Post on 12-May-2015
Investing in Real Estate Basics
(703) 589-3848
www.TheModelHomeLook.com
mike@themodelhomelook.com
Mike Ford
Licensed Home Improvements Contractor
Licensed Real Estate Salesperson
2
Course Outline – 1st Session
• Introduction, Backgrounds
• Student Expectations
• Market Review
• Types of Sales
• Finding the Best Deals
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Who is Mike Ford
Northern Virginia Native
Bachelor of Sciences degree in Business
Administration from Old Dominion
University.
Licensed Real Estate Agent - Coldwell
Banker Residential Brokerage.
Corporate Experience – Fortune 500 Companies – Motorola
Communications & McKesson Healthcare, National Healthcare
Trade Association
Entrepreneur – Owner of The Model Home Look
Community Volunteer – Youth Sports,
Home Owners Association
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Recognizing value in Real
Estate investments
We offer our real estate clients the opportunity to
make improvements that make their homes
more appealing to prospective home buyers.
We help clients discern the simple
improvements from the financial catastrophes.
5
The Model Home Look –
Home Renovation Knowledge
is Key
Our clients have been particularly pleased with
our knowledge of home construction, and
appreciate the guidance to improvements that
provide the most significant returns when the
time comes to sell their homes/investments.
6
Understanding Home
Values
www.themodelhomelook.com
We help all of our clients identify the home improvements that
will have the biggest impact on their home’s value.
7
Is it a good time to invest in
Real Estate?
In a market like this, when
people think things are so
bad in the market, so
horrible and the sky is
falling and property
values are dropping, that's
good news for real estate
investors
Jan-2011 Jan-2010 % Change
Sold Dollar
Volume
$279,113,480 $316,657,625 - 11.86%
Average Sold
Price
$440,938 $433,184 1.79%
Median Sold
Price
$360,000 $350,000 2.86%
Units Sold 636 732 -13.11%
Average Days
on Market
77 57 35.09%
Average List
Price for Solds
$454,197 $449,308 1.09%
Fairfax County – Sold
Summary, January 2011
8
2,930
1,531
318 549
867
2,579 2,791
1,190
360 700
1,060
2,036
Active
Listings
New Listings New Under
Contracts
New
Contingents
New Pendings Total
Pendings
Jan-10 Jan-11
Fairfax County Inventory
9
2 or less
BR
TH 2 or
less BR3 BR TH 3 BR 4 BR TH 4 BR Condo
Jan-10 $210,444 $259,548 $378,366 $345,808 $683,079 $397,705 $226,608
Jan-11 $160,000 $258,580 $397,665 $344,844 $681,983 $370,065 $232,436
Fairfax County Average
Sold Price - January
10
1550
783
1200
644
New Listings Closed Sales
2010 2011
Fairfax County – Year
to Date
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• The biggest increase in sales was in
homes valued above $1M (+10.9%)
• Property type with the strongest sales
was Single-Family Detached (-1.9%)
• Construction status with strongest
sales was Previously Owned (-3.1%)
Quick Overview –
Regional Data
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Outlook
14
As the new year begins, the local housing market
can look very different depending on what price
range you’re looking at. For instance, in the
strongest + 10.9% - 3.1% price range for home
sales—$1 million and above—Pending Sales are
up 10.9 percent over the last twelve months. But
in the $200,001 to $300,000 above range, where
sales are weakest, the numbers have declined by
12.6 percent during the same time period.
Outlook
15
Inventory overall is holding steady, having
fallen by 1.2 percent from a year ago. But
Townhomes have seen their supply inch up
by 3.1 percent while single-family detached
homes and condos have both seen their active
listings drop during the same time frame.
New Construction inventory is dropping the
fastest, down 9.7 percent from a year ago.
Outlook
16
The price range with the longest Days on
Market Until Sale is the $1 million and above
range, where the average market time is 123.
The ranges with the shortest market time are
$300,001 to $400,000 and $500,001 to $1
million, where it’s taking a comparatively
shorter 72 days for a home to sell, on
average.
17
Prices
Median Sales Price was up slightly 1.1% compared to last January, registering in at $265,000.
If inventory continues to
decline, we could see prices
start to creep up.
92.30%
95.30%
92.10%
93.10%
95.80%
92.90%
Single Family
Detatched
Townhomes Condominums/Other
Jan-10 Jan-11
Percentage of List
Price Received at Sale
18
Single Family
DetachedTownhomes Condo /Other
Jan-10 $300,000.00 $235,000.00 $215,000.00
Jan-11 $304,000.00 $241,500.00 $210,000.00
Median Sales Price –
All Properties
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Single Family
DetachedTownhomes Condo /Other
Jan-10 $295,000.00 $230,000.00 $205,000.00
Jan-11 $295,000.00 $238,000.00 $200,000.00
Median Sales Price –
Previously Owned
20
Single Family
DetachedTownhomes Condo /Other
Jan-10 $410,000.00 $305,118.00 $350,000.00
Jan-11 $407,950.00 $310,450.00 $363,000.00
Median Sales Price –
New Construction
21
• The average number of days between
when a property is first listed and
when an offer is accepted. Sold
properties only.
Days on Market Unit
Sales
22
23
Days on market
Properties moving the fastest are
in the Core jurisdictions. If
interest rates remain at record
lows, we expect days on market
to continue to decline.
80 Days – Down 17.8%
Single Family
DetachedTownhomes Condo /Other
Jan-10 109 74 94
Jan-11 89 60 79
Days on Market - All
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Single Family
DetachedTownhomes Condo /Other
Jan-10 108 74 95
Jan-11 88 59 79
Days on Market –
Previously Owned
25
Single Family
DetachedTownhomes Condo /Other
Jan-10 129 80 82
Jan-11 105 74 79
Days on Market – New
Construction
26
Single Family
DetachedTownhomes Condo /Other
Jan-10 35,221 9,211 11,858
Jan-11 34,402 9,492 11,733
Inventory – All
Properties
27
Single Family
DetachedTownhomes Condo /Other
Jan-10 29,759 8,347 10,866
Jan-11 29,470 8,614 10,934
Inventory – Previously
Owned
28
Single Family
DetachedTownhomes Condo /Other
Jan-10 5,462 864 992
Jan-11 4,932 878 799
Inventory – New
Construction
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• Compares the number of active
listings available to the average
monthly pending sales from the last
12 months. Based on one month of
activity.
Months Supply of
Inventory
30
7.15.6
4.9 5.0 5.6
14.0
7.7
5.95.1 5.0 5.2
11.0
$200,000
and Below
$200K -
$300K
$300K -
$400K
$400K -
$500K
$500K -
$1M
$1M and
above
Month’s Supply of Inventory
Jan-10 Jan-11
Inventory By Price
Range - ALL
31
6.8 5.2
4.4 4.4 4.8
13.4
7.4
5.5 4.5 4.3 4.4
10.4
$200,000
and Below
$200K -
$300K
$300K -
$400K
$400K -
$500K
$500K -
$1M
$1M and
above
Month’s Supply of Inventory
Jan-10 Jan-11
Inventory By Price Range
– Previously Owned
32
13.2
11.2 9.6
8.6
11.5
15.9 14.3
11.9 10.5 10.1
12.9 14.7
$200,000
and Below
$200K -
$300K
$300K -
$400K
$400K -
$500K
$500K -
$1M
$1M and
above
Month’s Supply of Inventory
Jan-10 Jan-11
Inventory By Price Range
– New Construction
33
6.8
4.0
6.6 6.8
4.7
6.6
Single Family Detached Townhomes Condo/other
Month’s Supply of Inventory
Jan-10 Jan-11
Inventory By Property
Type
34
5.7
11.0
5.9
11.9
Previously Owned New Construction
Month’s Supply of Inventory
Jan-10 Jan-11
Inventory By Property
Type
35
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Inventory
Months Supply is 6.3 months.
6-month is the desired mark for a balance
between supply and demand.
Stable Market, Prices starting to increase,
Interest Rates Ticking Upward, Worst is
behind us
Summary
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The Wart on the ―National‖
Market
There are millions and millions of
foreclosures or people behind on payments
and the number is growing and growing
every day. Most of those houses don't have
equity because people took out creative
loans, interest only loans, borrowed 100
percent of their money and then when their
payments reset and the markets dropped
everyone lost the equity in their property.
Financial disaster in the housing market
as reported in the media
National Media Pressure
39
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Future of Local Market
We expect that rising demand
(propelled by job growth and Federal
spending) will bring traction to the
Washington housing market,
particularly in the Core, as liquidity
returns to the credit markets and
buyers regain confidence.
41
Future of Local Market
Inventory is declining and construction
remains low, which will help limit
future price declines, we are now
seeing prices starting to rise again.
Conditions will continue to improve
in the close-in communities, with
recovery arriving in the outer counties
later in the year.
42
Northern Virginia -
Best Market for Long
Term Investor
• Local Economy is Stronger than the
rest of the country.
• Government procurement.
• Much of what has driven our local
economy is emotional. Buyers have
been sitting on the sidelines.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Fairfax County National Average
Unemployment Rate
Jan-10
Strong Local Economy
43
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Cheap Money
Mortgage Interest Rates
• 15 Year Fixed 3.68% APR – 4.29% APR
• 30 Year Fixed 4.10% APR – 4.84% APR
• Mortgages 5/1 Year ARM – 2.89% APR –
3.49 % APR
Rates provided by Bankrate.com.
45
Types of Home Sellers
1. Distressed sellers who are headed
to foreclosure
2. Banks who have acquired
property through the foreclosure
process
3. Traditional Sellers
46
Short Sale
A short-sale is simply negotiating with
the home owner's current lender(s) to
accept an amount that is less than
they are owed.
47
Short Sales
A properly structured short-sale
transaction can be an attractive
alternative and beneficial for all
parties to the transaction.
48
Distressed Seller
Eventually, most homeowners facing
foreclosure resign themselves to the
fact that they’re going to have to sell
their home. Agents present options,
such as a short sale, whereby lenders
may be willing to take less than the
balance owed on their homes.
49
Short Sale Home
Owner Benefit
The homeowner is able to sell the
property, get out from under the stress
and strain of a foreclosure, and move
on with their lives.
It helps the homeowner because they do
not end up with a foreclosure on their
credit report.
50
Short Sale - Bank
Benefit
The bank that is taking the short is able to
avoid the high costs of the foreclosure and
the risk of the property reverting back to
them at auction, which results in additional
costs to secure and upkeep the property.
It is said that every foreclosure property that ends up as an
REO (Real Estate Owned by the bank) costs the lender
approximately $50,000.
51
Short Sale –
Investor Benefit
The person buying the property,
whether an investor or home buyer, is
able to purchase the property, usually
at a substantial discount
52
Short Sales – A
Simple Solution for
All, Right?
Negotiating a successful short-sale is a
complicated and time-consuming
endeavor.
The banks are overwhelmed, and are
not easy to navigate for the
inexperienced real estate agent or
investor.
53
Foreclosure
The legal process by which a
mortgagor of real property loses his
or her interest in that property for
failing to comply with the terms
and conditions of the mortgage
54
Foreclosures –
Good Deal?
Good deals are out there, but you can
never assume that you’re getting a
bargain simply because it’s a foreclosed
property. In states where home prices
have risen the most, foreclosed
properties sell within 5 percent of their
full market value.
Source: Study by First American Real Estate
Solutions, a Santa Ana, Calif., company that
maintains a national database of real estate data
55
Foreclosure –
Good Deal?
Homes that are discounted are often
located in unstable communities, are
poorly maintained, and require costly
improvements — reasons why the
prior home owners didn’t just sell the
property before defaulting.
56
Foreclosure –
Good Deal?
The lenders that own foreclosed
properties are usually prevented from
accepting offers lower than appraised
value, at least during the first several
months that a home is on the market.
57
Foreclosure
Risks
CLOUDS ON THE TITLE - Before you bid on a
foreclosed property at auction, make sure you
know what debts are part of the package. Conduct
a title search to determine if any liens or fees are
connected to the property. You may discover that
you’d be taking on the previous owner’s senior
liens (or first mortgages); junior liens (second
mortgages or additional claims against the
property), or tax liens (unpaid property taxes)
58
Foreclosure
Risks
PROPERTY CONDITION - Foreclosed
properties have previous owners who are in
financial troubles, thus the upkeep is
usually not maintained.
LOCATION - There are properties that
sound inexpensively priced but they will
not sell high as well despite the repairs
because of their location or neighborhood.
59
Traditional Sales
Motivated seller who has to move
because of situations such as job
situation, retirement, family change,
etc…
They are faced with the reality of
market erosion and are now realistic
with pricing
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Finding the best deals?
Where to look?
• Focus on the best locations with
strong rental market.
• Understand how to see the ―bones‖
of the property.
• Take the emotion out of the
purchase.
Location, Location, Location
Fundamentals of Real Estate
61
Desirable Rental Market
Public Transportation
Shopping & dining
Affordability
Low Maintenance Costs
Junk or Treasure?
The ―Bones‖
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Strategy
1. Find a good agent who is a strong
negotiator
2. Have your financing in order to
strike fast
3. Zero in on a target location
4. Zero in on ideal property
64
Strategy
5. Understand the costs associated with
renovations – Don’t under estimate!
6. Be patient, and don’t get caught up
in the emotion of the sale
65
Investor Resources
Realtor.com, RealtyTrac.com,
66
Seller Representation
• Full Service Listing Agents
• Discount Agency
• REO Specialist, Representing Banks
• Auction Firms
• For Sale By Owner
67
Invest in Patience – Tax Implications
Investment profit, regardless of whether it comes from sale of stocks or real estate, is considered and is taxed at two levels. The tax rates depend on how long you own the property.
Hold an asset for a year or less and you'll face short-term gains that are taxed at ordinary income-tax rates. This could be as high as 35 percent. If your investment timetable is lengthier, federal tax laws reward you. By holding an asset for more than a year, you'll face a tax rate closer to 15 percent.
70
Understanding Property
Value
• CMA – Comparative Market Analysis
• BPO – Broker Price Opinion
• Property Condition – Cost to bring it
into today’s standard
71
Managing Your
Investment Property
• You’ve done your homework, and
closed on your purchase.
72
Section Objective
In this section, we’ll discuss the cost
associated with home improvements
to increase the value of your real
estate investment
73
Reasons for Improving
• Pure Enjoyment – (if you plan on moving into your new home)
• Maintenance - Small problems often lead to large expenses
• Increase probability of selling or renting
• To appeal to homebuyer or renter expectations
• To replace the low quality ―builder grade‖ fixtures & amenities
74
Avoid Costly Mistakes
• Missing out on big money by not
making the proper upgrades.
• Ignoring simple repairs often lead to
big problems.
• A job done right the first time is
always less expensive.
75
Improvement Discussion
• Kitchens
• Baths
• Paint
• Landscaping
• Carpet & Flooring
• Furnishing
• Staging
76
Minimum Expectations of
Today’s Buyers and Renters
• Updated Kitchen & Baths
• Granite Countertops
• Stainless Steel Appliances
• Hardwood Floors
• Open Floor Plan
• New Carpet
• Fresh Neutral Paint
• Show’s Well
• Great Curb Appeal
• Finished Basement
Reoccurring Buzz Words in Real
Estate Advertisements
77
Minimum Expectations of
Today's Homebuyers
• Keep a very clean house
• Eliminate pet or food odors
• Remove clutter
• Maintain the lawn and landscaping
• Keep bushes and trees trimmed
• Make sure your furniture fits properly in the rooms
• Clean windows and remove screens
• Turn on lights
• Open blinds & curtains before every showing
What Sellers Can Control
78
Did you Know?
• Must reflect today’s homebuyer’s tastes.
• Must capture the buyer’s emotions!
Within 15 seconds a buyer has developed an
opinion of the property they visit.
Prospects must say ―Wow‖ when they
enter a home!
79
Public fascination with
Interior Design!
The world is fascinated with interior design. If you
have any doubt, you need only tune into HGTV, or
visit Crate & Barrel, Restoration Hardware and
other retailers.
80
Kitchen
When remodeling your kitchen for resale, steer clear of highly personalized looks and outrageous color schemes.
• Traditional Materials
• Quality Cabinets
• Commercial-look Appliances
• Natural Wood or Stone Floors
• Granite Countertops
What to look for:
81
Bathroom
• Must be clean, with no visible signs of water of mold.
• Caulk and clean grout.
• Replace pink or blue fixtures
• Remove wallpaper
A bath remodel may be a sure-fire
investment, often returning the highest
percent of the cost.
82
Tip
A fairly inexpensive way to update a
bathroom is to re-glaze the tub and
wall tiles.
Re-glazing a typical tub and shower
will cost less than $1,000.00.
Tub & Tile Re-Glazing
83
Paint
• Fix nail pops & cracks.
• 3-color with neutral paint color.
• Wallpaper is out, remove it!
• Hire a professional. A bad paint job
will turn off prospective buyers.
The best investment you can
make is fresh paint!
84
Landscaping
• It’s all about curb appeal!
• Fresh Mulch
• Mow the Lawn
• Trim Bushes
• Weed
If people drive by your home and are not
impressed they’re not going to walk inside.
85
Tip
Applying mulch dye, which can be
purchased from a specialty landscape
supplier, is a low cost way of making
the mulch look new again.
Expect to pay about $80.00 per gallon.
Mulch Dye
86
Carpet & Flooring
• Worn or outdated carpet should be
replaced
• Dirty carpet should be cleaned
87
Staging
Staging is what you do after you've
cleaned, de-cluttered, painted, made
repairs; it's all about dressing the
house for sale.
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Tip
To achieve this level is usually only feasible by hiring a cleaning crew. In fact, having a cleaning service return weekly while your house is for sale is probably a pretty good investment.
Get your windows professionally cleaned inside and out too.
Your home must be clean!
89
Tip
Clutter makes homes seem smaller and
disorganized.
Have you ever noticed that the really expensive
stores seem to have an expansive, clutter-
free layout, while "cheap" stores are often a
jumble of merchandise?
Eliminate Clutter
90
Tip
Remove objects that your potential buyers won't be able to
identify with. For example, political and religious
items may turn off whole groups of buyers, because
they cannot "imagine" your home as their home.
Buying a home is an emotional decision, and you want
potential buyers to make an emotional connection with
your home by being able to "see" themselves in it.
De-Personalize
91
Basement Makeover
92
New Countertops & Wall Tile
93
Granite Countertops
94
Countertop & Paint
© 2005 Interior Makeovers
© 2005 Interior Makeovers
95
Kitchen Makeover
96
Kitchen Makeover
97
Kitchen Makeover
98
Bathroom Improvement
99
Bathroom
100
Hardwood Floors
101
Basement Improvement
© 2005 Interior Makeovers
© 2005 Interior Makeovers
2/16/2011Mike
Ford
(703) 589-3848 102
Kitchen Cabinets
103
Home Office
104
Formal Living Room
2/16/2011Mike
Ford
(703) 589-3848 105
Family Room
106
Builders have MODEL
HOMES – Why?
TO CREATE SALES
They understand that buyers want a
home in near-perfect ―model home‖
move-in condition where all the buyer
must do is turn the key in the front
door and move in.
107
Reasons Homeowners
Do Not Invest to Sell
their Home?
• Don’t have the time
• Think it is too costly
• Unsure of which improvements yield the highest return
• Believe their personal decoration style is appealing to today’s homebuyers
• Believe that a price allowance can be made when the home is sold