Price It Right the First Time

The Internet has empowered all buyers with information and home buyers are no exception.    The amount of information available to public includes details on size, condition, sales history, current inventory, recent sales, photographs, videos, school info, drive-times, entertainment and much more.

When a seller realizes that buyers are educated with facts, it becomes unlikely that they will pay more than a home is worth.  

If a home is priced too high in the beginning, it may stay on the market longer than normal which could adversely affect the ultimate sales price.  It is a natural reaction from people, personally or professionally, to assume that something must be wrong with a home that doesn't sell in a reasonable time for that market.

The seller is entitled to maximize the equity in their home and pricing it properly in the beginning is the best way to achieve that.  Overpricing can reduce buyers activity because they assume that the best homes are purchased soon after they are offered for sale and if one has been on the market longer than normal, there must be a problem with it.  Similarly, sales associates may come to the same conclusion.

After buyers have seen a few homes in a certain price range, they begin to expect similar amenities in each home they look at.  If a home is overpriced, it will not compare favorably with the other homes that are being viewed.  Sometimes, the buyer may even think that another home could be a bargain because it offers much more for the same price as the overpriced listing.

Shopping the market means looking at the homes that meet a buyers' wants and needs and selecting the one that gives them the most, whether it is in price or amenities.  The overpriced listing doesn't compete well, and it extends the market time.  There is a documented study that shows that the longer a home stays on the market, the lower the price will be.

It is essential that a seller receive factual information to price their home to compete favorably in the current market.  Some of the obstacles can include:

• Failure to objectively compare the current and sold homes with theirs
• Neighbors who mislead the seller as to how much they got for their home
• Fear of making a mistake and thinking they can start high and always lower the price
• Loss of perspective because the seller is emotionally involved
• Expecting the home to sell for more than fair market value because they need the money
• Agents who will accept a listing at any price in order to tie up the property until the seller realizes the price is too high

What a seller paid for the home or the cost to rebuild it today do not affect market value.  Neither does the amount spent by sellers on certain improvements that were made for their own pleasure and enjoyment.

It is unrealistic to expect a buyer to pay more than market value for a home.  The seller sets the price of a home but the buyer determines the value.  If the home is priced properly in the beginning, it is more likely to sell for a higher price, in a shorter period and with less problems.

Tips when buying land

                                                                                        

    Top Tips When Buying Vacant Land

Building a new home from scratch can be a dream come true. The idea of designing the perfect property with morning sun in the kitchen and evening breezes on the deck can be exhilarating; the first step to a successful project is finding the right piece of land on which to build. This can present challenges if not approached correctly.

       

        Top Tips When Buying Vacant Land

•   Hire Experience – More than most real estate transactions, it's critical to hire an agent who specializes in vacant land purchases and can guide you through the steps.

•   Expect to Pay Cash – Finding a lender for vacant land can be very difficult. Those who will finance land typically require a 50% or higher down payment and above average interest rates and terms.

•   Get the Neighborhood Comps – Do not neglect to understand home values in the community so you do not over, or under, build your home.

•   Do Your Due Diligence – It is critical to research the property thoroughly. Just a few considerations much include.

  o Site Surveys and Environmental Testing o Easements and Zoning Restrictions
  o Lot Survey and Boundaries
  o Utilities and Water Rights

  Once you've completed these preliminary reviews, it's time to consult with an architect and General Contractor who will then begin to develop concept drawings to consider. Even at this stage, you might find that the home you want is not appropriate for the land you've chosen. Staying flexible is a key component to searching for land; remember that by following a few tips, you can ensure you find the right lot for your dream home. 

Want to be a Landlord?

Real estate has consistently been one of the highest rated investments available to individuals.  TV shows certainly make rentals look easy and you may even know someone who has made a lot of money with them.  Possibly, the thought has crossed your mind that if they can do it, you can too.

Before you contract for your first investment, ask yourself some questions that could save you time and energy.  Not all people have the time, the inclination or even the skill to manage property.  Landlords need to be good business people who can maximize revenue and minimize expenses.  If investors don't have the skills and talent to handle some of the repairs, they at least need to know reputable and reasonable service professionals.

Another important element is to be familiar with the state and local landlord tenant laws.  You'll need to know what are allowable security deposits and where the money can be held.  Knowing how long you have to return it to a tenant is important and what to do if you plan to keep all or part of it for damages done.  It is important to know about the eviction process and how fair housing applies.

If you decide that you may not be cut out for being a landlord, it won't eliminate investing in rentals.  It does mean that you will need to engage a property management company who is capable of dealing with all aspects of the process.  The peace of mind and convenience will cost you a fee, usually a percentage of the rent collected.  They can handle finding a tenant, doing the background check and writing the lease but there will be an additional fee for that service.

Even though your expenses will be higher with a property manager, with their experience, they should be able to help you lease the property for more money than you can get and will probably have service providers to do the work needed for less.

Occasionally, rental property requires out of pocket expenses for repairs and improvements which is like making another capital contribution.  As equity builds in a rental property due to appreciation and principal reduction, the owner does have the option to take cash out of the investment either to pay additional expenses or to use any way the owner wants.  Pulling equity out of a rental doesn't even trigger a taxable event.

Single-family homes and up to four-unit buildings offer an investor the opportunity to get a high loan-to-value mortgage at a fixed interest rate for 30 years on appreciating assets with tax advantages and reasonable control compared to other alternative investments.

Many investors like the fact that you can borrow to purchase a rental investment where many other investments require cash.  The use of borrowed funds can create an advantage called leverage.  Assume you paid cash for a $100,000 home that generated $7,000 income after the rent was collected and expenses were paid.  Divide the value of the home into the income and it would earn 7%.

If you decided to put an $80,000 mortgage on it at 5% interest, the interest expense would be $4,000 leaving only $3,000 income.  However, at that point, you'd only have $20,000 invested in the property.  Divide the cash invested into the income and the rate of return would increase to 15%.

This is a simple example of leverage showing that borrowed funds can increase an investor's yield on a property.

Rental property can be an excellent investment when it is treated like the business that it is.  Knowledge of the investment will reduce the risk and enhance the opportunity to make a profit.  Some investors consider their rental income as "mailbox money" because each month, they go to their mailbox and they have money being sent to them by their tenants.  The benefits of rental property can easily outweigh risk involved.

Contact me for more information on rental properties and the option to be the landlord or to delegate it to a property manager. 

Money You Saved for a Down Payment

Occasionally, buyers who can qualify to purchase a home decide to "take a break" and wait to purchase a home.  When the focus of buying a home is relaxed, other uses for the money that was going to be used for the home are considered. 

Maybe they think how much fun it would be to have a Sea-Doo or a motorcycle or a new car.  It is amazing how many people would like to buy a home but either don't have the down payment, the income or the good credit to make it possible.

Instead of spending the money, consider investing the money for two years until the time is right to buy a home.  Let's look at putting the money in a certificate of deposit that earns 2% or in the stock market that could average a 5% return.

Assume you were purchasing a $295,000 home on a FHA loan with 3.5% down payment.  The $10,325 would grow to $10,742 in the CD which isn't a big increase but at least it is safe and secure, and it will be available when you're ready.

If the same amount were invested in a safe stock or mutual fund that earned 5%, it would grow to $11,383 in the same two-year period.  It earns more but there is more risk involved.

Your Best Investment
	CD	Stock Market	Home
Cash to Invest	$10,325	$10,325	$10,325
Wealth Position	$10,742	$11,383	$38,871
Profit Taxed as	Ordinary Income	Long-term capital gains	§121 exclusion applies

 

Alternatively, if you invest the same amount in purchasing a home that appreciates at 3% a year, the equity would be $38,871 two years from now.  The dramatic increase is due to leverage, being able to control a large asset with a small amount of cash.  The appreciation is based on the purchase price not the down payment.

Another factor is that there is principal reduction with each payment that is made.

Make your own projections with Your Best Investment.