FS20-Property-Indicator_1
00:00:00.000 | Hello, everybody.
00:00:01.000 | It's Sam from Financial Samurai.
00:00:02.880 | And in this episode, I'm going to talk about a new property
00:00:06.000 | leading indicator that should give buyers confidence to buy.
00:00:10.160 | And I call it the FS20 property indicator.
00:00:14.000 | Not that original of a name, sorry.
00:00:16.240 | But I think the concept itself is quite original.
00:00:19.840 | And this is something that I think every property
00:00:22.560 | buyer, prospective property buyer,
00:00:24.000 | should think about when they're about to buy,
00:00:26.800 | because property prices have risen so aggressively
00:00:29.840 | in many parts of the country and the world
00:00:32.440 | since about 2010, 2012 period.
00:00:36.400 | So given real estate is relatively eliquid,
00:00:39.360 | there's huge room to get your property transaction right
00:00:42.880 | or wrong.
00:00:44.040 | So my hope is for all of you to get maximum value,
00:00:46.920 | whether you're buying or selling.
00:00:49.360 | But the FS20 indicator is more for folks
00:00:52.320 | who are going to be buying.
00:00:53.960 | So let me share with you some thoughts
00:00:56.360 | about what this indicator does.
00:00:58.360 | So FS stands for Financial Samurai.
00:01:00.640 | 20 stands for 20%.
00:01:02.600 | The FS20 property indicator goes off
00:01:05.200 | when a home's final sales price is at least 20% higher
00:01:09.760 | than the online estimate in the neighborhood you want to buy.
00:01:13.760 | So by now, 2019, everybody should
00:01:17.680 | be leveraging technology and the internet
00:01:19.800 | to find properties, to analyze properties,
00:01:22.880 | and to make offers.
00:01:25.000 | Zillow and Redfin, they were both founded in 2004.
00:01:28.400 | So in the first 5, 10 years, they
00:01:31.000 | weren't that accurate, I would say.
00:01:34.320 | Their databases were still being formed.
00:01:36.960 | But now, 15 years later, their estimates
00:01:41.040 | are about as good as they've ever been.
00:01:43.560 | They probably are as good as they've ever been, right?
00:01:45.800 | They're publicly traded companies.
00:01:47.180 | They have to improve their algorithms
00:01:49.840 | to stay competitive and to stay relevant,
00:01:52.040 | or else their shareholders will revolt.
00:01:55.520 | So technology is key in your property hunt.
00:02:00.040 | And the FS20 property indicator is
00:02:02.440 | key when you're analyzing any property,
00:02:04.840 | because there are a lot of indicators out there
00:02:07.360 | on things you should follow to decide
00:02:10.480 | whether the property price is going
00:02:12.480 | to go up in the future or down.
00:02:14.080 | So some indicators include interest rates.
00:02:17.280 | If interest rates go down, like they are right now,
00:02:20.360 | property prices should go up, given
00:02:22.560 | it brings in more demand and more affordability.
00:02:25.400 | But you don't know exactly how much a property will appreciate
00:02:29.680 | or how much a property is worth for every 25 basis point
00:02:34.680 | drop in interest rate.
00:02:36.320 | It's just a derivative indicator that you
00:02:38.240 | can make educated guesses on.
00:02:39.840 | You just don't quite know.
00:02:41.200 | Other indicators include economic health, inflation,
00:02:47.720 | laws, the presidency, trade wars.
00:02:51.840 | There's a whole bunch of different things,
00:02:53.560 | and obviously the job market.
00:02:55.640 | But the FS20 indicator is very interesting,
00:02:58.440 | and it's very pertinent, because I
00:03:00.760 | think the best indicator for what a property is worth
00:03:04.100 | is a comparable sale.
00:03:06.120 | So if a house you want to buy sells for, let's say,
00:03:10.400 | a million dollars, and then the neighboring house goes up
00:03:14.380 | for sale a month later, chances are very high
00:03:17.540 | that if the two houses are quite similar in terms
00:03:20.060 | of the quality of the build and the plot of land and so forth,
00:03:23.940 | that other house is going to be worth at least a million dollars
00:03:26.480 | as well.
00:03:27.640 | It's just a month later.
00:03:29.280 | So a comparable sales price is the number one indicator
00:03:34.520 | for what a property is worth.
00:03:37.800 | And so when a home's final sales price
00:03:39.480 | is at least 20% higher than the online estimate
00:03:42.000 | in the neighborhood you want to buy,
00:03:43.760 | that is a high, high quality indicator
00:03:46.960 | that there is demand for property in that neighborhood
00:03:51.040 | and that prices are likely going up.
00:03:53.800 | Now, why do I use 20% as the price differential?
00:03:57.680 | The reason why is that Redfin and Zillow
00:04:00.680 | and any other online property estimator,
00:04:03.800 | they aren't perfect yet, even after 15 years of operation.
00:04:07.560 | Even after thousands and thousands, probably
00:04:09.480 | tens of thousands of homes being sold and inputted
00:04:12.720 | in their database and engineers and all these people working
00:04:16.200 | on their algorithms and estimates,
00:04:18.280 | they're not perfectly accurate.
00:04:22.040 | I don't think Zillow--
00:04:23.200 | Zillow has a lot of problems, in my opinion.
00:04:25.640 | I've looked at many properties on Zillow.
00:04:27.360 | I'm like, wow, you're way off.
00:04:29.800 | Whereas Redfin, I think, is a little bit better.
00:04:31.840 | I think it's much better, actually.
00:04:33.000 | I don't know why, but they're much better.
00:04:34.760 | The user interface is better.
00:04:36.160 | So that's the company that I use.
00:04:39.320 | And so it is very common to see price fluctuations
00:04:43.760 | of between 10%, I think, plus or minus,
00:04:49.520 | in terms of what an online estimate calculates
00:04:53.320 | and what you believe the property is worth
00:04:56.680 | and what it actually finally sells for.
00:04:58.440 | Because there's a lot of things that are not
00:05:00.640 | captured by online estimates.
00:05:01.960 | Sometimes you might have remodeled a kitchen, right?
00:05:04.520 | And the kitchen might cost $50,000.
00:05:07.960 | But unless the homeowner updates that data,
00:05:12.640 | the algorithms online aren't going
00:05:14.280 | to capture that information.
00:05:16.400 | You might have some unwarranted space that's
00:05:20.400 | 30% of the size of your livable space.
00:05:24.360 | And that's pretty valuable if you
00:05:26.800 | want to create a band down there,
00:05:29.560 | create a man cave or a woman cave,
00:05:31.560 | or whatever you want to do.
00:05:33.600 | Elsewhere, you might have a plot of land
00:05:37.200 | that shows up great in terms of size online,
00:05:41.600 | but only maybe 25%, 30% of that space, that plot of land
00:05:46.360 | is flat and usable.
00:05:48.480 | So therefore, online estimates could overvalue your property
00:05:51.920 | as well.
00:05:52.720 | So whatever the case may be, there's
00:05:56.000 | always errors within plus or minus 10%.
00:05:58.800 | There's also errors plus or minus 15%.
00:06:01.360 | But once you get to a sales price above 20%
00:06:05.720 | of the online estimate, I think it's a real signal that
00:06:10.920 | demand is really there.
00:06:13.400 | And what's interesting is that you
00:06:16.160 | have to be diligent in using the FS20 property indicator.
00:06:20.040 | So you've got to be on the ball.
00:06:21.680 | As soon as a property sells, you need to do your analysis.
00:06:25.600 | Because what happens is all the data that comes out
00:06:29.400 | from the MLS is lagging data.
00:06:32.120 | And given the data is lagging, you have an opportunity.
00:06:36.280 | So this is how it works, folks.
00:06:38.240 | You see a sale that is just huge.
00:06:41.080 | Let's say it's 25% above the Redfin estimate.
00:06:45.160 | You go back and you compare that price per square foot
00:06:48.760 | to the average price per square foot of the lagging data,
00:06:53.980 | according to MLS.
00:06:55.880 | So in a post that I write, I highlight two examples.
00:06:59.720 | And one example, let's say it's sold for $1,200 a square foot
00:07:04.240 | for this particular house.
00:07:06.160 | But the average price per square foot from the lagging data
00:07:09.640 | from months ago, for the past three months
00:07:12.720 | when there were 15 sales or whatever the case may be,
00:07:15.840 | was only around $950.
00:07:19.120 | So you have that spread there where you can go and bid
00:07:23.120 | with confidence.
00:07:24.500 | Any similar type of property, like the home that's
00:07:27.560 | sold for $1,200 a square foot, you
00:07:29.980 | can bid with confidence at the average price per square foot
00:07:34.280 | or a little bit higher to be very competitive.
00:07:36.680 | Depends on how much you want that house.
00:07:39.240 | But it's only after about one to four months
00:07:44.040 | where the data will start reflecting the most
00:07:47.400 | recent blockbuster sale.
00:07:50.140 | And then by that time, the property market
00:07:52.580 | will move up and reflect the new average price per square foot
00:07:57.200 | data, or it'll go down if a lot of these homes
00:08:01.920 | are selling below the online estimates.
00:08:04.440 | So you've got to be really, really on the ball
00:08:06.560 | and use this window of opportunity
00:08:08.720 | with the FS20 property indicator to snag
00:08:11.920 | your property for a great price before the world wakes up
00:08:15.400 | and realizes that the market has moved much higher or much
00:08:20.160 | lower.
00:08:21.360 | I just want to point out that everybody must not only analyze
00:08:25.200 | the numbers online, but they also
00:08:28.040 | have to kick the sheetrock and go visit these properties
00:08:31.000 | to make sure the numbers are congruent with what
00:08:35.080 | you see with your own eyes.
00:08:37.960 | A lot of the stuff, again, is just a lot of smoke and mirrors
00:08:41.360 | online in terms of marketing and pictures and stuff like that.
00:08:44.880 | It's only after you do the numbers
00:08:46.480 | and you go to the open house or a private showing
00:08:49.240 | and you compare the numbers with what you see and how you feel.
00:08:53.120 | That's going to give you a great indicator.
00:08:55.560 | And one exercise I want everyone to do
00:08:58.120 | when buying or selling a house is to go visit a property
00:09:01.920 | without knowing the price, walk through the property thoroughly,
00:09:07.040 | and then guess what the list price is,
00:09:12.040 | and then guess what the final sales price will be.
00:09:16.480 | And the more you can guess that list price and final sales
00:09:19.560 | price accurately to within a 1% to 2% margin,
00:09:23.440 | the better you're investing acumen in real estate.
00:09:25.960 | This is really important.
00:09:27.000 | And it's a really fun exercise.
00:09:28.360 | So bring your friend, bring your wife, your husband, your kids,
00:09:31.920 | whatever, and just play the guessing game.
00:09:34.280 | It is just so fun.
00:09:35.440 | And it just also allows you to think analytically
00:09:39.160 | about property and also make a case
00:09:41.360 | of why you think property should be priced the way it is.
00:09:45.300 | If you want to see two concrete examples of the FS20 property
00:09:49.120 | indicator at work, go check out the post.
00:09:52.200 | It's called A New Property Leading Indicator
00:09:54.400 | That Gives Buyers Confidence.
00:09:56.580 | Enjoy, and just remember, please, please, please,
00:10:00.240 | do your due diligence before you buy any property,
00:10:03.920 | because a property can do well for you
00:10:06.280 | and your wealth long term.
00:10:07.560 | And it can also crush you.
00:10:09.160 | So do your due diligence and be very meticulous in your
00:10:12.800 | analysis, because it's very important now
00:10:15.600 | after such a great run in real estate.