Apex Ranked 14th Best Place to Live in USA& #1 in North Carolina
For Immediate Release July 16, 2007
CNNMoney.com - Best Places to Live: Top 100
WRAL.com - 2 Triangle Towns Among Money's 'Best Places to Live' List
CNNMoney.com reported today that the editors of Money Magazine had ranked the Town of Apex as the 14th best in their annual list, 2007 Edition, of the 100 Best Places in America to Live. This year’s list had focused on smaller communities under 50,000 in population that offered the best combination of economic opportunity, good schools, safe streets, things to do, and a real sense of community. The web article highlighted the Town’s “impressively intact” “turn-of-the-century” Historic Downtown District. This designation gives Apex the distinction of being the best in North Carolina as only two other, but lower-ranked, North Carolina municipalities were on the national list.
Mayor Keith H. Weatherly expressed his appreciation for this recognition as he said, “We are all so pleased and proud that our Town has attracted this kind of positive national attention. Our Town Council and town employees have really worked together with our citizens, our businesses, our schools and churches to make this community one of the best places in all of America to have a home, to raise a family, to go school, to start a business, and to enjoy a safe and happy lifestyle.”
As news of the national ranking of Apex spread, calls and inquiries poured into Town offices and the local Chamber of Commerce. “We’ve had a deluge this morning of people from everywhere wanting to know more about Apex,” said Apex Town Manager Bruce Radford. “We are always glad to share all we can about opportunities in Apex. This is a very welcoming community,” added Radford.
Mayor Weatherly continued by saying, “We have tried to maintain a delicate balance of managing our growth, holding development to high standards, keeping taxes low, creating attractive and affordable neighborhoods, supporting local schools with high academic achievement, offering diverse recreation programs, and keeping crime out of our Town with a strong public safety program. Our water towers all feature the slogan APEX -- THE PEAK OF GOOD LIVING. Today that’s not just a goal, it’s the truth."
Monday, December 31, 2007
Sunday, December 30, 2007
The 5 Best Places To Sell A Home
The 5 best places to sell a home
Home sales are in a slump, but not everywhere. These five cities, because of lack of room to overbuild or a population influx, are still seller's markets.
By Matt Woolsey, Forbes.com
If you've got property for sale, chances are you're in a bind: Nationwide, prices for existing homes keep falling, and new homes started a few years ago continue to come on the market, increasing inventory.
On top of that, the fallout from subprime lending, the subsequent tightening of credit and lending standards and the recent rise in long-term Treasury yields have shrunk the pool of eligible buyers.
Yet, not every market follows national trends, and despite the industry's overall problems, there are still cities where sellers have the upper hand. The best way to judge a buyer's versus a seller's market is a simple supply-demand analysis of housing stock: At the current rate of sales, how long would it take to sell off the inventory of single-family homes or condos? If that measure comes back high, houses sit on the market longer. If it is low, the market is tightening, which is good news for the seller.
To measure inventory glut, we used Moody's Economy.com and National Association of Realtors data that tracked a market's current sales rate by projecting the amount of time it would take to sell off the excess housing stock at the current rate of sales. We also looked at the change in sales rate over the past year to measure the relative tightening or loosening of the market. Finally, a measure of price stability was applied so as to prevent the list from being a rundown of upstart markets.
The measurements left out a few cities that lacked comprehensive data. Seattle, for example, has incredibly strong market fundamentals -- the lowest vacancy rate of major metros at 0.9% and a small geographic area not conducive to overproduction. It is a good seller's market, but for tracking what we were after, Seattle data were incomplete for our analysis.
Moody's Economy.com chief economist Mark Zandi points out that the best-performing markets are those that had barriers to overproduction during the housing boom.
In the case of San Francisco, which ranked second on our list, it's an issue of geography: There is little space for growth or new development, and the local government doesn't do much to encourage new construction.
Strong in-migration stemming from local economic strength is another factor keeping demand high. New houses being built isn't a problem if new people are moving to town.
This scenario is playing out in Raleigh, N.C., the No. 1 city on our list. Moderate growth and disciplined building over the past five years prevented the market from developing a significant glut. Additionally, a strong local economy has helped contribute to the city's healthy 1.6% vacancy rate.
What's more, the rate of home sales against home inventory was healthy in Raleigh; in this category, it ranked fifth best of big cities, according to Moody's metrics. Even though the market has low vacancy to begin with and displayed strong construction restraint during the housing boom, Raleigh still has the eighth-best rate of tightening.
Similarly, strong in-migration and local economic pop make Austin, Texas, a seller's market. It finished fourth overall in sales rate to inventory size and has the fifth-best home-price appreciation figures of the large markets Moody's measured. Its mediocre 14th-best market-tightening ranking can be attributed, in large part, to its small inventory excess. Austin's vacancy rate is 1.5%, which is also where the national average stood during the most recent housing boom. In other words, that low a vacancy rate indicates a housing market at close to full capacity.
While the market isn't going gangbusters for investment, sellers in these markets are faring much better than their counterparts across the country.
Top cities for home sellers:
Raleigh, N.C.
San Francisco
Austin, Texas
San Antonio
St. Louis
Monday, December 17, 2007
I Don't Know How You Do It...
Buyers, I really don't know how you do it. I mean, 'buy', that is. How do you guys buy homes? Seriously, my wife and I started looking for homes in Apex, NC this past weekend. Yes, I am a Realtor, and yes, I should know all the ins and the outs of the business. While that is true, I know all the ins and the outs, perhaps I know too much. Nonetheless, that does not mean that I have the innate ability to find whatever I like, let alone have the financial prowess to purchase whatever I want.
Maybe I have seen too much, maybe I know too much. But heck... we can't seem to find anything that we both like. Or rather, we can't find anything that we both want.
'We need room. Lots of room.' I have heard that before.
'We want a good area'. I have heard that before.
'We want good schools'. Tell me about it!
'We want a nice lot with a backyard'. Who doesn't?
'We want large upstairs rooms and a large master'. Go on...
'We want a deal'. Of course we do.
Oh, brother! I have heard all that before and then some! So, I swore to myself that I would not be another one of those people. Always telling me what they want, and then not being able to find it... and then stopping the search, staying put, and never buying anything. Yep... that seems to be me! I AM one of those.
So... Buyers... I now empathize with you. I understand the complicated thought processes that you go through. I understand how hard it is to make a choice - to find the right house - and to find it in a price range that is acceptable. A neighborhood you can feel proud of, with lots of trees, good neighbors, a pool and playground. Yep, I want that too.
Let me know when you find it!
Maybe I have seen too much, maybe I know too much. But heck... we can't seem to find anything that we both like. Or rather, we can't find anything that we both want.
'We need room. Lots of room.' I have heard that before.
'We want a good area'. I have heard that before.
'We want good schools'. Tell me about it!
'We want a nice lot with a backyard'. Who doesn't?
'We want large upstairs rooms and a large master'. Go on...
'We want a deal'. Of course we do.
Oh, brother! I have heard all that before and then some! So, I swore to myself that I would not be another one of those people. Always telling me what they want, and then not being able to find it... and then stopping the search, staying put, and never buying anything. Yep... that seems to be me! I AM one of those.
So... Buyers... I now empathize with you. I understand the complicated thought processes that you go through. I understand how hard it is to make a choice - to find the right house - and to find it in a price range that is acceptable. A neighborhood you can feel proud of, with lots of trees, good neighbors, a pool and playground. Yep, I want that too.
Let me know when you find it!
Monday, December 10, 2007
Cost Vs Value Report
Thinking of remodeling? Many people ask me how much they think they will get back after they add 'this' or remodel 'that'. Really, I have no idea - it depends upon the market. Check out this link to a nationwide study of cost vs value: http://www.costvsvalue.com/index.html
In sum, projects with highest national percentage of costs recouped:
In sum, projects with highest national percentage of costs recouped:
- 88%Upscale siding replacement
- 85%Wood deck addition
- 81%Wood window replacement
- 83%Minor kitchen remodel
Of course, it also depends upon the quality of workmanship too. Just because you replaced your siding from materials purchased at Home Depot or Lowes, does not mean you will get 88% back.
Monday, December 3, 2007
Housing Slump Article
Here is a link to an article I read on the housing slump:
http://www.msnbc.msn.com/id/22065972/
Read it and then come back here.
The last paragraph reads: "Keep in mind that in any housing market there is always a buyer — if the price is right. One reason houses aren’t selling well in some areas is that some buyers who are waiting for prices to recover are unwilling to acknowledge that they may have to settle for a little less. If asking prices remain stubbornly higher than recent sale prices, it will take longer for the level of home sales to pick up again. "
I assume that the writer meant to say that "One reason houses aren't selling well in some areas is that some SELLERS who are waiting for prices to recover are unwilling to acknowledge that they may have to settle for a little less."
This is the truth. Until Sellers get the hint that the real estate boom is over, prices will remain high. Buyers think it is a buyer's market and sellers still think their homes are worth more than they are. Until the two meet at the same mindset, we will remain at an impass, and you will continue to see inventory rise.
http://www.msnbc.msn.com/id/22065972/
Read it and then come back here.
The last paragraph reads: "Keep in mind that in any housing market there is always a buyer — if the price is right. One reason houses aren’t selling well in some areas is that some buyers who are waiting for prices to recover are unwilling to acknowledge that they may have to settle for a little less. If asking prices remain stubbornly higher than recent sale prices, it will take longer for the level of home sales to pick up again. "
I assume that the writer meant to say that "One reason houses aren't selling well in some areas is that some SELLERS who are waiting for prices to recover are unwilling to acknowledge that they may have to settle for a little less."
This is the truth. Until Sellers get the hint that the real estate boom is over, prices will remain high. Buyers think it is a buyer's market and sellers still think their homes are worth more than they are. Until the two meet at the same mindset, we will remain at an impass, and you will continue to see inventory rise.
Wednesday, November 28, 2007
Where Are The Deals?
Where are the deals? How do you buy a home at a great price? I work with many buyers who say they want a deal when we negotiate the price of a home. They want the best home at the lowest possible price. Awesome! Let's do it!
But what people fail to do is put themselves in the mindset of the Seller. Why would a Seller give away their home? Here is one answer - motivation.
In order to get a great deal on a home - or any other product, consumable or not, there has to be motivation on the seller's side. That motivation is what pushes them to accept less than what they really wanted.
It just pains me to see Buyers waste their time (and mine) trying to get a price reduction on a home that just came on the market. One that has a flat, fenced backyard. One that has an optimal floorplan, in a great neighborhood, with a pool. Why oh why would a Seller agree to a price $15,000 less than what they are asking for without waiting just a couple of days to see what the open market brings? Buyers continually tell me that they want this, that and the other - they want the best house I can find them - oh... and they want to buy it at below market value. After all, they read in the paper that it is a Buyers' market. So why shouldn't Buyers get the price they want?
But what people fail to do is put themselves in the mindset of the Seller. Why would a Seller give away their home? Here is one answer - motivation.
In order to get a great deal on a home - or any other product, consumable or not, there has to be motivation on the seller's side. That motivation is what pushes them to accept less than what they really wanted.
It just pains me to see Buyers waste their time (and mine) trying to get a price reduction on a home that just came on the market. One that has a flat, fenced backyard. One that has an optimal floorplan, in a great neighborhood, with a pool. Why oh why would a Seller agree to a price $15,000 less than what they are asking for without waiting just a couple of days to see what the open market brings? Buyers continually tell me that they want this, that and the other - they want the best house I can find them - oh... and they want to buy it at below market value. After all, they read in the paper that it is a Buyers' market. So why shouldn't Buyers get the price they want?
Monday, November 19, 2007
Home Inspection Attitudes
Whew! Home inspections can be tough. I know I wrote about this before, but it warrants another call. Most Buyers and Sellers rejoice after putting a home under contract. Everyone feels like the long wait is over. The Sellers finally got rid of their home and the Buyers have now found the home of their dreams.
But wait! There's more! The process is not over. In fact, the trouble has just begun. In my opinion, the home inspection process is the most difficult process in the entire home transaction.
From the Buyers' point of view, they are purchasing a home with 'all these problems and defects'. They have every right to want everything fixed. Why should they inherit someone else's problems and baggage. After all, they are paying a good price for the home, so everything should be fixed.
From the Sellers' point of view, these 'were not problems when we moved in to the house'. Their inspector never said anything about the damp crawlspace and the creaky floors. The air conditioning works just fine too, so why should they fix it? The door will close fine, all you have to do is put some weight against it. Oh, and they never used the hot tub, so they are not going to fix that either. After all, the Buyers got a great price on the house, so they can simply fix all the problems.
As you can see, this might take a while to sort out. The point here is that neither side can have it their way. This takes negotiation, patience and a lot of compromise. Buyers and Sellers should go into the inspections with a heart of good faith. Buyers should not 'beat up' the Sellers over minor repair items like creaky doors, or uneven fence posts. And Sellers should not become angry and personally offended when a Buyer asks for items fixed.
It is my job as the Realtor/Agent to make sense out of all this mess. But I can't do it without everyone's objectivity.
Just realize that the home inspection process is a difficult one. Treat others the way you would like to be treated int he same situation. We all have to buy and sell at some time, so remember the other side when you are battling the battle. Stay objective, be fair and most of all, compromise. Otherwise, everything may end up with a home that is 'back on the market'.
But wait! There's more! The process is not over. In fact, the trouble has just begun. In my opinion, the home inspection process is the most difficult process in the entire home transaction.
From the Buyers' point of view, they are purchasing a home with 'all these problems and defects'. They have every right to want everything fixed. Why should they inherit someone else's problems and baggage. After all, they are paying a good price for the home, so everything should be fixed.
From the Sellers' point of view, these 'were not problems when we moved in to the house'. Their inspector never said anything about the damp crawlspace and the creaky floors. The air conditioning works just fine too, so why should they fix it? The door will close fine, all you have to do is put some weight against it. Oh, and they never used the hot tub, so they are not going to fix that either. After all, the Buyers got a great price on the house, so they can simply fix all the problems.
As you can see, this might take a while to sort out. The point here is that neither side can have it their way. This takes negotiation, patience and a lot of compromise. Buyers and Sellers should go into the inspections with a heart of good faith. Buyers should not 'beat up' the Sellers over minor repair items like creaky doors, or uneven fence posts. And Sellers should not become angry and personally offended when a Buyer asks for items fixed.
It is my job as the Realtor/Agent to make sense out of all this mess. But I can't do it without everyone's objectivity.
Just realize that the home inspection process is a difficult one. Treat others the way you would like to be treated int he same situation. We all have to buy and sell at some time, so remember the other side when you are battling the battle. Stay objective, be fair and most of all, compromise. Otherwise, everything may end up with a home that is 'back on the market'.
Saturday, November 10, 2007
Market Update for the Triangle Area, NC
Triangle residential real estate; third quarter summary
Published without permission from:
Stacey P. Anfindsen, Birch Appraisal Group of Cary, Editor
and
Triangle MLS, Inc., Publisher
LISTINGS
- There are currently 13,410 active listings within our four main counties. This is an increase of 23% compared to October, 2006 inventory levels.
- There are currently 4,996 new home listings, an increase of 21% compared to 2006 new home inventory levels.
- There are currently 8,414 re-sale listings, an increase of 25% compared to 2006 re-sale inventory levels.
- There were 24 (compared to 23 in 7/07) price points/geographic areas that had lower inventory . There were 74 (compared to 45 in 7/07) price points/geographic areas that had higher inventory.
PENDING SALES
CLOSED SALES
- There were 23,247 closed sales in the four county market during the first nine months. This is a decrease of 3% compared to the 23,983 closed sales during the first nine months of 2006.
- There were 2,583 closed sales during the month of September, a decrease of 3% compared to 9/06 closings.
- There were 16,696 closed re-sales in the four county market during the first nine months. This is a decrease of 2% compared to the 17,043 closed sales during the first nine months of 2006.
- The average sales price during the month was $248,500, an increase of 4% compared to the 9/06 average.
- The average price of a re-sale was $219,400, an increase of 1% compared to the 9/06 average.
- Wakefield Plantation closed the most amount of homes during the first nine months with 208 closings. They were followed by Hedingham with 203 closings and Heritage Wake Forest with 199 closings.
DAYS ON MARKET
- The average days on market for closed sales during the first nine months has been 73 days.
- The average at the end of 9/06 was 72 days and the average at the end of 9/05 was 85 days.
- The average for a re-sale home was 59 days (versus 61 in ’06) and the average for a new home was 107 days (versus 100 in ‘06).
CURRENT SUPPLY
- The current supply of all housing within the four main counties is 5 months. The current supply at the end of September, 2006 was 4 months.
- There are 14 (compared to 25 in 9/06) price points/geographic areas with a current supply of 2 months or less. There are 11 (compared to 4 in 9/06) price points/geographic areas with a current supply of 10 months or more.
Monday, November 5, 2007
I THOUGHT THE FOLLOWING ARTICLE WAS VERY INTERESTING. IT CERTAINLY HELPS DISPELL SOME MYTHS ABOUT US REALTORS.
(Reproduced and added here without permission from RealEstateABC.com newsletter.)
++++++++++++++++++++++++++++++
How Much Do Real Estate Agents Earn?
Many people think real estate agents make huge amounts of money. Some do. Most don't. But lots of consumers want to know "how much"?
Because agents are so easy to poke fun at, the media often try to present the figure in a way that indicates real estate agents are overpaid.
Maybe we'll bust a myth about that. Maybe not. During the writing of this article, we'll calculate how much agents earn in commissions. Right now, as we write the article, we don't know what the answer will be except that commissions are down from last year. We intend to calculate the figure as we go.
So let's start.
The median average sales price in America right now is $211,000 and we're currently on a pace to sell 5 million homes. Simple multiplication provides a dollar number on which the total real estate commissions will be based.
Over 1 trillion dollars worth of homes sold.
That's a lot.
Most of those sales will pay a real estate commission. Folks think that the typical commission is 6%, but it varies and is negotiable. Some "full service" agents charge seven percent. There are "discount brokers," too - and sellers will make different kinds of deals with companies offering different levels of services.
Combining all that together, the average commission charged per deal is between 5% and 5.5% depending on the region. Although the national average is probably around 5.14%, we'll go with a figure of 5.25%, just to play on the safe side.
That comes out to a total of $55 billion. The number is probably high because the estimate for 2006 was a total of $61 billion. Sales are much slower this year and prices are down. But we'll go with $55 billion.
According to estimates, >>>>
between 22% and 27% of the total goes to the company. That leaves between 78% to 73% for the agents. Sure, some experienced agents have higher splits. Some have lower splits. Some even get paid a flat fee or a salary. To make it easy, let's assume that the higher end applies - 78%.
That leaves $43 billion for the agents.
How many agents are there?
Though it is hard to put a number on it, states like California estimate they have one licensed agent for every 52 citizens. The Wall Street Journal estimates there is one real estate agent for every 75 people in America. That would be over 4 million agents! Though that many might be licensed in their individual states, most of those aren't actively selling homes. We won't use that number.
The National Association of Realtors claims 1.3 million Realtor members. Most of those are agents, but not all are actively involved in the business. At the same time, not everyone selling real estate is a member of the National Association of Realtors, either. They are still real estate agents, just not Realtors. Even lenders and appraisers are selling real estate nowadays.
So how many folks are actively working to sell real estate? Approximately 1.25 million says the Journal.
That sounds about right.
The average agent, then, would earn about $34,400 based on current values at the current sales pace. Some more. Most less.
Less an average 14% in expenses. Total? $29,584.
How do we check the figures? According to independent sources, the average commission charged per house in the USA in 2007 is $11,000. With 5 million sales, that would be...(we promise we didn't check this in advance...)
Total commissions of $55 billion
(Reproduced and added here without permission from RealEstateABC.com newsletter.)
++++++++++++++++++++++++++++++
How Much Do Real Estate Agents Earn?
Many people think real estate agents make huge amounts of money. Some do. Most don't. But lots of consumers want to know "how much"?
Because agents are so easy to poke fun at, the media often try to present the figure in a way that indicates real estate agents are overpaid.
Maybe we'll bust a myth about that. Maybe not. During the writing of this article, we'll calculate how much agents earn in commissions. Right now, as we write the article, we don't know what the answer will be except that commissions are down from last year. We intend to calculate the figure as we go.
So let's start.
The median average sales price in America right now is $211,000 and we're currently on a pace to sell 5 million homes. Simple multiplication provides a dollar number on which the total real estate commissions will be based.
Over 1 trillion dollars worth of homes sold.
That's a lot.
Most of those sales will pay a real estate commission. Folks think that the typical commission is 6%, but it varies and is negotiable. Some "full service" agents charge seven percent. There are "discount brokers," too - and sellers will make different kinds of deals with companies offering different levels of services.
Combining all that together, the average commission charged per deal is between 5% and 5.5% depending on the region. Although the national average is probably around 5.14%, we'll go with a figure of 5.25%, just to play on the safe side.
That comes out to a total of $55 billion. The number is probably high because the estimate for 2006 was a total of $61 billion. Sales are much slower this year and prices are down. But we'll go with $55 billion.
According to estimates, >>>>
between 22% and 27% of the total goes to the company. That leaves between 78% to 73% for the agents. Sure, some experienced agents have higher splits. Some have lower splits. Some even get paid a flat fee or a salary. To make it easy, let's assume that the higher end applies - 78%.
That leaves $43 billion for the agents.
How many agents are there?
Though it is hard to put a number on it, states like California estimate they have one licensed agent for every 52 citizens. The Wall Street Journal estimates there is one real estate agent for every 75 people in America. That would be over 4 million agents! Though that many might be licensed in their individual states, most of those aren't actively selling homes. We won't use that number.
The National Association of Realtors claims 1.3 million Realtor members. Most of those are agents, but not all are actively involved in the business. At the same time, not everyone selling real estate is a member of the National Association of Realtors, either. They are still real estate agents, just not Realtors. Even lenders and appraisers are selling real estate nowadays.
So how many folks are actively working to sell real estate? Approximately 1.25 million says the Journal.
That sounds about right.
The average agent, then, would earn about $34,400 based on current values at the current sales pace. Some more. Most less.
Less an average 14% in expenses. Total? $29,584.
How do we check the figures? According to independent sources, the average commission charged per house in the USA in 2007 is $11,000. With 5 million sales, that would be...(we promise we didn't check this in advance...)
Total commissions of $55 billion
Monday, October 29, 2007
Be Wary of Flips
A few years ago, this may not have been a problem. But now, as time matures, and the once real estate boom is behind us, we are seeing lot of those "flips" hit the market again. This time, however, they are all repaired, rehabbed and staged... just like you would expect to see on HGTV or TLC.
The problem is that those late night TV shows and infomercials didn't teach everything there was to know about how to fix a flip. Yea... we know what kind of spanish tile to install, and we know how to get a good deal on marble floors or granite counters. We also know how to maximize the space we have so the entire home flows.
But what we do not know is the most important thing: And that is... how in the heck do you fix up a house. I don't mean cosmetically! I mean structurally and functionally. It's like going into battle with an instruction manual and no real combat training (huh??)
I am on my high horse right now because I have seen several supposed flips lately that look beautiful on the outside, but on the inside... it is a different story. I just closed on a home in North Raleigh with a wonderful couple from out of town. When we looked at the home, it was beautiful! Granite counters, hardwood floors, antique fixtures, stainless steel appliances and the whole nine yards. But when we got around to inspections, the home showed a lot of flaws. The Sellers was very agreeable in fixing things, but during the month we had the property under contract, they didn't fix a thing. That should have been our red flag. Instead, we settled for a couple grand as a seller concession and my Buyers closed on the home. Since then, they have had nothing but issues. Leaking faucets, plumbing mains leaking everywhere, improperly installed flooring, counters and appliances... you name it! You just never know what is underneath all those band aids.
Another couple that I worked with recently put a home under contract. Same thing... beautiful on the outside, but on the inside??? The inspection once again showed a lot of deficiencies and structural defects that were simply not completed correctly. How about mold?? Don't play around with mold.
Many of these nine-to-fivers who buy run-down homes at low prices with every wonderful intention of fixing up a home simply fail to succeed. They start with all the gusto in the world. But when the process takes months longer than they had expected, certain items tend to get lost and corners are cut. In addition, budgets are always under valuated, so as the prices go up and the cost to fix increases, more corners are cut. Of course, this is not the case with every contractor, rehabber and flipper - like I said, I am on my high horse right now after seeing some of my buyers very distraught.
It is so easy to look at water stains on a wall and just figure you can paint over them. If something doesn't leak right now, there will never be leaks, right? Do many flippers know how to correctly install a dishwasher using the high loop method? Do many flippers really know how to install a GFCI breaker? How about properly istalling the discharge valve on a hot water heater?
My point is that it can be so easy to put a cosmetic band-aid on a flip. The band-aid makes the house look, feel and smell wonderful to potential Buyers. But what lies underneath those bandaids? Part of the problem is lack of funds. Part of the problem is lack of knowledge. Part of the problem is a flipper's ability to simply overlook what isn't a problem now, but will be a problem doen the road. Some of those red flags simply go unattended.
If you are contemplating purchasing a home that is 'flipped', consider the following:
1) Have the home professionally inspected
2) If there are red flags, investigate further. Do not take for granted that the home inspector is the final word on whether a home is a good purchase
3) Try to get pictures from the sellers with images of what the home looked like when they purchased it.
4) Try to get the home inspection from the sellers when they purchased it.
5) Try to meet with the sellers to find out exactly what repairs they made. It doesn't take a rocket scientist to figure out if they did mostly cosmetic repairs or if they actually fixed the nuts, bolts and bones of the home.
6) Was the work done by sub contractors, or was it done by the actual sellers?
7) How long did the work take and what was the budget? This will be difficult to get, but any information might be useful. If their budget was $10,000 and the house is more than 20 years old, you might start to think that some corners were cut.
These are just a few of the items to look out for. If you have any others, feel free to leave a comment or send me an email. Remember, purchasing a home that has been 'flipped' can be a great purchase. But it can turn out to be a big ol' headache too!
The problem is that those late night TV shows and infomercials didn't teach everything there was to know about how to fix a flip. Yea... we know what kind of spanish tile to install, and we know how to get a good deal on marble floors or granite counters. We also know how to maximize the space we have so the entire home flows.
But what we do not know is the most important thing: And that is... how in the heck do you fix up a house. I don't mean cosmetically! I mean structurally and functionally. It's like going into battle with an instruction manual and no real combat training (huh??)
I am on my high horse right now because I have seen several supposed flips lately that look beautiful on the outside, but on the inside... it is a different story. I just closed on a home in North Raleigh with a wonderful couple from out of town. When we looked at the home, it was beautiful! Granite counters, hardwood floors, antique fixtures, stainless steel appliances and the whole nine yards. But when we got around to inspections, the home showed a lot of flaws. The Sellers was very agreeable in fixing things, but during the month we had the property under contract, they didn't fix a thing. That should have been our red flag. Instead, we settled for a couple grand as a seller concession and my Buyers closed on the home. Since then, they have had nothing but issues. Leaking faucets, plumbing mains leaking everywhere, improperly installed flooring, counters and appliances... you name it! You just never know what is underneath all those band aids.
Another couple that I worked with recently put a home under contract. Same thing... beautiful on the outside, but on the inside??? The inspection once again showed a lot of deficiencies and structural defects that were simply not completed correctly. How about mold?? Don't play around with mold.
Many of these nine-to-fivers who buy run-down homes at low prices with every wonderful intention of fixing up a home simply fail to succeed. They start with all the gusto in the world. But when the process takes months longer than they had expected, certain items tend to get lost and corners are cut. In addition, budgets are always under valuated, so as the prices go up and the cost to fix increases, more corners are cut. Of course, this is not the case with every contractor, rehabber and flipper - like I said, I am on my high horse right now after seeing some of my buyers very distraught.
It is so easy to look at water stains on a wall and just figure you can paint over them. If something doesn't leak right now, there will never be leaks, right? Do many flippers know how to correctly install a dishwasher using the high loop method? Do many flippers really know how to install a GFCI breaker? How about properly istalling the discharge valve on a hot water heater?
My point is that it can be so easy to put a cosmetic band-aid on a flip. The band-aid makes the house look, feel and smell wonderful to potential Buyers. But what lies underneath those bandaids? Part of the problem is lack of funds. Part of the problem is lack of knowledge. Part of the problem is a flipper's ability to simply overlook what isn't a problem now, but will be a problem doen the road. Some of those red flags simply go unattended.
If you are contemplating purchasing a home that is 'flipped', consider the following:
1) Have the home professionally inspected
2) If there are red flags, investigate further. Do not take for granted that the home inspector is the final word on whether a home is a good purchase
3) Try to get pictures from the sellers with images of what the home looked like when they purchased it.
4) Try to get the home inspection from the sellers when they purchased it.
5) Try to meet with the sellers to find out exactly what repairs they made. It doesn't take a rocket scientist to figure out if they did mostly cosmetic repairs or if they actually fixed the nuts, bolts and bones of the home.
6) Was the work done by sub contractors, or was it done by the actual sellers?
7) How long did the work take and what was the budget? This will be difficult to get, but any information might be useful. If their budget was $10,000 and the house is more than 20 years old, you might start to think that some corners were cut.
These are just a few of the items to look out for. If you have any others, feel free to leave a comment or send me an email. Remember, purchasing a home that has been 'flipped' can be a great purchase. But it can turn out to be a big ol' headache too!
Press Release - Waterproof Notepad
Here is a little something I am involved with in my spare time:
New Waterproof Notepad Premieres in Stores Across the Country
New Waterproof Notepad Premieres in Stores Across the Country
Sunday, October 21, 2007
What To Expect When Selling
Here is something that I give to all my Sellers when they list with me...
What To Expect When Selling Your Home
There are many ‘gotchas’ along the way from contract to closing. Many times, Sellers are so thankful that they received an offer on their home that they conveniently forget that accepting an offer is only one step in the myriad of obstacles along the escrow process. It is your Realtor’s job to minimize the stress, negotiate the terms and bring everything to a successful ending. However, please keep in mind that there are many situations that are out of your Realtor’s control. Please understand and keep the following points in mind when selling your home.
• Your home will be advertised to hundreds of thousands of people nationwide and thousands of agents locally. There is a 95% chance that another agent will show and sell your home. Your Realtor will work with this agent to bring the sale to a complete and successful close. Please remember that the majority of showings on your home will be performed by other cooperating agents. Just because your Realtor is not personally showing your home does not mean that he/she is not working for you!
• Once a potential buyer shows interest in your home, there will be several to many rounds of negotiations. This is all part of the process. Please do not get discouraged if you spend several hours on the phone with your Realtor discussing various offers and counteroffers.
• Once you accept an offer on your home, there are still many hurdles left. You are not home free until you sign the deed at the attorney’s office many weeks later. There will be inspections, appraisals, re-negotiations, repairs, qualification and underwriting issues and final closing stipulations.
• After you and the Buyer finally agree on price and terms, your home will be professionally inspected by the Buyer. No matter how well you keep your home, the inspector will find issues of concern. The Buyer may ask you to repair some or all of the items on the home inspection report. This is the beginning of the second round of negotiations. At this point, the Buyer may also ask for further financial concessions relative to the extent of concern on the home inspection report. You are not obligated to fix everything the Buyer requests. However, if you refuse, you will leave the Buyer free to terminate the contract and receive a refund of his earnest money if he so chooses. PLEASE PREPARE FOR THE ROLLERCOASTER RIDE WE KNOW AS THE HOME INSPECTION PROCESS.
• Once you complete repairs on your home, the Buyer will ask for a final walkthrough. Be advised that if the repairs are not done in a workmanlike manor, or if they are simply not complete, you will not close, and you will most likely enter into yet another round of negotiations.
• No matter how much you feel your home is worth, and no matter for how much your Realtor has valuated your home, there is a chance the appraiser and underwriter may feel differently. If your home does not appraise at or equal to the purchase price, your Buyer is free to terminate the contract or ask for another price reduction.
• Although a pre-qualification letter is required from your Buyer before you will accept an offer, there is a chance that your Buyer may not properly manage his finances after that acceptance. All Buyer information is verified before closing, and if the status of his credit has changed, this may or may not affect the ability for the Buyer to obtain financing.
• Although a date may be set to ‘close’ on your home, there are many things that may delay the closing process. Holidays, over-extended workload, lazy underwriters, miscommunications, uncooperative attorneys… and the list goes on. Your original closing date may be extended anywhere from one day to two weeks. Please keep this in mind when making final moving arrangements.
• You, as Seller, will have to pay some closing costs which may or may not include transfer taxes, property taxes, HOA dues, attorney fees, courier and copy fees, commissions and of course your current mortgage payoff. Also keep in mind that the current balance on your mortgage statement is NOT your payoff amount. Please contact your lender to obtain the payoff amount as of the estimated date of close.
What To Expect When Selling Your Home
There are many ‘gotchas’ along the way from contract to closing. Many times, Sellers are so thankful that they received an offer on their home that they conveniently forget that accepting an offer is only one step in the myriad of obstacles along the escrow process. It is your Realtor’s job to minimize the stress, negotiate the terms and bring everything to a successful ending. However, please keep in mind that there are many situations that are out of your Realtor’s control. Please understand and keep the following points in mind when selling your home.
• Your home will be advertised to hundreds of thousands of people nationwide and thousands of agents locally. There is a 95% chance that another agent will show and sell your home. Your Realtor will work with this agent to bring the sale to a complete and successful close. Please remember that the majority of showings on your home will be performed by other cooperating agents. Just because your Realtor is not personally showing your home does not mean that he/she is not working for you!
• Once a potential buyer shows interest in your home, there will be several to many rounds of negotiations. This is all part of the process. Please do not get discouraged if you spend several hours on the phone with your Realtor discussing various offers and counteroffers.
• Once you accept an offer on your home, there are still many hurdles left. You are not home free until you sign the deed at the attorney’s office many weeks later. There will be inspections, appraisals, re-negotiations, repairs, qualification and underwriting issues and final closing stipulations.
• After you and the Buyer finally agree on price and terms, your home will be professionally inspected by the Buyer. No matter how well you keep your home, the inspector will find issues of concern. The Buyer may ask you to repair some or all of the items on the home inspection report. This is the beginning of the second round of negotiations. At this point, the Buyer may also ask for further financial concessions relative to the extent of concern on the home inspection report. You are not obligated to fix everything the Buyer requests. However, if you refuse, you will leave the Buyer free to terminate the contract and receive a refund of his earnest money if he so chooses. PLEASE PREPARE FOR THE ROLLERCOASTER RIDE WE KNOW AS THE HOME INSPECTION PROCESS.
• Once you complete repairs on your home, the Buyer will ask for a final walkthrough. Be advised that if the repairs are not done in a workmanlike manor, or if they are simply not complete, you will not close, and you will most likely enter into yet another round of negotiations.
• No matter how much you feel your home is worth, and no matter for how much your Realtor has valuated your home, there is a chance the appraiser and underwriter may feel differently. If your home does not appraise at or equal to the purchase price, your Buyer is free to terminate the contract or ask for another price reduction.
• Although a pre-qualification letter is required from your Buyer before you will accept an offer, there is a chance that your Buyer may not properly manage his finances after that acceptance. All Buyer information is verified before closing, and if the status of his credit has changed, this may or may not affect the ability for the Buyer to obtain financing.
• Although a date may be set to ‘close’ on your home, there are many things that may delay the closing process. Holidays, over-extended workload, lazy underwriters, miscommunications, uncooperative attorneys… and the list goes on. Your original closing date may be extended anywhere from one day to two weeks. Please keep this in mind when making final moving arrangements.
• You, as Seller, will have to pay some closing costs which may or may not include transfer taxes, property taxes, HOA dues, attorney fees, courier and copy fees, commissions and of course your current mortgage payoff. Also keep in mind that the current balance on your mortgage statement is NOT your payoff amount. Please contact your lender to obtain the payoff amount as of the estimated date of close.
Wednesday, October 17, 2007
The State of Our Market
While searching for ideas on this week's blog, I came across a post by Jim Cronin who quoted his client's view on the current state of the market. "We're basically in a Mexican Standoff," he said. "Sellers are having visions of 2004 and buyers want to wait until the prices come down even further."
To me, that says it all! Mind you, that client is reporting on the market in Naples, Fl. In the Triangle region of NC, we are not necesarily experiencing the same woes as they, but we are experiencing a slowdown nonetheless.
Typically, I try to manage no more than 10 listings at a time. This is so that I can give all my clients most of my undivided attention when needs arise. Rather than sporting a team of 5 to 10 assistants and maintaining 50 listings, I try to keep it manageable. I never really do get up to 10 at a time because my listings usually sell within a reasonable time frame (30 days).
No so true anymore. Gone are the days that you get 20 showings the weekend a listing premieres. Gone are the days of multiple offers. Gone are the days of bidding wars. And gone are the days of pushing the pricing envelope.
We here in the Triangle region of NC are definitely experiencing some pain. Although most of our market is still appreciating unlike most of the troubled markets nationwide, homes are simply not moving as quickly as they used to move. I don't have to tell you that. You can read it in the press and hear about it on TV.
"Why", my sellers ask "is my house not selling?" Here are some of my responses:
1) There has been a mortgage fallout. The buyers who once were able to afford this home can no longer qualify. Some can still purchase a home, albeit a smaller, less expensive home. Yet others can't even buy a stick of gum.
2) Buyers can't sell their homes in the regions from which they are moving. Buyers used to have more confidence, and thus they would make a contingent offer on a home (contingent upon their home selling). But now, they are afraid of making such offers and possibly losing their earnest money. Further, Sellers are much less likely to accept contingent offers. Buyers feel this and are reluctant to make offers altogether. Another vicious cycle.
3) There is way too much inventory. Competition, competition, competition.
4) New home builders are slashing prices and offering incentives that we resellers can not compete with.
5) There are fewer buyers in the market place because more are 'staying put' longer. Consumer confidence is low, many buyers have been forced out of the market, and thus many are making the decision NOT to buy.
6) Just like the inspiration for this blog, many Sellers are still remembering the days of old... the days when they could get a premium for their home - unrealistic pricing. And as a result, Buyers are waiting for prices to come down.
7) My best answer is that THIS is the way the market really is. The past few years have been a boon. And those years were the unrealistic and unusual years. Yet, no one questions the market when it is riding high. Only when there is a let-down do people question. The truth is, the market is correcting itself, and THIS is how things really happen.
Your interpretation of my answer number 7 will intrigue me. Let me know what you think.
Just be thankful that most of the Triangle region of NC is still experiencing growth. Most our home values are not declining. We are just taking a much needed recess.
To me, that says it all! Mind you, that client is reporting on the market in Naples, Fl. In the Triangle region of NC, we are not necesarily experiencing the same woes as they, but we are experiencing a slowdown nonetheless.
Typically, I try to manage no more than 10 listings at a time. This is so that I can give all my clients most of my undivided attention when needs arise. Rather than sporting a team of 5 to 10 assistants and maintaining 50 listings, I try to keep it manageable. I never really do get up to 10 at a time because my listings usually sell within a reasonable time frame (30 days).
No so true anymore. Gone are the days that you get 20 showings the weekend a listing premieres. Gone are the days of multiple offers. Gone are the days of bidding wars. And gone are the days of pushing the pricing envelope.
We here in the Triangle region of NC are definitely experiencing some pain. Although most of our market is still appreciating unlike most of the troubled markets nationwide, homes are simply not moving as quickly as they used to move. I don't have to tell you that. You can read it in the press and hear about it on TV.
"Why", my sellers ask "is my house not selling?" Here are some of my responses:
1) There has been a mortgage fallout. The buyers who once were able to afford this home can no longer qualify. Some can still purchase a home, albeit a smaller, less expensive home. Yet others can't even buy a stick of gum.
2) Buyers can't sell their homes in the regions from which they are moving. Buyers used to have more confidence, and thus they would make a contingent offer on a home (contingent upon their home selling). But now, they are afraid of making such offers and possibly losing their earnest money. Further, Sellers are much less likely to accept contingent offers. Buyers feel this and are reluctant to make offers altogether. Another vicious cycle.
3) There is way too much inventory. Competition, competition, competition.
4) New home builders are slashing prices and offering incentives that we resellers can not compete with.
5) There are fewer buyers in the market place because more are 'staying put' longer. Consumer confidence is low, many buyers have been forced out of the market, and thus many are making the decision NOT to buy.
6) Just like the inspiration for this blog, many Sellers are still remembering the days of old... the days when they could get a premium for their home - unrealistic pricing. And as a result, Buyers are waiting for prices to come down.
7) My best answer is that THIS is the way the market really is. The past few years have been a boon. And those years were the unrealistic and unusual years. Yet, no one questions the market when it is riding high. Only when there is a let-down do people question. The truth is, the market is correcting itself, and THIS is how things really happen.
Your interpretation of my answer number 7 will intrigue me. Let me know what you think.
Just be thankful that most of the Triangle region of NC is still experiencing growth. Most our home values are not declining. We are just taking a much needed recess.
Monday, October 8, 2007
Wake County, NC Schools
The number of people relocating to the Wake County area who ask about our schools is astonishingly large. Every day, it seems, I get asked questions: "How are the schools?", "Which are the better schools?", "Are they building more schools?" and so on.
I attempt to answer each question individually, but the requests have become so large, that I decided to put together a list of links to help you learn more about our schools in Wake County. Remember, Wake County includes popular cities like Apex, Cary, Holly Springs, Fuquay Varina, Raleigh, Wake Forest, Knightdale, Wendell and Zebulon.
I attempt to answer each question individually, but the requests have become so large, that I decided to put together a list of links to help you learn more about our schools in Wake County. Remember, Wake County includes popular cities like Apex, Cary, Holly Springs, Fuquay Varina, Raleigh, Wake Forest, Knightdale, Wendell and Zebulon.
- First, start at the Wake County Public Schools System main website: http://www.wcpss.net/
- If you want to know which schools you will be assigned to, based upon your address: http://wwwgis2.wcpss.net/cgi-bin/Production/MainScript.pl?MainOption=StreetMain
- Wake Co School Report Cards (2005-2006) great stats!: http://www.ncreportcards.org/src/search.jsp?pYear=2005-2006&pList=1&pListVal=920%3AWake+County+Schools&GO2=GO
- Newcomer Resource Center: http://www.wcpss.net/newcomer/getting-started/
- For information on year-round schools in Wake Co: http://www.wcpss.net/year-round/
- Wake County public schools system demographics: http://www.wcpss.net/demographics/
- For a list of Wake Co schools and their ratings: http://www.greatschools.net/schools.page?district=171&state=NC
- Wake County Charter Schools: http://www.wakegov.com/schools/charterschools.htm
- Another Wake Co public school directory: http://www.wcpss.net/school-directory/
- Wake County private schools: http://www.privateschoolreview.com/county_private_schools/stateid/NC/county/37183
- Wake County magnet schools: http://www.wcpss.net/magnet/
- Meredith College: http://www.meredith.edu/
- NC State University: http://www.ncsu.edu/
- Peace College: http://www.peace.edu/index-flash.htm
- Shaw University: http://www.shawuniversity.edu/
- St Augustine's College: http://www.st-aug.edu/
- Wake Tech Community College: http://www.waketech.edu/
- NC Character Education Partnership: http://www.ncpublicschools.org/nccep/wake_county/index.html
Of course, there is much more information available out there. If you have any questions on the state of NC schools, feel free to contact me.
Friday, October 5, 2007
Short Sales - Part II
For current, up-to-date and relevent information on Short Sales and Foreclosures... please visit my website:
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
Thank you!
-Drew Ludlow
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
Thank you!
-Drew Ludlow
Short Sales - Part I
For current, up-to-date and relevent information on Short Sales and Foreclosures... please visit my website:
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
Thank you!
-Drew Ludlow
http://drewludlow.com/default.asp_Q_f_E_cpg_A_pg_E_ShortSales
Thank you!
-Drew Ludlow
Appreciation - Part II
As we can see, factoring appreciation into an investment gameplan is not without its downfalls. It takes time and requires risk. Risk is inherent in almost everything, and real estate investing is certainly not without risk. But for investors with little capital, it is extremely difficult to compete with more established investors. Buying with negative or marginal cash flow requires cash reserves until they can tap into the equity created from appreciation. In a hot market, some investors may purchase property at the top range of its value, knowing that in time, their property will appreciate. This can be a risky play and may not work in many areas. Furthermore, keep in mind that just like the stock market, the real estate market can and does occasionally crash. The real estate market may skyrocket, thus forcing the market value sky high and those that buy at the top of the curve may be wiped out extremely quickly. Over time, market supply and demand will pull everything back into place, but investors that were wiped out may never recover from the loss.
This does not necessarily mean that investors without sufficient capital to buy long term properties for appreciation gains cannot use appreciation to their advantage. It simply requires time, patience and perhaps a different mindset. Perhaps they need to think outside of the box. Some markets that are not currently benefiting from record high appreciation values may still offer isolated opportunities to benefit from appreciation gains.
Take for example, a depressed area that is just beginning to show signs of recovery. I am not speaking of the ‘war-zones’ we have all been warned to stay away from. Rather, I’m referring to an area with potential and perhaps abutting a busy city, or an outlying community with downtrodden properties but with easy access to major travel arteries. With the help of more experienced investors and homeowners themselves, average investors can team up and revitalize an entire community or area within a city. Of course, this will take time, resources and will-power. Nonetheless, once enough properties are rehabbed, a chain reaction might occur. More investors will begin flocking to the area, current homeowners take more pride in ownership, and the dilapidated dwellings that serve to foster drug activity are eliminated, thus displacing some of the crime that often keeps these areas depressed. The city often gets involved, and before you know it, the area has returned to its pre-depressed state. Guess what happens to the market value of properties in the area? Appreciation, and often lots of it!
Another example of this type of ‘forced’ appreciation can occur in an area that experiences infrastructure changes. It could be simple for investors to pick up on these changes before appreciation begins working its magic. For instance, a neighboring city to the one in which I reside, is likely to experience significant growth in the decade to come. Some investors have already picked up on the signs. Knightdale used to be a small, outlying community to the capital of North Carolina. Inhabited primarily by the working class, Knightdale will soon prosper from the construction of a major highway bypass that will encompass the city, thus making travel from outlying areas to the major cities much smoother and quicker. Guess what will likely happen to property values after the construction of this bypass? Appreciation!
For investors, appreciation can be a valuable tool in creating long-term wealth. It does require time and planning and is certainly not without risk. By all means, do not abandon the other investment profit centers of cash flow, tax deferral and equity from loan reduction. Building your cash reserves is also paramount in creating working capital and a rock-solid investment business plan. Understand and learn to focus on building long term wealth through appreciation!
With the right mindset, education, teamwork and most of all, patience, you can watch your investments increase in value over and over again,and before you know it you will be wealthy indeed!.
This does not necessarily mean that investors without sufficient capital to buy long term properties for appreciation gains cannot use appreciation to their advantage. It simply requires time, patience and perhaps a different mindset. Perhaps they need to think outside of the box. Some markets that are not currently benefiting from record high appreciation values may still offer isolated opportunities to benefit from appreciation gains.
Take for example, a depressed area that is just beginning to show signs of recovery. I am not speaking of the ‘war-zones’ we have all been warned to stay away from. Rather, I’m referring to an area with potential and perhaps abutting a busy city, or an outlying community with downtrodden properties but with easy access to major travel arteries. With the help of more experienced investors and homeowners themselves, average investors can team up and revitalize an entire community or area within a city. Of course, this will take time, resources and will-power. Nonetheless, once enough properties are rehabbed, a chain reaction might occur. More investors will begin flocking to the area, current homeowners take more pride in ownership, and the dilapidated dwellings that serve to foster drug activity are eliminated, thus displacing some of the crime that often keeps these areas depressed. The city often gets involved, and before you know it, the area has returned to its pre-depressed state. Guess what happens to the market value of properties in the area? Appreciation, and often lots of it!
Another example of this type of ‘forced’ appreciation can occur in an area that experiences infrastructure changes. It could be simple for investors to pick up on these changes before appreciation begins working its magic. For instance, a neighboring city to the one in which I reside, is likely to experience significant growth in the decade to come. Some investors have already picked up on the signs. Knightdale used to be a small, outlying community to the capital of North Carolina. Inhabited primarily by the working class, Knightdale will soon prosper from the construction of a major highway bypass that will encompass the city, thus making travel from outlying areas to the major cities much smoother and quicker. Guess what will likely happen to property values after the construction of this bypass? Appreciation!
For investors, appreciation can be a valuable tool in creating long-term wealth. It does require time and planning and is certainly not without risk. By all means, do not abandon the other investment profit centers of cash flow, tax deferral and equity from loan reduction. Building your cash reserves is also paramount in creating working capital and a rock-solid investment business plan. Understand and learn to focus on building long term wealth through appreciation!
With the right mindset, education, teamwork and most of all, patience, you can watch your investments increase in value over and over again,and before you know it you will be wealthy indeed!.
Appreciation - Part I
It all started many years ago, after I purchased my first home. It wasn’t an investment property, but rather the one in which I was to live. I knew nothing about real estate and even less about investment strategies. I simply wanted a place to live, hang my hat and call my own. The house was new construction, in an up-and-coming neighborhood, and I was excited about finally becoming a homeowner. After 9 months of watching the construction process, my wife and I finally closed the transaction. A good while later, I decided to establish an equity line in order to access my down payment in the case of an emergency. To my surprise, the bank’s appraisal determined the property was worth $20,000 more than when we had purchased it. Somehow, over the course of time, I had minted money. Somehow, my original investment was now worth more than it was originally.
What I had discovered during my first foray into the real estate world was due in part to the power of appreciation! This phenomenon enabled me to create money out of thin air! Since I wanted to repeat my efforts and purchase more property, I had to figure out how to use this wonderful tool to my advantage.
Shortly thereafter, I discovered other ways to make money in real estate investments. In fact, investors can make money in four unique real estate profit centers: 1) profits from positive cash flow 2) equity growth from loan balance reduction 3) tax savings and of course, 4) equity from appreciation. With a rock-solid game plan and a fundamental understanding of each of these profit centers, investors can create a monthly income from their cash flow, receive tax savings by writing off expenses and depreciation, and can mint money through tenants retiring their debt and through appreciation. Since appreciation is based on the full value of the asset and not the amount of money you invest therein, it can often yield the greatest gain of any of these profit centers.
Unfortunately, appreciation is not usually a short-term money-maker. Appreciation may take effort to harvest, and since significant appreciation occurs over time, it usually requires tenacity and perseverance on the part of the investor to hold a property for years in order to ‘mint’ money. Keeping this in mind, we also know that there are two approaches to real estate investing: short-term and long-term. Most beginners are anxious and feel they must create an income right away. These investors are sometimes referred to as ‘wholesalers’ or ‘flippers’. They purchase property below market value and resell it almost immediately at a higher value, thus realizing a short-term profit. To me, this is simply a glorified salary, a job. They rarely realize the benefits of appreciation. Then, there are your buy and hold strategists. These investors have longer range goals in mind. Rather than concentrating on purchasing property and immediately turning it to another investor for a small profit, they are more interested in keeping the property long-term in order to realize the long term benefits of property ownership, especially gains from appreciation.
Many investors are hesitant to buy and hold for long-term wealth creation. “What if I can’t rent out the house? Will property values really rise in this area? I need cash now! I don’t want to be a landlord!” Of course, the list of excuses continues. The truth is that in order to create long-term wealth, investors MUST factor appreciation into their game plan. In other words, they must be willing to buy and hold. Certainly, I am not advocating that you use appreciation as the cornerstone of your investment strategy. Use several strategies, working in tandem with one another to produce a successful game plan and profitable investing business. Some investors use appreciation and tax deferral from depreciation as their ‘gravy’ money. These investors make sure than an investment is sound on a cash flow or short-term profit basis before they proceed with their purchase. However, others are willing to put their plan in a negative cash flow position if they feel that the end justifies the means. In other words, they may feel they can make $30,000 if they can simply hold onto a property for 5 or more years. Yet, in order to get from here to there, they must accept less in rent than they are paying in monthly debt service and expense outflows.
Once again, I reiterate that appreciation is a long-term wealth creation strategy. If investors are willing to wait, they just may find themselves minting money through appreciation.
(Don't miss, Appreciation - Part II) Coming soon!
What I had discovered during my first foray into the real estate world was due in part to the power of appreciation! This phenomenon enabled me to create money out of thin air! Since I wanted to repeat my efforts and purchase more property, I had to figure out how to use this wonderful tool to my advantage.
Shortly thereafter, I discovered other ways to make money in real estate investments. In fact, investors can make money in four unique real estate profit centers: 1) profits from positive cash flow 2) equity growth from loan balance reduction 3) tax savings and of course, 4) equity from appreciation. With a rock-solid game plan and a fundamental understanding of each of these profit centers, investors can create a monthly income from their cash flow, receive tax savings by writing off expenses and depreciation, and can mint money through tenants retiring their debt and through appreciation. Since appreciation is based on the full value of the asset and not the amount of money you invest therein, it can often yield the greatest gain of any of these profit centers.
Unfortunately, appreciation is not usually a short-term money-maker. Appreciation may take effort to harvest, and since significant appreciation occurs over time, it usually requires tenacity and perseverance on the part of the investor to hold a property for years in order to ‘mint’ money. Keeping this in mind, we also know that there are two approaches to real estate investing: short-term and long-term. Most beginners are anxious and feel they must create an income right away. These investors are sometimes referred to as ‘wholesalers’ or ‘flippers’. They purchase property below market value and resell it almost immediately at a higher value, thus realizing a short-term profit. To me, this is simply a glorified salary, a job. They rarely realize the benefits of appreciation. Then, there are your buy and hold strategists. These investors have longer range goals in mind. Rather than concentrating on purchasing property and immediately turning it to another investor for a small profit, they are more interested in keeping the property long-term in order to realize the long term benefits of property ownership, especially gains from appreciation.
Many investors are hesitant to buy and hold for long-term wealth creation. “What if I can’t rent out the house? Will property values really rise in this area? I need cash now! I don’t want to be a landlord!” Of course, the list of excuses continues. The truth is that in order to create long-term wealth, investors MUST factor appreciation into their game plan. In other words, they must be willing to buy and hold. Certainly, I am not advocating that you use appreciation as the cornerstone of your investment strategy. Use several strategies, working in tandem with one another to produce a successful game plan and profitable investing business. Some investors use appreciation and tax deferral from depreciation as their ‘gravy’ money. These investors make sure than an investment is sound on a cash flow or short-term profit basis before they proceed with their purchase. However, others are willing to put their plan in a negative cash flow position if they feel that the end justifies the means. In other words, they may feel they can make $30,000 if they can simply hold onto a property for 5 or more years. Yet, in order to get from here to there, they must accept less in rent than they are paying in monthly debt service and expense outflows.
Once again, I reiterate that appreciation is a long-term wealth creation strategy. If investors are willing to wait, they just may find themselves minting money through appreciation.
(Don't miss, Appreciation - Part II) Coming soon!
Thursday, October 4, 2007
Cash Flow
As a Realtor, I am always asked the seemingly simple question: “Where is the best place to invest in real estate?” My answer is: “It depends.” What may be a good place to invest for appreciation may not be the best place to invest for ‘cash flow’. Let’s focus on cash flow.
Considering our competitive rental market, my rule of thumb for inexperienced investors is to target the ‘bread and butter’ neighborhoods of homes priced below $125,000. Even with 100% LTV financing, the ratio between the gross monthly rent and the monthly mortgage payment, (debt service) will be more favorable than had you purchased a home in a more affluent area. Cash flow investors want good ratios.
Inexperienced and motivated investors sometimes make the mistake of calculating ‘cash flow’ simply as the difference between the gross monthly rent and the debt service. Be careful! When calculating cash flow, one must not only consider the principle and interest (PI) on your monthly mortgage payment, but one must also factor in the taxes and insurance (TI). Combined, is the monthly PITI that we have all heard so much about.
But wait, there’s more! Make sure to subtract other costs including, but not limited to management fees, maintenance fees, servicing fees and any other pennies and dimes it costs in order to ‘hold’ your investment. Once you subtract the PITI and fees from your gross monthly rent, you are left with your ‘Net Operating Income’ (NOI). Only when you have figured your NOI can you subtract the debt service to calculate your positive (or sometimes negative) cash flow.
Remember, setting your goals is paramount to a good investment strategy. Are you looking for appreciation or cash flow? The answer to that question will drive the answer to the query, “Where is the best place to invest in real estate”.
Considering our competitive rental market, my rule of thumb for inexperienced investors is to target the ‘bread and butter’ neighborhoods of homes priced below $125,000. Even with 100% LTV financing, the ratio between the gross monthly rent and the monthly mortgage payment, (debt service) will be more favorable than had you purchased a home in a more affluent area. Cash flow investors want good ratios.
Inexperienced and motivated investors sometimes make the mistake of calculating ‘cash flow’ simply as the difference between the gross monthly rent and the debt service. Be careful! When calculating cash flow, one must not only consider the principle and interest (PI) on your monthly mortgage payment, but one must also factor in the taxes and insurance (TI). Combined, is the monthly PITI that we have all heard so much about.
But wait, there’s more! Make sure to subtract other costs including, but not limited to management fees, maintenance fees, servicing fees and any other pennies and dimes it costs in order to ‘hold’ your investment. Once you subtract the PITI and fees from your gross monthly rent, you are left with your ‘Net Operating Income’ (NOI). Only when you have figured your NOI can you subtract the debt service to calculate your positive (or sometimes negative) cash flow.
Remember, setting your goals is paramount to a good investment strategy. Are you looking for appreciation or cash flow? The answer to that question will drive the answer to the query, “Where is the best place to invest in real estate”.
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