How To Tell if a Property is Overvalued – Mortgage
How To Tell if a Property is Overvalued
Mike McVey
In the wake of the incredible house price boom witnessed in most of the developed world over the past decade, a lot of ideas have sprung up as to how to value a house fairly. The reason for this is that traditional methods, such as working out house prices as a multiple of salaries, or perhaps mortgage affordability as a percentage of income, seem to have stopped working recently.
There can be no doubt that house prices are .. ahem! .. at the top end of their range compared to traditional valuation methods, but dont let anyone fool you that this is now the norm, or that a new paradigm is in place. Such talk rightly marks the climax of an asset bubble, as witness the dotcom bust as the millenium rolled over. Many things can change as technology and societies develop, but basic human nature isnt one of them, and the twin drivers of any asset bubble, fear and greed, are rather depressingly evident in this bubble too.
So if you live in an area where houses are trading at, for example, twice the historical sustainable relationship to salary, how can you tell whether this is ok or bad Easy. There is one relationship that has stood the test of time and wheathered all previous house price booms and busts - the relationship betwen the house as an asset, and the return on that asset.
What do we mean by this Any asset has a return - what you make for holding the asset. Houses traditonally return in 2 ways - by capital appreciation house price growth and by rent if you own a house, you could rent it out. As it can be difficult to create a simple equation that factors in both these elements indivdually, they are usually rolled together, to give an easy way of comparing the required sale price of a house against its true worth.
Is it complicated No. Its simple. If the price of a house is 12 times or less the annual rental income you can achieve from that house, then it is a buy. A good investment in other words. These levels were last seen in the UK almost 5 years ago, and in the US over 3 years ago. Conversely, if the price of a house is 20 times or more the annual rental income you can achieve on that house, then it is a definite sell.
As an example, say you want to buy a house priced at $100,000. You know that the house currently rents for $10,000 a year. According to the calculation, the house will be a good buy up to 12 x $10k, i.e. $120,000 , so in this case yes, it is worth buying now, as you are likely to both cover the mortgage costs with the rent, or even make a small profit on it, and also benefit from any coming capital growth.
Another example, you own a house that rents out at $20,000 a year in a swanky neighborhood. You notice that identical houses in the street are up for sale and selling! at over $500,000. Guess what - its time to sell - the house is over 20 times more expensive than the annual rent! Chances of any more capital appreciation in this market are slim, and you can actually make a far better return by simply selling the house and putting the proceeds into an interest bearing bank account. Interestingly, most amateur investors tend to hold property rather past this point, and end up unable to sell as the market tips to the downside. If the figure of annual rent to price is already way past 20, you may be too late to sell easily.
Not as complicated as it seems, is it Just remember the 12 - 20 rule, and you should be able to enter an exit the house market at the very best times.
About The Author
Mike McVey writes for www.mortgagedown.com the site for mortgage advice free!
Do You Have a Case Against Your Stock Broker Ten ways to Tell – Legal
Do You Have a Case Against Your Stock Broker Ten ways to Tell
Jake Zamanskys Blog for the Ordinary Investor
As an attorney who represents individual investors from around the Country in claims against their stock brokers, I hear a wide variety of complaints about brokers
Youre Published! Now How Do You Tell The Readers – Writing
Youre Published! Now How Do You Tell The Readers
Michael LaRocca
The first thing you must do is quit thinking like a writer and start thinking like a reader. That shouldnt be a problem, because you are one. If you dont enjoy reading, you cant write something that someone else enjoys reading. So, when you read, how do you choose what to read
My wife can walk into a bookstore, look at the cover blurb of a book, conclude "Ill like this," and buy it. Then shell read it and be correct. Every time.
I almost never do this. For me, its word of mouth. Its book reviews. A good reviewer tells me enough to decide if I want to buy the book. Ive rarely been led astray by a reviewer.
I suspect that, if you look at your own reading habits, youre like me. You find new authors to read through word of mouth. Once you find one you really like, you buy everything else he/she has written and snatch up every new one as it comes out.
So there are your goals. Number one, write well enough to keep those readers coming back. Number two, get those reviewers to say "Hey, this author writes very well." Meaning, contact those reviewers.
You want to be reviewed as much as possible. Walk into any bookstore, log onto any e-publisher site, or visit Amazon or Barnes & Noble. Guess what youll see A whole lot of books. If one of them happens to be yours, how will people notice it
Your publisher will market your book, of course, but they market all their titles equally. What you want is for a potential reader to walk into that shop or log onto that site with your name and title already in his or her head.
Your publisher will submit your book to reviewers. Reviews even negative ones will generate sales. Work with your publisher to ensure everyone is covered. Also make sure you dont both send the same book to the same place because thats just plain embarrassing.
If you swing by http://freereads.topcities.com/bookreview.html youll find a list of book review and author interview sites. Mostly electronic but a good print selection as well. At this writing there are 111 of them. When your book hits the shelves, if not sooner, visit every dang one of them. Write to everybody and see what happens. Itll take you about ten hours.
Next, work the local media. Newspapers, radio, and signings at local bookstores. Once thats generated enough interest -- and again I assume your novel delivers the goods -- you can take a shot at national coverage.
My next suggestion involves writing contests. I dont know about you, but I usually buy every book on the Booker Prize Short List. Likewise, the first ebook I ever read was an EPPIE winner. I dont know how many people do the same, but certainly more than enough to justify the effort. Some contests even offer cash prizes.
It stands to reason that some awards are more prestigious than` others. Winning "Bubbas Book Award" probably wont help sales.
Entering contests is something that you should coordinate with your publisher. Some contests dont allow author entries, and certainly you dont both want to enter the same book. If theres an entry fee, be realistic about your chances of winning, and consider how many sales you must generate to pay that entry fee.
I keep a small but growing list of book contests at http://freereads.topcities.com/bookcontests.html
I also believe that anyone selling anything should have, at the very least, a free website. As I started with ebooks, I consider it mandatory. As an author, of course I also write a newsletter.
To read my article on the strategy involved in setting up your website, visit http://freereads.topcities.com/websitenewsletter.html
To read my article on the mechanics of it, visit http://freereads.topcities.com/bookpromo.html
To read my newsletter, visit http://freereads.topcities.com/archive.html
About The Author
Michael LaRoccas website at http://freereads.topcities.com was chosen by WRITERS DIGEST as one of The 101 Best Websites For Writers in 2001 and 2002. He published two novels in 2002 and has two more scheduled for publication in 2004. He also works as an editor for an e-publisher. He teaches English at a university in Shaoxing, Zhejiang Province, China, and publishes the free weekly newsletter Mad About Books.
michaellarocca@yawweb.org