Winning ratified contracts in Northern Va. during the 2018 Seller’s Market

Two thirds the way through the 2018 first quarter and homes are going under contract before the open house.  And to add to the stress,  homes that are priced under $400k are receiving  mega-multiple offers  and the inventory is staying stagnant as  owners are just not willing  to move.  Low inventory and a lot of active buyers ready to buy, yesterday, is the definition of a Seller’s Market and your contract won’t win the attention and ratification of the sellers without understanding a few key points.

If you are wisely using a Realtor, listen to him (or her).  Yes, there is tons of information on buying homes from a variety of websites, talk shows, TV ads, friends, neighbors, co-workers and parents, but what is relevant today is what your Realtor should be providing.  Sure, last year your brother-in-law bought a house with practically no money down and you want the same deal with an extra low offer and lots of money from the seller to help you close.  Not going to happen, right now.

The top items that buyers have control over in their original offer that can make the contract stronger are based on the price offered, the subsidy asked for, contingencies, type of mortgage, and closing date.  Let’s look at these items from both sides, the seller and buyer to really get ones head in the game.

Pricing:  The seller wants to sell his house for the most money and the buyer wants to buy the house for the least amount of money AND not over pay.  Sounds pretty reasonable, right?  But, the price is based on what other similar homes have sold in the neighborhood, derived from market comparisons, past sales and condition and amenities offered in the various comparables.   The price is discussed between the owner and the listing agent and the price is established on the MRIS.

PAUSE:   Now if the price is to high, the market will tend to not make any offers on the home, because there may be other homes priced more practically that provide the same amenities and size and such.  Also, if the price is to high, the owner risks that the appraisal will not qualify the home and then he may have to reduce the price during with the current contract, negotiate terms and possibly have the buyer walk away and wasted 21 days or more.   AND, if the home is appraised with a FHA loan, that appraisal stays with the house for a couple of months, so the owner is now “stuck” with that price.

Because of this risk, owners will tend to price their home as high as the market will bear, but still be able to pass the appraisal process.   Unless the owner doesn’t care about selling his home, it does not make sound business sense to gouge the price,  If it doesn’t sell or is off the market for 3 to 4 weeks, by the time it comes back onto the market,  the Seller’s Market may have ended and the market price may have dropped.

So, when making an offer, dropping the offer price below the asking price is not a good idea, especially if there are multiple offers coming in.  AND, making a to high of an offer may not benefit the owner, due to the appraisal clause, which will bring the price back down and negotiations will have to resume on whom is to pay the difference.  Most owners will want to avoid that scenario and simply go with the contract with the reasonable offer price.

Also, your Realtor can verify the pricing of other similar homes in the community with a quick CMA and let you know where the pricing is.  This is also important if the listing agent priced to low and wants to create a “bidding war” to really maximize the sellers return and is confident that the home will appraise at the higher expected price.

One last thing on pricing.  Besides the CMA, if you’ve seen a lot of homes, more than 10, to buy, you will have a sense of price for what you’re paying.  And, even though the CMA may suggest a lower price than the listed price, the appraisal will work in your favor if you make a full offer at the asking price.   Once you go above that listed price, then the fingers will start pointing on who should pay the difference.

Subsidy:  A subsidy is the owner’s help in paying for your costs.  It’s really popular during a Buyer’s Market, but less effective during a Seller’s Market.  I like to equate it to going to a restaurant and asking the waiter to give you 3% of the cost of the dinner you would like to order, because you can’t afford it otherwise.  Reread that last part, it’s important.

Asking the owner to give you money to buy his home, seems crazy, doesn’t it?  Now, if you were the only buyer and had the opportunity to choose from 10 or more owner’s homes, sure, why not, who really, really wants to sell their house.  But, in a Seller’s Market when the owner is receiving 5 or more contract offers in a few days of being on the market, why would they want to pay for your costs and give you money back?

I think people believe that when they are purchasing a $400,000 home, that the owner is making $400,000 and could spare $8,000 – $10,000, that still leaves them a net of $390k!!!   Unfortunately, this is not how home selling goes.  As the buyer, you have NO idea what the owner’s expenses are, why they need to sell the house or really anything about the owner and their finances.

Even if the house is paid off and has no loan to pay back, they still paid money for the house at one point, so that amount has to be deducted from the sales price to break even.  Otherwise, the loan and possibly 2nd mortgages have to be paid back from the sales price.  Plus there are the cost of listing the home, typically 6%, right off the top and many other governmental costs and taxes for capital gains.   These are just a few, but should clearly show that the owner is not walking away with the full amount of the sales price.

And, because of that, no Subsidy is the best offer.  Now, some buyers need a few extra dollars to make it through and sometimes you can build in the closing costs with the offer price, but see above and pending on high the listing price is compared to possible appraisals.  Lastly,  your Realtor should be able to calculate a close amount of closing costs for you to work with and perhaps finding a less expensive home is a stronger strategy.

Contingencies:  Most of the contingencies in a home purchase offer help protect the buyer, so any elimination of such contingencies increase the financial risk of the buyer.  As a buyer, you have to understand that and must discuss with your Realtor the pros and cons of removing these contingencies.  This section is not a recommendation to do anything without proper legal and professional representation consultation.

In a home purchase contract/offer most Sellers want as few to no contingencies as possible.  This is because most contingencies allow the buyer to exit from the contract without financial consequence.  There are many contingencies in a Northern Virginia NVAR contract and even more that can be added with the correct form.  But three of them are the most common, Home Inspection, Finance and Appraisal.

Home Inspection:   This contingency has been upgraded through the past years.  The basic premise is that the buyer can have a professional home inspector inspect the home and if the inspector finds items that are not working properly or are old or even broken, the buyer can then request to have the seller fix or correct any or all issues before proceeding to close  OR simply void the contract completely and walk away.

Now, the option is either VOID or ask, but not both and if the buyer proceeds to ask the seller to fix and the seller says no, the buyer cannot then choose to void the contract.  It gets messy and heated and at times, buyers are able to void the contract with another contingency that hasn’t expired.   Remember, as a buyer, the seller does NOT have to fix anything you request, short of any contractual items that are pre built into the contract, but may be left to negotiation or interpretation.

Nonetheless, sellers prefer no home inspection or a  home inspection for informational purposes only to avoid possible conflict of dealing with various findings of the home inspector.   Sometimes, the listing agent will even specify that the home is sold “as is” and request that the home inspection is for informational purposes only.

As the buyer, you have to decide whether to include a home inspection or not, with the later making for a stronger offer, because the seller wants no inspection.  But, FHA and HUD recommends that all homeowners have a home inspection and it could be nice to know that the house you are buying is in great working order and if not, at least you know what you may need to correct in the future.  Most often, buyers who are not afraid of fixing things or plan to replace items in the upcoming year tend to save on the cost of home inspections.  Other buyers who are not as handy prefer to have the security of knowing.  Where you fall and a discussion with your Realtor will guide you properly.

Finance and Appraisals:  These contingencies, for most buyers, should never be removed. the seller would love it if you removed, because it is saying the regardless if your financing falls through or if the appraisal is lower than your offer, you will still purchase the home.  Unless you are buying the home with cash or have a large cash savings, removing these contingencies will not benefit you and most sellers expect them to be there.

“Cash is King” when it comes to these contingencies and more often than not, sellers will go for the cash offer first.  But, cash offers are not as frequent, especially in higher priced homes, so more often than not, all the buyers writing contracts will have these same contingencies, making them equal and the other factors more relavant.  Discuss with your Realtor on the contractual obligations involved with the financing and appraisal contingencies for more complete understanding.

Type of Mortgage:   We just covered a cash deal, so that leaves three more common financing in this area;  FHA, Conventional and VA.  The type of financing may be dependent on your financial situation, but if you are able to choose one over the other, here are the differences that the seller is looking at and which ones can make your offer stronger.

FHA and VA Loans:  These are the most common, especially for first time home buyers, because the terms are very conducive for this market of buyers.  Typically, they offered low down payments, allowing first time home buyers an easier time buy a home.  But, on the seller side, both FHA and VA loans require extra paperwork, extra requirements and an extra inspection that is different than the home inspection the buyer pays for.  And because of these extras, that is adding more contingencies to the offer and possibly more risk in the deal falling apart.

This by NO means is saying not to use FHA and certainly if you are a veteran, take advantage of the VA loans.  But, in a very competitive environment, these are not the strongest loan programs for the seller.  Yet, some sellers love our veterans and would gladly help out, if all others things are equal.

Conventional Loans:  Conventional loans have become more common with reduced down payment programs and even no PMI programs.  And because of the lack of rules, regulations and extra forms involved in using conventional financing, this is the second best option for sellers.  Simply put, less contingencies!

The financing forms is where you will find the appraisal contingency and subsidy section for the contract.  Check with your mortgage provider about any amounts you can receive as a subsidy,, some programs do not allow for subsidies or capped amounts. And, remember, no subsidy is the strongest option for the seller.

Closing Date:   The closing date may be an important factor for the seller.  Sometimes, the listing agent will provide you with some information that may help.  Generally, if the house is vacant, the sellers probably are more incline to want a faster closing.  also, if you can’t or don’t want to move for more than 60 days, more than likely,  you are a bit early in submitting a contract offer.

But, the closing date has to match up with your financing.  FHA and VA loans can take up to 45 to 60 days to process and close.   Conventional loans can take 20 to 30 days, pending on how much information you’ve already provided to your mortgage broker and how far down the process you’ve gotten.  Knowing these dates and contacting your mortgage person is very important when making an offer.

Avoid delays!  Writing an offer with an early financing promise is not a wise decision.  Although it can be assumed that the seller will wait a couple of days if the financing isn’t ready, technically you will be in breach of the contract and may be responsible for any related costs occurred by the seller due to the delay.  Especially if the seller is purchasing another home with the profits from the sale of his last home and the moving company is at his door wanting to pack up and move them.  These costs could be shared or paid by you, the buyer.

So, when choosing the closing date, involve your mortgage team and come up with the best plan that benefits your situation and encourages the seller to choose your offer.

Now, go win some contracts!!!  Thank you and I hope this information will help you win your next contract on that favorite home that has multiple offers on it.   And, watch those rates and learn why and how from my last blog on Monitoring Mortgage Rates.   Happy Home buying!!!

 

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Monitoring Mortgage Rates thru TNX

Watching mortgage rates is just as crucial as finding that perfect home, because it can dramatically affect your purchasing power.  It works like this, simply put, mortgage rates increase, the interest on your mortgage increases and that increases your monthly payment.  And, when your monthly payment increases, that means you are only able to borrow less to match a similar monthly payment.  Hence, you lose purchasing power.

 

Like the stock market, ideally, you want to “lock in” a mortgage rate when it’s the lowest.  Of course, that can be very difficult with the plethora  of other variables involved to find and purchase a new home.  So, to narrow the risk, you want to try and predict where the mortgage rates will be, when it is time to finalize the loan for the home purchase.  One of the best ways is to watch the movement or lack of movement of TNX.

What and Where do I find the TNX?

The TNX is a market symbol that tracks the 10 year interest rate Treasury Note.  And, according to The Truth About Mortgage.com, “the average mortgage is paid off [house is sold] or refinanced within 10 years,” making the 10 year note a great measure to predict the direction of interest rates.  So, if you observe the TNX moving upward, this is a sign that the mortgage rates will be moving higher as well.

The TNX is a common market symbol and can easily be found on Yahoo Finance.  Near the top of the home Finance page, they list the Dow, S&P and Nasdaq and on the right of that section is an arrow that allows you to scroll through other notable market symbols.  TNX is listed as  the 10 year Treasury Note and simply click on that symbol for more graphs, info and where it is listed on the CBOE (Chicago Board of Exchange).

When do I use the TNX?

Most home purchases take between 30  – 45 days to go from a ratified contract to closing.  Finding the right home can take much longer, but that is a good time to start watching the TNX.  This is  because of the unknown time frame of getting a ratified contract, ie you may fall in love with the first home you see or it may take several months.

Once you’re at the ratified contract stage, that’s when you really need to watch what is going on.  The market and rates move daily and if you see a trend of the rates moving upward, you may want to “lock in”  a good rate.  And, if you see the trend moving lower, you may want to wait and see where it will be closer to the closing.  Some mortgage brokers even offer programs to “lock in” a rate and if it goes lower, you get the lower rate.

Back of the napkin quick estimates!

A quick back of the napkin estimate is taking the TNX rate and adding 1.70 to come up with a mortgage rate, according to The Truth About Mortgage.com. But, “mortgage rates are very susceptible to economic activities,” the article continued to warn.  “As a rule of thumb, bad economic news brings lower mortgage rates and good economic news brings higher mortgage rates.”

And, of course, personal finance situations and credit issues and scores also have an affect on the final number, based on the lenders standards.  Nonetheless, watching the TNX will help you understand where the mortgage rates have been, where they may be going in the near future and where it is presently to help you get the best mortgage rate at any specific time.

For more information about using the market to learn risk vs reward and probabilities of success, check out TastyTrade.com. 

 

 

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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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