Deep Creek Market Update ..

I've read a lot about the state of the Deep Creek market and have even seen some infer that property values are up despite what is going on in the rest of the country. So I wanted to know if buying in 2006 would have still been a good investment (since people are reporting values are up since then) and recently did some research to uncover just how good of an "investment" a property pulled from the listings was for its "investors".

The rundown goes like this. The current owners purchased the property from DC Development, LLC in June 2006 for $749,900 and the property is currently listed for sale at $799,900 after initially being listed for $899,900. At first glance, it still looks like the owners stand to make a quick $50,000 on their "investment" or a modest 6.5% gain over the purchase price of two years ago. This is, of course, what the real estate agents promoting these properties as good investments would have you believe. A more critical examination, however, would include closing costs, transfer taxes, real estate commissions, etc.

Using publicly available information from the MD Land Records Database, one can see that the current out-of-state owners used a combination of first ($599,900 ARM, at 7.5% with 5-year interest only period) and second ($149,500 fixed, presumably at a higher rate) mortgages to enter into a $500 down purchase of this property where they also paid approximately $16,000 in taxes and fees and I would guesstimate about $10,000 more for the privilege of taking out a loan from their out-of-state bank. Adding all of that up and assuming they invested no more money in the property for improvements or upgrades you have about $776,000 as the true cost to purchase this property. Now consider they are using a real estate agent to sell the property and he and his broker may command a 6% commission on the selling price.

This means even if they do sell the property at the current list price the sellers will likely only receive about $751,000 from the sale which is likely about $24,000 less than they have invested in the property meaning that they will almost certainly take a loss on the sale of this property (unless my assumptions are dramatically off). Of course, it is also all together possible that the final selling price could be well below current list price, stay tuned.

Now what was that I was reading about property values being up and the DCL market being "well and improving daily". Obviously this is only one property but this observer is unconvinced that the market for existing houses has improved at all since 2006. Furthermore, I hope that this analysis shows my readers the hidden "costs" of real estate investment that the real estate agents don't mention when they talk about "rising values" and gains you can make on short-term investments.

Don't forget to check back to Dan's Deep Creek Blog for future updates.