Why buy? – The long and short of it!

Overview

There are many reasons why people buy or not buy homes.  From financing limits to preference of area currently living to using the investment for cash flow or tax purposes.  Regardless of the reasons, exploring that right decision can be a bit overwhelming with self created fears and anxiety.  As my late mother would say to me, “step away from the wall to see the WHOLE picture.”  So, lets step back and categorize  the hurdles and benefits with two views, the Short Term and the Long Term

In the Short Term

The Mercedes vs Used Saturn Conumdrum

Housing is a basic need. And is an expense that some are willing to pay for a Mercedes, some are okay with an used Saturn and some are in between.  Yes, housing also becomes a personal choice, sometimes controllable and sometimes not.

In the short term, housing is a necessity and typically, the least expensive way to secure that need is the path most take.  Most would prefer a Mercedes over an used Saturn, but at certain times in our lives, the used Saturn is what one can afford and concerning the  decision to buy or not, usually means renting instead.

Renting in the short term works and it can allow one to become more established in the community and at work, can help pay off other bills and save money, and can help raise their credit score, the most important goal and measure to purchasing a future home.  Shared rental space is the most ideal for these goals.

But, once going solo or with family in tow, many times the ‘wants’ of a home out pace the ‘needs’ as ones rent increases and disallows one to maintain a good credit score and staying on top of bills.  And, of course, there are a plethora of  ‘excuses’ or hurdles on why  renting is better, another topic, later.  So, in the short term, people get comfortable in renting and ignore the benefits.

Long Term Game with Short Term Benefits

Yes, buying a home is a long term investment.  Rarely can you purchase a home and then resell it for a significant profit after expenses in a short amount of time.  Perhaps this is the ‘mind set’ that dissuades people from buying, but it shouldn’t, because there are a few other short term benefits that help out.

First, when you rent, you are paying a mortgage, not yours, but the owner’s mortgage.  And, most often, you’re paying more than the owner’s mortgage and the owner is using that extra profit to reinvest in more homes to rent or for personal reasons, such as paying the mortgage on their own personal home.  So, in short, why not pay yourself instead of an owner and benefit in the tax write offs, capital gains and collateral.

Second, buying a home does NOT definitively set roots, there are always options.  And, renting out your house is the best, because you remain owning the home for a possible future return while the tenant pays your mortgage.  Or, you simply sell the house and move on.  Either way, to whomever you rent, be it friends, family member or random public or sell, you have options and you are not stuck.  Being ‘stuck’ is an erroneous ‘mind set’ that is based on an unnecessary fear that your home will never resell or rent.

Lastly, another great benefit is that when you purchase the home,  you can rent the extra rooms to your favorite roommates you were living or going to live with!  Wow, having your friends pay over half your mortgage, doesn’t that sound awesome!  So, stop renting “with” and start renting “to”!

In the Long Term

One of the most popular reasons people buy homes are the Tax Benefits.   #Check With an Accountant!!!  Everyones financial situation is different, but generally speaking,  the increase in Itemized Deductions versus the Standard Deduction allows the homeowner to “write off” specific housing expenses, reducing the amount of taxes owed and increases the amount they can get back.  Plain and simple, check with an accountant on your individual case.

Another long term benefit is that in most cases, Real Estate generally increases in value over time.  As the population grows, the need and demand for housing also grows and the value of the land and home increases.  Basic economics, high demand = higher prices.  So, through time, your home increases in value and is worth more in the future.

As needs and familia status changes, so does ones housing.  But, this makes your house a great resource.  One, you can resell and use the profits for a downpayment on another home of choice.  Or, you can use the existing home as an Investment Rental, in which the tenant pays off the mortgage over time and allows for another source of income.  Or, you can use the house for family or friends.  The great thing is that you have options and any rents that you collect can be used as income for other debt purchases or one can borrow against the equity that is left in the house.

Conclusions that work for you

Yes, buying a home is a big deal, but it is a great alternative to securing a better future and fulfilling a basic need for you and your family.  The real trick is to review your needs and wants in a home and find a compromise between the two that fits your budget.  Many times, you can own a home with a mortgage that is very close to what you were paying in rent.  And knowing that there are many options you have if life changes and that you are NOT stuck, makes home ownership clearly a better option than renting. And that is why you should buy!!!

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Which comes first, Realtor or Mortgage Broker?

Where to start first, the Realtor or Lender?

Most buyers find a Realtor to help them shop for a home to purchase and then work with their Realtor to find a Mortgage lender.  But, recently, Mortgage Brokers are advertising to come to them first, to be pre-approved for a home purchase, before working with a Realtor to find the home.

And yes, in theory, parts of this is true, but more in the sense that it really should happen simultaneously and each Realtor will have their favorite lender and each lender will have their favorite Realtor.  So, the real question becomes who benefits the most from referring the other and how does this affect the consumer and the loan.

Legally, it is against Federal law for lenders to pay referral fees or “kick backs” to Realtors and visa versa.  Second, a good Realtor can work with any lender and a good lender can work with any Realtor, technically.  But, each prefer to refer another because of past performance and getting the loan approved in time to close.

Where the water becomes muddy is in the fees charged.  Technically, a Realtor is paid by the Listing Real Estate Broker and ultimately the Seller, but the Lender is paid with lender fees and interest rates through the Buyer, you!

Since the Realtor doesn’t receive any direct compensation from referring a lender, a good, seasoned Realtor will have the experience and resources  to provide their clients with multiple lenders to compare lender fees and lender rates.  Hence, it stands to reason to assume that a lender who is referred by a Realtor will do their best and get the client pre-approved and closed on the loan, when possible to continue the relationship.

Now, when a lender refers a Realtor, the Realtor’s job is solely to find the client a home based on the lenders analysis of funds.  But what is the probability that the Realtor is going to suggest other lenders and lose future referrals from the referring lender?   Probably very unlikely, so, in theory, the Realtor is now working for the lender and not as much for the buyer, to continue the relationship.

Ultimately, do your research on choosing both a Realtor and Mortgage Lender.  Then, allow the two of them to work their separate responsibilities together  to achieve the single goal of finding and financing that perfect home.

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0 (Zero) Evictions in over 18 years?

Yes, zero evictions in over 18 years with tenants that we’ve recommended to be placed into our client’s homes.  And, on top of that, that is carrying an average inventory of over 400 properties a year. That is a great track record worth bragging about!

As a homeowner or an investor, this is what Property Management is really about, protecting your investment!   A PM’s first task is to review the multiple applications and recommend the “perfect” tenant based on a variety of measures, like credit score, debt/equity, rental history, salary, and so forth.  But what Patriot Properties brings to the table is an application review team that is unmatched in the Northern Virginia Area.

The head of the application review team has over 30 years of Real Estate Brokerage, over 60 years of experience for the whole office.  Combine that with the manager’s degree in criminology and you have an instant “CSI-like” team reviewing the applications and weeding out the bad ones!

An eviction can cost an owner about 6 months of rent. From time the tenant stops paying the rent, notice to pay or quit to going through teviction noticehe court system.  Not including possible damage to the home, cleaning and removing left over furniture and personal items and other property issues.  This process can be very expensive!  Hence the reason Patriot Properties, Inc. takes screening the tenants so seriously.

If you want the security of knowing that the tenant living in your investment or home, has been well screened, give us a call.  In the words of our property manager, “there are two types of renters, the bad ones and the ones we recommend.”  Who is living in your rental?

 

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Posting Rentals on Craigslist!

A funny thing happened to me as I was considering to post one of my client’s condos on Craigslist.  It started out as a normal morning of me going through my eMails of potential tenants asking to see a variety of homes that we had on the market.  One of the homes was a condo in Tysons Corner that I had personally sold our services to, so I tend to start with those first.

The eMail was from a girl who had found us on one of the many rental lead websites and was asking for information about this particular unit. She had actually given her phone number in the eMail, so I called her.  The conversation went like this (names have been changed):

“Hello?”

“Hi, this is Curtiss Brown of Patriot Properties. May I speak with Ann?”

“This is her,” she replied inquisitively.

“Oh great!  I”m calling about your inquiry to rent a condo in Tysons Corner.”

“Oh yes, thank you for calling! Is this the one for $1100,” she asked?

I paused. “Ummm, no, this is the one bedroom for $1600 right across from the Metro Bus station on the Dulles Toll Road.”

“Yes, that is the one.  I’ve spoken with Sean Wright, the owner, and he said that he would rent it to me for $1100!”

“He did,” I answered?  Thinking to myself, that is odd. That is the owner’s name, but I even have a hard time getting a hold of him and whole purpose for him to hire us was so he didn’t have to negotiate with the tenants. I let her go on.

“Yes, Mr. Wright said that if I sent him the first month’s rent and security deposit, he would send me the keys.” She continued, “he said the checks had to be certified because he is in Africa right now and that would be easier for him to make sure the payment would go through the banks.”

I paused again. “Really?”  Then my thoughts began racing.  Mr. Wright isn’t in Africa, he went to Chicago and he knows payments all go through us. Okay, this has got to be a scam, but how did she get the owner’s name?  I asked her. “How did you get Mr. Wright’s name?”

“Through Craigslist! He had an ad up, I responded and he sent me his name and eMail for me to contact him directly with any other questions .” She became excited about the prospect of getting the condo.

“Can you send me that Craigslist link,” I asked.  “You see, Mr. Wright is not in Africa.  There are a lot of con artists from the  African area. And, never send certified checks somewhere and expect some house keys to be magically mailed back without some other form of verification that you are actually dealing with the owner, that is just silly!”

“It did sound to good to be true. I’ve been searching in that complex for months and everything is priced around $1600 or more! Then when I saw this one and then saw your ad for the same unit, I had to find out.” She sounded defeated.

“Did you send money?”

“Of course not!”

“Good! If you would like to see the unit, let me know and please send that Craigslist ad so I can have a copy and report it correctly.”

“Sure, no problem.” And she hung up.

Now, what is crazy is that some person took the rental information from online, then went to the tax records and found the owner and posted a Craigslist posting acting as if he were the owner!  And, although there are warnings about these kinds of scams all over Craigslist, people still fall for them?

Okay, I used to be a big Craigslist fan for free advertising of rental units.  In fact, in the past, some of my best clients started out as Craiglist inquirers.  But the fact that scammers go as far as reposting a rental unit and search for the owner’s name is a bit too creepy for me.  Hence, we don’t post on Craigslist anymore.

And, the really funny thing is.  When we run across a customer who has really bad credit or not enough income or something else on their application that disqualifies them from getting one of our rentals, well, we say, “go online to Craigslist!”

Protect yourself, protect your assets, hire a property manager to watch over your investments and find the right tenant(s) while you are away!

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Pulling the turkey out of the portfolio!

Happy Thanksgiving and please excuse my metaphor!  But, sometimes these timely metaphors can really help capture what is going on with ones portfolio of investments, especially with Real Estate. The real question becomes, when do I know I own a turkey and how do I “set it free?”

When is the investment a turkey?

  • Does it take longer to rent out?
  • Is the rent price stagnant or dropping?
  • Does the house need major upgrades?
  • Are the repairs more frequent and more expensive?
  • Would you or have a family member live there?

How long does it take to rent out the property?

Extended days on the market for a rental means vacancy and lost rents.  It also means that the property is overpriced for what it offers in comparison to other rentals. The key statement is “what it offers in comparison to other rentals,” meaning is it big enough, offers the same amount of rooms and bathrooms or even the overall condition like paint, flooring/carpets, cabinets, appliances and so forth.  Of course the time of the season and location of the property are factors, but again, even with these factors it comes down to price.  And, if the price is set accurately for these factors and the house is still not renting, well, I’m not saying anything yet, so read on!

Is the rent price dropping or stagnant?

This is a big indicator that something is wrong with either pricing or the house itself.  Generally speaking, rent prices move upward as the demand for housing increases or, in other words, when consumers can’t buy or aren’t buying homes, they rent! Of course, on the flip side, if there is an excess of rentals, the price will  drop, but just the same, there is something wrong, because the price will reflect this. The major focus should remain on if the price is  dropping or remaining stagnant from year to year as you change tenants?  If you’re finding that fixing up and updating the house doesn’t help in getting it rented at a higher price, well… you may have a turkey on your hands!

Upgrading and Repairing!

Upgrading the house, changing out the carpet, putting on a new coat of paint and repairing minor things around an investment house is not uncommon. And as implied above, may be necessary to recapture a greater rent price and to get a tenant.  The “turkey” factor enters the equation when upgrading and repairing becomes a regular occurance OR you’re about to do a major overhaul to the property and just don’t want to have to do it again!  If you have had a long term tenant who is used to the old appliances and the way house is, then they move out and you have to invest into bringing the property back up to par with the competition,  this may be a great time to “cook that turkey” and move on.  Now, do keep in mind, the major overhaul may or may not “pay off” in the sale of the home, but it will definitely help move the property faster. And, if you change your mind and want to hold on, they to will help rent the place quicker.

Would you live there?

Or have your son or daughter live in the house? If the answer is no, you may want to consider selling it off, it’s a turkey!  Sure, you may have outgrown a property, but if you can’t see yourself moving back in or being able to put family members into the house to live, others are going to feel the same way.  And if that is true, you’re not truly maximizing your investment potential because you are losing opportunity in rental income. And, losing money during vacancies and repairs.

What to do with a turkey!

Once you’ve realized you have a turkey, my best suggestion is find a nice tender duckling to trade it for!  Okay, enough thanksgiving talk… 1031 tax exchange. Check with your accountant on more details, but simply put, sell the turkey and take the proceeds to upgrade to a duckling and save on paying capital gains.  The 1031 Exchange is pretty simple, finding the replacement house in the given time frame may be hectic, so shop smart.  We do these transactions frequently and I’ve had a few creative investors able to take the proceeds and buy two homes.  I can’t promise that will happen all the time, but it was certainly a nice deal for the investor!

If you need help with leasing or selling your turkey, investment home, let me know.  We are experts at selling tenant occupied homes and reducing vacancies between tenants.  Happy Thanksgiving!

 

 

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Winterizing your investment properties, who takes care of that?

There are several key winterization items that should be done every winter, but who is responsible, the owner or tenant?  I break them down into two categories. The first are the items that are the “must dos” to protect the integrity and structure of the home.  And the second category are those items that are solely for comfort.  And, there are some items that fall into both categories.

The “must dos” items would be things like cleaning out the gutters & downspouts  to protect them from creating “ice dams” and causing problems of the gutters detaching from the roof.   Leases should have the tenants responsible for cleaning out the gutters and downspouts.

Outside plumbing is another “must do” and this is one of the easiest things the tenant can and must do.  We mark all of the outside shutoff valves and show the tenants where they are in time for winter.  Don’t forget, they also have to bleed out the lines by turning the outside faucet all the way on. This reduces the risk of water freezing inside the piping and cracking the pipes that are hidden between the walls.

Cleaning the chimney flue is another “must do” if the fireplace is being used.  Tree sap builds up inside the metal flu and can catch fire if the chimney is not cleaned properly.  This too is a tenant’s responsiblity if they are using or have used the fireplace.  Here is some more information about chimney safety, http://www.hantsfire.gov.uk/yoursafety/athome/thatchfires/fires-chimneys-flues.htm.

Having the furnace or heat-pump serviced and checked is really an owner item.  Changing the filter to maintain a well working unit is the tenant’s responsibility.  We inspect the filters during our inspections to make sure the tenants are keeping up with their end of the deal.  By keeping up with the servicing of the heating unit will prolong the life time of the unit and reduce the chance of having a unit die in the middle of a blizzard and paying extra to have one delivered and installed!  And since, most heat pumps are also the air conditioner, keeping up with the servicing will also save a headache during the heat wave season!”

Roofs are the owner’s responsibility and should be visually checked twice a year after the major storm seasons.  Missing shingles from major wind storms are the first thing to look for and other damage may require professionals. Here is a great page about how long roofs last and what to look for, http://www.ehow.com/facts_5028518_long-should-roof-last.html

Leaks in the windows and doors would be left up to the tenant to solve, short of buying new ones. This is also true for insulation, especially in the attic. Although the owner could benefit from having the attic properly insulated to help the resale of the house in the future.

The important thing to remember are the items that aren’t properly winterized may not cause a problem until the spring.  This is also important if the house becomes vacant during the winter months and the heat is turned off. Keeping up with the tenants on the winterization items in the lease and maintaining the home during vacancy is standard practice for my property management company.

Stay warm this season!

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