Nathan Colmer | Van Dyk Group
C: 609.290.4293 | O: 609.492.1511
When the LBI real estate market drops buyers may have an opportunity to pick up a home at a below market price. They key word here is opportunity and there are many ways to make a mistake when buying a home on Long Beach Island. Just because the price is low does not automatically make the house a great deal. Rather we must look at the transaction from all angels, especially in a falling market, downturn or recession.
In order to take advantage of falling home prices on LBI there are several points that must be followed to maximize the unique opportunity.
Homebuyers in the LBI real estate market must understand what drives value. Above all else, location and lot size make up the bulk of the price of a home so finding the right spot and the right lot size (in the right area for you) are the first steps to buying. Additionally the age/ layout of a home, the cost of flood insurance and quality of construction all play a role so being able to pinpoint a good value when it appears can only be accomplished by fully understanding these factors.
2. Understand WHY you are buying
There are many reasons buyers purchase a home on LBI. For some it is a second home, for others a rental property and for others an entry point to Long Beach Island with plans to upgrade down the road. Whatever your motivation you must understand it and how it plays into your purchase. I can help you identity the right style and location based on your wants and needs which can in turn help you identify an opportunity when it arises.
3. Be ready to act quickly
The LBI real estate market is highly desirable and many buyers are waiting on the sidelines to jump at an opportunity when it shows itself. After being able to identify these opportunities, the next step is being ready and able to buy the house! This can involve speaking with your lender and having a mortgage ready, establishing a credit line (to make a cash offer) or having liquid funds ready to buy a home with no loan contingency.
4. Be patient but not greedy
It is always difficult to determine when the best time to buy actually is, and this is especially true of a falling real estate market. Looking for a motivated seller and negotiating is of course the ideal situation but this too can be tricky. Long Beach Island is unique in that there is an abundance of summer rental income available. Before a seller takes a massive loss, they may be inclined to rent the house out for the short term and wait to sell in a higher market. If a house comes up in a good location that meets the fundamentals and budget it may be worth making an offer.
5. Look at the big picture
Keeping in mind that locations appreciate at different rates on LBI, you should be able to gain equity by waiting out the market. For example, paying 5% more for a "better" home now may yield a 15% return later on when the market rises whereas an inferior home that costs 5% less now may only see a 7%-8% return when the market rises.
6. Understand how to handle a bidding war
Bidding wars are rather commonplace on LBI for a desirable property. They are nothing to fear provided a level of discipline is maintained. When entering into a bidding war a buyer must keep the overall market, the comparable sales and the core data in mind. If the deal doesn't make sense, walk away! It is better to be patient and wait for the best opportunity in a down market as opposed to getting caught up in the heat of the moment.
7. Have the right team in place
Especially in a down market all buyers should take extra care to ensure the transaction is handled correctly. This includes the right home inspection (since a home may have fallen into neglect thanks to financial loss in a recession), clear title work (as some sellers may have taken out additional loans or have liens from unpaid bills) and the right LOCAL attorney to ensure that all parties are compliant.
Looking at the difference between the highest point and the lowest point of the market in both the median and average sales price we see a roughly 12% drop in prices on LBI. This may seem low but the LBI market has always been stable thanks to the reliable summer rental income that can help owners avoid having to sell a home in a rush/short sale/foreclosure situation (and these unfortunate situations are what really drive down markets).
The best home to buy is one where the price is already taking on some of the potential market loss should a recession develop or deepen. Let's assume an oceanside home is priced at $1,200,000 and the average sale price of comparable homes is around $1,350,000. When you apply even the worst case scenario of the last market drop, this brings you pretty close to the listing price of the hypothetical home. Let's further assume this home has about 2,250 sq feet of living space. Looking at an average price per sq. foot for a home in 2017/2018 on the oceanside, ($554.30) and applying it to the sq. footage of our hypothetical home (2,250) we see a similar computation. This method puts the value a little over $1,250,000 so again when the 12% drop is applied we are not too far off. This shows a motivated and realistic seller who can probably be negotiated with to a number that makes sense and offers real value and opportunity. Being patient and waiting for the right house and the right opportunity is essential.
When looking to purchase a home on LBI in any market cycle one must keep in mind the basics. The two biggest drivers of value on LBI are location and lot size. This has to do with the simple fact that the land is far more valuable than the structure that is built upon it.
Much more goes into a transaction on Long Beach Island than just the sale price. Buyers must consider the nuances of the LBI real estate market to ensure their purchase is sound and affordable. Read about the additional factors that should be considered.