Builders' mixed strategy helps in down times

Eric Gutt and younger brother Ron are Charlotte-area builders who think big and small.

It's a mixed business philosophy for the brothers Gutt that has helped their Matthews company, Beacon Builders, navigate choppy real estate waters, particularly for new construction.

Their freshly built homes in the south Charlotte and Lake Wylie areas list for $800,000 to more than $1 million, but they usually have only two or three completed and for sale at any one time. Because of the downturn, they have an inventory of five right now.

Beacon's smallish inventory and earlier success in Charlotte's booming market of only a year ago have helped the brothers ride out a historic drop in demand.

"Fortunately, we have some reserves we're able to draw on to keep ourselves current with our lenders," he said. "It's kind of like turning a battleship. If you're in the middle of building a home and the market turns, you just have to finish up."

To set their company apart, Beacon became the first builder in North Carolina to earn an EarthCraft House certification, a green builder program that has gained repute.

Gutt calls it a high-quality and cost-efficient alternative to other expensive green certification programs that can end up tacking $10,000 or more to the price of a new home, costs passed on to buyers. The certification means the homes are built to high energy-efficiency standards that save homeowners money. They're currently building their first one.

MoneyWise spoke with Eric Gutt, the president of Beacon, about building success in Charlotte and about advice for prospective homebuyers. With interest rates low and a real estate slowdown, there are some steals out there.

One of the tricks when buying, he says: Look at the pine needles.

Questions and comments have been edited for brevity and clarity.

Q. How is Beacon handling the real estate slowdown and drop in new construction?

As best we can. A lot of builders were kind of caught off guard. We have some extra inventory that we are trying to sell off. But the good news is that things seem to be picking up since the first of the year. With a little bit of luck, we'll be able to weather this thing out.

Q. Why did this happen?

When you're building speculative homes, 80-90 percent are for relocations -- people who got jobs here and transferred from New York and Texas. But they can't sell their homes back home. So they're buying smaller or staying in corporate housing. It's like a dam of people filling up who really want to buy but can't. But custom homes are generally for locally based people. They take up to a year to build, and if somebody is coming to Charlotte, they don't want to wait a year. Custom homes account for about a quarter of our business, and that business is better than ever.

Q. Why are you so confident it will turn around?

We've been comparing notes with other builders. And the first of the year activity is up dramatically in general traffic. It's the job transfers and other people who had been sitting on the sidelines waiting for interest rates to come down. It's a good sign.

Q. What advice do you have for someone looking to buy a home?

It's really, honestly, a terrific time to buy. There are great deals and an inventory of homes that will never be seen again. We have some home builders selling for near cost. Someone can move in and have several hundred thousand dollars of instant equity.

Q. What is one piece of insider advice for a buyer?

People will ask you, `Who's a good builder?' The thing to be aware of is your first impressions of a completed, speculative home. How fresh are the pine needles, is the trash picked up, the house clean? That shows the attentiveness of the builder. It shows they're not really cutting corners.

Q. How do you advise kicking the tires on a new or used home?

I think people need to be aware that you generally get what you pay for. One house may tend to be more. There are a lot of features in homes hidden behind the walls that add a lot to the efficiency and utility costs. Our houses meet certain (energy-efficient standards). It makes the homes efficient and keeps the utility costs down.

NO BETTER TIME THAN PRESENT FOR REFINANCING

COLLEGE STATION (Real Estate Center) – For those considering refinancing their homes, Real Estate Center Chief Economist Dr. Mark Dotzour says there may not be a better time than the present for many years to come.

“Inflation is clearly rampant all over the world, including in the United States,” he said. “When inflation is a problem, mortgage rates go up. Rates probably should be much higher right now, but they aren't.”

Why are rates so low when inflation is not a fear but a fact? Dotzour says the fear of a global collapse of the banking system is greater than the fear of inflation for the world's bond investors.

“Wall Street has a name for the phenomenon, and it's called the ‘flight to quality.’ When investors get concerned about global conditions, the United States is the haven of safety,” Dotzour said. “As investors moved money into U.S. Treasury bonds, the ten-year treasury rate dropped from 5.3 percent in August to 3.7 percent today.”

Dotzour said investors who are using U.S. treasuries as a safe haven are willing to accept a 3.7 percent interest rate even though the U.S. inflation rate is at 4.1 percent.

Once the banking system is repaired and the fear of global collapse of the banks is over, Dotzour predicts treasury rates and mortgage rates will move up, maybe substantially.

“If you believe that we are in for a global financial collapse, then don't refinance yet because interest rates will continue to fall,” he said. “If you think the U.S. government and the central banks around the world won't let this happen, then now is the time to get a fixed-rate mortgage at rates we haven't seen in the past 40 years.”

How to Find the Right Home

Making Pre-Purchase Decisions

Just because you may feel restricted by price ranges -- especially if this is your first or second home purchase -- don't let anybody tell you that you can't afford to be choosy when looking for a home to buy! You are unique. You have desires and needs, hopes and dreams for your new home that are different from your parent's, friend's or coworker's. OK? So let's get busy defining these homebuying parameters and writing them down.

Location & Neighborhood

• Suburbs or Country.

Pros: Generally less expensive. Often newer. Tract homes are conforming. More home for the money.
Cons: More time in traffic if driving to town for work. Further away from entertainment options cities offer.

• Urban.

Pros: Closer to many employers.

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Walking distance to theaters, restaurants, schools. Many period homes offer more distinctiveness in styles.
Cons: Often noisier. Higher crime rates. More expensive.

• Busy Streets.

Pros: Often homes on streets with more traffic are thousands of dollars cheaper. If noise doesn't bother you, don't pass up homes on busy streets. Drive by at different times of the day / week to ascertain noise levels.
Cons: These types of homes will always sell for less than others in the same area. If bedrooms are located near the front of the home, sleep may be disturbed.

• Cul de sac.

Pros: Number one choice of buyers with children.
Cons: Less privacy, neighbors know more about you.

• Corner lots.

Pros: Often larger lots. Fewer neighbors. More visibility.
Cons: More traffic noise. More vulnerable to vehicles jumping the curb. Kids might trespass at the corner. More sidewalk to shovel in winter.

Type of Home

• Single Family.

Pros: Good appreciation. Opportunity for gardens. More privacy. Quieter.
Cons: More expensive than our next category. More maintenance.

• Condos, Townhomes, Cooperatives.

Pros: Less expensive than comparable single-family homes. Generally newer so fewer repairs. Lock-n-go lifestyle. No yard or exterior maintenance.
Cons: Less privacy. Noisier. Common walls and/or floors and ceilings. Sometimes no private yard or balcony.

Number of Stories

• Single Story.

Pros: Easy wheelchair access. Some medical conditions such as bad knees make it hard for certain individuals to climb stairs. Easier to clean.
Cons: Can be noisier if stereos or televisions are located on the same floor as bedrooms. Some people feel safety is compromised if bedrooms are located at ground level. More of the lot is absorbed by living quarters.

• More than One Story.

Pros: More living space on same foundation than a ranch home. Less noise if entertaining on lower level while other family members sleep upstairs.
Cons: More trips up and down the stairs to carry stuff to bedrooms. If laundry rooms are on the second floor, washer leaks are major. Might need dual vacuum cleaners. It is difficult to maintain consistent temperatures on each level without dual heating and cooling units.

• Split Levels.

Pros: Often less expensive if purchased with lower level unfinished. Higher ceilings are appealing. Downstairs family room separates noise levels from upstairs. More square footage on same size lots as ranch homes.
Cons: Less storage space. Hassle to take trash downstairs and carry groceries upstairs or vice versa. Kitchens tend to be smaller.

Interior Specifications

• Number of Bedrooms.

Pros: Common minimum requested configurations are 3 bedrooms. Newer parents prefer bedrooms located on one level.
Cons: 2 bedrooms appeal primarily to first-time home buyers, singles or seniors. However, don't discount a two bedroom if an extra den will satisfy your space requirements.

• Number of Bathrooms.

Pros: More than one bath is preferred by most people. One bath homes are often less expensive.
Cons: Don't pass up a one bath home is there is room to add a second bath. Sometimes it costs less to put in an extra bath than it does to buy a two-bath home.

• Square Footage.

Pros: larger spaces offer more room and cost less per square foot than smaller spaces.
Cons: Don't be misled as lay-out is more important than actual square footage. Sometimes well designed smaller spaces appear larger.

• Bonus Rooms.

Pros: Extra space for media rooms, art studios, children's playrooms, gyms, den/study.
Cons: More expensive.

Garages

• Attached.

Pros: Cheaper to build. Convenient if raining or snowing.
Cons: Higher noise levels inside the home from cars. Some people feel they are an eye sore. If the garage door to the house self locks, you could get locked out at an inopportune time.

• Detached.

Pros: Can be tucked away from site lines. Quieter.
Cons: More expensive to build. Farther to walk in bad weather.

Additional Considerations

• School districts.
• Special amenities such as fireplaces, pools or spas.
• Condition of plumbing, electrical, heating & cooling units.
• Available utilities such as cable or DSL, satellite.
• Sewer, cesspool or septic connections.
• Fixers.

The Meaning of Location, Location, Location

I've seen buyers get so excited over the updates in a home that they forget about the first rule of real estate: location, location, location.

Generally, buyers will get the best return for their money if they buy the worst house in the best neighborhood. If a cosmetic fixer needs carpeting or the floors refinished, buyers might receive a discount on price. Plus, then buyers can choose carpeting or floor finishes that match their own tastes and not that of the seller. On the other hand, buyers will most certainly face a harder time selling down the road if they buy the best house in the worst neighborhood.

Yet, many buyers gravitate toward the right homes in the wrong locations. After looking at a few dozen homes, it's easy to get swept up in the excitement of finding that perfect home. That perfect home might have the right configuration and plenty of amenities but if it's in a bad location, you might want to consider passing it by. Regardless of its price . . . read more about Location, Location, Location.

My Real Estate Website Doesn't Produce Leads

This seems to be the number-one concern among real estate agents these days ... a website that doesn't produce any viable real estate leads. Or one that doesn't produce any leads at all.

Sometimes the answer is obvious. Other times, it calls for some speculation. For example, some websites have such obvious problems that you can spot them at a glance. Maybe there are no lead generation systems in place at all, or perhaps the website doesn't function properly.

In other cases, however, the website may appear to be well-designed from a lead generation standpoint, but it still does not produce any real estate leads. This is a tougher scenario to evaluate.

In the latter case, the lack of real estate leads could just be because of the market. After all, if there's not a lot of real estate activity in your area, you can't expect a steady stream of leads to pour through your real estate website. In many cities -- from Nashville to Tucson and elsewhere -- this is what we are seeing right now. And in this case, you simply have to look at your traffic stats. Are you even getting any traffic on a daily basis? If not, you have no hope of producing real estate leads from the website.

If your stats reveal a steady stream of website traffic day in and day out, but you are not getting any leads from the website, then there is something lacking from a lead generation standpoint. In such cases, these are the things I usually troubleshoot first:

Does the website offer any reason why people should contact the agent, or fill out the form, or whatever the conversion goal is? If not, this needs to be addressed first and foremost.

Are the conversion points easy to find, or is the real estate website in such a messy state that visitors can't find their way around? This is a usability issue, and one of the ways you can spot it is through high percentages of people who hit the home page only to leave right away (without clicking further into the website).

These are the things I would start with when troubleshooting a real estate website with good traffic levels but poor lead generation. Often, it's just a matter of cleaning things up and presenting something of value that people would want.

I also see a lot of those "Free Reports" offered on real estate websites, presumably for lead generation purposes. Many of the so-called reports I encounter are poorly positioned in several ways. First of all, they will consist of information the web visitor can easily find elsewhere online. For example, "Top 10 Tips for Buying a Home" is so worn out and overused that it's sad really. Without much effort, I could probably Google that phrase and find it plastered all across the Web.

So who is going to offer their email address in exchange for a generic article they can find on thousands of other websites? Consumers are web-savvy these days, and they know how to ignore useless info and find the good stuff.

So let's say you took the "free report" concept and injected it with steroids and other performance-enhancing substances ... metaphorically speaking of course. Let's say you created an actual e-booklet, in PDF format. And let's say that it was all about the local real estate scene in your area. Suddenly, the booklet becomes something that people cannot find anywhere else, thus the perceived value of the item increases.

Now let's take this further and hire a graphic designer to create a "virtual cover" for the booklet -- one that you can use to promote it on your website. People believe in what they see, so sometimes a little visual entice is all it takes to get people to starting filling out those web forms.

But we're not done yet. Let's create a press release and distribute it online to announce this insightful new guide to the real estate scene in [your town] ... jam-packed with recent sales statistics, development news, residential reports and more. A must-read for anyone planning to buy a home in [your town].

I've shared enough. You get the idea. But suffice to say these are only steps 1 through 7 of about 15 steps I would take ... if I were serious about generating leads through my real estate website. I offer these kinds of ideas and strategies all the time, but very few people implement them. And do you want to know why?

Because nobody ever said lead generation was easy!

Those who put in the extra effort will reap the extra rewards. And those who keep peddling their "Top Ten Tips for Buying a Home" will probably find another line of work at some point.

Finding Your Dream Home

Many people believe that it is impossible to find the home of their dreams unless they have very large amounts of money available to buy the home that they want. This common belief is not necessarily true, if you know the right places to look, you will be able to find your dream home and not spend a fortune on it.

If you want to invest in real estate and stop wasting your money paying rent, it is possible and you can even find a home that will cost about the same as your monthly rent payment. All you have to do is find the right resources and know how they will work together. One place that you can look is at home auctions or in areas where there have been bank foreclosures. Many of these homes will be ones that the previous owners could not pay for and the bank was forced to foreclose on them. Because there is no one paying for the house, the bank is having to pay for it and often times the bank will lower the price of the home so that they will not have to keep paying for it.

If you do not know where to look for bargain homes, you can just browse through locations and do some investigating on your own. Many times, the Internet and local real estate magazines are designed to show you the market and they will also include the lowest priced homes in their listings. If you search local resources, you will be able to compare the homes that are available and you will also be able to see the homes that are lower priced because of things such as foreclosures.

When it is time to look for the home of your dreams, you do not even have to set a foot outside. You can instead search what is available using the Internet and real estate magazines and find a home that will fit both your individual style and your budget.