expectations

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Before you rush out to buy a home, consider the fact that inventory levels are beyond dismal at the moment, though there’s a good chance that could all change rather quickly.

If you’ve already begun your property search, you probably already know inventory is virtually non-existent in your desired neighborhood. If you haven’t, prepare to be shocked.

There’s even concern that the shortage of inventory could be further exacerbated by the recent surge in mortgage rates, as would-be buyers jump off the fence and rush to buy before affordability gets any worse.

But I don’t believe things will go that way – in fact, I think it’s going to be quite the opposite.

And there are already signs that housing inventory is rising. A recent report from Redfin revealed that active listings increased 6.4% between March and April, and 4.2% between April and May.

Compare that to last year, when inventory peaked in January and drifted lower much of the year.

Assuming more homes keep hitting the market, year-over-year levels of inventory may actually be positive at some point this year.

So why is inventory slated to rise? Well, allow me to highlight five reasons:

Homeowners Gaining Equity and Getting Out

Here’s an oldie but goodie. As home prices continue to increase, more and more homeowners will get back in the black.

We all know scores of homeowners are stuck with underwater mortgages, but many of those who held on are now finding themselves with some sliver of home equity thanks to recent hefty home price gains.

Additionally, a lot of the mortgages on these properties were taken out in 2005-2006 or earlier, so for those who didn’t go with an interest-only loan, a decent chunk of the mortgage is already paid off.

As time goes on, this trend should become even more prevalent, and many of these homeowners just want out. They aren’t necessarily looking to turn a profit; they just want to avoid a short sale or foreclosure.

Sure, some will argue that they’ll need “X” amount of home equity so they can purchase another home after they sell, but plenty of owners may decide to downsize, or simply rent instead.

Not everyone is so bullish on housing, and with interest rates rising, existing homeowners know today is a great time to sell, especially with bidding wars forcing prices up to future levels.

After all, it will be a lot easier to sell at a premium now, and with far less scrutiny, when inventory is still low.

More Foreclosures Coming to Market

Another interesting trend of late is the rise in foreclosure activity, which was steadily falling up until last month, according to RealtyTrac.

After hitting a six-year low in April, foreclosure activity increased two percent in May, thanks to an 11% rise in bank repossessions.

Foreclosure starts increased four percent from April, and rose substantially in judicial states, where the process takes a lot longer.

Still, it looks like lenders are beginning to cut through the red tape, with foreclosure starts up 229% in Maryland, 122% in Connecticut, 108% in Hawaii, 84% in Arkansas, and 82% in New Jersey from a month earlier.

Foreclosure activity increased to a 33-month high in Maryland and a 20-month high in hard-hit Nevada, and Florida saw a 20% monthly rise in foreclosure activity, meaning there will be much more distressed inventory making its way to market.

The takeaway here is that as home prices rise, banks and lenders will actively pursue foreclosure because they know the demand is finally there to offload the properties.

Banks Will Take Advantage of Rising Prices Too

This has been a concern for years, with many pondering when the banks will dump their massive distressed inventory, which continues to grow.

Though they’ve held on for quite a while, it could soon be time for them to ditch their stable of homes and get back to what they do best, banking.

And they could begin to do it a lot more quickly, seeing that home prices have chalked some massive gains of late, especially if the housing rally doesn’t have the legs many think it does.

Banks aren’t typically in the business of acquiring and selling residential real estate, so if they can get out at a decent price, they probably will.

Unfortunately, if they all get the same idea at once, it could spell disaster for the recent home price gains.

Speculators Starting to Lose Interest

At the same time, many of those who purchased properties on the cheap lately were Wall St. investors and hedge funds, such as Blackstone and Colony American Homes.

As home prices rise, they will probably do two things that will hurt the residential real estate market.

For one, they will stop buying houses, seeing that they’re in it strictly to make a certain return in a relatively short period of time.

If the price point isn’t there anymore, they’ll stop buying, point blank. At the same time, they’ll begin dumping their properties for tidy profits to mom and pops that missed the housing bottom.

This could get nasty, seeing that these hedge funds purchased a ton of single-family homes over the past few years.

And we all know how Wall Street works – pump and dump, with no concern for collateral damage.

Home Builders Getting Back to Work

While existing housing inventory increases, so too will the number of new homes built.

Yesterday, the Census Bureau revealed that single-family permits increased 1.3% to 622,000 units in May, the highest level in five years.

At the same time, builder confidence for newly-built single-family homes surged eight points to a reading of 52 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), the first time it has been over 50 since April 2006.

NAHB Chief Economist David Crowe said the report is in line with expectations for a 29% increase in total housing starts this year, which will see them top the one million mark for the first time since 2007.

In other words, home builders are gaining confidence and getting back to work. New developments will be sprouting up all over the place as demand for homes continues to increase.

Of course, it’s just a matter of time before they build too many homes and repeat history once again. But hopefully that’s a long way out.

By the way, mortgage rates are only expected to rise about a half a percentage point or so between now and the end of 2014, so why fight tooth and nail for a home today, especially with future home price gains already baked in?

Patience may be the play here if you want to land a property you actually like.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Posted on: April 28, 2022

Higher mortgage rates are likely in the cards

The Federal Reserve is set to have its third meeting of the year next week, and for hopeful mortgage borrowers, it’s probably not good news.

Given the nation’s skyrocketing inflation rate (the highest since the early 1980s), plus recent commentary from Fed Chair Jerome Powell, higher mortgage rates are almost guaranteed in the days and weeks following the bank’s May 3-4 meeting.

It will only add insult to injury in an already affordability-challenged housing market. Home prices are up 19% over the year, according to the Federal Housing Finance Agency, and last week’s average 30-year mortgage rate? That clocked in at 5.11% — a whopping 200-basis-point uptick since the start of the year.

For homebuyers and borrowers mulling a refinance, it signals one thing: Act now or pay more.

Click here to check today’s VA rates (Apr 27th, 2023)

What the Fed has planned for May

The Federal Reserve has already indicated it plans to tighten monetary policy as the year goes on. The bank increased the federal funds rate for the first time in six years at its March meeting, and Powell has indicated it will do so again at next week’s gathering too.

Only this time? Powell says a 50-basis-point hike is possible — double what was seen back in March.

“​​If you look at the last tightening cycle, which was a two-year string of 25-basis-point hikes from 2004 to 2006, inflation was a little over 3%,” Powell said last week at an International Monetary Fund meeting. “Inflation is much higher now, and our policy rate is still more accommodative than it was then. So it is appropriate, in my view, to be moving a little more quickly. That points in the direction of 50 basis points being on the table.”

To be clear: Inflation isn’t just “much higher” than the last time around — it’s significantly higher. Earlier this month, inflation came in at 8.5%, the highest point since 1981. So Powell’s hint at a more aggressive rate hike is probably more than just speculation. In fact, according to CME Group, there’s a 96.5% chance that the federal fund’s target rate will jump 50 basis points next week, putting it at 75 to 100 for the first time since pre-pandemic days.

How mortgage rates respond to Fed actions

To be clear: The Federal Reserve doesn’t dictate mortgage rates, but when it tightens policy, interest rates on loans and mortgages tend to rise.

Just take March’s Fed meeting as a case in point: After the bank raised the federal funds rate for the first time in years, mortgage rates surged. Rates on 30-year loans went from 3.85% prior to the meeting, jumped to 4.16% the week after, and have climbed steadily ever since. They’re now at 5.11%, 126 basis points higher than before the meeting.

Most experts predict mortgage rates will continue their upward climb on the backs of another Fed rate hike but just how far they’ll go is uncertain. One thing that’s for sure? Borrowers likely won’t see lower rates for some time (at least until inflation is under control).

Move quickly or adjust accordingly

If you’re eyeing a refinance or home purchase, your best bet is to lock in a rate quickly. Once the Fed announces its official actions next week, there’s no telling how high rates could climb in the weeks following.

If acting now just isn’t possible, you’ll want to adjust your expectations accordingly. Prepare for a higher monthly payment or reduced refi savings, and think about alternative loan options, like ARMs, which offer lower rates at the outset of the loan.

And if you’re still looking for a property, reduce your price range to ensure you stay on budget. You can also consider smaller properties or townhomes or expand your search into more affordable, rural communities. Both steps can help you offset the added costs that higher rates will come with.

Click here to check today’s VA rates (Apr 27th, 2023)

Source: militaryvaloan.com

Apache is functioning normally

When Minnesota resident Sherry Shannon was short on cash after her car broke down in 2013, she turned to a storefront payday lender for a $140 loan. She remembers the process as quick and easy — she signed on the dotted line, got the cash and was out the door within minutes.

But when it came time to repay, the combination of her monthly bills, plus the triple-digit interest rate on her payday loan, meant she was short on cash again, so she took out another loan.

As the amount she owed ballooned, Shannon says she soon felt trapped by her debt.

“I experienced homelessness once, and I didn’t want to be homeless again, so I had to keep taking [payday loans] out just to pay my rent and my light bill,” she says. “I didn’t see any way out of this.”

Shannon’s story doesn’t stand alone. Payday lenders operate in 32 states, and about 12 million Americans use payday loans each year, according to research from the Pew Charitable Trusts. Though these loans may be advertised as a way to cover a one-time emergency cash shortage, borrowers often use them for important recurring expenses such as rent and utilities, and the cost can be exorbitant.

If you’re trying to get out of payday debt, there are ways to break the cycle, especially if you know where to turn in your community.

How payday loans work

Payday loans are short-term, small-dollar loans typically capped at $500. They’re considered high-interest because of their fee structure.

A typical two-week $100 payday loan comes with $15 in fees — which equates to an annual percentage rate of 391% — according to the Consumer Financial Protection Bureau. For context, financial experts consider 36% the maximum APR a loan can have to be affordable.

Because payday loans are relatively easy to get, they can also feel like a surefire solution to an urgent financial problem, says Anne Leland Clark, executive director of Exodus Lending, a nonprofit based in St. Paul, Minnesota, that helps families break out of predatory loan debt. But when people can’t repay, their financial situation becomes more precarious.

“Payday loans may provide immediate relief in a financial crisis or a financial trauma, but then it almost retraumatizes you,” Clark says. “It causes more stress, and people fall into a cycle where they aren’t able to catch up.”

The payday loan debt cycle

A debt cycle is when repeat borrowing leads to an ever-increasing debt that may demand even more borrowing to manage it.

According to 2014 research from the CFPB, four out of every five payday loans are reborrowed after the initial two-week term. The CFPB’s research also shows that most borrowers end up owing more in fees than the original loan amount.

That was the case with Shannon. Though her initial loan was $140, she eventually paid $500 in fees while making little progress in paying down her principal loan amount.

The quick turnaround time on payday loans is part of why they’re so hard to repay, says Clark. Chances are, if you’re short on cash when you borrow, you’ll still be short on cash two weeks later when you have to repay the loan in one lump sum plus the interest you owe.

If borrowers can’t repay, they may be able to renew the loan depending on their state. However, renewals require an additional fee, making it that much harder to catch up when the loan comes due again.

“Even when people feel like they’re making progress, they’re not actually paying down their loans,” says Yasmin Farahi, deputy director of state policy and senior policy counsel at the Center for Responsible Lending in Durham, North Carolina. “That’s how the cycle continues. They’re paying some amount, but it’s not enough to get them out from under this.”

Clark and Farahi emphasize that borrowers shouldn’t feel ashamed for being stuck in a payday loan debt cycle. Though consumer finance education can help, they say greater regulatory efforts are needed to address the issue truly.

“It’s important for consumers to understand that this is really a policy problem,” Farahi says. “It’s up to policymakers to ensure that we’re getting rid of these kinds of loan sharks, not up to consumers to learn how to swim with the sharks.”

Breaking free of payday loan debt

Shannon eventually found her way to Exodus, which offered her a zero-interest, 12-month loan to refinance her payday debt.

She’s now free of payday loans but wants others to know how easy it is to become trapped. Though Shannon admits it’s hard to do, she says the key is reaching out for help before the loan gets out of control.

If you’re struggling with payday loans, consumer advocates strongly recommend exploring the options below to help you pay off the debt.

Research organizations in your area that offer financial assistance

Your city or state should have organizations that provide financial assistance to community members in need. Look for nonprofits, charities and religious groups. Some organizations may specifically address payday debt, like Exodus does in Minnesota, while others may offer general financial assistance to help cover necessities, such as rent or groceries. Use the money you save on those expenses to pay off your payday debt.

Reach out to a nonprofit credit counseling agency

Credit counseling agencies specialize in helping people with their finances, including getting out of debt. Credit counselors can work with you to create a budget, manage your bills and explore your debt payment options, including a debt management plan. With a debt management plan, you pay the credit counseling organization, which then pays off your creditors and may charge you a fee.

Take out a small-dollar loan from a credit union or bank

More credit unions and banks are offering small-dollar loans. These loans could help you pay off payday debt and be left with a more affordable loan instead.

Your neighborhood credit union is a great place to start. Though you’ll need to become a member before applying for a loan, membership is easy and affordable at most credit unions. Some federal credit unions also offer small loans, including payday alternative loans or PALs. These loans can range from $200 to $1,000 and cap borrowing costs to keep the loan affordable. You’ll need to be a credit union member for one month before applying. However, some credit unions offer a second type of PAL that allows you to apply immediately and has higher loan amounts.

Banks are also increasing their small-dollar lending, though you’ll need an existing account in good standing to apply. Even if your account isn’t in good standing, it doesn’t hurt to call the bank, explain your situation and see if they’re willing to offer you a loan.

Borrow money from a family member or friend

If you’re unable to get help from an organization or financial institution, don’t be afraid to tap your network. It can be hard to ask a family member or friend for money. Still, you can make it more comfortable by writing down mutually agreed-upon loan terms — including when and how you’ll pay them back and if you’ll pay interest — so the expectations are clear.

Many people find themselves in financial trouble at one point or another, so remember that getting back on your feet means you may be able to help someone else in the future.

Source: nerdwallet.com

Apache is functioning normally

This is part two of a three-part series on how he stumbled into real estate investing at age 23. Be sure to read part one here.

When we last left off, I’d just walked away from my first real estate closing with an eight-unit apartment building and $1000 cash in my hand. I was riding high. Unfortunately, the reality of the situation hadn’t sunk in. Over the next year, my low-income, eight-unit apartment building was going to take me on the most wild roller coaster ride of my life.

Instead of providing a chronological list of events (which may be entertaining, but of little use), I want to share the mistakes I made and the biggest lessons I learned throughout the process. In this second installment, I’ll share the first two mistakes (of what could be dozens). Neither of these first took long for me to realize.

Mistake #1: I Bought a Negative Cash Flow Property Without an Emergency Fund

Yes, it was purchased at a great price. Yes, it did have an amazing amount of potential. But all the potential in the world didn’t change the facts:

  • 7 of the 8 units had people living there.
  • Only 3 of them were paying tenants.
  • I needed at least 5.5 tenants paying to break even.
  • All of the units, even the vacant one, needed repairs before they could be rented.

In theory, I knew all this before I bought the property. I had a detailed plan on how I would attack these issues quickly. I would file evictions the next day on those tenants that had gone months without paying. I would immediately hire people to get the vacant unit up to minimal renting standards.

In theory, it was all going to work perfectly. But then it came time to actually execute the plan.

Coordinating quotes for repairs took longer than expected. Eviction filing took money up front and the courts were running an extra week behind (4-5 weeks instead of 3-4 weeks). Tenants became optimistic about the management change and wanted to work out repayment plans.

In the first two weeks, a storm broke a large front window, and a back door was kicked in (probably by the tenant who lived there, although I had no proof). While insurance would eventually cover the window, both had to be fixed immediately, as it was winter and both were security concerns.

Repairs and maintenance were both accounted for in my number crunching, but the emergency fund that could smooth out an early spike in the averages was nowhere to be found. I didn’t have a penny to my name and the $1000 check at closing went much faster than anticipated. The lack of the emergency fund compounded into several other problems in those first few months.

Mistake #2: I Got Emotionally Involved

Back in part one of this story, I outlined my previous success in building up a property management business. With my client’s properties, I was cool and calculated. I treated management as a business. The property owners were clients. The tenants were…just tenants.

When I signed the dotted line on my own property, the idea was to simply plug it into our property management system. It was going to be “just another set of units.” We’d coordinate repairs, screen tenants, and handle issues in the same ways as we had set-up for our clients. I was incredibly naive.

Without an emergency fund, we needed money. Sure, we had plenty of clients who had also needed money at one time or another. It was my job to set expectations and to advise them on the best course of action. I sought to remove emotions from the equation and ensure that they didn’t make a rushed decision.

I was good at this part of my job and we made nearly no exceptions. If a client had a monetary circumstance where they had to make what we thought was a bad decision, they’d usually cease to be our client. It was that simple.

It’s amazing how quickly exceptions are made when you are the one that needs money.

It happened slowly at first. One tenant, whom seemed genuine, wanted to set up a payment plan to get back on track. It was a weekly payment plan, something we would have never agreed to with our normal clients (too much time commitment). We had two choices in our situation. First, we could head through evictions (2-5 weeks), coordinate repairs (1 week minimum), and re-rent (1-4 weeks minimum). Or alternatively, we could try to squeeze money out of the existing tenants.

The former was the smart, long-term, and business-oriented option. It was the only one we would have offered to our clients. I could have listed at least two dozen reasons why it was the best option. Of course, we chose the latter.

This ushered in a four-month period of various weekly payment plans with not just the one tenant, but with 3-4 other tenants as well. It did help bring in the immediate cash we needed, but we paid a hefty price. Juggling these weekly re-payment plans with tenants who had already proven they weren’t reliable:

  • Took additional time.
  • Added large amounts of stress.
  • Caused problems with repairs (easier to fix up a vacant unit).
  • Fostered a “but you made an exception with him” mentality among all of the tenants.
  • Lowered the value of the property (a fresh, consistent tenant would have increased value).

It was a horrible pattern, one that I knew far better than to fall into. I assumed there would be no emotional difference on how I would handle the property…and I was wrong.

These first two major mistakes arose in the first few weeks and months. We haven’t even touched on the issues that came up when we replaced three furnaces and four water heaters. Nor have we revisited the most bizarre moment of the entire year, which involved a split-personality tenant, no less than three fire trucks, and fraudulent accusations of animal cruelty.

For that, you’ll have to wait until next week!

J.D.’s note: Adam doesn’t realize it (because he’s a young pup), but this post makes a New Wave geek like me think of this Culture Club song…

Source: getrichslowly.org

Apache is functioning normally

The Silicon Valley boom paved the way for unprecedented returns for scores of high-tech companies, resulting in a mass influx of highly-skilled professionals to the San Francisco Bay Area.

A surge in job creation invariably boosted housing demand across the region. With a limited supply at hand, the prices quickly spiraled out of control, appreciating at an extraordinary clip. 

The effect of rising demand and limited supply quickly resulted in an over-inflated property market which out-priced nearly everyone in the Bay Area counties. Year-on-year growth rates show that the median house price in San Francisco has increased by 1.3%, – to $1.6 million. While substantial, this is the smallest gain since 2012. More significantly, housing prices across Santa Clara County dropped by 6%, averaging out at $1.26 million. 

Analysts agree that the explosive growth in the property market are due in large part to the runaway success of technology companies in the region. 2019 ranked among the most active years for IPO listings, leading to an influx of billions of dollars in venture capital, and various rounds of financing activity.  This has led to a cooling of expectations as various tech companies such as Slack, Uber, and Lyft, failed to hit their price targets.

Interestingly enough, the steep prices in San Francisco and its surroundings have many homebuyers shift interest to other areas, like Oakland and Berkeley. Home prices in these areas have risen by approximately 4%, reflecting a median house price of $860,000.

Where to next for the Bay Area housing market?

Dozens of economists were recently surveyed regarding pricing in the Bay Area market. The consensus among them was that San Francisco will lose traction as other housing markets like Austin, Texas gain momentum. Apparently, the worst performing real estate market in 2020 is expected to be the Bay Area.

Related stories

Of the 100 economists that were polled in the survey, 64 of them believe that San Francisco’s housing market will underperform this year, followed by 61 experts who believe that San Jose will underperform. If these predictions hold true, home values across the Bay Area will start to decline. Obviously, residents of the Bay Area have mixed feelings about their home value decline, but those looking to rent and buy properties will be heartened by this news.

The uninterrupted growth in property prices has everyone overly concerned. The majority of real estate developers have been focusing on the high-end market when developing new housing facilities. This has neglected the low and middle-income earners who were simply priced out of the market.

One of the most expensive cities of America

Of course, notable exceptions exist such as Danny Haber of oWOW, a California-based real estate development company which focuses on low-cost, luxury accommodations for the market, in and around the Oakland region. Owing to general trends in the Bay Area, most people do not consider home ownership, let alone rentals. While high home prices affect buyers and sellers, they also have an impact on renters by raising the costs. Unfortunately, the rise in rental prices has outstripped the growth in real earnings by a wide margin.

According to SF Gate, the one third rule is not applicable to the Bay Area property market. Typically, renters spend approximately 33% of their gross income on housing, but in the Bay Area, this is a pipe dream.

Rental prices for a single bedroom apartment in San Francisco can average $2,900 per month, which requires earnings of $105,000 a year. Most wage earners come nowhere near close to that figure. In fact, experts found that San Francisco rentals, including San Mateo and Marin counties, eat up to 50% of gross income. This being said, the costs of living here become more affordable in households with multiple wage earners.

Housing alternative for the Bay Area

Construction costs in the Bay Area rose by 6.7% during 2018, making San Francisco the most expensive real estate market to build in. Typically, increases in demand are met with increases in supply to reduce pricing, but in San Francisco’s housing market this is not the case.

Of course, the tech sector is likely to rebound and this will add further pressure onto housing prices. In the absence of accelerated construction, other viable solutions need to be found.

One possible solution to the housing crisis in the Bay Area is MacroUnits, the system provided by oWOW. These modular-style housing units are built offsite and shipped to their destination. 

This alternative reduces the costs of remodeling existing apartments, shortening the time to market and reducing overall costs for customers. A flexible walls system known as Magic Walls is used to maximize the living space and create luxurious accommodations by transforming single bedroom units into multi-bedroom units with additional facilities, all within the same square footage.

By entering the market with lower prices, Danny Haber’s company is rapidly expanding its tenant base, by offering upgraded housing at an affordable price. If this system is implemented at scale, it could become part of a comprehensive solution to the housing dilemma.

More market reports & studies

Here’s How Many People Became Millionaires by Selling their Homes in the Hottest Real Estate Markets
Sizing Up the Texas Market: How’s the Lone Star State Fairing and Should You Buy a House Here in 2019?
Features that Sell: Here are the Listing Keywords Likely to Get Your Home Sold for More
Million Dollar Homes in NYC Aren’t Selling Like They Used To

Source: fancypantshomes.com

Apache is functioning normally

Day traders may hold stocks for a few hours, while buy-and-hold investors may hold onto a stock for decades. There is no single formula that works for everyone when it comes to deciding how long to hold stocks.

Rather, the decision to hold stocks or sell them must include a number of factors that may be unique to each investor. These can include everything from company fundamentals to industry trends to the investor’s own goals.

In a perfect world, an investor would hold onto stocks until they made a profit. But how much of a gain, and how long that might take — and what to do if the stock loses value? — is more complicated than it seems. Here are some variables to consider.

Why Hold Onto Stocks for the Long Term?

Here are some reasons for an investor to hold on to a stock: They only feel compelled to sell it because of that stock’s most recent performance in the markets. But selling a stock because of a sudden drop in value could be considered timing the market — a strategy that, at times, can hurt investors.

What happens today in the markets doesn’t necessarily reflect longer trends, therefore holding onto stocks despite a dip may give your shares time to recover.

A study done by Dalbar illustrates how investors who attempt to time the market often turn into their own worst enemies. During the 20-year period studied, the S&P 500 had an average annual return of approximately 10%. During the same time period, the average investor achieved a return of just 2.5%, due to the frequent changing of their investment holdings (often mutual funds).

Sure, in the moment, it can be tempting to sell a stock based on a dramatic price change. But, calculating stock profit or loss alone may not be particularly helpful. Stocks that enjoy long-term growth take on some dips in price. And, similarly, dud stocks may have some brief moments in the sun.

Buying and Holding for the Long Game

What’s the ideal holding period for a stock? Some investors might say forever. (Or, at least until the money is needed — like, for income when you’ve reached your target retirement date.)

There are several allures of holding stocks for a long time. First, spending ample time in the market reduces the risk of short-term market volatility. Ups and downs in value are an inevitable part of investing in the stock market, whether through a single stock or a fund. Especially in the short-term, the market could move in any direction.

The bear market between 2007 and 2009 was a prime example of this, as the U.S. stock market lost more than 50% of its value then. This wasn’t an ideal time to be holding stocks — but it was an even worse time to sell. With a buy-and-hold strategy, investors can keep their eyes fixed on the potential for a recovery. The stock market hasn’t yet experienced a dip that it did not bounce back from.

What Is Index Investing?

This is why some investors prefer passive investing strategies. Index funds hold a representative sample of the entire stock market, in an attempt to achieve the market’s average returns. Instead of betting on just one company stock’s performance, index funds invest in the entire engine of the economy. Research has shown that over time, market returns may exceed the returns of active strategies.

Since the great recession of 2008, the stock market has more than made back its losses. This is why buy-and-hold is a strategy that is popular with index fund investors.

Holding Stocks for Future Profitability

Let’s say that a company’s stock has performed well. Perhaps, it’s even hit an investor’s profitability target. Is growth, alone, a good reason to sell? Some investors might think no.

At any moment in time, what makes an investment worth holding on to is the belief that it will be profitable in the future. Therefore, what has happened in the recent past may or may not be relevant to the future.

In investing parlance, this notion is called fundamental analysis. Here are just a few big factors that an investor might chew on when adopting this type of market analysis:

An investor wants to hold on to the stock of a company that continues to increase its sales over time, with a forward-looking forecast that indicates growth. Perhaps the company continues to beat Wall Street’s expectations on earnings.

Maybe, the company has strong management that continues to improve profit margins without sacrificing innovation. Or, perhaps the company continues to develop products that increasingly capture market share, making the company a stronger industry competitor.

While none of the above scenarios outright guarantee a company’s stock will continue to perform well into the future, keeping an eye trained to the days ahead — instead of the past — may be a useful skill for investors to develop.

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Reasons to Sell Stocks

Some investors and traders, however, are not interested in long-term holding strategies. Instead, they set certain profit thresholds, selling once those requirements are met.

Selling Once a Stock Hits a Profit Requirement

Here’s one scenario:

A trader may want to sell once a stock reaches 10% or 20% in profit. Similarly, a stock could be sold once it hits a preselected price target — usually based on a stock’s per-share price. Price-target selling can be set up automatically, through what’s called a limit order.

For example, an investor buys a stock for $50. They want to sell this stock if (and only if) the price reaches $65. A limit order can be set to sell when the stock hits this target price. If it never reaches $65, then order is not filled (and the stock remains held).

Selling for Personal Reasons

Although it is not, generally, recommended that an investment strategy change in response to the market’s ups and downs, there are plenty of personal reasons why a person may opt to sell stock investments.

Certain life events may create a shift in an investor’s ability to tolerate the risk of stocks. For instance, a divorce, family death, the birth of a child, or a big move may cause a person to want to keep more of their overall investment portfolio in easy-to-access cash (or other less volatile investments).

Similarly, a person might just want to build up their cash savings. For financial goals with a more immediate timeline, it may make little sense to subject that money to the volatility of the stock market. Instead, savers may prefer to sell stocks to keep that money liquid and ready to be used.

Changes in personal investment strategy can also drive an individual to sell stocks. Shifts along these lines may have nothing to do with a stock’s recent performance or that of the market. Investors approaching retirement, for example, could want to shift towards more conservative investments, like cash or bond holdings.

Selling to Diversify Assets

Many investors opt to put a mix of stocks, bonds, and cash in their long-term investment portfolios. For example, an investor may choose a mix of 70% stocks and 30% bonds to balance out investment goals and risk tolerance.

But, when diversifying assets, one type of investment may outperform the other. Because of the potential for this uneven growth, an investor’s asset allocation could get thrown out of balance.

Let’s imagine a large spurt of growth in the stock market coupled with more lackluster growth in the bond market. Remember the investor from above, with a 70/30 mix? Maybe, now. they’re left with a portfolio that’s closer to 80% stocks and 20% bonds.

That mix may carry more risk than the investor deems appropriate. So, in this scenario, rebalancing the portfolio requires selling some stock holdings and then moving the funds into less volatile bonds.

Understanding Short-Term Holdings

Investors debating how long to hold their stocks will likely want to consider taxes. There’s no minimum amount of time when an investor needs to hold on to stock.

But, investments that are sold at a gain are taxed at a capital gains tax rate. This rate changes, depending on whether the investor held onto the stock for more or less than one year.

For a holding period of less than one year, any gains will be taxed at a person’s marginal income tax rate. By holding onto a stock for more than one year, an investor will likely lower their tax burden. It can be helpful for investors to speak with a certified tax professional before adopting any tax strategy.

The Takeaway

Even though investors typically put a great deal of thought into selecting stocks and other securities, with the hope that those securities will appreciate in value, there is no guarantee they will. And there is no crystal ball that can tell any investor how long to hold onto a stock.

Sometimes it’s the stock itself that determines how long you’ll hold it. But sometimes your investing strategy determines your stock selection. If you’re planning to sell quickly with a gain in mind, that’s one approach. But if you expect to hold onto a stock for the long haul, that can also influence which stocks you think have staying power.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here), and members can access complimentary financial advice from a professional.

For a limited time, opening and funding an account gives you the opportunity to win up to $1,000 in the stock of your choice.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

Apache is functioning normally

We’re about to let you in on a little secret. Come in close, we promise it will be worth it, especially if you’ve been in a constant state of panic on how to truly price your house.

So are you ready? The secret to selling your house as quickly as possible for the greatest cash possible is … to find the dollar value both you and your buyer are happy with. That’s it. Sorry. Kind of anticlimactic, really.

The truth is, there’s no big secret those slick real estate agents are keeping stashed away, concealed in a safe, written in code on a device which self-destructs in five seconds Tom Cruise-style. It boils down to doing your research, maintaining realistic expectations and putting in the hard work.

We know it sounds hard and time-consuming, but we promise, it can actually be kind of fun! Let’s take a closer look.

The Home Pricing Tightrope

We can’t emphasize this point enough. Finding the right price for your home requires compromise. Sure, you may fondly remember your dad and his bicycle shorts parading around the yard with a weed wacker, but your buyer isn’t wearing those rose-colored spectacles. They’re seeking a house they can eventually turn into a home, and for now they have no memories to build on.

Which brings us to the cardinal rule of pricing your home. It’s a balance. For better or worse, it’s a tightrope you and your buyer will need to walk together.

This balancing act also has big implications for how you set your price to begin with. Here’s a slightly scary statistic for you:

Interest in a home market listing trails off sharply after about three weeks. That’s not a lot of time! In a mere 21 days, your property listing transforms from new and fresh like 2014 Jennifer Lawrence to “Oh yeah. We saw that one. Next” 2018 Jennifer Lawrence.

That doesn’t give you a ton of time to capitalize on that initial surge of interest. But there’s one effective way to start your tightrope walk on the right footing. Drum roll please….

List Your Home Below Market

Gasp. We know. How dare we. But here’s what happens: Most buyers will have a Realtor doing a lot of research on comparable homes. An underpriced home will stick out like a lime, polka-dot chimney. You can bet your home will end up on your Realtor’s short-list of early recommendations, and with any luck, buyers will look at your opening price and experience that thrill we all know and recognize — the thrill of a bargain.

Bam. They’re intrigued. They want to see this amazing (and really quite reasonably priced) house. They even like the lime, polka-dot chimney! Right there, you’ve set out on the pricing tightrope on the right footing. With any luck, other buyers will see it too and you may end up on the receiving end of a bidding war, which is a very good war to be in if you’re the seller.

Price Drops Can Scare Buyers Away

It can certainly be tempting to start with a higher price. But if no one bites, at some point you’ll have to lower your price anyway. When the price drops on a home, it’s often perceived as undesirable, making your house essentially the Urkel of the block that no one wants to take to prom.

Realtors working with their buyers might even see the price drop and keep their buyers away, focusing instead on other opportunities.

Shameless plug fact #1: It takes Homie only 16 days to sell a home. On top of that, you can save the 6 percent Realtor commission ($18,000 on a $300,000 home), and add a new polka-dot chimney to your next new home.

Here endeth the lesson of the home pricing tightrope and the importance of reasonable expectations! Let’s turn now to an equally important truth nugget in getting a great price on your home: research.

Zig When They Zag (With Careful Research)

We’ve all had a bespectacled, chalk-throwing teacher inform us at some point in our lives that Knowledge is Power. And when you’re selling your home, it’s certainly a lesson to remember.

Information is going to be your best friend as you negotiate the selling price of your home, giving you answers to the questions your buyers will inevitably ask. In short, it lets you know just how much “give” you should yield to their “take.”

So, what information should you have at your fingertips?

Comparable Home Sales

It’s imperative (serious face) that you look at homes for sale in Phoenix or Salt Lake City that are similar to yours. This means equivalent bedrooms, square footage, year built, and style. The more detailed you can get, the better comp you’ll come up with for your home. This gives you a hard line that is simple yet powerful: you know your home’s value. But wait, there’s more!

As a reward for this dedication to data (ya nerd), you’ll also gain a useful insight into how long your home is likely to stay on the market. Staying within your comp range will increase your probability of selling the home within a similar number of days as other homes you’ve comp’d against.

Sales of Homes in the Same Neighborhood

Comparing your home to those all over town won’t do much good. You need to compare apples with apples (or whichever fruit you prefer). To do that properly, you’ll need an insight into what factors drive prices up and pull prices down. Major lines of separation such as freeways, train tracks, and rivers often create natural borders. There may simply be a perception that houses on side X of the freeway belong to the less desirable neighborhood, while those on side Y magically belong to the good part of town.

If you don’t have that information, go out and find it. Looking at HOA divisions is a great place to start. HOAs usually have similar homes, making comparing homes more practical. There are exceptions though. If a HOA neighborhood backs up into mountain foothills (and has great views) they’ll tend to have higher comps, so avoid the million dollar listing unless you can touch Camelback Mountain from your back porch.

Failing that, talk to people! Find a local expert, sit them down with a margarita or a spiked iced latte, and interrogate them if necessary. Avoid shining a bright desk lamp in their eyes though. Most people consider that rude.

Price Per Square Foot

Then there’s more practical information to gather. Square foot pricing can really simplify comps. There may be a larger home within a neighborhood that obviously costs more. But is it a good value? If the average square foot cost is $120 per square foot and the large home is $130 per, it isn’t too overpriced. On the other hand, if the larger home was $165 per, that could be a problem.

Sales Over the Last Three Months

Another good factoid to have up your sleeve is how “hot” the market is right now. Looking at sales over the last three months will give you a good idea on the trend. Are sales slowing, going flat, or increasing? If you’re about to list your home and sales are slowing, you might need to come down on your initial list price to get ahead of slowing sales.

Shameless plug fact #2: As a licensed real estate broker, Homie merges all this deliciously useful info into one, convenient Home Value Report. This report is your best friend in helping you zero in on pricing that hits the “sweet spot” for both buyer and seller.

When Selling Your Home, Avoid Your Inner Alec Baldwin

Thus far, we’ve looked at two very practical foundations for selling your home at the right price: balanced expectations and careful research. This final piece of the sales puzzle might seem a bit “feely touchy” by comparison, but it’s no less important. In fact it may be the “one piece to rule them all.” Such a nerd.

It’s nice to be nice. Or as grandma used to say, you catch more flies with honey.

While you can get caught up on all the activity that goes into selling a home in Phoenix, don’t forget that there’s another party involved. You want the best price. That’s understandable. But so does your counterpart. In a sense, you share a common goal: to close the deal and leave the situation a winner.

If you and the other party seem far off on price, don’t give up just yet! You can always counter by getting closer to their price, adding an incentive, or other tactics that can get both sides closer to a deal.

If they see you giving a little, they’re likely to give as well. The selling process can actually be fun, and you might even end up actively working together to build the greatest possible outcome for both parties. Awwww.

Pricing your home right and making a successful sale is always a journey. It takes balance, research, and a willingness to work with your buyer. Fortunately, you have excellent resources at your disposal! With Homie, you have a powerful licensed real estate broker right at your fingertips and for a fraction of the cost a traditional agent charges.

Give yourself the best chance of getting it right. Give Homie a try. You’ll save on both time and commissions.

Source: homie.com