Up and Coming Neighborhoods

Charlotte continues to be praised as one of the top real estate markets in the country. The Today Show on NBC recently featured the Biddleville Neighborhood here in Charlotte as one of the top neighborhoods to invest in Charlotte. Click below to see the report on Charlotte.


How to spot the next neighborhood

The Biddleville neighborhood borders the Wesley Heights neighborhood to the West of the Uptown and features old mill homes in need of renovation priced from the mid $100's. While old houses are being renovated, new houses are being constructed. The new homes typically range in the mid $400's. For more information about Biddleville or other surrounding communities, e-mail me at tjmccollum@bellsouth.net

Sell vs Rent

The only thing certain in life is uncertainty. In the world of business and commerce this is especially true. Sometimes in good ways, other times in bad ways. Sometimes it means getting a promotion, which is typically a good thing. Unfortunately, this sometimes means that jobs get terminated or transferred. Familial status changes. When life circumstances change and a move is needed, a home owner is faced with the dilemma of renting out their home or selling it. Should I rent it out or sell? The answer to the question is...

Renting

Renting out your home allows you to reduce the amount of monthly investment in a home. Sometimes your rental income can be greater than your monthly payment in a property. The result is called "Cashflow". The goal of renting out your home is to continue to pay down the mortgage while the property values increase(hopefully).

Pros: The main benefit of renting our a property is the decreasing of the mortgage as property values increase (the difference between mortgage and property value is called equity). This growth in equity will compound in time as rental rates increase, mortgage decreases, and property values go up. Renting out a home can be either a short-term or long-term investment.Renting out a property can be very profitable over the long-haul...a great way to plan for retirement.


Cons: Managing rentals can be tedious and time-consuming. Finding tenants, collecting rent, repairs, and evictions are a few of the numerous tasks required to manage rental properties. The management of rentals can be difficult to impossible in distant locations. Where management companies can be hired for finding tenants and managing the rents and repairs, it can be expensive or impractical to hire out these tasks. In areas of high-growth, rental rates can be significantly lower than mortgage payments requiring a large monthly investment by owners. Tac on a property manager and the investment can be impractical.

Selling

The ultimate goal of real estate is to be able to sell the property for more than you owe. Cashing out the equity of a home is the goal for many people. Whether it's this year or 20 years from now. Selling a home is the reaping the benefit of owning a home. You might call it "Cashing out."

Pros: The first and highest benefit of selling a property is receiving the equity from the property and disposing of the investment. No longer dealing with the issues required to maintain real estate. The current tax laws are very friendly to sellers who have occupied real estate. The current laws provide tax exemption to capital gains for owners that sell real estate that has been their residence.*

Cons: Selling your home eliminates any opportunity to realize any future gains in property values. As Charlotte in general has done very well with increasing property values, some people may find themselves "up-side-down"...meaning that they owe more money than their home is worth. Through whatever means that has happened, it may be necessary to pay money to dispose of the property in this situation. Selling a home can be fairly time consuming. It typically takes about 120 days to sell a home. Sometimes it is less. Sometimes more.

So, should you rent or sell? Well, that's up to you. Different people do the same thing for different reasons. And, different people do different things for the same reason.

Taking a look at your equity position in your home is a good first step in deciding what to do. Then you may want to study the rental rates in your neighborhood, the property value history, current market trends, and new developments that may hurt/benefit.

If you are interested in analyzing your current situation, I would be happy to meet with you to discuss. Please email me at tjmccollum@bellsouth.net for more information.


*Please consult an attorney and/or an accountant to verify you are eligible for tax exemption

Making a Competitive Offer

Making an offer on a property is a complex coordination between asking for what you want and providing what a seller needs. It is a fine art. It is a dance between two parties looking to get everything they can from the other. When done well, the negotiation of an purchase agreement between two parties is a beautiful thing. You might think that it is all about price. Well, money is important, but there are several other factors that come into play. The focus here is to talk about what other terms and conditions might put a person in the best position to negotiate the best price.

Deposit
In order to have a binding agreement for the purchase of a property, there must be a Earnest Money Deposit. This money is a buyer's promise that they intend to purchase a piece of real estate. This money is held in a trust account by either a firm or a lawyer and applied as a credit to the buyer at closing. The typical deposit is 1% of purchase price for resales. A stronger than average deposit shows a seller a level of commitment that is higher than average--boosting a seller's confidence in a buyer.

Financing
A persons ability to come up with the money is one of the most crucial points of negotiating the sale of real estate. Being pre-qualified is a must. The type of financing and who is planning on financing the loan are crucial points these days too. Purchasing a property with cash is a great strength in a negotiating. However, at the end of the transaction--it is all cash to the seller. Therefore, there is some limitation to the strength of a cash offer. The point here is that the more danger that is perceived in a person's ability to get financing, the less likely a seller is to negotiate on other issues.

Inspections
Getting termite and structural/mechanical inspections on a property is fairly common. The goal is to make sure all the systems of a house and the structural components are working as designed. The negotiating of repairs is typically inversely proportionate to the amount of price negotiating on the front end. The more the seller comes down in price, the less likely they are to do repairs to a home--typically. The time frame of inspections and repairs are important elements that are often over-looked by buyers, but are important pieces of the purchase agreement.

Closing
Closing is the terminology for the exchange of keys and disbursing/paying for the purchase. Legally, Closing is the recording of the Deed and Deed of Trust (if applicable). The date of the closing is a negotiating point on the front end and is something that can be the difference between a good offer and a bad offer.

Ultimately, a offer to purchase a home is seen as by a seller as a calculated risk. The more risk involved in a transaction, the less comfortable they are in taking less money. The less risk, the more comfortable in negotiating. They goal is to provide offers that appear lucrative and safe at the same time being beneficial to your own desires and interest. Negotiating is best conducted by professionals who can look at a transaction as objectively as possible and push your interest in a manor that will ultimately bring you out on top. This being the reason why having a good real estate agent who is skilled at negotiating is one of the best things to have on your side.

How to Decide How Much to Pay

Finding the perfect home is the first hurdle in the home purchasing process. Usually, finding a home that is big enough and in the right location is no small task. Once you decide you want to own the home, it is time to prepare a written agreement about the sale of the property. A written agreement can take any number of variations and terms of the sale. There are documents that can be downloaded and copied and reproduced if you do it yourself. There are a number of terms that are important in negotiating an offer. Inspections, personal property , financing, seller contribution towards closing cost...the list goes on.

The key to making an offer on a property is, foremost, how much money you are willing to pay. How much you offer to pay is a function of a number of factors:

Comparable Properties
The first factor you will consider are the homes in the complex and/or neighborhood that have recently sold or are currently available. You will want to look at homes most similar to the subject property first, then look at homes that vary is size, condition, and location. You may decide to make value adjustments to the comparables to come to a reasonable estimate of the value of the home. Your best indicators to the value of the property are sold homes within the last 6-9 months. These homes give you the best estimate of what the market is willing to pay for properties. Once you have analyzed the properties and made value adjustments based on condition and size, you can have a pretty good idea to what a home is worth.

Owner's Investment
The second step in making an offer is to consider the owner's investment into a home. While 99.9% of people have a high aversion to losing money, it is important to remember that an owners investment into the home is does not determine it's value per se. Understanding a person's investment into the home will help in deciding how much to offer. An owner with substantially less money invested into a home is more likely to take a lower offer than someone over-invested. Taking a look at the tax records and checking the purchase price and purchase date are great first steps in estimating their investment. It is important to remember that the tax records don't record mortgages. Therefore you will not have any idea if they have refinanced or taken a home equity line out. So remember that you best guess as to what an owner has into the home is an estimate.

Days on Market/Motivation
The last step to take is to compare the days on market of the subject home to the average for the area. If the days on market is substantially higher, it is either over priced or not in a condition that is average for the area. You may have already established that the price is too high in analyzing sold properties, but this last step may tell you how motivated a person may be. A person that has had their home on the market for a year will, generally, be more motivated than a person that has had their home one the market for 1 month. Vacant homes mean that the owner is paying double mortgages or double rent. Vacant properties typically have owners that are slightly more motivated than occupied properties. Properties priced well but on the market longer than the average will typically be indicators that work may be needed on a home. Sometimes cosmetic...sometimes structural.

Put It Together
Once you've looked at all the factors, you can sit down and put your offer together. Depending on your situation and your finding from your research, you may decide that home is over-priced...or under-priced. You will never know what you can get unless you try. Remember, though, that a good deal isn't always found by getting someone to negotiate a much lower price. Sometimes, it is just getting in the right place at the right time so that the prices are much higher when you go to sell.

It's a Buyers Market

You may have heard some of the news about the mortgage industry and foreclosures. The headlines are tragic and border absurd. "Builder Confidence Lowest Ever" "Prices Falling" "Foreclosure Rates at Record High"... Lions and Tigers and Bears-Oh MY!

So, it's a buyer's market. It's not the end of world. I haven't heard of a single fatality resulting from the "Mortgage Meltdown". When you read/watch the news, you get the impression that this "Meltdown" is the great Apocalypse.


The days of buying a home and selling 2 years later for a $100k profit are all but gone. It used to be said that you should live in a home for 3 years to break-even when you sell. It seems we have forgotten those days.


It's not much of a surprise in today's world. We want everything fast, cheap, and to make a huge profit when we sell tomorrow. Instant Gratification is the name of the game. If it doesn't happen like we think it should, it's a tragedy.

Yeah banks and some people are loosing money hand over fist. Yeah there are tons of foreclosures around the country. But it's not the end of the world. It is, however, the beginning of a new era.

We are entering a new day. A day of renewed ethics in lending. A return to responsibility in financing. The market has shifted. The buyer's have the power...it's a buyer's market again. Excuse the cliche, but money is power. For those who are qualified or have money, conditions couldn't be better.

The people looking to buy homes enjoy more inventory and more motivated sellers than ever. Prices and incentives are competitive. Time and inventory are on the side of the buyer. The average sales price/list price ratio is decreasing meaning sellers are negotiating more than before. Those looking for investments have a strong (and growing) renter basis to draw from. There are more homes available for purchase from banks and pre-foreclosure than ever. The loan programs for the credit-challenged have all but disappeared. This, is our new era. How long it will last, we can't say. Carpe Diem.

David Bach in his book Automatic Millionaire Homeowner encourages readers to hold on to real estate investments for the long haul 20+years. He proposes that financial freedom and security in the future is best achieved by keeping real estate--not selling it. If you can follow his model, you can take heart and be encouraged. Then, maybe go shopping for your next investment and take advantage of this new era.

For a free copy of the book listed above: Click Here

Build a Well-Rounded Portfolio

All real estate is not created equal. Real estate, like other investments, can vary in a number of important financial factors that need to be considered when building a portfolio.
IRAs, 401Ks, Mutual Funds, and stocks are all great components of a diversified portfolio. It is important that you balance your real estate portfolio similarly to how you would balance your risk in your stock/retirement portfolio. Here are 3.3 factors to consider in your real estate portfolio:

1. Cash Flow
Turn on your TV any night at 2 AM and you will see at least one "Real Estate Investor" trying to sell you his secrets to success. Cash flow, Cash flow, Cash flow...it's all over Rich Dad Poor Dad...it's everywhere. To some people, it's everything. Cash flow can be a wonderful thing that can make investing profitable on a monthly income level. Having properties with cash flow will allow a self-sustaining portfolio in which no outside money is needed to maintain. These properties can usually pay themselves off earlier than scheduled if you are careful too. The major danger of these properties that cash flow large quantities of money is that they tend to have stagnant property values over the short-term (3-5 years) and are more suited for long-term investment.

2. Appreciation
Purchasing a home that doubles in value over a short period of time is great for the portfolio and for the wallet. Homes in areas of high appreciation (10%+) tend to be more expensive and often carry higher risk, more capital investment, and require subsidization. Homes in highly appreciating area will usually have negative cash-flow unless you are skillful or lucky enough to time your purchase right. Having homes in appreciating areas can build your wealth quickly. The major danger of these properties is that they tend to not be self-supporting on a monthly basis.

3. Break-Even
Having properties that just break-even provide a portfolio with stability. Homes that just break-even usually tend to be hold the average appreciation rates and are great for the long-term investors who want to hold for 20-30 years and pay down the mortgage. Homes that fit this profile should be low-maintenance properties that can hold tenants for periods of time greater than 1 year.

3.3 Your Goals
Building a portfolio that is congruent with your financial goals is the most important aspect of investing. If your goal is the build wealth over the short-term and your risk tolerance is high, then a focus on appreciating neighborhoods would likely be your strategy. If your goals are more long-term, then you might want to focus on more break-even and some cash flowing properties. Knowing your goals is the most important aspect to real estate investing and should be the foundation and guiding light of all your decisions.

Steps to Real Estate Investment

The largest investment that most people will make is purchasing their own home. Once you are a home owner, you may realize that real estate can be very profitable and decide to become "An Investor". Before you make a commitment to such a title, consider these 3.3 steps:

1. Realistically look at your finances
If you are carrying your mortgage and paying your bills but don't have money left over, then you should probably work on reducing debt or increasing income before pursuing investment in real estate. 100% Investor Loans are non-existent. In most cases, a minimum of 10% down payment is needed to purchase a property as a investor. Make sure you have the financial capability to purchase property and carry both mortgages for at least 6 months without renting the property out.

2. Define Your Desired Outcome and Strategy
The goals you set for investment will determine how and what you do. This step is one to be taken seriously. "I want to get rich" or "I want to be an investor" are not true goals and aren't very good motivators either. A goal should be Definite and Do-Able. It should have a purpose and be realistic. Once you've set your realistic goal, you must go about figuring out how you plan to reach your goal. Do you want to purchase pre-sales in new construction? Do you want to purchase distressed properties and fix them up? Do you want to buy properties and hold them as rentals? Your strategy should be guided by a realistic picture of your life, skills, and risk tolerance. If you have never fixed up a home, then purchasing distressed properties might not fit your skills very well. Be realistic!!!

3. Pick and Learn Your Market
Once you know what you want to do and how you want to do it, you must decide where you are going to do it. Are you going to purchase in Charlotte, Miami, or Biloxi? Where are you going to focus your energy and your money? What market conditions are going to affect your property value in 1, 2, or 3 years from now? Is the market expanding or contracting? You must learn where things are happening and why they are too. You need to know rental rates, available properties, sales histories, and neighborhood dynamics. You need to know population growth and supply levels. This is the step where the rubber hits the road. This is where you will either be successful and wealthy, or be poor and fail.

3.3 Get to Know People Who Do It
Talking to people who have done what you want to do will give you a better picture of what you are getting yourself into. Although remember to, "Ignore Idiots and Zealots (gitomer)". Always try to have a mentor or a trusted advisor that you can bounce ideas and potential deals off of--someone who has your best interest in mind. It is important that the person you seek counsel from to be experienced and unbiased.