For anyone considering investing in Baltimore, the first step should be to contact local investors who know the area. One of the easiest ways to do that is to visit or join a REIA (real estate investor association). These are organizations dedicated to education and networking which have a code of ethics that members must agree to uphold.

As you point out, Baltimore values can vary considerably within the space of one to two blocks. Yet outside investors wouldn’t know that if you travel a couple of blocks outside of areas like Bolton Hill, Patterson Park, etc. you could find yourself in some pretty rough areas. Values can drop from $300K to $30K by crossing certain streets. This is very different from many places around the country and leads investors to make major mistakes based on false assumptions.

As president of Mid-Atlantic REIA (MAREIA.com), I’ve personally seen many cases of investors coming to Baltimore from New York, California and even from nearby D.C. for the low property prices only to lose their shirts when they’ve overpaid for properties based on comps that have been misrepresented. In some cases, these people wound up selling off their properties at substantial losses and vowed never to come back to Baltimore again.

It’s unfortunate that these investors didn’t take the time to do their homework since Baltimore really is one of the places where you can find great deals that will throw off lots of cash flow. The key is understanding the market and doing your due diligence.

And if I can, I’d like to throw in a plug for this weekend's Building Wealth Expo (BuildingWealthExpo.com). This will be a great starting point for those interested in learning more about the financial opportunities available through real estate investment in the Baltimore-Washington area.

Good time to REFI!

If I'm going to be stuck here I might as well get my payment down as much as possible.

Jamie,
In our individual situation, we want to buy because we have plenty of margin in our budget, plenty of cash saved up, and 2 stable jobs where income should rise in the future. Not rich by any means, but very financially responsible for past 2 yrs, with credit ~720 FICO. The mortgage rate we've been quoted is great, around 4.375 for a 30 yr fixed, so the real issue comes down to finding a seller who isn't expecting 2006 prices for their house. So many people are anchored to the idea that their house is "worth" some certain amount from a few yrs ago and anything else is a loss. Maybe they're mad they didn't retire and sell their house then, maybe they actually think prices will rise considerably in the future. However, most young people know what the economy is like, just because it's been so hard to get a career started and we've seen our parents and friends laid off. We're probably a lot more conservative than home buyers have been in at least a generation or more.

We've made two offers so far. The first seller wants 30-40k more for the house than it would appraise for, even in a best-case scenario. No bank is going to do a mortgage on a house at that price. We actually offered the most the amount that the house would optimistically appraise for, knowing that if it appraised for less, the deal is off and the seller has to make repairs or drop the price accordingly. Well, the seller blew the offer off entirely, despite the house being on the market 6 months with very little interest (we live down the street now and we never seen realtors or prospective buyers dropping by during the usual times like mid-day on weekends).

The other sellers are a little overly optimistic as well. Once again we offered the maximum that we think the house could conceivably appraise for. They countered 15% higher. This house has also been on the market all summer, dating back until late Spring. Buying volume drops in Fall and Winter, so we're prepared to let the seller sit and think on our offer while we pile up more cash renting an already-remodeled row house down the street.

We've looked at so many foreclosures and short sale houses and we've seen what sellers are really getting (and how much $$ back at closing) so we're not going to get suckered into paying 2007 or 2008 prices. Young people know what's going on, so it will be up to sellers to stop holding out for prices that won't be seen for at least a handful of years.

To sellers: Unless your house is move-in ready and remodeled within the last 5 or 6 years with good appliances and central air, NO you won't be getting whatever fictional price is in your head. So many houses with bad carpet, 70's era kitchens, unfinished basements... and these people all want the price that their neighbor down the block got for his house--well, your neighbor probably remodeled and had recent model appliances.

Chappy's experience is very much like mine. I would guess that roughly 80-90% of the homes that are on my daily MLS sheet are still on the market since late spring.

I haven't made a single offer yet because none of the homes are even close to what they should be listed at and I don't feel like getting into a nasty counter battle with an ignorant seller.

I'd rather let them sit alone in their 2 bedroom prison.

I have to agree with Chappy's last paragraph - if youe place isn't in awesome shape good luck trying to sell it.

I had hoped to sell my first home with in 5 years of buying it but that isn't looking real likely now at least not at a price anywhere near I want for it.

So I'll just have to hang tight a for another couple years - it's not the end of the world.

http://www.marketwatch.com/story/real-estate-slump-could-last-8-years-imf-2010-10-06?source=patrick.net#lastupdate

I wonder what Greg Northop would say about all these negative experiences of people looking for homes. It would be great if Graig would have a town hall meeting or something where he answered questions in a mature manner instead of just proclaiming - "its a great time to buy because I am a realtor and I need your commission!"

We've looked at (toured) about 20 houses within a 2 sq mile radius in our area of the city--from Canton (not by the square), Brewer's Hill, Greektown, and Bayview. We rent in this area now and have been saving up like crazy because rent is so cheap and our combined income is a little under 100k. So we're not overly cheap or pushing our limits to buy one of these houses. It's just that most of them *need* a lot of work. Most of the houses we've seen are people over 50, looking to retire or downsize or to sell the house of a deceased relative. I feel for them that, in my cases, this is their biggest asset, but c'mon, if the place hasn't had any serious upkeep in 20, 25, or 30 years you can't expect to get top of the market value. Even if it is in excellent condition, you better be willing to come down at least 10% because within 5 or 6 blocks there are a handful of similar houses.

We haven't looked at homes in the counties or homes above 250k, though. We're definitely looking for a modest, small 3 BR city row house. The situation could be very different in the counties. In the city, though, much of the housing is interchangeable so you sellers won't be able to get away with unrealistic prices, sorry.

@ironhide -- we didn't want to get into a negotiation with delusional sellers, either. but instead of avoiding making offers, we've made a few (2) just to see what their thought process is. we liked the houses for their potential, but a) they're not going to appraise for anything near what the asking price is and b) they both haven't been touched, as far as updates/upkeep in many years. we were disappointed with the responses, but feel like we fired the first shot. now they're unlikely to hear better offers (or any at all) for weeks, as the houses sit there empty (and still outdated!) and the clock turns towards 2011. Holding onto a house means property taxes and some basic upkeep, not to mention stress and opportunity costs associated with delaying the $$ from the sale of your place-- so good luck with that,sellers.

Not that I agree with that real estate guy (Creigh) who was talking to Jamie the other day, but I'm sure its different at the top end of the market. He's not selling entry level row houses in the city--maybe he's selling remodeled, tricked-out ones in Fells Point or on Canton Square, but that's entirely different.

Chappy 10
My house just sold after 8 months on the market. I took a 5% hit on the original listing price. Most houses comparable to mine took 6-7 months and, including subsidies, sold for 90%+ of the original listing price.
It's a buyers market but my research (and I did a huge amount) doesn't show it to be as strong as you seem to think it is.
If you search and make offers in a buyers market and can't make a deal then it might be your expectations. 3br & rehabbed for less than 250,000 is optimistic.

Is it a great time to buy a home? Well, you could say it depends on your situation. However, according to some insiders, the banks will stop all foreclosure proceedings in the next couple weeks. They also say that all foreclosures within the past 2-3 years will be retried.

With this news not yet in the "mainstream", I would wait until this is resolved. If banks can't foreclose on properties, the chances of them being able to lend money will be slim to none. If there is less money available to buy homes, there will be a serious hiccup in the market.

Also, if there will no longer be short sales or REO's, buyers will temporarily be forced to pay full price. This will not only temporarily inflate home values, but will also recreate a massive inventory spike when 4 years of inventory is released on the market (retried foreclosures from the past 2-3 years plus current foreclosures). Imagine retrying 2-3 years of foreclosures and putting them on the market after halting current foreclosures. How is that backlog of foreclosures going to look? Kinda scary.

http://www.zerohedge.com/article/janet-tavakoli-biggest-fraud-history-capital-markets

When interest rates increase -- what goes down must inevitably go up -- the all-cash buyers won't be impacted but those who need mortgages to purchase homes will be able to afford only one-half to two-thirds of the home price they can afford to finance today.

Remember the first "Wall Street" movie -- not so long ago, even those with perfect credit were thrilled to get 10% mortgages. What will the typical federal worker be able to pay for a home when mortgage rates return to 10%. Home values will have to decline significantly, even to keep sales volume at 2008-2009 levels.

Hi Jamie,

As a small-time real-estate investor, I think that investors should follow all the advice you have given and:
1. Spend Time Learning about the Local Laws - Maryland is a liberal state with a lot of regulations regarding rental property. Those are one of the biggest costs and risks to my business. It only costs a couple of hundred bucks to consult a real estate attorney. In the climate in MD, the initial money spent will be priceless. The attorney should at minimum provide you with some advice and a lease you can use.

2. Invest with an eye toward keeping property taxes low - Depending on the neighborhood, non-security-related exterior upgrades may not be worth the money. If you replace certain items, you may not need a permit, but if you add a bunch of stuff you'll probably need a permit, and that may trigger a tax increase. Don't upgrade the exterior LIGHT years above the surrounding facades. Again, depends on the area.

3. Realize that getting Financing for investments is TOUGH - so get the very best initial interest rate you can. Be prepared to live in the house for at least a few months to qualify as an owner-occupier. In my experience, it was almost impossible to get a decent interest rate on an investment property (probably minimum of 6%) and the interest rate on a construction loan is higher.

Other than that just add up the numbers. Conservatively estimate the rent and figure out how to reach the target group of renters. Add 20% annually to your cost estimates for compliance, legal and maintenance issues. If the purchase price pushes you into the red, then move on and wait for the next house.

@1150 - you probably priced your house correctly from the beginning. we ended up waiting an extra month and getting a near best-case scenario for us. the house we got cost 40% less than it would've cost us in 2007. with a 3.875% 30 yr fixed mortgage, it would be hard to beat the deal we got. our montly payments are probably 50% off of what we would've paid if we bought the same house in 2007 and got the prevailing interst rate from that yr. that's what i call a steal.

it was always negotiable about a place being modernized/renovated. however, there is a big difference between a house that has 30+ yr old windows, appliances, and carpet and a house that an owner has kept up with. its a big deal if you have to change everything in a house, instead of just fixing up a few places here and there.

your house was probably updated over the yrs and you weren't expecting 2007 prices from the start. so good for you.