Jim Valentine: How to lose money in real estate

We’ve written about making money in real estate, but it is also possible to lose money with real estate. Some things are out of your control such as having something change. With the many very large wildfires the West has experienced in recent years, insurance companies are striking back to protect themselves and recover some of their losses.

Some homes in our region that are located in trees are seeing phenomenal rate increases so high as to be in the range of $30,000 to $60,000 per year! Some areas you aren’t even able to get insurance. Changes like that can sure put a kink on your expected return on your investment in that property.

When we had the new flood maps implemented by FEMA back in 2010 some areas in the Carson Valley went from not being in a flood zone to being in an undetermined flood zone with flood insurance rates of $4,000 to $5,000 annually. From zero to $5,000! That, too, can put a kink in your anticipated holding cost and performance on the return of investment.

Don’t listen to your agent! Agents aren’t all knowing despite what they want you to think, but they do have experience and knowledge, or at least access to knowledge. Our classic is a couple that we suggested they list at $435,000. Discussion and they wanted to try $449,000. Begrudgingly, we agreed to try it. When it came to sign… yes… they wanted $459,000. They agreed to lower it quickly if no action, but we know how that goes. It usually doesn’t.

The offer came in at $425,000. They wanted to counter at $456,000. That got rejected. Stalemate. We asked the offering agent what her buyers might do. She talked with them, and we got a verbal of… $435,000. Note – that was our original suggested price which was unknown to anyone but the sellers and us. Seller got mad and canceled their listing. A year and a half later they sold for $275,000, the consequences of stubbornness and a recession.

Another way to lose money is to get cute with your pricing and offers that you receive. Residential real estate is an emotional business already without inducing ego bruising antics into the equation. Selling the family home, or buying their first home or their dream home, buyers and sellers have a lot of emotion boiling within. When an offer is ignored, rejected, or trivialized it can create hard feelings that otherwise may not have been seen at the “negotiating table.” Respect the other side or be ready to experience financial and/or emotional losses by your behavior.

The lack of maintenance can come back to bite you in the long run. Homes require maintenance and repair if not remodeling on a regular basis. If you neglect this part of home ownership you may regret it when it comes time to sell, or you are forced to incur a major expense due to the neglect. It’s like the oil filter man on television reminding you that you can pay at your choice, but later is a bigger bill.

There are many reasons to buy residential real estate the biggest of which is the quiet enjoyment of living in the property, but there is always the factor of home ownership financial rewards. There are tax benefits, appreciation benefits, and pride of ownership that contribute to a satisfying investment.

It is important, however, to keep the financial components in perspective. This is the largest financial investment most families make, and they have hopes that it will be a positive one. It usually is, but you must be a diligent owner to protect and even enhance your investment in order to enable it to reward you financially as well as emotionally. You wash your car and change the oil to protect that significant investment. Pay attention to all facets of your home and property to protect that investment.

When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless!  Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. dpwtigers@hotmail.com.