Be Smart: Don’t Listen to the Media Hype

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“There are too many foreclosures in my area.”
“The market is dead”
“New home construction is making it impossible to compete with.”

When I hear any of the above statements, my response is, “Whatever.”

If everyone believed the media hype about global warming, everyone might move to higher ground. The media continues to report that the Toyota Camry is among the most stolen vehicles. Does that hype lead to no one wanting to buy Camry’s? Hardly. That model is among the best sellers nationwide.

Negative real estate hype…Don’t believe it all. It’s as simple as that.

Does that mean there is no truth to it all? No. The media really isn’t lying. They merely aren’t being terribly specific. It’s popular. The media could come out and say, “Real estate is thriving in certain areas of the country.” But real estate is doing poorly in more areas than areas doing well. It’s a generalization with a popular topic right now. In other words…Its hype.

The market is dead in certain places but not everywhere. It is tough to compete with a new home builder, who is offering no money down, free upgrades, warranties on everything and no closing costs if the house you are rehabbing is across the street from it. I don’t like to buy houses if there is new construction within a few miles of the house I am looking at. Foreclosures are at record highs in many parts of the Country but they aren’t killing every market.

“Whatever! Just be smart!”

Let’s take a look at a metropolitan area that is not doing very well… Detroit. Even in Texas, I keep hearing about how awful real estate is in the state of Michigan.

Michigan? I thought we were talking about Detroit? We were talking about Detroit but Detroit is in Michigan, so it must be bad everywhere in the state, right?

I doubt it. Well look at all the foreclosures in Michigan, people say. Okay, let’s look at all the foreclosures in Michigan… Where are the majority of them located? Wayne County. And which city within Wayne County has the highest number of foreclosures? Detroit. What’s my point? Don’t believe the media hype.
A good deal in Detroit is a good deal in Detroit.

Let’s take a look at a real estate investor in Detroit. They come home, sit down to watch the news on CNN and the lead story is about how the property values in the state of Michigan are nose diving. The investor smirks at the news, takes a sip from a can of beer and flips the channel. All without a second of worry about the property he is currently rehabbing in Detroit. Why? Because that investor was smart and didn’t buy into the media hype.

A smart investor will research the area and immediate area around the house they are looking to buy. If there are 15 other houses for sale on the same street and most have been on the market for over 100 days, a smart investor will not try to convince themselves that their house will sell faster than the others. Now what if there are no houses for sale on that block and only a handful in a quarter mile radius? Look closer. What if there have been several sales in that area within the past six months that all sold with a reasonable price per square foot? Look closer. How much will the house cost to buy right now, in its current condition? How much should it sell for after being fixed up, based on the recent comparables? Don’t look at the deal in terms of dollars though. Look at the percentage in the deal. A deal should have a minimum of 30% equity and if there are a lot of repairs needed, the amount of equity needed should increase as well. “But the house is worth $200,000 fixed up and I can get it for $150,000. That’s $50,000 in equity”! Umm, no it’s not. That’s only 25% equity. You have to pay closing costs when you buy it AND when you sell it. You will likely need a Realtor and that will be at least 5%. Then it will cost money to fix it up. It’s going to cost money for utilities and holding costs as well. That $50,000 gets eaten up pretty quick. Ok, ok, ok….. I am getting off the subject a little.

The point I am trying to make is an investor, with a property in an area the rest of the country believes to be dead, smirks all the way to the bank. Why? They are smart and don’t listen to the media hype.

  • So be smart. Don’t try to compete with a builder. Buy a house where builders aren’t.
  • Be smart. Instead of blaming foreclosures for killing a market, why not try to BUY one of those foreclosures and cash in?
  • Be smart. If a market really isn’t doing well, find the parts that are doing well. The day people literally stop buying and selling houses, is the day you can honestly say, “The market is dead.”


As I said, a deal is a deal, no matter where it is.
Smart investors don’t listen to the hype.

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14 Comments

  1. TheLandSmiths.com is an online endeavor to streamline a much chaotic properties market in India. With our efficient service and support of our partners, we are constantly working on to regulate the India property market via this virtual platform.

  2. The truth is that we are barely seeing the tip of the iceberg right now.
    I’ve been hearing people saying “there is no real estate bubble” for a couple of years now and, although the market hasn’t crashed yet, things are getting worse. Unless you are a real estate pro, it is very dangerous to invest in real estate right now. If not, ask the condo flippers in Miami.
    The areas where prices are going up are those areas that didn’t really experience big appreciation during the boom.

    I’m in California and pretty much everything around here is selling for less than it did a couple of years ago. This is media hype. The foreclosure numbers don’t lie. Keep in mind that the market is used to big appreciation and many people used their homes as ATMs. At same point, there will be great deals to be had but we are not quite there yet.

  3. Josh,
    I agree with you. Don’t use the promise of appreciation to base a deal or no deal, run the numbers and keep resale numbers conservative. Better yet, at this time in the cycle, hold the property to rent out. All those people being foreclosed on are going to need someplace to rent. Plus all those that cannot buy yet because of tightened credit standards. House prices will cycle upwards again, and the appreciation will be a delightful bonus then.
    Kathleen

  4. Before you want to buy a home in any areas. I suggest to do research around the area. Don’t always trust the real estates as they are many property on hand. They may introduce some high commission estate to you first

  5. This is by far one of the best ways to think!

    “New home construction is making it impossible to compete with.” – Whatever!!! You CAN do anything you wish – everything is possible, just that you need time and hard work.

    But sometimes you must be careful though. There are things that not worth doing (it’s not impossible, but the time or cost is too high)

  6. Great post, as REALTOR, I’m hearing other REALTORS whine about how down the market is here in Louisville, KY. If you actually look at month to month stats from the past 2 years, the number of homes sales per month, and average sales price have remained very close. The perception that it is a buyer’s market is creating opportunities for investors. We do have an unusually high number of REO’s and the closer it gets to the end of the year, the better the deals. Our market is similar to many mid-America cities, in that we haven’t had great amounts of appreciation, therefore, aren’t suffering a great amount of depreciation. Our very high end market is overbuilt (homes over $450,000), and some of our first time homebuyers are struggling to find loans, but the average home (3-4 BR, 2-3 Ba, bsmt and garage priced $125,000-200,000) is moving very well. For investors we are seeing an increase in renters, so buying the 1st time home buyer type home (1000sf, 3BR/1Ba on a slab-$70,000-90,000) and holding it for rental is starting to cash flow again. With that type of home being the most commen REO, often makes the deal even sweeter. We are seeing a few speculators buying the high end homes at deep discount from distressed builders and holding them to wait out the downturn. This requires deep pockets and nerves of steel, but in a few years I think it will pay off for them. So as you said, real estate is a very localized entity, what happens in LA and Miami only directly impacts LA and Miami. There may be some indirect fallout in loan availabilty, but hey- whoever had the bright idea of loaning money to people who couldn’t prove they had the ability to pay it back

  7. Thank goodness for reality! It is so refreshing to here the truth about what is going on, as opposed to the gloom and doom the media is hyping to help “sell” themselves for their ratings and newspapers.

    We “ALL” have to be smart anytime we are considering investing in real estate..and yes, maybe there is some truth to the increased number of foreclosures the market is experiencing; however, I recently heard a very seasoned and wealthy investor say…”This is the perfect time to stay in. Be wise…buy at 50% of value. Fix it…sell it..and move on to the next. Pffffft…makes sense. Mr. Watkins’ comment regarding a minimum of 30% is wise, and we have to watch those holding costs. Today…that is the real issue…how long can we HOLD a property to sell it. Hmmmm? How about…selling it at 7-10% below market value to move it faster in the ever so long DOM (Days on Market) we seem to be going through. Want to move it? Price it right! Meaning…follow the 30% to 50% suggestions mentioned…watch your holding costs…get in..and get out for now. Build your real estate rental properties later? Sounds like a time to flip to me.

  8. My question to Marcam is: Did you start listening to the media hype before or after you lost money on a real estate deal?
    To quote the title of my upcoming book… “Don’t Flip Out… It’s Only Real Estate.”

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    For the most part I would have to say that is good advice. In our area, I would have to disagree!

    “There are too many foreclosures in my area.”

    Since you brought it up: I would say that in my area this is true! We are currently looking at a rate of 1 in 30 for this year. That’s for the entire state!

    “The market is dead”

    Well, I can’t speak for Texas, however, in my area it is! For every house that is sold, 4 or 5 come on the market the same day. I would call that a very strong buyer’s market at least! Or perhaps it is just faking dead?

    “New home construction is making it impossible to compete with.”

    In our area, new home sales are down as much as 60% in the last year. Many of the major homebuilders have closed shop and move out of the state.

    “When I hear any of the above statements, my response is, “Whatever.””

    Not even worth a response!

    “If everyone believed the media hype about global warming, everyone might move to higher ground. The media continues to report that the Toyota Camry is among the most stolen vehicles. Does that hype lead to no one wanting to buy Camry’s? Hardly. That model is among the best sellers nationwide.”

    When was the last time that the Toyota Camry was on anyone’s top ten lists of most stolen cars. If you should find a Camry on someone’s list (e.g. Intellichoice,) you might note they are usually speaking about cars that are stolen for parts and are nearly 10 years old. The truth of the matter is the lists investigative and insurance groups put out tend to leave out critical information, such as the model years in top demand. What’s more, they compile their lists from different data, in different ways for different reasons and for different audiences. Much the same as I would guess that Media is currently presenting Real Estate Market! Perhaps your analogy is right in one way; it does show a similarity in some respect of the media hype and how people do tend to listen to it….

    “Negative real estate hype…Don’t believe it all. It’s as simple as that.”

    Nearly as simple as teaching “smart investors” how to manage their risks by ignoring the media hype….

    “Does that mean there is no truth to it all? No. The media really isn’t lying. They merely aren’t being terribly specific. It’s popular. The media could come out and say, “Real estate is thriving in certain areas of the country.” But real estate is doing poorly in more areas than areas doing well. It’s a generalization with a popular topic right now. In other words…Its hype.”

    It may be self-promoting, however, in our area, I don’t think that the media has been blatant.

    “The market is dead in certain places but not everywhere. It is tough to compete with a new home builder, who is offering no money down, free upgrades, warranties on everything and no closing costs if the house you are rehabbing is across the street from it. I don’t like to buy houses if there is new construction within a few miles of the house I am looking at. Foreclosures are at record highs in many parts of the Country but they aren’t killing every market.”

    “Whatever! Just be smart!”

    In general I would have to say that I would agree with you here. Again, in our area, the foreclosures are doing a good job of killing the market. So much so, many major lenders are leaving the state!

    “Let’s take a look at a metropolitan area that is not doing very well… Detroit. Even in Texas, I keep hearing about how awful real estate is in the state of Michigan.”

    By now, you may have figured that I am from Michigan! To say that it is awful would be sugar-coated it.

    “Michigan? I thought we were talking about Detroit? We were talking about Detroit but Detroit is in Michigan, so it must be bad everywhere in the state, right?”

    YES!!!! Again, we are foreclosing at a rate of 1 out of every 30 homes!

    “I doubt it. Well look at all the foreclosures in Michigan, people say. Okay, let’s look at all the foreclosures in Michigan… Where are the majority of them located? Wayne County. And which city within Wayne County has the highest number of foreclosures? Detroit. What’s my point? Don’t believe the media hype.
    A good deal in Detroit is a good deal in Detroit.”

    Actually, Wayne County and Detroit are not experiencing the increases in foreclosures like we are seeing elsewhere around the state. Macomb County has seen some of the sharpest increases for the last year plus. Since 2001, we have lost over 300,000 jobs. (See North Texas E-Times) Plus, like many other states, Michigan has been overbuilding for quite some time. Some would say that they still are.

    “Let’s take a look at a real estate investor in Detroit. They come home, sit down to watch the news on CNN and the lead story is about how the property values in the state of Michigan are nose diving. The investor smirks at the news, takes a sip from a can of beer and flips the channel. All without a second of worry about the property he is currently rehabbing in Detroit. Why? Because that investor was smart and didn’t buy into the media hype.”

    You lost me here! I don’t know of any investors that are not worrying about rehabbing in Detroit or anywhere else in Michigan. Even the hard money providers are getting worried. In Michigan, it is hard to locate any willing to do hard money loans at a 50% LTV.

    “A smart investor will research the area and immediate area around the house they are looking to buy. If there are 15 other houses for sale on the same street and most have been on the market for over 100 days, a smart investor will not try to convince themselves that their house will sell faster than the others. Now what if there are no houses for sale on that block and only a handful in a quarter mile radius? Look closer. What if there have been several sales in that area within the past six months that all sold with a reasonable price per square foot? Look closer. How much will the house cost to buy right now, in its current condition? How much should it sell for after being fixed up, based on the recent comparables? Don’t look at the deal in terms of dollars though. Look at the percentage in the deal. A deal should have a minimum of 30% equity and if there are a lot of repairs needed, the amount of equity needed should increase as well. “But the house is worth $200,000 fixed up and I can get it for $150,000. That’s $50,000 in equity”! Umm, no it’s not. That’s only 25% equity. You have to pay closing costs when you buy it AND when you sell it. You will likely need a Realtor and that will be at least 5%. Then it will cost money to fix it up. It’s going to cost money for utilities and holding costs as well. That $50,000 gets eaten up pretty quick. Ok, ok, ok….. I am getting off the subject a little.”

    “Off the subject,” you say? This, to me, is the subject! Before you should be worrying about percentage of equity and closing costs, you need to have a strong grasp of the market value in your area (not just up and down your street). And that DOES include paying attention to what the media is saying. After all, right or wrong, there is a very good chance that you potential buyer is listening to the media! Perception is everything! You say, “don’t look at the deal in terms of dollars though.” I am not sure how ANY investor can not look at the deal in terms of dollars. HOW MUCH ROI DO YOU WANT TO MAKE? Should be the very first question an investor should be asking themselves. I would hate to see an investor determining the purchase price based on percentages of equity minus the few expenses that you mention. You do mention taking a look on the same street, around the block and within a quarter mile. I would hope that as an investor, one would take a bigger picture than just that. As part of an investor’s research, long before looking at supposed percentages of equity, I would hope that they are researching other many things as well. Some examples would be: number of listings versus the number of sales, loan to value amounts (if any); expected profits; repair costs (or repair escrow estimates); all closing costs, both buying and selling; city inspections and escrow; holding costs that would likely include several months of elevated taxes; insurance; flood insurance; mortgage costs; vacant property security; yard maintenance; snow removal; sales costs; utilities; theft (as in copper plumbing and such); and how much you will be able to sell the house for. Once you understand all of that and more, now you might be able to determine percentages (or more importantly) prepare an offering price that will allow you to make your ROI.

    “The point I am trying to make is an investor, with a property in an area the rest of the country believes to be dead, smirks all the way to the bank. Why? They are smart and don’t listen to the media hype.”

    ” * So be smart. Don’t try to compete with a builder. Buy a house where builders aren’t.
    * Be smart. Instead of blaming foreclosures for killing a market, why not try to BUY one of those foreclosures and cash in?
    ? Be smart. If a market really isn’t doing well, find the parts that are doing well. The day people literally stop buying and selling houses, is the day you can honestly say, “The market is dead.””

    This reminds me of a skit that I seen on Monty Python Flying Circus. “I tell you this bird is dead – no it is only sleeping…”

    “As I said, a deal is a deal, no matter where it is.”

    I would agree a deal is a deal – as an investor, you need to know when you see one! Please do not buy one to try without knowing what you are getting into.

    “Smart investors don’t listen to the hype.”

    SOME DO!

  10. Response to Jim: I find it very interesting that your only response is your assumption that I have lost money due to the media or otherwise.

    I don’t listen to the media hype; but, I don’t tend to ignore all of the media and consider it to be just hype either. Instead, I try to understand each article and try to determine if any of the information is useful for my research. Of course, I don’t have an upcoming book like you! I have been too busy writing offers on investment properties. Instead, perhaps I should write one! But then again, people might think that I needed to write a book to offset my lost in the market….

    To date, I have not lost money on a real estate deal! I always do my homework! I have been investing long before the “media hype,” buying my first investment property way back in the late 70s. And, I imagine that I will be investing long after the recession here is over and the media moves on to other more pressing things. Until then, I am very interested in what is being reported on — especially since most of my clients and potential buyers ARE trying to digest the same information currently being presenting by the media.

    Anyways, thanks for the response and good luck with your upcoming book. By the way, nice plug for your book! Or, should I say — nice blatant self promotion of your upcoming book. You know: HYPE! I guess the media is not the only one … Hopefully, your upcoming book is not as causal as the title might lead one to believe. Instead of assuming, I guess I will just need to wait and see.

  11. I think its advantageous for the media to report on exceedingly negative news, since it brings more eyeballs. Which do you think will bring in more readers, talking about the horrible housing crisis or saying hey things aren’t that bad? Obviously the former.

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