Cambridge and Somerville’s Low Inventory in 2017

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Many are aware that there is “low inventory” in the local residential real estate market. But, how low is low? What forces made it that way? And what implications does it have for you and me if you’re interested in buying or selling?

Motivations have changed for those who want to sell a property. People now sell because they must. Their motivations typically include downsizing, divorce, death, and relocation. Many people who weathered the recession in good shape simply purchase additional properties so they can benefit from record low interest rates, rental income and price appreciation rather than sell.

The recession in 2008 and resulting extremely low interest rates have a lot to do with this situation. In addition, many homes in Greater Boston haven’t recovered their value especially when accounting for inflation. For some, it doesn’t make sense to sell and for other it doesn’t make sense to sell because they’d be realizing a loss, even though it’s almost a decade after the beginnings of the recession.

For buyers, we’re in a rising market, so it’s possible to “overspend” and do quite well in the long-term. Certain properties attract unexpectedly high prices that are hard to justify. Yet, they appear reasonable after a year or two. For sellers, properties are selling for high amounts and in short time periods. The seasonality of selling (you MUST sell in the Spring) is no longer true; one sells when it’s convenient for the seller; the buyers are ready and waiting all year long. If a property is well-priced and professionally marketed, a seller can do quite well. For my clients, I need to know valuations, trends, and a client’s time-frame in addition to in-depth assessments of their particular property.

Jeff Meese Realtor + Architect
Vice-President | ePlace Real Estate
Cambridge
(857) 998-0600

“Jeff is highly knowledgeable, personable, very responsive, and added a significant amount of value to the home buying process. We would (and have) highly recommend him for anyone who is serious about buying a home and wants a buyer’s agent who will actually add significant value to the process. “

~ Dan and Christine

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MANAGING YOUR REAL ESTATE INVESTMENTS via 1031 TAX EXCHANGES

kenmoreA 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.

What types of 1031 exchanges are there?
1. Forward Exchange (most common): Sell first, then buy. Most common and easiest type of exchange. Net proceeds from sale are held by the QI (qualified intermediary) until the are invested in the replacement property.

2. Reverse Exchange: Buy first, then sell. More complex but solves timing problem. The replacement property is “parked” by the QI until the relinquished property is sold.

3. Construction/Improvement Exchange: This exchange is used when the replacement property is under construction or undergoing significant renovations.

What are the rules for a 1031 exchange?
Value: The new property must be of greater or equal value to the sale property and all equity (or the portion of equity that you want to defer tax on) must be rolled into the new property.

Timeline: Identify target properties within 45 days of closing on your sale. Purchase some portion (or all) of identified properties within 180 days.

Intermediary: You must use a Qualified Intermediary who will facilitate the exchange and hold funds while you are in the process of doing the exchange.

Frequency: There’s no limit on how many times or how frequently you can do a 1031 Exchange.

How would a 1031 exchange benefit me?
If you have, or are starting, a real estate portfolio, the 1031 exchange can be used to move from a smaller to a larger property, to consolidate smaller holdings into a larger holdings, or to “cash in” in on appreciation and optimize cash flow by moving from a lower-cap area to a high-cap rate area. If you’re looking to simplify existing investments, a 1031 Exchange can help you move from actively managed properties (residential properties, gross leases) to more passive investments like triple net lease properties.

Call or text me at (857) 998-0600. Your property or interests may have particular needs.

jeff-bust

Jeff Meese Realtor + Architect

Vice-President | ePlace Real Estate

Cambridge

(857) 998-0600

 

Can Somerville Be the Next Innovtion Center?

I attended a fascinating panel event titled “The Next Innovation Center: Why Not Somerville?” on February 28, 2017. The event was sponsored by the Somerville Chamber of Commerce.

Panelists were top-notch:

  • Robert Coughlin, President and CEO of the Massachusetts Biotechnology Council
  • Kermit Alexander, Chief Economist, American Institute of Architects
  • Peter Bakerian, Managing Director, Jones Lang LaSalle

A few highlights:

Companies base their HQ, office, and laboratory space decisions on what their people want. Their people, like most, want to live, work, and play in the same area. Walking from one to the other to the other is optimum.

What do these companies want for their employees?

  • One hour commute to Logan Airport
  • No-car commute; walking and biking is preferred
  • Pre-permitted sites, ready to go, with predictable outcomes
  • Short and aggressive time-frames from decision-making through move-in
  • Urban amenities including quality housing, restaurants, coffee shops, and convenience stores
  • Accessibility convenience via public and private transportation
  • Outdoor spaces
  • Buildings: modern common areas, bike storage, locker rooms and showers, IT infrastructure, natural light

Life Science and high-tech companies want to locate in geographic clusters. Good examples include East Cambridge/Kendall Square and Boston’s Seaport District. In order to become recognized as an Innovation Center, Somerville needs to attract more small start-ups, possibly via incubator space, as well as larger scale development.

Bob noted the positive outcomes that resulted from collaboration between businesses and city and state governments.  He noted that it’s a happy time when a Democratic Mayor and a Republican Governor can get along and work constructively. Examples included the burgeoning biotech sector in Worcester, and the new GE headquarters in Boston.

National concerns include housing affordability, and overheated real estate market segments such as apartment buildings.

Somerville -specific concerns include the having the GLX meeting it’s 2021 operation opening date, enacting a new zoning code that’s been under discussion for several years, and finding a developer to break the ice from the perception that Somerville is a frontier market despite it’s close proximity to East Cambridge.

Peter noted that, in general, the Seaport District and Fenway’s redevelopment began with housing and then expanded to office and laboratory space while Kendall started with office and laboratory space.

2017 PREDICTIONS: Abundance, Scarcity, with Disruptions

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January 2017

I hope that last year was robust for you and that you’re looking forward to the coming year. 2017 will reward those who are nimble, responsive, and well-informed. The following predictions are mine and based on my observations. I don’t agree with the majority of 2017 predictions that have a rosy forecast. The possibility of significant disruptions in Cambridge and Somerville may affect many real estate decisions.  

  1. This year’s market will be characterized by financial abundance, scarcity of properties, and unexpected and severe disruptions.
  • Buyers will push sales prices higher and the sales market will remain robust across all market segments.
  • Sellers will typically sell because of need, such as a job relocation, yet there will be an increased number of sellers who want and are able to move up.
  • Disruption will include cuts in state and federal funding to cities and towns. Capital improvements, like Somerville’s Green Line Extension, and many social programs will be cut, stopped, or extended. Cities and towns will need to find ways to address significant budget shortfalls. These disruptions, if severe like the GLX postponement, will affect property valuation.
  1. It will be more lucrative for investors to buy, renovate, and sell than to buy and hold.
  • Thousands of new luxury apartments will open this year and it will take significant time for them to be tenanted. The rental market has already been affected with average rents coming declining last year. They will remain stable, though they could dip again.
  • The sales market for single family, condominium, and multi-family properties will continue to set price records due to low inventory and an abundance of buyers.
  1. Buying decisions will typically ­­be based upon duration, ease, and predictability for a daily commute with a location convenient to social exploration and entertainment.
  • The desire to live in or near a city will drive decision-making across demographic boundaries, i.e., everybody.
  1. The various market segments will perform differently this year.
  • There will be a surge of first-time buyers and valuation in this segment will rise. Cities with subways and commuter rail lines will benefit the most.
  • The $2MM+ segment’s rate of rise will slow as more well-located luxury condominiums are constructed in Greater Boston.
  • The rate of rise in for investment properties will slow, although it could rise. Investment properties, often financed via 1031 exchanges, are scarce relative to the abundance of prospective buyers.
  1. Lenders will continue to differentiate themselves by creating innovative niche services.
  • Mortgage rates will remain competitive. Lenders will create unique programs that address particular issues for a segment of those seeking a mortgage. Programs will be unique to that lender and not common to all lenders.

 

Jeff Meese Realtor + Architect, Vice-President, ePlace Real Estate, Cambridge
(857) 998-0600

Should I Wait for the Spring Market?

Cambridge and Somerville clients often ask me when is the best time of year to sell their property and when is the best time to buy one. I ask them what they think, and they often say “Spring” for selling and “Winter” for buying. Is that old, outdated information – like putting one’s listing in a real estate magazine with the belief that it will help sell a property – or is it still relevant? It’s appears that many assumptions that were true in past markets changed after 2008 and that they have changed.

Look at the chart. It indicates a trend showing seasonal variation is flattening out over time. It may be related to less inventory overall, the addition of many foreign investors to the market, or simply because people prefer to buy andsell real estate when it’s convenient for them.

chart

What should a savvy buyer or seller do? Make your decisions when it’s convenient for you. Boston is an international city and there’s constant churn of people moving in, out, up, and down.

Do the old rules still apply? Not so much.

Harvard Square

Found Flexibility in a House near Harvard Square

A couple I worked with purchased a large house in Cambridge’s Marsh Billings Historic District near Harvard Square. Their children had left for college and they decided to relocate to Harvard Square from a nearby suburb. They intended to downsize to a four-bedroom stand-alone house, with off-street parking, and convenient to nearby restaurants, shops, and transportation. She worked overseas in academia and he had a thriving medical practice in a Boston suburb.

I alerted them to tour the a house that met these needs and it had a bonus: an accessory apartment. It was a lovely home, and was in need of substantial renovations. They loved the house, placed a strong bid, and purchased the home. Their intention was to live in the “big” house, and rent out the accessory apartment.

Then, one day after much of the renovation had been completed, they realized that being empty-nesters allowed them the freedom to travel together more frequently. They changed course and decided to live in the apartment, which was very nice in its own right, and lease the house, to provide a substantial rental income. It’s also possible that their situation will change in the future. They know that they have the flexibility to move out of the apartment and into the house at a future date.

Jeff Meese Realtor + Architect

ePlace: http://www.eplacehomes.com

Linked-In: https://www.linkedin.com/pub/jeff-meese/2/a66/545

Facebook: https://www.facebook.com/JeffMeeseRealtor

Kendall Square

Finding Hidden Value in a Kendall Square House

While visiting an open house with a first-time buyer couple in Cambridge’s Kendall Square, we encountered a single-family house with a hidden upside. The listing agent had described the property as a single-family home and that’s what we had expected to see. The seller had effectively created a two-family with a separate apartment in the basement complete with an entrance, kitchen, bathroom, laundry, and bedroom.  As an Architect, I knew that the ceiling height was high enough to be considered a habitable space. Yet, it wasn’t a separate unit as the basement didn’t have a separate second means of egress, and the windows were too small.

The hidden upside was that creating a true 2-family residence, which this couple was attracted to, would cost only $30,000, yet the list price was at least $250,000 less than any comparable 2-family in Cambridge at that time. The house was located in a zoning district http://www.cambridgema.gov/~/media/Files/CDD/Maps/Zoning/cddmap_zoning_base_9600.pdf that allowed 2 and 3-family homes, so converting this single-family residence into a 2-family residence would not require a variance from the zoning code.  What a great value that had the promise of flexible uses! It could be used as a single-family home, a 2-family home with modifications, or even as a 3-family home (a tear-down of the existing, and construction of a new 3-family home).

This couple didn’t realize the hidden value of the property until we left the premises and discussed it privately.   These clients received tangible benefits from my education, training, and experience as an Architect.

Jeff Meese Realtor + Architect