The Irrational Value of a New Orleans Double
When shopping for our New Orleans home about 18 years ago, our agent suggested that we consider getting a double because the rent the tenant paid could help pay our mortgage. While some of them seemed bigger and more expensive than singles, loan approval would be easier because the lender adds a portion of the rent to our other income.
“Wow, so doubles must be more expensive than a similar single, right?”
“No Mike, on a price-per-square-foot basis, doubles are less than singles!”
“How can that be?”
“Well, it’s complicated, but in a nutshell, rich people don’t want to be landlords and will pay more to have a simpler lifestyle.”
We didn’t care so much about being perceived as rich (we weren’t!) and were willing to try being a landlord if it meant the home was easier to afford. We bought a shotgun double that had been converted to a 3/2 owner’s side with a 1/1 apartment. There was already tenant (who was paying ridiculously low rent), who wanted to stay and was willing to pay market rate rent. We were his third owner and he wound up staying in the apartment for about 23 years. That tenant payed about a third of the mortgage, and the next tenant even more.
When I got into real estate, at every weekly sales meeting, some agent would explain that they are having a hard time finding a double for their buyer, and “does anyone have any new listings coming up?”
Today, the situation is the same, while doubles remain in very high demand, they are still priced less than singles. When you consider the rental income, it’s no wonder that doubles are in such high demand – they are priced less than singles AND are easier to afford on a monthly basis. To me, this is an irrational value: almost like housing arbitrage.
An agent in our office generated 6 offers on an Uptown double a couple of weeks ago, and another one on the same street a few blocks away generated 3 offers. While we have seen an increase in inventory in the past three months, over the past year we have had less than 3 months of inventory, about 2-3 weeks to get an offer, and sale price to list price ratio over 97%. In the past 3 months, the median sale price to list price was 100% – than means half of the doubles sold for over asking price. This is a strong seller’s market!
How can buyers find the right property in this market?
- Make sure you are pre-approved with a respected LOCAL lender, and do homework by visiting open houses even before you are ready to buy so you learn about prices, location and condition. We stress local lenders, because in a competitive offer situation, if the listing agent knows the reputation of the loan officer, they will explain that to the seller.
- Be realistic about condition – all houses have issues, especially older ones. In a competitive environment don’t expect to lowball a seller because you see some deficiencies. A good home inspector will find many minor deficiencies, and with your agent they can explain anything that is atypical or outside of the ordinary. Sellers might make concessions for major surprises, but don’t expect to ask for minor repairs, as there may be a backup offer.
- Consider making a cash offer. Speak with your family, lender and especially your agent about creative (and ethical!) ways to make a cash offer and still get a mortgage.
- Work with an agent who has a great reputation that other agents want to work with. In a multiple offer situation, the listing agent will gladly explain to the seller which agents have the most success guiding their buyers to closing.
How can Sellers get top-dollar in this market?
- Don’t be tempted to think that you will get multiple offers on any multi in any condition at any price. Buyers, their agents and their appraisers study the market and know when property is fairly priced.
- Multifamily property set up for owner-occupancy gets the best prices. Investors will always pay less than owner-occupants, so make sure that at least one side will appeal to an owner. Recently updated kitchens and baths, private bedrooms and comfortable outdoor spaces are essential to getting top dollar.
- Make sure the property shows well and is in good condition. Ask us about the best ways to navigate the inspection process – the answer might surprise you!
Want to learn more? Please call us today at 504-756-3133