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Open House
Interviews with Ingo Winzer, Robert Shemin
Aired February 19, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: Let's get to our e-mail question of the day. Which country is the biggest threat to U.S. security? And boy, some great e-mails.
This one from Sean, well thought out. "The projection is in 25 years, China will be the new kid on the block. It is developing its economy, presence in the world, and its military. As for the immediate threat, it is Iraq, believe it or not. They now have the power to tell us to leave. What if they do tell us leave and we do not? Even more, what if they tell us leave, and we do?"
BETTY NGUYEN, CNN ANCHOR: Well, David Dunn writes, "We are our own worst enemy."
And we do have to tell you, about 50 percent of the e-mails we received today said...
HARRIS: Interesting.
NGUYEN: ... the exact same things. We appreciate your responses.
And we want to thank you for joining us this morning. We'll see you again tomorrow morning.
HARRIS: "OPEN HOUSE" is straight ahead.
But first, these stories now in the news.
Another bloody day in Baghdad. A suicide bomber riding a bicycle kills three and wounds three dozen more at a funeral. Another suicide bomb explodes on a bus. The number of casualties is not immediately known. The bombing follows a clash between insurgents, Iraqi police, and U.S. forces.
"OPEN HOUSE" starts right now.
ANNOUNCER: Today on OPEN HOUSE, you've probably watched the value of your home skyrocket. Is now the time to cash out? We'll take a look.
Then, flipping real estate can be a moneymaker if you know what you're doing. We'll take a look at the risk and rewards.
And our weekend project, a kitchen facelift on a budget. Small upgrades that make a big improvement. Next, on OPEN HOUSE.
GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling, to renovation and design, we show you how to get the most value out of your biggest investment, your home.
There's new evidence the housing market remains strong, and home prices overall remain high. Just this week, the Commerce Department reported construction of new homes soared to its highest level in 21 years, fueled in part by low mortgage rates.
The continued run-up is sparking the debate, is the U.S. housing market a bubble waiting to pop?
One Connecticut couple says yes.
(BEGIN VIDEOTAPE)
(CROSSTALK)
TERRIE D'AUSILIO, HOMEOWNER/BROKER: No, it's true.
WILLIS (voice-over): David and Terrie D'Ausilio are so sure the housing market is headed for a correction, they decided to sell their five-bedroom house in Monroe, Connecticut. Their profit, nearly $400,000.
TERRIE D'AUSILIO: We are looking at where we might be in, say, four or five years. And if we decided to sell at that time, where would the market be? And we felt that we wanted to just cash in now, as opposed to taking our chances four or five years down the road.
WILLIS: And as owners of a Remax franchise, the D'Ausilios feel they know what they're talking about.
DAVID D'AUSILIO, HOMEOWNER/BROKER: It's just a matter of time before the market flips over. And then people that actually really have to sell are going to be start lowering their prices. When that happens, you're going to be chasing the market down, not chasing it up.
WILLIS: Surprisingly, the D'Ausilios have chosen to rent while waiting out the market.
DAVID D'AUSILIO: Both kids just graduated college. We're in a unique position. And we're hoping to sit on the sidelines for awhile. But we think mark, the market's going to cool off, and there's going to be some good opportunities within 12 to 24 months.
WILLIS: There is some evidence the D'Ausilios may be right. Housing prices are moving up faster than the amount of money the average American makes, and some economists say that just can't last.
ED LEAMER, PROFESSOR OF ECONOMICS, UCLA: There's no doubt in my mind that there will be a turnaround. But many people said the same thing about the dot-com bubble. They said, Oh, these valuations are really supportable by fundamentals. Well, in retrospect, they obviously weren't. I think we'll find the same thing is true with housing.
WILLIS: But because there is more housing supply than demand, other economists see no imminent crash in housing prices.
DOUG DUNCAN, MORTGAGE BANKERS ASSOCIATION: I simply don't see the evidence for a broad-based bubble story in the fundamentals of supply and demand. If you look at the month's supply on the market, for either new or in existing homes, it's less than five months. And it has been for a substantial period of time. Eight to nine months is an oversupply. We're nowhere near that.
WILLIS: And if the D'Ausilios' timing turns out to be wrong?
DAVID D'AUSILIO: I don't really have a crystal ball, Gerri. But I tell you, there's nothing wrong with taking a profit.
(END VIDEOTAPE)
WILLIS: Yes, certain markets around the country are overheated. Then how do you know if your hometown is one of them?
Here with tips on gauging your own market is Ingo Winzer of First Research and Local Market Monitor, a company that analyzes local real estate markets around the country. He joins us from Boston.
Ingo, welcome.
INGO WINZER, PRESIDENT, LOCAL MARKET MONITOR: Hi, Gerri.
WILLIS: So let's start with home prices themselves. What should I be looking at specifically, if I'm trying to analyze the market?
WINZER: Well, if you're looking at your local markets, it's quite likely you've had a pretty good run-up in prices in the last few years if you live in certain parts of the country. There's certain parts of the country where prices have gone up 50, even 75 percent. Southern California, for example, San Diego, 75 percent since the year 2000. Up here in Boston, maybe 50 percent.
WILLIS: Wow.
WINZER: On the other hand, there are some other markets in the country where prices really haven't moved very much at all.
WILLIS: Well, let's talk about a rule of thumb, so that if I'm actually trying to analyze how much is too much, I would know.
WINZER: Well, generally in markets that are moving very rapidly, the old rule of thumb used to be that you can get three years of double-digit increases, and then that market's pretty much near the top. Now, I got to tell you that that's always been true, except in the last five years or so. There are some markets where prices have kept on going up and up and up, and largely because of the low interest rates.
WILLIS: Interesting. Let's talk about inventory. I know that's another thing you think people should pay attention to.
WINZER: Well, one of the things you can do if you are looking at your local markets is to see how many homes are for sale, versus how many homes are in your market. You can get that from your local Realtors' association.
Generally, in a normal market, about 5 percent of the homes are sold every year. In a really hot market, like Las Vegas, you might get 10 percent of the homes sold every year. And if homes stay on the market for maybe two or three months, well, that's only about 1 percent of the homes on the market at any one time.
If you find that there are fewer than 1 percent homes, or more than 1 percent of the homes, something else is going on in the market.
WILLIS: OK. So it's all about comparing averages with current inventory levels. Does the local economy feed into this, as well?
WINZER: The local economy has a lot to do with it. You can generally say that markets with strong employment growth are going to have strong demand for housing, and, therefore, strong home prices. There are other markets where the economy has done poorly the last few years, where the market just doesn't support the prices.
That's one of the reasons why there are these big disparities throughout the country. Some markets very strong, other markets not very strong at all, because people aren't moving into those markets, and in some cases, they are moving out of them, because there are no jobs.
WILLIS: Variations across a country, of course. You say it also matters what kind of real estate you own, whether it's a single-family home or maybe a condo.
WINZER: Condo prices generally are more volatile than single- family home prices. It's partly because generally they are a bit less expensive, so you have a larger potential market of buyers and sellers. Also, because the condo markets, as we're seeing now in some parts of the country, is much more prone to people investing for speculative purposes. I don't mean that in a bad way. I mean investing it as a second home, as an investment property. So...
WILLIS: Well, we've certainly seen a lot of that. Let's say I do all of your analysis, Ingo, and I find out that my market could be ripe for some kind of problem. How can I protect myself?
WINZER: Well, the first thing you want to do is not panic and start selling tomorrow. Home prices, unlike stock prices, don't move very rapidly. And in general, in the United States, they have always moved up and not moved down very much, unless you are in a very special market.
So don't go -- don't rush out and do something tomorrow. But what you can do, if you are in a position where you think that there's been a good gain in value, and you want to do something about it, and if you can afford to, the best thing, obviously, to do is take the money and run. Sell your home, move to a place in the country where home prices are a lot cheaper. And there's a big variation in home prices throughout the country. That's one of the things you can do.
Now, many people aren't in that situation. Many people want to either stay in the area of the country where they are, or they want to even stay in their own community. You can move into a smaller home, because land prices usually are the -- are what goes up and down.
WILLIS: Right.
WINZER: You can move into a community that's a little bit further away.
WILLIS: OK.
WINZER: Generally, home prices are highest in central cities. The further out you get the lower the prices.
WILLIS: Well, Ingo, appreciate your help today. Thanks so much. Great information. Enjoyed the conversation.
WINZER: Thanks, Gerri.
WILLIS: Coming up on OPEN HOUSE, flipping real estate. Buy a property, fix it up, sell it for a profit. Sounds easy, but you have to know what to watch out for.
Then, our weekend project, a kitchen facelift without breaking the bank. Small projects to spruce up a tired room, coming up.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Having trouble selling your home? Your asking price may be too high. When setting the price, base it on recent sale prices of comparable homes in your neighborhood. Reevaluate the condition of your home. Painting the exterior and the interior of the home will often add thousands to the sale price.
And market your home wisely. In addition to newspapers and the Internet, your local multiple-listing service is the most effective method for getting your house listed with local realty agents.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: In this healthy real estate market, many of us know someone who's made money flipping properties. That's when an investor buys a home, fixes it up, and sells it for a profit. Sounds easy, but as Chris Huntington explains, even successful property flippers can get tripped up.
(BEGIN VIDEOTAPE)
CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): For Frank La Fragola, time is of the essence.
FRANK LA FRAGOLA, OWNER, ATLANTIS GROUP: Whatever price it is, it doesn't make a difference. I want to move fast.
HUNTINGTON: La Fragola flips real estate. He buys rundown homes in nice neighborhoods, renovates them, then puts them right back on the market.
LA FRAGOLA: The first thing is always price. But when we come in, the cheaper it is, the better for us, because we know we're not going to have to lay out so much money. But a lot of times, what really jumps out is when real estate agents list the house, they'll put each TLC, or they'll put "Handyman special." As soon as I see that, I know that's a project that I can tackle.
HUNTINGTON: The plan is always to turn a big profit in a small time frame, usually just three to four months. But his newest acquisition, a two-bedroom, two-bathroom home in Arlington, New Jersey, shows there can be hangups.
LA FRAGOLA: When we bought this place, we paid $250,000. We were hoping to sell it for $350,000. But in this business, the longer you sit on the property, the less money you make. So we took a lower price. We sold it for $335,000.
HUNTINGTON: And before he could sell it, La Fragola had to put in another $30,000 worth of work. He redid the bathroom and kitchen, added a patio and a new deck, and hired a contractor to renovate a stairway to the attic. When that contractor failed to get the proper permit, La Fragola had to spend yet another $4,000 on a second contractor.
MICHAEL MARKS, EIC GENERAL CONTRACTORS: Well, we were called in because the stairs here did not meet code. A couple of reasons why. One, there wasn't enough head room, there wasn't proper ballisters on the railing, and the stairs weren't wide enough.
HUNTINGTON: That second round of work also meant more time on the project, and more time before a sale means more time carrying a mortgage.
LA FRAGOLA: We've had one project that we were red-flagged. Initially, we thought the project was going to be two months. It turned out to be seven. So we lost a lot of time, and we lost a lot of money.
HUNTINGTON: Lost time and renovation snags make property flipping a risky business. But by sticking to desirable neighborhoods where buyers often outpace sellers, Frank La Fragola says he's pulled in half a million dollars in just two years.
For OPEN HOUSE, Chris Huntington, CNN.
(END VIDEOTAPE)
WILLIS: No doubt there is money to be made flipping properties. But keep in mind, investors need to educate themselves. And it's really not for everyone.
Here to explain how it's done, real estate investor and author Robert Shemin. He's joining us from Miami.
Robert, welcome.
ROBERT SHEMIN, SHEMINREALESTATE.COM: Good to be here, Gerri.
WILLIS: All right, you say there are two types of flipping. There's the old buy, fix it up, and sell it. And then you say there's another way too.
SHEMIN: That's right, where you actually sell the property before you have to close on it, commonly referred to as flipping, quick turning, or wholesaling.
WILLIS: All right, well, Robert, that sounds really dangerous to me. I mean, could you lose a lot of money really quickly?
SHEMIN: Well, actually, Gerri, you really can't lose money if you do it properly, you use the proper contracts, proper disclosure.
And let me explain how this works. Let's say, Gerri, you find a house that you want to live in for, let's say, $300,000. And you have it under contract. You haven't bought it yet. And you have maybe 30 days to close on it. And the next day, you take your best friend out, and they look at your house and say, I've got to have this house. I love it. I want it.
You say, It's mine. They say, What if I give you $15,000 for the right to buy the house? And you transfer or sell your contract, or you flip your contract, or flip the house. They give the closing attorney or title company $15,000. You sell your contract. They close with their money...
WILLIS: OK.
SHEMIN: ... and you get paid for finding a good deal.
WILLIS: Sounds like you need a lot of really wealthy friends. Let's talk about the more plain-vanilla kind, which I think so many people are interested in getting involved in. What single factor is most important in determining whether you are going to make money or not?
SHEMIN: I think it's the single factor of numbers. Real estate is just numbers, what you can get the property for, what the repairs really are, and how much you can sell that property for, and, of course, how long it's going to take. So it's really just three numbers.
WILLIS: Well, how much can I make if I actually -- the devil is in the details, obviously. But if I do it successfully, how much can I make?
SHEMIN: Well, a rehab, or not drug or alcohol rehab, real estate rehabber, someone who buys and fixes up and flips or sells houses, likes to make between 15 and 25 percent of the selling price. So 20 percent is a decent number. So if you are selling your property for $500,000, a good flipper, or person who buys, fixes up, and sells would probably like to make 20 percent of that, or $100,000.
Now, we don't always make that. Things happen, as you just heard. But about 15, 20, 25 percent is a good number. And you need that margin...
WILLIS: Right.
SHEMIN: ... going in, because things happen.
WILLIS: Well, that's exactly what I was going to bring up. You've got to find the right deal, because you may not be able to get that margin if you pick out a home that's too expensive, right?
SHEMIN: That's right. And I believe you make all your money in real estate when you buy the property or find that good deal from a motivated seller.
WILLIS: What other details do people need to watch out for? Because it seems to me like you could lose a lot of money because you don't expect all the repairs to cost as much as they might.
SHEMIN: Gerri, you hit the nail on the head, so to speak. The number one biggest complaint against all professionals is against contractors or home repair people. So you have got to use one that you get good references on, that has a (UNINTELLIGIBLE) -- you want one with references. And you also need a good contract. And you don't pay them until the work is done.
And we recommend at least a 10 percent holdback. That is, you don't pay all the money till all the work is complete, every piece of trash is removed, every doorstop's in. And please, be careful which contractors you use.
WILLIS: All right. What kinds of homes are the best to buy and flip? Is there a certain type of home? Or is there anything you can tell me to look for when I'm out there shopping?
SHEMIN: Well, most people who get into real estate investing start out in the low and moderate income properties. That is, they're not risking a lot of capital, they're not going out and buying a $2 million property and hoping that it works out. That's where most people start.
And then, as you gain more experience, you may be willing to take on a more expensive home in the upper middle or higher income areas. And again, it's just numbers, whether it's a $200,000 property or a $2 million property. But you got to make sure the numbers are going to work.
WILLIS: One of the concerns I know a lot of people out there has is, is now a good time to be doing this? I mean, we could be in a situation in some markets, and you're in Miami, where prices have gone through the roof...
SHEMIN: That's right.
WILLIS: ... where you could get involved in a flipping proposition and then find prices falling even as you're trying to cash in.
SHEMIN: That could happen, Gerri. But what I tell people, I never let the market worry my business. I focus on profits. So if you are getting into a property and out of it within three to six months, which is what a good flip or rehab project should take, then the market really shouldn't affect you that much.
And, of course, if you are buying and holding property for the long term, 15, 20, 25 years, then the market shouldn't affect you either. And again, flipping, getting in and getting out, is a good prescription in today's market, where you're not sure what's going to happen the next two, three or four or five years.
WILLIS: Interesting conversation, Robert Shemin. Thank you so much.
SHEMIN: Happy investing.
WILLIS: Coming up on OPEN HOUSE, our weekend project. We're going a massive kitchen makeover. We have some easy fixes that won't cost you a fortune. Make it your weekend project, next.
(COMMERCIAL BREAK)
(BEGIN VIDEOTAPE)
WILLIS: Welcome back to OPEN HOUSE, and weekend project, where we take on a do-it-yourself job that you can finish in just two days.
Today, we're in Jersey City, New Jersey, at the home of Michelle and Scott Overall (ph), where we are taking on their kitchen.
Here to help is Marlene Pratt (ph) from the Home Depot.
Marlene, what are you going to do?
MARLENE PRATT, HOME DEPOT: Well, we're going to turn it into a cozier kitchen. We're going to make it more personalized and more organized.
WILLIS (voice-over): Marlene's crew starts by sprucing it up with a new paint job. Always apply a primer coat, so your old paint color won't seep through. And make sure to put masking tape around places where you want to avoid getting paint.
PRATT: (UNINTELLIGIBLE)? Your job is so much easier.
WILLIS: Then it's time to take on the cabinets.
PRATT: We're going to change the hardware on the cabinets. She's missing some cabinets here, so we're actually going to add another cabinet here.
WILLIS: The Overalls wanted to keep costs down, so they found they could create a new look for their existing cabinets just by changing the knobs.
(on camera): You know, it's not a huge kitchen. It's pretty tight in here. You're trying to get some, maybe some better storage options going.
MICHELLE OVERALL, HOMEOWNER: Yes. Storage a big deal for us. We -- it's a small kitchen, and we need every inch of it that we can. And adding some underneath is going to be very helpful.
WILLIS (voice-over): A cramped kitchen is a problem for a lot of homeowners. But Marlene put the new cabinets in under the counter, and above the refrigerator. The added storage space makes it easier to keep things organized and clutter at a minimum.
PRATT: OK, basically we're done with this cabinet. And now all we have to do is just attach the doors. So you have you these pieces here. Once you install these, you put them in. On both sides, you (UNINTELLIGIBLE) take a (UNINTELLIGIBLE) screwdriver or a drill. (UNINTELLIGIBLE).
WILLIS: Another easy and affordable upgrade, new window treatments.
PRATT: Once the brackets are up, it's as easy as one, two, three to install the blinds.
WILLIS: Remember, when hanging blinds, always make sure to drill pilot holes before screwing in the brackets.
Window treatments, fresh paint, and rejuvenated cabinets -- all easy fixes to make a once-cluttered and outdated kitchen a lot more useful and attractive.
And it doesn't stop there. If you need even more storage space than the Overalls, you can also add open shelving where you have free space. And try hooks on the inside of cabinets.
(on camera): Kitchen's done. It looks beautiful. Marlene, congratulations.
PRATT: Thank you so much. It turned out wonderful.
WILLIS: How much time did it take you?
PRATT: It took us two days, a weekend.
WILLIS: All right. And what about the money? The bottom line?
PRATT: We came under $500.
WILLIS: Oh, that's great.
PRATT: So what do you think? Do you like the finished product?
MICHELLE OVERALL: I like it, I like it a lot, actually.
PRATT: Everything, everything, everything?
MICHELLE OVERALL: Everything, everything.
PRATT: OK.
MICHELLE OVERALL: I can't wait to put all my stuff on the new shelves. Won't be anything on top of the refrigerator any more.
PRATT: Oh, fantastic.
MICHELLE OVERALL: Very inspiring. Because once you do one thing, now you want to get everything in the kitchen.
(END VIDEOTAPE)
WILLIS: Filing the backsplash is another way to freshen up a dated kitchen. You can do this for under $30 if you use vinyl floor tiles rather of traditional ceramic tiles.
Coming up, a look at next week's show. But first, the latest mortgage numbers.
(COMMERCIAL BREAK)
WILLIS: Coming up next week on OPEN HOUSE, cutting commissions. We'll show you how to negotiate the best deal with your real estate agent.
Plus, home staging. We'll show you smart ways to showcase your home when you put it up for sale.
And our weekend project, surround sound, just in time for your Academy Awards bash. We'll show you how to install your own home theater.
Plus, we want to hear from you. Send us your comments or questions to openhouse@cnn.com.
Thanks for watching OPEN HOUSE. We'll see you here next Saturday.
Coming up, "DOLANS UNSCRIPTED." But first, a look at the day's headlines.
Have a great weekend.
HARRIS: Good morning, everyone, I'm Tony Harris in Atlanta.
"DOLANS UNSCRIPTED" is straight ahead.
But first, the news right now.
Nearly two dozen people are dead in parts of Iraq from a series of insurgency attacks, this one...
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
Aired February 19, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: Let's get to our e-mail question of the day. Which country is the biggest threat to U.S. security? And boy, some great e-mails.
This one from Sean, well thought out. "The projection is in 25 years, China will be the new kid on the block. It is developing its economy, presence in the world, and its military. As for the immediate threat, it is Iraq, believe it or not. They now have the power to tell us to leave. What if they do tell us leave and we do not? Even more, what if they tell us leave, and we do?"
BETTY NGUYEN, CNN ANCHOR: Well, David Dunn writes, "We are our own worst enemy."
And we do have to tell you, about 50 percent of the e-mails we received today said...
HARRIS: Interesting.
NGUYEN: ... the exact same things. We appreciate your responses.
And we want to thank you for joining us this morning. We'll see you again tomorrow morning.
HARRIS: "OPEN HOUSE" is straight ahead.
But first, these stories now in the news.
Another bloody day in Baghdad. A suicide bomber riding a bicycle kills three and wounds three dozen more at a funeral. Another suicide bomb explodes on a bus. The number of casualties is not immediately known. The bombing follows a clash between insurgents, Iraqi police, and U.S. forces.
"OPEN HOUSE" starts right now.
ANNOUNCER: Today on OPEN HOUSE, you've probably watched the value of your home skyrocket. Is now the time to cash out? We'll take a look.
Then, flipping real estate can be a moneymaker if you know what you're doing. We'll take a look at the risk and rewards.
And our weekend project, a kitchen facelift on a budget. Small upgrades that make a big improvement. Next, on OPEN HOUSE.
GERRI WILLIS, HOST: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
From buying and selling, to renovation and design, we show you how to get the most value out of your biggest investment, your home.
There's new evidence the housing market remains strong, and home prices overall remain high. Just this week, the Commerce Department reported construction of new homes soared to its highest level in 21 years, fueled in part by low mortgage rates.
The continued run-up is sparking the debate, is the U.S. housing market a bubble waiting to pop?
One Connecticut couple says yes.
(BEGIN VIDEOTAPE)
(CROSSTALK)
TERRIE D'AUSILIO, HOMEOWNER/BROKER: No, it's true.
WILLIS (voice-over): David and Terrie D'Ausilio are so sure the housing market is headed for a correction, they decided to sell their five-bedroom house in Monroe, Connecticut. Their profit, nearly $400,000.
TERRIE D'AUSILIO: We are looking at where we might be in, say, four or five years. And if we decided to sell at that time, where would the market be? And we felt that we wanted to just cash in now, as opposed to taking our chances four or five years down the road.
WILLIS: And as owners of a Remax franchise, the D'Ausilios feel they know what they're talking about.
DAVID D'AUSILIO, HOMEOWNER/BROKER: It's just a matter of time before the market flips over. And then people that actually really have to sell are going to be start lowering their prices. When that happens, you're going to be chasing the market down, not chasing it up.
WILLIS: Surprisingly, the D'Ausilios have chosen to rent while waiting out the market.
DAVID D'AUSILIO: Both kids just graduated college. We're in a unique position. And we're hoping to sit on the sidelines for awhile. But we think mark, the market's going to cool off, and there's going to be some good opportunities within 12 to 24 months.
WILLIS: There is some evidence the D'Ausilios may be right. Housing prices are moving up faster than the amount of money the average American makes, and some economists say that just can't last.
ED LEAMER, PROFESSOR OF ECONOMICS, UCLA: There's no doubt in my mind that there will be a turnaround. But many people said the same thing about the dot-com bubble. They said, Oh, these valuations are really supportable by fundamentals. Well, in retrospect, they obviously weren't. I think we'll find the same thing is true with housing.
WILLIS: But because there is more housing supply than demand, other economists see no imminent crash in housing prices.
DOUG DUNCAN, MORTGAGE BANKERS ASSOCIATION: I simply don't see the evidence for a broad-based bubble story in the fundamentals of supply and demand. If you look at the month's supply on the market, for either new or in existing homes, it's less than five months. And it has been for a substantial period of time. Eight to nine months is an oversupply. We're nowhere near that.
WILLIS: And if the D'Ausilios' timing turns out to be wrong?
DAVID D'AUSILIO: I don't really have a crystal ball, Gerri. But I tell you, there's nothing wrong with taking a profit.
(END VIDEOTAPE)
WILLIS: Yes, certain markets around the country are overheated. Then how do you know if your hometown is one of them?
Here with tips on gauging your own market is Ingo Winzer of First Research and Local Market Monitor, a company that analyzes local real estate markets around the country. He joins us from Boston.
Ingo, welcome.
INGO WINZER, PRESIDENT, LOCAL MARKET MONITOR: Hi, Gerri.
WILLIS: So let's start with home prices themselves. What should I be looking at specifically, if I'm trying to analyze the market?
WINZER: Well, if you're looking at your local markets, it's quite likely you've had a pretty good run-up in prices in the last few years if you live in certain parts of the country. There's certain parts of the country where prices have gone up 50, even 75 percent. Southern California, for example, San Diego, 75 percent since the year 2000. Up here in Boston, maybe 50 percent.
WILLIS: Wow.
WINZER: On the other hand, there are some other markets in the country where prices really haven't moved very much at all.
WILLIS: Well, let's talk about a rule of thumb, so that if I'm actually trying to analyze how much is too much, I would know.
WINZER: Well, generally in markets that are moving very rapidly, the old rule of thumb used to be that you can get three years of double-digit increases, and then that market's pretty much near the top. Now, I got to tell you that that's always been true, except in the last five years or so. There are some markets where prices have kept on going up and up and up, and largely because of the low interest rates.
WILLIS: Interesting. Let's talk about inventory. I know that's another thing you think people should pay attention to.
WINZER: Well, one of the things you can do if you are looking at your local markets is to see how many homes are for sale, versus how many homes are in your market. You can get that from your local Realtors' association.
Generally, in a normal market, about 5 percent of the homes are sold every year. In a really hot market, like Las Vegas, you might get 10 percent of the homes sold every year. And if homes stay on the market for maybe two or three months, well, that's only about 1 percent of the homes on the market at any one time.
If you find that there are fewer than 1 percent homes, or more than 1 percent of the homes, something else is going on in the market.
WILLIS: OK. So it's all about comparing averages with current inventory levels. Does the local economy feed into this, as well?
WINZER: The local economy has a lot to do with it. You can generally say that markets with strong employment growth are going to have strong demand for housing, and, therefore, strong home prices. There are other markets where the economy has done poorly the last few years, where the market just doesn't support the prices.
That's one of the reasons why there are these big disparities throughout the country. Some markets very strong, other markets not very strong at all, because people aren't moving into those markets, and in some cases, they are moving out of them, because there are no jobs.
WILLIS: Variations across a country, of course. You say it also matters what kind of real estate you own, whether it's a single-family home or maybe a condo.
WINZER: Condo prices generally are more volatile than single- family home prices. It's partly because generally they are a bit less expensive, so you have a larger potential market of buyers and sellers. Also, because the condo markets, as we're seeing now in some parts of the country, is much more prone to people investing for speculative purposes. I don't mean that in a bad way. I mean investing it as a second home, as an investment property. So...
WILLIS: Well, we've certainly seen a lot of that. Let's say I do all of your analysis, Ingo, and I find out that my market could be ripe for some kind of problem. How can I protect myself?
WINZER: Well, the first thing you want to do is not panic and start selling tomorrow. Home prices, unlike stock prices, don't move very rapidly. And in general, in the United States, they have always moved up and not moved down very much, unless you are in a very special market.
So don't go -- don't rush out and do something tomorrow. But what you can do, if you are in a position where you think that there's been a good gain in value, and you want to do something about it, and if you can afford to, the best thing, obviously, to do is take the money and run. Sell your home, move to a place in the country where home prices are a lot cheaper. And there's a big variation in home prices throughout the country. That's one of the things you can do.
Now, many people aren't in that situation. Many people want to either stay in the area of the country where they are, or they want to even stay in their own community. You can move into a smaller home, because land prices usually are the -- are what goes up and down.
WILLIS: Right.
WINZER: You can move into a community that's a little bit further away.
WILLIS: OK.
WINZER: Generally, home prices are highest in central cities. The further out you get the lower the prices.
WILLIS: Well, Ingo, appreciate your help today. Thanks so much. Great information. Enjoyed the conversation.
WINZER: Thanks, Gerri.
WILLIS: Coming up on OPEN HOUSE, flipping real estate. Buy a property, fix it up, sell it for a profit. Sounds easy, but you have to know what to watch out for.
Then, our weekend project, a kitchen facelift without breaking the bank. Small projects to spruce up a tired room, coming up.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Having trouble selling your home? Your asking price may be too high. When setting the price, base it on recent sale prices of comparable homes in your neighborhood. Reevaluate the condition of your home. Painting the exterior and the interior of the home will often add thousands to the sale price.
And market your home wisely. In addition to newspapers and the Internet, your local multiple-listing service is the most effective method for getting your house listed with local realty agents.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: In this healthy real estate market, many of us know someone who's made money flipping properties. That's when an investor buys a home, fixes it up, and sells it for a profit. Sounds easy, but as Chris Huntington explains, even successful property flippers can get tripped up.
(BEGIN VIDEOTAPE)
CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): For Frank La Fragola, time is of the essence.
FRANK LA FRAGOLA, OWNER, ATLANTIS GROUP: Whatever price it is, it doesn't make a difference. I want to move fast.
HUNTINGTON: La Fragola flips real estate. He buys rundown homes in nice neighborhoods, renovates them, then puts them right back on the market.
LA FRAGOLA: The first thing is always price. But when we come in, the cheaper it is, the better for us, because we know we're not going to have to lay out so much money. But a lot of times, what really jumps out is when real estate agents list the house, they'll put each TLC, or they'll put "Handyman special." As soon as I see that, I know that's a project that I can tackle.
HUNTINGTON: The plan is always to turn a big profit in a small time frame, usually just three to four months. But his newest acquisition, a two-bedroom, two-bathroom home in Arlington, New Jersey, shows there can be hangups.
LA FRAGOLA: When we bought this place, we paid $250,000. We were hoping to sell it for $350,000. But in this business, the longer you sit on the property, the less money you make. So we took a lower price. We sold it for $335,000.
HUNTINGTON: And before he could sell it, La Fragola had to put in another $30,000 worth of work. He redid the bathroom and kitchen, added a patio and a new deck, and hired a contractor to renovate a stairway to the attic. When that contractor failed to get the proper permit, La Fragola had to spend yet another $4,000 on a second contractor.
MICHAEL MARKS, EIC GENERAL CONTRACTORS: Well, we were called in because the stairs here did not meet code. A couple of reasons why. One, there wasn't enough head room, there wasn't proper ballisters on the railing, and the stairs weren't wide enough.
HUNTINGTON: That second round of work also meant more time on the project, and more time before a sale means more time carrying a mortgage.
LA FRAGOLA: We've had one project that we were red-flagged. Initially, we thought the project was going to be two months. It turned out to be seven. So we lost a lot of time, and we lost a lot of money.
HUNTINGTON: Lost time and renovation snags make property flipping a risky business. But by sticking to desirable neighborhoods where buyers often outpace sellers, Frank La Fragola says he's pulled in half a million dollars in just two years.
For OPEN HOUSE, Chris Huntington, CNN.
(END VIDEOTAPE)
WILLIS: No doubt there is money to be made flipping properties. But keep in mind, investors need to educate themselves. And it's really not for everyone.
Here to explain how it's done, real estate investor and author Robert Shemin. He's joining us from Miami.
Robert, welcome.
ROBERT SHEMIN, SHEMINREALESTATE.COM: Good to be here, Gerri.
WILLIS: All right, you say there are two types of flipping. There's the old buy, fix it up, and sell it. And then you say there's another way too.
SHEMIN: That's right, where you actually sell the property before you have to close on it, commonly referred to as flipping, quick turning, or wholesaling.
WILLIS: All right, well, Robert, that sounds really dangerous to me. I mean, could you lose a lot of money really quickly?
SHEMIN: Well, actually, Gerri, you really can't lose money if you do it properly, you use the proper contracts, proper disclosure.
And let me explain how this works. Let's say, Gerri, you find a house that you want to live in for, let's say, $300,000. And you have it under contract. You haven't bought it yet. And you have maybe 30 days to close on it. And the next day, you take your best friend out, and they look at your house and say, I've got to have this house. I love it. I want it.
You say, It's mine. They say, What if I give you $15,000 for the right to buy the house? And you transfer or sell your contract, or you flip your contract, or flip the house. They give the closing attorney or title company $15,000. You sell your contract. They close with their money...
WILLIS: OK.
SHEMIN: ... and you get paid for finding a good deal.
WILLIS: Sounds like you need a lot of really wealthy friends. Let's talk about the more plain-vanilla kind, which I think so many people are interested in getting involved in. What single factor is most important in determining whether you are going to make money or not?
SHEMIN: I think it's the single factor of numbers. Real estate is just numbers, what you can get the property for, what the repairs really are, and how much you can sell that property for, and, of course, how long it's going to take. So it's really just three numbers.
WILLIS: Well, how much can I make if I actually -- the devil is in the details, obviously. But if I do it successfully, how much can I make?
SHEMIN: Well, a rehab, or not drug or alcohol rehab, real estate rehabber, someone who buys and fixes up and flips or sells houses, likes to make between 15 and 25 percent of the selling price. So 20 percent is a decent number. So if you are selling your property for $500,000, a good flipper, or person who buys, fixes up, and sells would probably like to make 20 percent of that, or $100,000.
Now, we don't always make that. Things happen, as you just heard. But about 15, 20, 25 percent is a good number. And you need that margin...
WILLIS: Right.
SHEMIN: ... going in, because things happen.
WILLIS: Well, that's exactly what I was going to bring up. You've got to find the right deal, because you may not be able to get that margin if you pick out a home that's too expensive, right?
SHEMIN: That's right. And I believe you make all your money in real estate when you buy the property or find that good deal from a motivated seller.
WILLIS: What other details do people need to watch out for? Because it seems to me like you could lose a lot of money because you don't expect all the repairs to cost as much as they might.
SHEMIN: Gerri, you hit the nail on the head, so to speak. The number one biggest complaint against all professionals is against contractors or home repair people. So you have got to use one that you get good references on, that has a (UNINTELLIGIBLE) -- you want one with references. And you also need a good contract. And you don't pay them until the work is done.
And we recommend at least a 10 percent holdback. That is, you don't pay all the money till all the work is complete, every piece of trash is removed, every doorstop's in. And please, be careful which contractors you use.
WILLIS: All right. What kinds of homes are the best to buy and flip? Is there a certain type of home? Or is there anything you can tell me to look for when I'm out there shopping?
SHEMIN: Well, most people who get into real estate investing start out in the low and moderate income properties. That is, they're not risking a lot of capital, they're not going out and buying a $2 million property and hoping that it works out. That's where most people start.
And then, as you gain more experience, you may be willing to take on a more expensive home in the upper middle or higher income areas. And again, it's just numbers, whether it's a $200,000 property or a $2 million property. But you got to make sure the numbers are going to work.
WILLIS: One of the concerns I know a lot of people out there has is, is now a good time to be doing this? I mean, we could be in a situation in some markets, and you're in Miami, where prices have gone through the roof...
SHEMIN: That's right.
WILLIS: ... where you could get involved in a flipping proposition and then find prices falling even as you're trying to cash in.
SHEMIN: That could happen, Gerri. But what I tell people, I never let the market worry my business. I focus on profits. So if you are getting into a property and out of it within three to six months, which is what a good flip or rehab project should take, then the market really shouldn't affect you that much.
And, of course, if you are buying and holding property for the long term, 15, 20, 25 years, then the market shouldn't affect you either. And again, flipping, getting in and getting out, is a good prescription in today's market, where you're not sure what's going to happen the next two, three or four or five years.
WILLIS: Interesting conversation, Robert Shemin. Thank you so much.
SHEMIN: Happy investing.
WILLIS: Coming up on OPEN HOUSE, our weekend project. We're going a massive kitchen makeover. We have some easy fixes that won't cost you a fortune. Make it your weekend project, next.
(COMMERCIAL BREAK)
(BEGIN VIDEOTAPE)
WILLIS: Welcome back to OPEN HOUSE, and weekend project, where we take on a do-it-yourself job that you can finish in just two days.
Today, we're in Jersey City, New Jersey, at the home of Michelle and Scott Overall (ph), where we are taking on their kitchen.
Here to help is Marlene Pratt (ph) from the Home Depot.
Marlene, what are you going to do?
MARLENE PRATT, HOME DEPOT: Well, we're going to turn it into a cozier kitchen. We're going to make it more personalized and more organized.
WILLIS (voice-over): Marlene's crew starts by sprucing it up with a new paint job. Always apply a primer coat, so your old paint color won't seep through. And make sure to put masking tape around places where you want to avoid getting paint.
PRATT: (UNINTELLIGIBLE)? Your job is so much easier.
WILLIS: Then it's time to take on the cabinets.
PRATT: We're going to change the hardware on the cabinets. She's missing some cabinets here, so we're actually going to add another cabinet here.
WILLIS: The Overalls wanted to keep costs down, so they found they could create a new look for their existing cabinets just by changing the knobs.
(on camera): You know, it's not a huge kitchen. It's pretty tight in here. You're trying to get some, maybe some better storage options going.
MICHELLE OVERALL, HOMEOWNER: Yes. Storage a big deal for us. We -- it's a small kitchen, and we need every inch of it that we can. And adding some underneath is going to be very helpful.
WILLIS (voice-over): A cramped kitchen is a problem for a lot of homeowners. But Marlene put the new cabinets in under the counter, and above the refrigerator. The added storage space makes it easier to keep things organized and clutter at a minimum.
PRATT: OK, basically we're done with this cabinet. And now all we have to do is just attach the doors. So you have you these pieces here. Once you install these, you put them in. On both sides, you (UNINTELLIGIBLE) take a (UNINTELLIGIBLE) screwdriver or a drill. (UNINTELLIGIBLE).
WILLIS: Another easy and affordable upgrade, new window treatments.
PRATT: Once the brackets are up, it's as easy as one, two, three to install the blinds.
WILLIS: Remember, when hanging blinds, always make sure to drill pilot holes before screwing in the brackets.
Window treatments, fresh paint, and rejuvenated cabinets -- all easy fixes to make a once-cluttered and outdated kitchen a lot more useful and attractive.
And it doesn't stop there. If you need even more storage space than the Overalls, you can also add open shelving where you have free space. And try hooks on the inside of cabinets.
(on camera): Kitchen's done. It looks beautiful. Marlene, congratulations.
PRATT: Thank you so much. It turned out wonderful.
WILLIS: How much time did it take you?
PRATT: It took us two days, a weekend.
WILLIS: All right. And what about the money? The bottom line?
PRATT: We came under $500.
WILLIS: Oh, that's great.
PRATT: So what do you think? Do you like the finished product?
MICHELLE OVERALL: I like it, I like it a lot, actually.
PRATT: Everything, everything, everything?
MICHELLE OVERALL: Everything, everything.
PRATT: OK.
MICHELLE OVERALL: I can't wait to put all my stuff on the new shelves. Won't be anything on top of the refrigerator any more.
PRATT: Oh, fantastic.
MICHELLE OVERALL: Very inspiring. Because once you do one thing, now you want to get everything in the kitchen.
(END VIDEOTAPE)
WILLIS: Filing the backsplash is another way to freshen up a dated kitchen. You can do this for under $30 if you use vinyl floor tiles rather of traditional ceramic tiles.
Coming up, a look at next week's show. But first, the latest mortgage numbers.
(COMMERCIAL BREAK)
WILLIS: Coming up next week on OPEN HOUSE, cutting commissions. We'll show you how to negotiate the best deal with your real estate agent.
Plus, home staging. We'll show you smart ways to showcase your home when you put it up for sale.
And our weekend project, surround sound, just in time for your Academy Awards bash. We'll show you how to install your own home theater.
Plus, we want to hear from you. Send us your comments or questions to openhouse@cnn.com.
Thanks for watching OPEN HOUSE. We'll see you here next Saturday.
Coming up, "DOLANS UNSCRIPTED." But first, a look at the day's headlines.
Have a great weekend.
HARRIS: Good morning, everyone, I'm Tony Harris in Atlanta.
"DOLANS UNSCRIPTED" is straight ahead.
But first, the news right now.
Nearly two dozen people are dead in parts of Iraq from a series of insurgency attacks, this one...
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