By Ian Lazarus
Before I start my article, keep this in mind. I have no idea what you own, how long you have owned it or if you rent it or use it as a vacation home exclusively. At the same time I don’t know if the rent is covering your expenses, or if you haven’t spent much time at the Shore the past year or so. The decision could be investment related or a personal lifestyle choice. This is about you, not me. The good news is, this correction should be mild. In other words slow and painless for a couple of years.
Many people ask me if we are getting close to the top of the real estate market. What do you think? Hmm? Yes, no or maybe? I have been told by some of the smartest and sharpest people in the industry, you can’t see over the horizon to what is coming next. Make sense? When we hit the top you probably won’t know for several months. Also, Each area of the country will probably hit it at different times, even towns along the Jersey Shore might not have the same timing. Still with me? With that said my opinion is that last spring and summer was the top for a couple of reasons.
First the explosive nature of the value and price increase was insane. Low inventory and multiple offers drove the market in Sea Isle City up 42% (in Sea Isle) in one year for 2021. Would that be considered an unnatural event? Of course. For every property that had 10 offers it would about some time for all 10 buyers to find a home and close. Looking at human nature most people don’t like to lose, so at some point they would irrationally bid higher to eventually get their place at the beach.
Irrational is the word that remains with me through the Summer of 2021. For that reason I was concerned, that last summer the market was hyperactive. None of us could really say what was happening. A one time boom and/or the perfect storm?
It sure is a great time to live in the United States. The stock market and real estate market have had 10 plus years of incredible growth. Many people can hardly believe what has happened the past decade to their personal wealth. This has made stock certificates and real estate deed like playing Monopoly. Do you agree? Most people are feeling pretty fat including the tenants who rent homes at the shore. Rents have also hit new highs this year. Rental rates have more than doubled over the past five years. The tenants are paying the freight and the inventory is so low because the owners are not renting since they are sitting with record low interest rates and do not need the income to carry the house or condo.
What does this have to do with me and you? Well we are starting to see the cracks in the economy. The inflation is becoming a tax, high oil prices are starting to hit home. Interest rates have been go up which is effecting mortgage rates. I don’t have a crystal ball so I will leave that up to you.
The good news is the experts and myself do not feel we are in a bubble since there is still a need for more housing. The baby boomers still going to buy down at the shore. Many of the sales in past 5 to 10 years have not been highly leveraged and about half have been purely owner occupied vacation homes. These are all great reasons that make this pull back different from the one in the mid 2000’s.
So what do you do? Speak with your financial adviser or accountant. Everyone has a different profile. This is what gets homeowners nuts when real estate brokers or agent tell you to sell. My point is that this might be the last Spring season to get out near the top. If you don’t need to sell and are having a blast with your family or are enjoying the strong rental income, that is awesome. If you are thinking about retiring and moving possibly south or your advisors are telling you start cashing out to improve your financial plan. Then this might be the right time for you.
My last thought about sell this Spring has two parts. One is if you are a second homeowner and can’t see yourself not at the Shore this summer you have options like a sale leaseback. Call me if you need me to dive deeper into this strategy. The second is for investors who have waited all year to recup the income for this summer season. When you sell in the spring you sell at a premium because the buyers are going to receive the income for the summer rentals or ther are going to move in shortly after the closing and enjoy the whole summer. Right? So why don’t investors want to give up the summer income?
In my opinion this is a no brainer. You sell at a premium and pay long term capital gains at a lower tax rate. Give the rental income to the investor buyer so they are happy. I premium on the purchase price is better than the rental income that is taxed as ordinary income at your tax bracket or can bump you up to the next bracket. Got it? Do this, not that!
If you want me to run you through a few strageties and talk more about how else I can help you. Please email me or call to discuss your options. Check out my customizable marketing system below.
Thank you for reading my blog post. Ian/IML
Ian Lazarus CRS, Broker/Owner
Shore Points Realty