Doing This One Thing Before Putting Your Home on the Market Can Help Sell It Faster
You’ve lived in your home for years and haven't exactly been on top of regular maintenance tasks. Now, your windows are covered in plastic wrap to cut down on the cold drafts, your ceiling seems to be leaking, and those shrubs you planted to conceal a few small cracks in the foundation just aren’t cutting it anymore.
Hey, we’re not judging! But if you’re ready to put your home up for sale, know this: Buyers and their agents are going to zero in on all those things that need doing—as well as some things you hadn't even noticed yourself.
So why not get ahead of the curve by hiring a licensed home inspector who can pinpoint what needs fixing?
Of course, most sellers don’t get their homes inspected before listing them, because the buyer usually orders an inspection during escrow, and who wants to pay for something they don't have to?
But if you're willing to invest the time and money, a thorough inspection before listing your property can make it easier to price your home, manage repairs, and even help sell it faster—and for more money.
So what are the some of the reasons why a pre-listing inspection makes sense? Let's take a look.
It can save you if you've neglected home maintenance
If you have a busy life—or maybe even if you don't—chances are that obsessing over regular home maintenance might not be your No. 1 priority during downtime. Trouble is, letting painting, roof repairs, and other routine chores slide can lead to bigger issues down the road.
In a lot of cases, people think, "I've been here for 30 years; the house is fine. There's nothing wrong with it." But they’re looking at it with rose-colored glasses.
Instead of worrying what a buyer’s inspector will uncover—and which could potentially kill the sale—be proactive with a pre-listing inspection. This way, rather than being blindsided, you can then decide whether to make the necessary repairs or to account for that deferred maintenance by reducing the list price. Which leads to…
You can make a bigger profit on your sale
Sure, a home inspection that you don't have to do is going to cost money. (An inspection for a 1,200- to a 1,500-square-foot house in an average market, for instance, will cost between $350 and $400.) But as the saying goes: Sometimes you have to spend money to make money.
After all, if you invest a little more to repair and spruce up anything the pre-inspection reveals, you can justify listing your home at a higher price. Plus, in most states, home improvement repairs you carry out before selling your house are deductible from the profit you make from the sale.
Sometimes, just knowing that a pro has given the house a proper once-over can persuade a buyer to make a bid (assuming that you actually follow the inspector’s recommendations).
It minimizes surprises for a buyer and can give a buyer more confidence in the property.
You won't have to scramble to fix things at the last minute... this is a biggie
Once a buyer’s inspector submits a report, sellers are usually faced with two choices: If problems are found with the house, they can then either slash money from the sale price or opt to carry out repairs before the closing date. That often leaves sellers in the lurch, having to get work done pronto—and sometimes paying a premium for the rush work.
After a pre-listing inspection, sellers can research contractors and make the necessary repairs within a time frame of their choosing, so that everything is ready before potential buyers even visit the property.
It'll minimize back-and-forth negotiation...another biggie
Buyers often use their home inspection as leverage, asking the seller (that's you!) for steep discounts based on what their inspector’s report reveals. Not surprisingly, the buyer’s inspection is often where the deal falls apart.
If you’ve already uncovered the issues and addressed them, you can raise the price of your home accordingly. That gives the buyer less leverage in the request for the repair process.
Also, in red-hot markets like Blacksburg, where multiple bids come fast and furious, there's always a chance that buyers might accept your pre-listing inspection without insisting on doing their own. This can make for a quicker sale.
But make sure a pre-inspection doesn’t work against you
As advantageous as a pre-inspection can be, don’t forget that the inspector’s report could be a double-edged sword: Once you know about a problem, you can’t ignore it.
Sellers are legally obligated to disclose any problems that a home inspection unearths. For sellers unwilling to do repairs, their own inspection could be used as leverage to negotiate on price and in the request-for-repair process.
Before committing to a pre-inspection, find out what other sellers in your area are doing. Your agent can help guide you on whether it's necessary to sell for more, or if there's a better—and more affordable—strategy for getting your home sold. If you’re interested in selling your home, I’d be happy to help you.
Below is a news article from the Associated Press describing the increase in freshman to Virginia Tech this fall. The fact that they are dropping the on-campus housing requirement for freshman is a big deal. The student population in Blacksburg compared to the number of bedrooms available to rent is tight already. Taking an additional 650+ students and pushing them into an already crowded market is going to do one thing. Raise rents! The additional students will mean we need another 225 units (3 beds each) on average to handle the surplus of students. This matters if you are considering investing in Blacksburg. I can't tell you where rents top out or at what rate they will rise, but THEY WILL RISE.
The market is already competitive, and with this news circulating, it's only going to get worse. If you're looking to buy student housing make sure you have a Realtor with adequate market knowledge so they can help you win in multiple offer situations.
BLACKSBURG, Va. (AP) — Virginia Tech expects to welcome its largest freshman class this fall.
The Roanoke Times reports the school expects its 2019 freshman class to have about 7,500 students, breaking its previous record 2017 freshman class size of 6,836. The Blacksburg school has dropped its on-campus housing requirement for first-years in anticipation.
University spokesman Mark Owczarski says more students decided to attend the school than anticipated. Engineering education professor Marie Paretti wrote a letter to the Tech Faculty Senate saying the larger class size should've been expected, as per faculty predictions shared with administrators.
Paretti says the increase in students will strain the area. Mayor Leslie Hager-Smith says the town is braced for growth, but she is concerned about its ability to house and transport the growing student population.
Buying real estate is one of the oldest forms of investing, having been around since the early days of human civilization. Investing in real estate predates modern stock markets, real estate is one of the five basic asset classes that every investor should seriously consider adding to his or her portfolio for the unique cash flow, liquidity, profitability, tax, and diversification benefits it offers. In this introductory guide, we'll walk you through the basics of real estate investing, and discuss the different ways you might acquire or take ownership in real estate investments.
First, let's start with the basics: What is real estate investing?
Real estate investing is a broad category of operating, investing, and financial activities centered around making money from tangible property or cash flows somehow tied to tangible property.
There are four main ways to make money in real estate:
The purest, simplest form of real estate investing is all about cash flow from rents rather than appreciation. Real estate investing occurs when the investor, also known as the landlord, acquires a piece of tangible property, whether that's raw farmland, land with a house on it, land with an office building on it, land with an industrial warehouse on it, or an apartment.
He or she then finds someone who wants to use this property, known as a tenant, and they enter into an agreement. The tenant is granted access to the real estate, to use it under certain terms, for a specific length of time, and with certain restrictions -- some of which are laid out in Federal, state, and local law, and others of which are agreed upon in the lease contract or rental agreement. In exchange, the tenant pays for the ability to use the real estate. The payment he or she sends to the landlord is known as "rent."
For many investors, rental income from real estate investments has a huge psychological advantage over dividends and interest from investing in stocks and bonds. They can drive by the property, see it, and touch it with their hands. They can paint it their favorite color or hire an architect and construction company to modify it. They can use their negotiation skills to determine the rental rate, allowing a savvy operator to generate higher capitalization rates, or "cap rates."
From time to time, real estate investors become as misguided as stock investors during stock market bubbles, insisting that capitalization rates don't matter. Don't fall for it. If you price your rental rates appropriately, you should enjoy a satisfactory rate of return on your capital after accounting for the cost of the property, including reasonable depreciation reserves, property and income taxes, maintenance, insurance, and other related expenditures. Additionally, you should measure the amount of time required to deal with the investment, as your time is the most valuable asset you have -- it's the reason investors so cherish passive income. (Once your holdings are large enough, you can establish or hire a real estate property management company to handle the day-to-day operations of your real estate portfolio in exchange for a percentage of the rental revenue, transforming real estate investments that were once actively managed into passive investments.)
There is a myriad of different types of real estate investments a person might consider for his or her portfolio.
It's easier to think in terms of the major categories into which real estate investments fall based on the unique benefits and drawbacks, economic characteristics and rent cycles, common lease terms, and brokerage practices of the property type. Real estate properties are ordinarily categorized into one of the following groups:
You can also get involved on the lending side of real estate investing by:
There are sub-specialties of real estate investing including:
On top of all of this, you can invest in real estate through something known as a real estate investment trust or REIT. An investor can buy REITs through a brokerage account, Roth IRA, or another custody account of some sort. REITs are unique because the tax structure under which they are operated was created back during the Eisenhower administration to encourage smaller investors to invest in real estate projects they otherwise wouldn't be able to afford, such as building shopping centers or hotels. Corporations that have opted for REIT treatment pay no Federal income tax on their corporate earnings as long as they follow a few rules, including a requirement to distribute 90% or more of profits to shareholders as dividends.
One downside of investing in REITs is that, unlike common stocks, the dividends paid out on them are not "qualified dividends," meaning the owner can't take advantage of the low tax rates available for most dividends. Instead, dividends from real estate investment trusts are taxed at the investor's personal rate. On the upside, the IRS has subsequently ruled that REIT dividends generated within a tax shelter such as a Rollover IRA are largely not subject to the unrelated business income tax so you might be able to hold them in a retirement account without much worry of tax complexity, unlike a master limited partnership.
(If you're interested in learning more about these unique securities, start by checking out Real Estate Investing Through REITs, which covers REIT liquidity, equity, how to use REITs to your real estate investing advantage, and much more.)
For all the real estate investing options available to investors, the average person is going to get his or her first real estate ownership experience the traditional way: By purchasing a home.
I've never viewed the acquisition of a home quite the same way most of society does. Instead, I prefer to think of a person's primary residence as a blend of personal utility and financial valuation, and not necessarily an investment. To be more direct, a home isn't an investment in the same way an apartment building is. At its very best, and under the most ideal of circumstances, the safest strategy is to think of a home as a type of forced savings account that gives you a lot of personal use and joy while you reside in it.
On the other hand, as you approach retirement, if you take a holistic view of your personal wealth, outright ownership of a home (without any debt against it) is one of the best investments a person can make. Not only can the equity be tapped through the use of certain transactions, including reverse mortgages, but the cash flow saved from not having to rent generally results in net savings -- the profit component that would have gone to the landlord effectively stays in the homeowner's pocket. This effect is so powerful that even back in the 1920s economists were trying to figure out a way for the Federal government to tax the cash savings over renting for debt-free homeowners, considering it a source of income.
This is a different type of investment, though -- something known as a "strategic investment." Were the economy to collapse, as long as you could pay the property taxes and basic upkeep, no one could evict you from your home. Even if you had to grow your food in a garden, there's a level of personal safety there that matters. There are times when financial returns are secondary to other, more practical considerations. Whatever you do, though, don't sacrifice your liquidity to try and build equity in your real estate investments too quickly, as that can lead to disaster (including bankruptcy).
If you are saving to acquire a home, one of the big mistakes I see is new investors putting their money into the stock market, either through individual stocks or index funds. If you have any chance of needing to tap your money within five years or less, you have no business being anywhere near the stock market. Instead, you should be following an investment mandate known as capital preservation. Here are the best places to invest money you're saving for a down payment.
One of the most common questions I encounter involves the relative attractiveness of investing in stocks versus investing in real estate. The short version is that it's somewhat akin to comparing vanilla and chocolate ice cream. They are different, and as your net worth grows, you may even find that both have a role to play in your overall portfolio. Your personality will also drive your decision, as some people are more temperamentally geared toward stock ownership or real estate ownership, respectively.
A substantial percentage of real estate returns are generated due to the use of leverage. A real estate property is acquired with a percentage of equity, the remainder financed with debt. This results in higher returns on equity for the real estate investor; but if things go poorly, it can result in ruin far more quickly than a portfolio of fully-paid common stocks. (That's true even if the latter declined by 90% in a Great Depression scenario, as no one could force you to liquidate).
That's why the most conservative real estate investors insist upon a 50% debt-to-equity ratio or, in extreme cases, 100% equity capital structures, which can still produce good returns if the real estate assets have been chosen wisely. Billionaire Charlie Munger talks about a friend of his prior to the 2007-2009 real estate collapse. This friend, a very rich landlord in California, looked around at the high valuations on his properties and said to himself: "I'm wealthier than I would ever need to be. There's no reason for me to take risks for the sake of more." This friend sold many of his properties and used the proceeds to pay off the debt on the remaining ones that he thought the most attractive. As a result, when the economy collapsed, the real estate markets were in turmoil, people were losing their properties to foreclosure, and bank stocks were collapsing -- he didn't have to worry about any of it. Even as rents dropped due to tenant financial difficulties, it was all still surplus cash, and he was armed with funds that kept replenishing themselves, letting him take advantage of buying up the assets everyone else was forced to sell.
Stop trying to get rich so quickly, and be content to do it the right way. You'll have much less stress in your life, and it can be a lot of fun.
Of course, this is only the beginning of your journey to understanding the topic, as we've barely scratched the surface. Real estate investing takes years of practice, experience, and exposure to appreciate, understand, and master.
Written 3/14/2019 Author: Brian McHone
Simply put, investing in real estate is one of the best ways to grow your wealth. Knowing what to buy, when to buy it, what to pay, and what return to expect are just some of the considerations that you must make before investing in the real estate market.
I would venture to say that becoming a real estate investor is simple, but not easy. That may sound tongue and cheek, but it's true. With the right help, the right approach, a clear understanding of the process, and adequately managed expectations, investing in real estate is simple. Why I say not "easy" is because there are inherent risks involved when you put your hard-earned money on the line.
Just like the real estate market itself, investing is highly, and I mean HIGHLY localized. The metrics we consider when investing in a college town like Blacksburg WILL NOT BE TRUE for everyone reading this article. However, the vast majority of my audience will be parking their cash in Montgomery County.
I'll keep it simple and provide a roadmap for growing your wealth. Now bear in mind, there are details, and you know what they say about "the devil being in the details," but let's look at this from a thirty-thousand-foot view if you will.
Step one is to locate an income-producing property with meager vacancy rates. Generally, anything found within a 24060 zip code will fit neatly into this category. Next, we need to determine the potential cash flow by multiplying the gross monthly income by twelve months. Then we subtract all annual expenses such as taxes, insurance, HOA dues if applicable, any utilities paid by the owner, management fees if you're not going to self manage, and routine maintenance. You should use 5% as a margin to build a coffer for repairs as well.
Once you have this number figured out, we can then begin to determine a value using the cash flow. Most single unit properties in and around the Blacksburg area will have cash-on-cash ROI margins in the 10%-13% range. That's not a total return on your investment, that's just the liquid return weighed against your out of pocket expenses to purchase the property. The total return when you consider property appreciation and principal pay-down is substantially higher.
I'll give you an example, one of the townhomes I purchased last year in January of 2018; I bought it for $160K. Those same units are now selling for $220K. That's a 37% increase in 14 months. That's not the norm for sure, but to expect an appreciation in value is a given. That $60K increase in value is real. You can realize that margin by either selling the unit or tapping into the equity to purchase more properties. I chose the latter.
So let's take the above example and relate that to wealth generation. If you buy that same townhome today at $220K, you will need roughly $50K down. That should cover your 20% down payment and closing costs. If the investment is earning $6000 per year in positive cash flow ( $1800 rent minus PITI and HOA fees leaves $500 mo.), it will take 8.3 years to earn back your $50K upfront investment. That's a 12% cash return on your investment. Not too shabby, eh?
Now let's look at some ancillary benefits. In those 8.3 years, the property should increase in value by $85K at a conservative rate, and the payoff will be roughly $150,000. So let's add all that up.
$50,000 in positive cash flow + $26,000 in principal paid down by tenants + $85K in appreciation....drumroll please! ----------------------------------------------------------------
That equates to $161,000 in wealth generated. That's staggering when you consider it costs you $50K to do it. That's more than tripling your money in 8 years.
Another exciting aspect of buying investments in a college town is rental demand and how it affects ongoing rent increases. Right now, there are more students to shelter than we have bedrooms to put them. This imbalance puts supply/demand upside down and creates upward pressure on rental rates. Where do they stop? Who knows. As long as VT continues to increase its student population, this problem will remain intact. One might not consider it a problem when you own the properties that are growing in value because of the increase in housing demand. That's a perspective issue, and this article is bent towards the investor.
Again, there are more details to consider, and I'd be happy to tease them all out for you, but blog posts are supposed to be short and informative.
Investing in your future is a must, and in my honest opinion, there's no better place to do it than Blacksburg, VA.
If you're interested in learning more, please give me a call.
Update: As of December 2019, that $160K townhome is now selling at $265K. That's a 65% increase in value!
Most people enjoy talking about real estate; whether they own any or not, it always brings about debate, education, inclusion, and in some cases starry eyes. Why? Because everyone old enough to rent or buy a home plays a vital part in the real estate market.
Let me explain what I mean: If you rent a home, you affect the way investors look at potential rental properties as you continue to bolster their wealth by creating a positive return on their investment. If you own a home, regardless of the size, and are thinking of upsizing or downsizing, your decision effects supply/demand which in turns weighs heavily on how values are determined. If you own a home and never plan to sell, your rigidity plays a crucial role in the supply/demand chain. If you want to leverage your assets to buy rental properties, you can easily see how you play a large part in market conditions. What will you pay for the investment creating a comparable sale? What return will you expect? How much rent will you charge for the unit?
Almost everyone will find themselves inside one or more of these scenarios. That’s why having discussions about real estate around the dinner table, office break room, or reading about the endless possibilities of growing your wealth through investments, elicit such an emotional response. It’s a significant endeavor to buy into the market, or not! No matter how you lean, the decision bears considerable weight.
However you slice it, and wherever you land, the topic is exciting for most. I’m an advocate for buying real estate, not only buying a home to occupy but buying as much of it as you can. Wealth building is essential for everyone, regardless of your age. It will directly impact how you live and how you retire. There's always a degree of angst when you stroke a check for the down payment of an investment property, but I’ve never regretted the decision to do so.
Every market is a bit different. The real estate market is HIGHLY localized. I cannot express with enough emphasis how vital this immutable truth is. Every town, city, county, region, state, is different and for different reasons. The real estate market is, and will forever be, tethered directly to the ability of the people who live in a given area, to generate income. That can look as different as the people who occupy the space but make no mistake, a “good” real estate market will sit directly in the epicenter of a town, region, or county where jobs are plentiful, and the residents do and will continue to generate a paycheck. The further you get from this reality the more volatility the market will produce.
Let’s take Blacksburg as an example. After all, I live, work, and invest here so I feel I can speak with some experiential knowledge about the local market.
Blacksburg is a thriving little town bustling with entrepreneurs, and academia for in the heart of Blacksburg VA lies the “Virginia Polytechnical Institute and State University.” Also known as Virginia Tech or even shorter, VT.
VT has been cited as one of the top six technical schools in the country and offers a plethora of engineering degrees, both under and postgraduate studies. It provides a robust veterinary program with a teaching hospital, a nationally known medical school churning out DO’s at VCOM, an agriculture program that is celebrated and much more. The school has numerous sports programs which offer world-class facilities and coaching. These programs provide endless opportunities for student-athletes to go to the next level if they possess the ability and desire to do so.
Attached to campus is the Virginia Tech Corporate Research Center. This vast land mass is brimming with startup companies as well as companies who are mature and growing like wildfire. 1901 Group located in the CRC is a trusted provider of IT services for the public and private sector. They just announced in the last quarter of 2018 that they plan to hire over 500 new employees in the next year and a half. That’s a big deal, and that’s just one employer in the area.
Here's my point, Blacksburg is growing. VT is growing, companies already here want to enlarge, and other companies look at the area and recognize that we churn out valuable employees every semester. The environment is rife with opportunity, and that’s where people want to be. The community is diverse, professional, and very welcoming to outsiders. It’s like they “get it.” What is it they get? They get the fact that diversity is the breeding grounds for creativity, growth (both personal and professional), introspection, self-reflection, and human harmony. Existing inside this fair little hamlet are people from every corner of the globe, and you know what’s special? They do it effortlessly and with great pride in who they are and the different experiences they bring that make Blacksburg great. They acknowledge that our differences are to be celebrated and that no one is better than his or her neighbor. If you are alive, you are intrinsically valuable. No one stands above another. We are all just people who were designed to love and have the desire to be loved and valued.
This diversity is a vital part of any community, and it’s rich here in Blacksburg. Having said all of that, the conclusion to the matter is that the real estate market here is stellar. Let’s consider some of the metrics.
What does all of this mean? It means that if you are considering Montgomery County as a place to “buy in” to the real estate market, then you’re making a wise decision. Not based on feeling but based on fact. I just laid out a list of compelling reasons why investing here would be a good idea.
What do I buy? How much can I afford? What are the current interest rate trends? How do I time the market? What's the rate of return on single-family homes versus student rentals? What are the carry costs of owning rental properties? Do banks look at a condo differently than a townhome?
These are a few questions that you SHOULD have, and I can answer them for you. Not only can I answer them but I love to watch my client’s eyes widen as they learn about real estate on a different level.
When it comes to determining ROI (return on investment), I have provided a simple calculator to help guide you. This calculator is just going to factor cash on cash return and will not include appreciation as it relates to the real property or rental rates. It will not factor in principle pay down or mortgage interest deductions if you cross the standard deduction threshold.
It will, however, give you an idea of what return you can expect and arm you with enough information to decide whether to leave your money in a volatile stock market or pull some out and invest in something more stable yielding better returns.
If after reading this you have questions, please call me. I love what I do, and I’d like to add you to my pipeline of clients I’ve helped achieve their real estate goals.
Thanks for stopping by!
Winter is apparently upon us and it's the time of year when it’s especially important to make sure your home is properly sealed. Air leaks can make it difficult to keep your home properly heated and can lead to high utility bills. Here’s quick guide to checking your home for air leaks.
Do an air pressure test. You can quickly check for air leaks with a simple test using household items. Seal your home by completely closing all doors, windows, and vents and turning off exhaust fans. Then pass a burning incense stick along the edges of all doors, windows, and other openings to the outside. If the smoke is forced into or away from an opening, you’ve found a leak.
Inspect doors and windows. To check for leaks near your windows, attempt to rattle the frame. This will reveal whether there are gaps along the edges. Also check for cracks in the frame, loose screws in locks, or gaps anywhere in the window.
Door hinges and thresholds are common places for air leaks. Deteriorated weather stripping can also lead to leaks and the door itself can develop cracks that allow air to pass through.
Skylights are a little trickier to test and examine, but you can still do it yourself. Check for water stains near your skylights, which is a dead giveaway of a leak. If you suspect there is one, you’ll have to get on the roof for a closer inspection. Look for loose shingles, cracked roofing cement, and debris.