistically priced properties stay on the market longer than that. Even million dollar plus properties will sometimes sell in a few days, but that market segment remains oversupplied.
Buyers who have been through this process and lost out have begun to add an “escalator” clause to their next offer. In short, this tells the seller that the buyer will beat any other verifiable offer by a certain dollar amount, usually with a cap, sometimes not, typically resulting in a sale at more than the asking price.
So what does a buyer have to do to get an offer accepted? The best chance begins with a full price cash offer with the escalator. Every contingency or other out for the buyer lessens the odds of success. Buyers even waive inspections, appraisals and loan conditions.
Buyers who need a mortgage should put as much cash down as possible and have a pre-qualification letter in hand from a lender to go with the offer.
Personal letters to the seller from the buyer explaining why their offer should be accepted are common and sometimes result in the seller taking a lower offer for sentimental reasons.
The point is that buyers need to convince sellers to take their offer over another and it takes planning and strategy to get this done.
This will change when a normal inventory returns and it’s not such a brutal seller’s market. But for now, this is what it takes.

If You Need Rental Income to Afford Your Second Home… Read This

The short-term rental market is changing. Every year brings more regulation, more license fees and taxes and political pressure for fewer short term units and more long-term worker housing.
Three forces are driving these changes:
First, towns and counties can’t raise enough sales and property tax revenue to fund operations so they are turning to other taxes and license fees to bring in revenue. Because tourism is the largest part of our economy, lodging is the logical source for new revenue.
Towns are going as far as to pursue online travel companies for taxes on bookings at their sites and tracking down bandit landlords on social media and Craigslist.
Second, because half of second homes are never rented, many neighbors who don’t rent don’t want short-term renters next door. Short termed properties tend to bring more traffic, parking and noise issues among other things. Many homeowner associations are limiting rentals to several weeks or more.
And third, there is a continuing perception that somehow short-term rentals are stealing housing from locals. Never mind that instead of making owners rich, short-term rentals can only help defray the cost of a second home and a long term tenant rules out occasional owner use. Also, properties that are affordable for locals to buy are generally not good prospects for short-term rental.
In addition, because so many absentee owners rent through VRBO and AirB&B, towns and associations are starting to require a local manager to monitor the property. This and licensing helps governments keep track of who’s renting and helps them collect the lodging taxes.
There will never be enough local housing and tourism will only continue to grow. If your property isn’t subject to these changes yet, it will be sooner or later.
Ask questions about these issues if you are a prospective buyer and if you are an owner, pay attention to the news.
And beware of managers who project astronomical income from renting your property short-term.
Our main short-term rental season is from Thanksgiving to April 15 in the best of years, 150 days or less when rents are the highest for the year.
Summer rentals bring half as much.
If you use a manager, you’ll pay a hefty commission out of your gross income.
If you use your place at all for Christmas, New Year’s, MLK week, Presidents week and all of March you will cut into your best revenue period.
If you are dependant upon rental income to do more than defray some of your costs, you may not be ready for a second home.

 

 

Consider An LLC to Protect your Assets

from National Assoc. of Realtors Magazine January 2018 | By Bruce Ailion
If you are a second home owner or thinking of becoming one, you may want to talk to a lawyer about setting up a limited liability corporation or other legal entity and operating the second home as an LLC.

In case you are sued by someone using the property after you bought it, you can limit your damages and protect your personal assets against losses.

Suppose a contractor makes negligent repairs to a deck and it collapses while tenants and guests are having a barbecue. The judgment in a case like this could easily exceed the equity you have in the property and even the coverage limits on your insurance policy.

Or let’s say the carbon monoxide detector is faulty and the property has a 20-year-old furnace that develops cracks, releasing gas indoors. Tragically, a family of four staying in the property is killed. The owners could face four wrongful death actions caused by negligence.

These are rare occurrences, to be sure, but they point to the gravity of risks that investment property owners can face. In fact, the scenarios illustrate one of the main differences between real estate and other types of investments like stocks or bonds: real estate can carry risks that exceed the investment in the asset.

Of course, an owner’s first layer of protection is insurance, but owners might fail to recognize that their losses can exceed coverage limits.
Investing in real estate can be a smart decision. The right property can outperform other investment vehicles.

But it makes sense to have sufficient insurance and to consider setting up an LLC or other type of entity to separate your liability from your personal assets.

Rumor, Gossip & Innuendo!!

Frisco Bay is going to be deepened…. Can cruise ships be far behind? The project has no expected start date yet, but is in the planning stages. 75,000 cubic yards of dirt later, Carnival cruise lines will be able to pull right up to Main St. where colorful locals will weave baskets and hats for happy cruisers to take home. Steel drums, anyone?

Having won about half of the medals from the Korean Winter Olympics… residents of Silverthorne have changed the name of the town to Goldthorne. Doesn’t roll off the tongue like Goldenthorne would, but townies didn’t want to be confused with that other Golden down in the Front Range. Silverthorne must have the highest gold medal per capita number in the world right now.

Now if Lindsey Vonn (82 wins) and Mikaela Schiffrin (43 wins) would just move to Silverthorne… every other ski town could just give up. Well, they only live 30 miles away. We could just claim them. You know… East Vail, West Vail, Eagle/Vail, why not Silverthorne/Vail?

And the debate is on… should Colorado host a Winter Olympics? We turned them down once before and there are great arguments both for and against. Some think we should have them just to get I70 fixed properly. Good luck with that. Seems that Nordic events couldn’t be run in Summit County, though. Olympics big-wigs think it’s too high here. Wimps.

It surfaces every Spring so maybe we should change the name of mud season… the innovators at the Town of Breckenridge are considering DNA testing (Really!) to track scofflaws who don’t pick up after their dogs. Fill in your own joke here.

The Safest Bet in Real Estate… rent will continue to go up

The stock market is teetering at spectacularly high levels.  Investment professionals insist there’s gonna be a new health care system,  a huge tax cut and huge public spending on roads and stuff.   Stocks dip or soar on every new tweet.
Meanwhile, inflation is rising, the Fed is raising rates, and home owners are hoarding real estate such that there’s nothing for sale.
What does that all mean?
It means that there will be even more renters than owners in the future.  Owner:rental table
Why did hedge funds and REITs grab massive amounts of property that got foreclosed in the Bush Depression?  And why are they holding on to it instead of liquidating and putting their huge gains on the sure bet that stocks will hit 30,000 this year?
Because they’re not stupid.  The worse the economy is for average people, the more renters there are.  And, if we leave aside that we are establishing a permanent underclass of tenants, why would this be a good thing?
Well, other investments go up and down, but rent almost never goes down. 
In Summit County, as in most resort areas, it’s an even better bet for landlords.  People might stop buying second homes, but they still take vacations.  So we still need workers and workers need housing.  And we certainly won’t pay workers enough to buy any, so what will they do?
RENT, of course!
So what can you learn from the hedge fund geniuses who brought you credit default swaps and other wonky stuff that caused the melt down of 2009?  Buy real estate and rent it out.  Let the suckers play the Wall Street slot machine.  You rent to the workers running the place.
But what about those benighted workers?  
Well, the Federal Reserve says that you guys will be worth about 40 times less than your landlord unless you make the leap into ownership.  Right now you have a median net worth of $5000 versus the $200,000 the guy you just rented skis to probably has.
Yeah, I know, you don’t want to be tied down to property, or own a car, etc.  And in the past that was OK until it dawned that eating dog food in your old age wasn’t appealing.
You used to be able to make up time and finish well.  
That ship has sailed.  Renters need to start earlier and work harder to catch the elevator these days, especially in resort areas.  But it can be done.  
I did it – you can, too.

Be Smart About Updating Renovate early, not right before you sell

The phone call usually begins: We’d like you to see our place and give us an idea of what we need to do to make it ready to put on the market.
Well, I can give the caller the most important piece of advice without even seeing the property.

Don’t spend $20,000 on your powder blue and harvest gold kitchen the week before you sell!

Don’t spend $20,000 on your powder blue and harvest gold kitchen the week before you sell!

Don’t spend a fortune on renovation the week before you sell it.
Many owners have either done some renovation since they bought or the previous owner had updated the property.  Even if nothing had been done since then, the property is better than in original condition.  In that case, do the absolute minimum to dress up the property and price it to sell in that condition.

Generally spending more than a few thousand dollars to paint or replace carpet won’t bring a much higher price but it might bring a quicker sale.  And even that should only be done if the carpet and paint or other such items really create a terrible impression with buyers.
Sometimes you walk into a condominium that looks exactly like it did the day Kennedy was shot.  OK, there were no condominiums in Summit County that day.  But occasionally the blue shag and mahogany Packard-Bell stereo unit are still there.  Even in that case my advice is to price the property as it is and not to renovate the kitchen and baths just ahead of the sale.  You won’t get a price high enough to repay your improvements right away.

This is particularly true of condominiums which are basically interchangeable.  Except for location in the building, there’s not much difference between them that can’t be replicated with renovation.  $40,000 will generally make a condominium a show place.

But will it sell for $40,000 more than the one next door right after your new kitchen is done?  Probably not.  The appraiser will take the renovations into account, but not enough to justify $40,000 more than the recent comparable sales.  Unrenovated, it will probably sell for not much less than the fully renovated competition.

Homes are different and that kind of investment can perhaps be justified, but barely.  So you sell for $40,000 more and break even on the renovation.  Congratulations, you just did a large construction job for no pay.  The new owner will probably reward you with a hearty handshake.

If you are going to hold the property for more than a couple of more years, do the complete renovation immediately and enjoy the granite and tile and new carpet and appliances.  When you finally do sell, your property will show better and sell for more money than the one next door which did little or none of that.

But whatever you do, don’t let your property languish in a bygone era.  Re-evaluate its condition periodically and do the repairs, maintenance and improvements as you go along.   It will take effort to keep it up to date, and it’s supposed to be a place you come to relax, not work.  But neglect will catch up with you, probably at the most inconvenient time.

Rumor, Gossip & Innuendo!

radio
It was just an average snow year… but it didn’t stop the visitors.  Last season was a record year for skier days in Colorado.  We put over 13 million skiers on the lifts. County officials estimate about 5 million skier visits to Summit County alone, about a million more than the entire state of Utah.  And you can get a beer in Colorado… just sayin’.

Speaking of records… July 4th is getting to be insane. No one keeps actual numbers for this holiday, but it had to be a record.  This year the County was so full you couldn’t move.  Hot weather in Denver helped.  At this rate, you might want to put your lawn chair out by Main St. for next year’s parade… this week.

The bike path and the highway are switching places… to straighten out the curve and add lanes.  Starting at about the Frisco Peninsula tubing hill to the High School, Highway 9 will be moved to where the rec path now runs.  The old highway will become a rec path and run right next to the lake.   That’s the last section to be 4-laned to Breck… now maybe the cones will disappear for a few years.

OK… it’s time for someone to congratulate the Summit High Girl’s Rugby team… haven’t lost a game in 8 years, 8 state championships in a row, and second place in the Nation this year.  So the Rumour Monger will do it – CONGRATULATIONS LADIES!! You’d think you’d be invited to the Tonight Show or the White House or something.  Is it because they’re just a bunch of girls from some little place in the mountains??

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