House Buyer Ebook
First Time Home Buyers Guide
If you are getting ready to purchase your first home or if you think you can't afford to purchase your first home, don't make another move until you have read this important information! Every year, Federal, State and Local government and community development programs help thousands of people obtain there first home.
Comparing commercial real estate to residential real estate is like comparing apples to oranges. Both are from the same genre, but that is where the similarities end. The following are general descriptions of the two types of real estate 1 Residential real estate revolves around the wants and needs of a homeowner and his family. It involves property purchased for individual use, most often to provide housing for families. The selling process for commercial real estate hinges on numbers and return-on-investment calculations. Residential real estate is nowhere near so cut-and-dried because it's more of an emotional purchase. Many buyers make decisions based on the fact that the house just feels right to them. I've sold homes to people who insisted they needed a fourth bedroom, an island kitchen, a family room off the kitchen, or a three-car garage. Yet when they fell in love with a home that lacked their must-have amenities, they purchased anyway and were thrilled with the decision. In...
There is a tendency in some local real estate markets to consider market value in isolation, or based on outdated information. For example, if property values were rising quickly and houses were selling as soon as they were placed on the market last year, some market observers think those conditions are permanent. But since no economic cycles remain unchanged for long, in residential real estate, it is not realistic to base assumptions on past market conditions or on what is claimed by a real estate salesperson. As with all other markets, residential real estate market value depends on many factors, both direct and indirect. The most apparent and best understood factors are demographic trends the numbers of local residents and the growth in population in recent months and years. The market is easily observed in hindsight by examining the time properties that remain on the market the differences between asked price and final sales price and the local inventory of homes for sale. This...
Home buyers fall into rather broad, identifiable groups, each with somewhat different motivations and capabilities. What follows are the major segments of the buying public as they are most often classified. Some agents become so adept at working with certain types of buyers that they spend most of their time doing just that.
As we have already observed, most people, when they think about investing in real estate, think in terms of investing in residential real estate. Given that most people (with the exception of park-bench dwellers and a handful of people institutionalized for whatever reason) live in a residence of one form or another, then this habit of focusing on residential property is totally understandable. In fact, when you add up the total value of all residential properties in the United States, that value exceeds all the capital tied up in all other industries combined, and yet few economists acknowledge real estate as being the biggest industry in the country. Clearly, investing in residential real estate as opposed to any other category of real estate has some advantages. First, houses are everywhere, so you do not have to go far to find potential deals. Second, with the typical American moving on average every five years, and millions of citizens being born and dying every year, there is a...
While I place a lot of importance on the internal rate of return, there are of course other factors that should always be considered when buying a property. As most real estate books will tell you, the top three criteria for a property are Location, Location, Location But just what constitutes a good location where you are looking may be somewhat of a subjective thing. For residential properties, generally it is desirable to be located near schools (but not backing onto them ), near the shops (but not beside them), and with good access to freeways or arterial routes. However, since it is so subjective, it is risky for me to dictate what you should look for in your area.
Before getting into the tangible differences between investing in residential and commercial property, let's pause to make a big distinction. When you invest in residential property, you are essentially dealing with people. When the rent is not paid on time, you have to deal with a person (the tenant). If you feel the property is not being kept clean and tidy in accordance with the rental agreement, then you will have to deal with people, who may have a different opinion as to what constitutes cleanliness and tidiness. external influences, whereas with residential property, governments the world over seem obsessed with protecting the rights of the tenant, even when evidence shows time and time again that such protections actually work against the tenants. We will explore the interference of government in the next chapter. As we have just discussed, with commercial property you tend to deal with contracts, whereas with residential property you tend to deal with people. Let's now...
Having said that, it is generally much easier to instantly increase the value of a commercial property from the low purchase price you paid to the new appraised value after you have owned the property for a few weeks. The reason is simply that an empty residential property still appraises for close to what its value would be if it were occupied. However, an empty commercial building is not worth much at all. easier to do with commercial properties than with residential properties.
Whether you should invest in residential property or commercial property is a decision that you will have to make on your own. I do have some points to offer for your consideration, though. However, if you came across a commercial property with no kitchen, no bathroom, or no windows, would that matter Storage units would be worth less if they had windows (as then people could see what you were storing, and the risk of theft or arson would be greater). So it is much more difficult for beginners to know what it is that commercial tenants will want. Whereas residential properties tend to have a lot in common, commercial properties are far more specialized. Having said that, if you are serious about having a growing portfolio, then for me I would rather have a large amount of money tied up in commercial property than in residential property. Imagine if you wanted 20 million worth of properties. That would be a lot of homes, with a lot of plumbing, roofs, gardens, and wiring to maintain On...
There is a general notion that in order to buy a commercial property, you have to be a very wealthy person, while more modest means will suffice to buy a residential property. While in general this may be true, we have already seen in Chapter 8 that it is possible to buy a viable commercial property for 59,000 that has all the advantages of any commercial property. So long as people think that commercial properties are expensive, then you will have little competition looking at small (low capital value) commercial buildings. To the extent that it is true that commercial properties are generally more expensive than residential properties, there is a commensurate benefit. To own 10 million worth of residential property, you generally would have to own a lot of separate properties, with many dozens of separate rental agreements. The management overheads could be huge A single commercial property, on the other hand, could be worth the same 10 million. You may have only one lease document,...
Residential property is, as its name suggests, property that people use primarily for residential accommodation. It therefore includes freestanding homes, duplexes, condominiums, apartments, town houses, and apartment buildings. If you have an old commercial building that has been modified for residential accommodation (for instance lofts), then that is, from your perspective, a residential property investment.
More particularly, with residential properties, usually the total rental figure for the property is quoted, whereas with commercial it is usually quoted per square foot (or per square meter). Furthermore, residential rentals are typically quoted as an all-inclusive figure, whereas commercial rentals are quoted as so much per square foot plus costs (where costs include things like insurance and property taxes).
Some of my commercial tenants paint their premises every two years, not because they want to please me, but for their own reasons. More important, if a tap leaks in one of my commercial properties, the tenant tends to either fix it, or have it fixed by someone fast They earn their income there and want to get on with the job at hand. With residential properties, on the other hand, even if the tenants have the skills and tools to make minor repairs, the psychology of renting houses is that you call the landlord if anything happens. With residential properties, it is slowly becoming more popular to have six-month contracts or even one-year contracts. But in many places, residential properties are still rented out on a month-to-month basis. With residential properties, from a tenant's perspective, a long lease is seen as an imposition, as something that reduces your freedom to move on if you so desire. After all, if you pay
With residential property, if a tenant leaves, that is usually the end of your association with that tenant. Certainly, if a new tenant fails to pay the rent, you cannot go back to the previous one and ask him for the shortfall And yet that can happen with commercial property.
The biggest advantage of residential property over commercial comes when your property is empty. If you have a house where the tenants have just left, then it should be relatively easy to find new tenants. If it has been empty for three weeks and you are starting to despair, then do not fret The house is not empty because the carpet in the living room is the wrong color, or because the bedroom is facing the wrong way, or because the window in the dining room is too high. There is only one reason why the house is still empty The rental is too high relative to market rental in that area at that particular time. Drop the rent by 5 percent or maybe 10 percent and you will get a tenant. The reason for this difference is simple. Just about any residential property on the market has all that is required for someone to live in it. It will have at least one bedroom, a kitchen, a bathroom, and so on. In other words, we all tend to agree on what is needed in a residential property to make it...
The nature of residential properties is such that once you get to own about twenty of them, you almost have a full-time job looking after them. Of course weeks may go by where you have hardly any phone calls, late rent payments, or maintenance requirements to sort out. By the same token, during some weeks you may be working overtime. Commercial properties on the other hand are not nearly as demanding of your time. As we have seen, tenants tend to look after minor repairs themselves. Tenant turnover is not nearly as high, and is very predictable just look on your lease schedule to see when the leases come up for renewal. When you have many tenants in one building, one watertight roof means many tenancies with no leaking roof problems (compare that with residential properties, where twenty tenants in separate homes means twenty roofs to maintain). The difference in management overheads can be highlighted in another way Whereas all of my residential properties are managed by professional...
The overwhelming majority of people who work in real estate concentrate their efforts on listing and selling residential property, because that is where most of the opportunities for employment exist. Therefore, I have organized this book to be of maximum assistance to people who are starting out as residential sales agents in general real estate brokerage companies. That will means that in all states and the District of Columbia, you will need to be licensed, which entails passing a written examination and formal course work. I provide detailed guidance on getting your license and starting your career, and I discuss extensively the opportunities available for specializing or broadening your career as you gain experience.
I want to state right from the get-go that the only thing that a straight or naked real estate option grants is an irrevocable right to purchase the property under option within the option period. Nothing more An optionee has absolutely no beneficial or equitable interest whatsoever in a property under option. Furthermore, in my professional opinion, the creation and sale of a straight or naked real estate option does not violate the due-on-sale clause contained in government-backed and conventional mortgage or deed of trust loans secured by a lien on residential property containing five or fewer units. Again, in my professional opinion, there is absolutely no way that any lender can legally exercise its option pursuant to a due-on-sale clause on discovering the creation and sale of a straight or naked real estate option. Why do I hold this opinion Because Title 12 of the Code of Federal Regulations refers specifically to lease-option contracts, but makes no mention whatsoever of...
My primary research methodology was based on direct personal observation. I was a very successful residential real estate sales agent for several years, after a career in the U.S. Air Force. I currently have my Oregon real estate broker's license, although I devote most of my time now to teaching and writing. I have taught real estate licensing courses at an Oregon community college for over a decade. I have remained active as a member of the National Association of Realtors and have served on the local ethics and arbitration panel. I have also been Book Review Editor for Real Estate Professional magazine for many years and frequently write feature articles for the publication. For several years I wrote a Realtor career advice column titled Ask Doctor Real Estate . During the early years of my real estate career, my wife was also a licensed salesperson, and we worked together as a team in the same office.
To verify what I say, review your local rental housing market. Can you find any well-located, well-kept houses or (competently managed) small apartment buildings that remain available for rent for any lingering period of time Probably not, if they're priced and promoted effectively. Except in isolated cases, smaller residential rentals typically suffer vacancy and collection losses of less than 5 percent per year.
As a pleasant surprise, a third came to my attention after it was written. Prospective home buyers were requesting owner financing information so they could propose and structure their own financing, to be purchased by an independent third party, at the closing table. This is called a simultaneous closing. It is a method of providing the home seller all cash at closing, while the home buyer avoids having to qualify for conventional financing. While this book is written for lienowners, home buyers can simply take the information provided here and use it for their own purposes. Pay special attention to the variables which impact a lien's market value, then structure your property purchase agreement likewise. The chances of having your offer accepted are greatly increased due to the high market value of the proposed lien. Of course, we invite you to call our office(s) if you have questions.
When I decided to become a real estate agent in 1990, I didn't even consider residential real estate sales as a career path. I wanted to wear the nice suits, drive the fancy cars, and meet over power lunches with those who made the business world turn. I wanted to sell and lease commercial real estate. Of all the wisdom he shared with me that day, one thing he said really stuck in my mind Making 100,000 a year is easiest in the arena of residential real estate. In fact, you can reach that goal in your first year. He'd been there and done it all residential real estate, commercial real estate, and land development. Independently or through syndications or joint ventures, he'd had a personal stake in every facet of commercial real estate including sales of retail buildings, apartments, undeveloped land, and office and industrial spaces. He knew the game from firsthand experience and I knew he was speaking the truth. I followed his words and broke into the residential arena. The...
Those who work in salaried jobs, particularly in the public sector, can generally expect a reasonably stable income history. In the business world it's different, and as an independent contractor in real estate, your income can fluctuate with the health of the economy in general and the housing market in particular. Of course, there are agents who continue to do well when things start to go sour (there are even special opportunities in such an environment), but the fact remains that there 2. The part of the country in which you work. It doesn't take any more ability or effort to sell a 300,000 house than it does to sell one that costs 150,000 (actually, often it takes far less), but you make roughly twice as much when you do. If you successfully sell residential real estate in an area where housing prices are traditionally high, you will earn a very impressive income. The obvious counterpoint is that it will cost you a lot to live there. Where you...
We will consider each of these in a section of this book. In this chapter we will talk about residential properties, such as apartment houses, duplexes, triplexes, fourplexes, garden apartments, etc. The important point to remember about residential property is that you are renting it to people who are living in the property as their home. Dozens of residential properties can be taken over by you with zero, or very little ( 100 or so), of your own cash that is, with borrowed money. Let's see how right now. Truly, you can borrow your way to real estate riches in residential zero, or very low-cash, properties How can residential property make me rich you ask.
I You benefit from a professional, well-managed environment. I believe that most commercial real estate companies are managed more effectively than residential real estate companies. Because of this effective management, you benefit from the following distinct advantages Pros and cons of a residential real estate specialty Let me own up to a personal bias I firmly believe that while commercial real estate is a wonderful business opportunity, you find more and better benefits in residential real estate. Even though getting there wasn't entirely my own choice, I spent my whole career in this arena. Originally I set out to become a commercial agent, interviewing with Portland's big firms, including CB Richard Ellis, Coldwell Banker Commercial, Grubb & Ellis, and Cushman & Wakefield. I thought I was close at Cushman & Wakefield but didn't get a job offer. I called the manager back several times a week for weeks on end until he gave me a final brushoff a fact that I now look back on and...
No question about it, agents in commercial real estate experience a much stronger risk-and-reward connection than those in the field of residential real estate. When I sold residential real estate, my average commission check was 3,900. If a buyer or seller was a problem, it was easy to push the F10 button, which in the old days of computers was the delete key, and move on to another opportunity. If I lost a transaction that was set to close, financially I knew it wasn't a killer.
You can get this information by calling the seller or by asking the real estate broker who is selling the property to provide you with an Income and Expense Statement for the property. By preparing a simple Summary Sheet, such as that shown in Table 2.1, you can become a local expert for income properties in your area. With this information in hand, you can easily judge how much money you will earn from a potential income residential property that you might buy.
The traditional commission model is the most common franchise model and is seen in such franchises as Century 21 Real Estate, Prudential Real Estate Affiliates, Coldwell Banker Residential Real Estate, or a dozen other well-known national brands. These franchises have grown up over the last 50 to 80 years at a time when the traditional commission model was highly profitable and agent commission splits within the company averaged close to 50 to 60 percent.
Keep in mind that the disclosure that is part of an agent's fiduciary responsibility isn't the same as a seller's obligation to disclose latent and material defects. In many states, a seller (whether or not she uses a real estate agent's services) must tell the buyer any bad news about the property that isn't readily visible by a normal inspection (rather than a special professionally done home inspection) and or would have a material impact on the buyer's decision to buy the property. You should also remember that this type of disclosure also isn't governed by the fiduciary duty of confidentially (see the previous section) or obedience (later in this chapter). See Discovering defects, later in this chapter, for more.
Some people I know who have done well in residential real estate and I know lots of them do not have a college education. And some of them didn't even graduate from high school Yet the lack of formal education does not seem to hold them back in their real estate activities. Now what does this letter tell you about your future in income residential real estate It tells you Zero cash deals can be done today almost everywhere BWBs want to invest in income residential real estate. You can earn an enormous amount of money in income real estate today. I see this every day of the week amongst my real estate friends and in my own activities. And you don't have to be a genius to earn BIG MONEY in income residential real estate today. Start by looking for good residential properties in your area. Take action to acquire your first income property. Then go on to your second, third, fourth property. Your friend me Ty Hicks is here to help you every step of the way.
Commercial real estate is very different from residential real estate. Craig Coppola is recognized as one of the best commercial real estate brokers in the United States. That is why he is my partner in commercial real estate investments, and we have done extremely well financially. When Kim and I began our transition from residential to commercial real estate, the first thing we had to do was let go of a residential real estate investor's mindset. We had to see real estate investing through a different set of eyes. If not for Craig's experience, Kim and I might have lost a lot of money paying for our commercial real estate education. Craig is great because he is a tremendous teacher and takes the time to explain what we fail to see.
Estate market has been able to come up with a profitable use for the property. And I attribute this to a general lack of vision, creativity, and foresight on the part of most so-called real estate professionals. The fact of the matter is that many of the people involved in real estate today are afflicted with a bad case of tunnel vision, which prevents them from seeing beyond the borders of their own local real estate market. And for whatever reason, they have not been able to apply the marketing concept of buy locally but sell nationally and globally to their real estate investment business. Granted, residential real estate may pretty much be a highly localized business, but that does not mean that the marketing of commercial and industrial real estate should be restricted to the local marketplace. And this is exactly why you must expand your real estate market horizons so that you are able to think outside your local real estate market. To illustrate my point, I recently advised an...
Marketing expenses are those associated with rerenting spaces on an on-going basis as leases expire. Initial rentup is normally considered part of the capital budget. On-going operating expenses for marketing will include subsequent advertising and promotion costs, staff costs for the owner's employees, and commissions paid to outside real estate brokers. Also important to a successful marketing program is an appropriate program of physical maintenance. For residential properties, property management firms will often include the marketing function in their services
TIP Recommendation No 10 Phase 3 and Phase 4 are not the times to buy They are the times to research and target
Further, understand that all real estate follows this pattern and that some asset classes will follow the curve earlier or later than others. For instance, residential real estate is always the first to decline and the first to rebound. Multi-family follows a little later, and retail and commercial after that. Commercial industrial is usually the last asset class to emerge from a down market however it is usually the last to enter it. The more familiar you get with watching the real estate cycles, the better you will get at knowing where you are in them. Commercial real estate, for me, gives me plenty of warning to buy, sell, and hold.
Let's say that John and Mary rent your house. John and Mary have a child, Markie. They move in and subsequently invite their friends Paul and Paula to live with them. Paul and Paula invite Phil and Phyllis and their two children, who pay rent to Paul and Paula. Obviously, there are a myriad of legal and ethical problems involved here, but setting those aside for the moment, imagine the wear and tear on the house. You leased your house as a residential property, not a hotel. So you will want a statement in the lease indicating that the tenants shall use the premises only for residential purposes and specify
Most people are familiar with residential real estate however, this is itself a complex investment form. There are many different types of residential properties and analysis should be broken out and separated based on (1) location, (2) size, (3) local trends, and (4) other, special considerations (i.e., subsidies, rent controls, or tax credit incentives). We introduce these important issues in this chapter and also study the antidevelopment movement known as NIMBY (Not In My Back Yard), demonstrating how analysis in real estate is not merely economic it may be political as well. The investment attributes of residential property are not the same as the features of owner-occupied homes, in four ways If we move even further beyond the mere understanding associated with investment value, we begin to understand that for residential properties, analysis requires a comprehensive survey of market factors beyond value itself. One real estate book involving the necessity of the differences...
Local and county public health departments keep records on commercial and residential properties that have been cited for health code violations. In some instances, the health violations are severe enough for the health department to declare the property unfit for human habitation and order it vacated.
Purchase money mortgages are also common in transactions involving residential properties, such as when the buyer does not have a sufficient down payment. The remainder may be obtained by assuming an existing mortgage or giving the seller a new mortgage. Either way, the seller is willing to take a mortgage as part of the payment. Consider the following example to illustrate the use of a purchase money mortgage in residential properties. Seller A is asking 80,000 for a single-family residence. Buyer B likes the house but only has 10,000 for a down payment. The lending institution will only loan 64,000 on the house. To be able to sell the house, Seller A agrees to take a purchase money mortgage for 6,000 from Buyer B. In addition to taking this purchase money mortgage, Seller A is willing to accept a lower priority of claim if Buyer B should default. In this case, the lending institution has the first claim because it has a first mortgage. The purchase money mortgage is a second...
Standardized residential real estate forms can be typically found at the local association of Realtors, or from software such as True Forms, software containing a variety of real estate forms. True Forms can be found at www.trueforms.com. Similar sources for commercial real estate forms can easily be located on the Internet.
Analysis of multi-unit residential real estate is more complex than analysis for detached, single-family housing. The reasons for this include the variable of the demand market for apartments and similar multi-family units and the complexity of analyzing actual demand locally, given the competitive market conditions and trends.
To the saver or borrower, however, there is little difference between state and federal institutions, so similar are the laws and regulations under which they operate. They have substantially parallel authority, which means that home buyers can shop for loans almost anywhere.
It may occur to you that there is a lot of hard work involved in listing and marketing residential property. There is, if you do it right. There is also a great deal of satisfaction to be gained from it and excellent money to be made. Remember, when you secure a listing and put it on the MLS, every other agent in town immediately starts trying to find a buyer. If you have several realistically priced properties on the market at any one time, you will have a lot of help in making a living.
If hitting a home run is the magic moment in baseball, then selling a house is the glamour event in residential real estate. Just find qualified buyers, match them with the home they want, and touch all the bases on your way to the bank. It's little wonder that new agents are chomping at the bit to go out there and sell houses.
Retail has many more forms than the other product types. In office analysis, we may define and distinguish building by conditional class A, B, or C. Residential property is studied in terms of rental versus owner-occupied, and further by rent levels. Retail has entirely different forms. In the 1950s there were four basic sizes to retail properties neighborhood, community, regional, and superregional. Now there are more as shopping and lifestyles have diversified. In the modern world of the shopping center, a center is increasingly defined by its tenant mix and not by its size.
This chapter is about transferring title and all the things that affect that transaction. Although most contract conditions (such as obtaining a mortgage or having a home inspection done) don't normally affect title. Note that before closing, the buyer completes all the conditions that have been put into the sales contract. So, if a sales contract has been signed and indicates that a mortgage loan has to be obtained and a home inspection by a home inspector or other professional must be completed, the buyer is responsible for completing these activities prior to closing. By the way, neither of these things is mandatory nor must they be put in the contract. You can pay cash for a house (well maybe you can but I can't) and you don't have to have it inspected. Immediately prior to closing usually that day or the day before the buyer personally inspects the property. The agent selling the property or the agent working with the buyer often conducts this walk-through.
A preliminary closing statement, sometimes called a settlement statement, usually is prepared ahead of time. Until the closing is complete and final costs are allocated, the final settlement statement cannot be prepared. The most common form of closing statement for residential properties is the HUD Form 1 Uniform Settlement Statement, which is prepared at or just after closing. Copies of the statement are sent to the buyer and seller along with many other necessary documents. Closing statements can be prepared by anyone with all the appropriate information, but typically the buyer's or seller's attorneys or the title company prepares the closing statement. It's primarily a financial document stating who owes what to whom and who has already given over money that will be distributed (typically deposit money paid when the contract was signed and being held by an attorney or real estate broker).
Even as you are busily becoming established in residential real estate, it will become clear to you that there is more to the profession than just listing and selling homes. You might see another salesperson in your office list and market a 750,000 farm (it will make you giddy just to think about what your share of a commission like that would be). At the local Realtors' meeting, you might hear about a multimillion-dollar commercial deal put together by several agents you know (now we are talking big money). Or you could read about a forty-year-old ex-housewife in Indiana who, after only a year in the business, is earning a high six-figure annual income structuring real estate exchanges. Your interest will definitely be piqued.
As fiscal agent for the federal government, the Treasury assisted in funding the origination of secondary market entities, such as Federal National Mortgage Association (1938) and Government National Mortgage Association. The resale market established by these agencies has provided the principal source of permanent loan funds for residential real estate.
Today, the public perception surrounding indoor mold is such that even the suspicion that a building has just a smidgen of indoor mold is enough to strike fear into the hearts of most prospective buyers and stop them from pursuing the property. The fact of the matter is that probably every residential property in the United States contains a small amount of indoor mold, especially in bathrooms. I have no qualms whatsoever about buying a property with moderate amounts of indoor mold. And I have bought options on properties in which all of the walls and ceilings in both bathrooms were black with indoor mold. I had the moldy drywall replaced by a professional and turned around and sold my options. I am not afraid of properties with moderate amounts of indoor mold
There are a number of exceptions to the underground storage tank program, including tanks with a storage capacity of less than 110 gallons tanks used for heating oil used on the property and motor fuel storage tanks of less than 1,100 gallons on farms and residential properties. The program regulates such areas as tank installation and maintenance as well as spill prevention and monitoring.
Craig has a lot of designations after his name, but I don't need them to know that he knows what he's talking about when it comes to commercial real estate investing, leasing, and brokering. His track record and his guidance speak loud enough. He has shown us that commercial real estate takes a different set of eyes than the ones we have as investors in multifamily residential properties. Whenever Kim and I see a commercial building that we think looks interesting, we call Craig.
In January I started full-time buying and selling residential real estate. It has been successful beyond my expectations. During my first 5 months, my financial statement shows I made 46,000. The average length of ownership of my flip properties has been 77 days. Most of the property I buy is distressed, and in need of repairs. It is often vacant and vandalized, with title problems, owners divorcing, and or being
HAMMOND RESIDENTIAL REAL ESTATE HAMMOND RESIDENTIAL REAL ESTATE saulcohen - hammond residential real estate SAUL COHEN, PRESIDENT AND CO-FOUNDER OF HAMMOND RESIDENTIAL REAL ESTATE IN BOSTON, MASSACHUSETTS, HAS SET HIGH STANDARDS OF PERFORMANCE AND DEVELOPED CREATIVE MARKETING TO PLACE HIS COMPANY AMONG THE TOP 100 REAL ESTATE FIRMS IN THE U.S. In 1991, I founded my present company, Hammond Residential Real Estate. I would attribute our success to our people, to our unique marketing approach, and to a true commitment to setting high standards and getting it right. FOR MORE INFORMATION ABOUT HAMMOND RESIDENTIAL REAL ESTATE AND THEIR PROPERTIES, PLEASE VISIT LUXURYREALESTATEGOM OR HAMMONDRE.COM.
The fact that real estate can't be moved makes it particularly vulnerable to the effects of the surrounding area, which can be positive, such as a piece of residential real estate located in a good school district. The influence on value can be negative if, for example, the real estate is located near a sewage treatment plant. My point is this You're not on an island. Unless of course you are, in which case you have a 360-degree waterfront view so who's better off than you
Many agents spend their entire careers happily listing and selling residential property. They would not be content doing anything else, and they would not really consider it being in real estate. There are some advantages to limiting yourself primarily to residential sales. First, if you are good at it, you will be well paid and you will know what it takes (in terms of time and effort) to meet your financial expectations. Further, the longer you specialize, the better you will become, the more repeat business and referrals you will have, and the more control you will exercise over your business and personal life. The National Association of Realtors has a program tailored for you. It is offered by NAR's Residential Sales Council. It is the professional designation Certified Residential Specialist (CRS) and represents the highest designation awarded to sales associates in the residential field. Fewer than 4 percent of all Realtors have this designation. They also earn substantially...
Of the improvements could be deducted as depreciation expense each year. Today by using straight-line depreciation, we are taking 100 of the value of the improvements and dividing by 27.5, in the case of residential property, to get that percentage. Prior to 1986 the percentage would have been 175 19 9.21 of the value of the undepreciated value each year. So the depreciation in year 1 for the problem we are working on would be equal to ( 835,500 165,000) 670,500 x 0.0921 61,753 rather than the 24,381 calculated in Equation 11.6. In year 2 the depreciation expense would have been ( 670,500 61,753) x 0.0921 608,747 x 0.0921 56,065. That is why the method is called declining balance, because each year the depreciation expense was calculated on a balance that was reduced by the previous year's depreciation
The strength of the sales comparison approach lies in its reliance on the principle of substitution. This principle states that no one pays more than is necessary for a piece of real estate that meets that person's needs (see the section earlier in this chapter). Without knowing the name for it, the principle of substitution is what most people apply as they search for a house to buy. Because this approach is based on previous sales of similar properties, it can provide an accurate estimate of real estate value. Appraisers use the approach more often when appraising single-family and two-to-four-unit residential real estate. The weakness of the approach is when the market is slow and it becomes difficult to find comparable sales.
People get emotional during the weeks leading up to a closing for a number of reasons. Money is at stake, both parties are anxious to get the deal done, and time is ticking away. Plus, home inspections and low-priced offers reveal opinions about a home's value that can feel jarring to a seller who has viewed the home with pride and joy for a number of years.
Buyer offers are usually accompanied by home inspection conditions that require the seller to make concessions before the deal is closed. Usually, these concessions take the form of repairs that the seller needs to make before the buyer takes possession. The presentation of repair concessions is one of the toughest steps in the negotiation process. Buyers often use the home inspection step to wring a bit more value out of their offers. Sellers, who feel they already gave at the office when they accepted the price offer, aren't in the mood to give more.
The primary mortgage market, which sometimes is referred to as primary lenders, is where consumers, that's you and I, go to borrow money to buy a piece of real estate. Although all of these institutions make loans directly to the public, some specialize in large projects, commercial properties, or residential properties. The list of typical primary lenders includes
After you've established a track record in residential real estate, you may want to consider making the move to the commercial side of the business. This chapter offers a taste of what that's all about and shows you how to develop a strategy for beginning to invest in commercial properties. I can't tell you how many times one of my students has left a training program on residential real estate investing and literally bought a property on the way home. Even though that's certainly possible with commercial real estate as well, it's not nearly so common in that area. Most people find that it takes a little longer to learn the market and the business, find the properties, and put the deals together. Now, it's still real estate, and if you can do residential deals, you can do commercial deals. I don't want you to fear commercial real estate, but you have to respect it. You'll be doing yourself a tremendous disservice if you jump into this side of the business without a solid understanding...
Each time someone develops, improves, purchases, or refinances a piece of real property, he or she must raise or contribute capital. The dollars involved are enormous. As estimated in The Changing World of the Real Estate Developer, the value of U.S. residential property is on the order of 5 trillion. The value of all U.S. property, including commercial property, is certainly in excess of 7 trillion. If only 5 of this property value were developed, improved, sold or refinanced in a given year, this would require 350 billion in new financing transactions per year.
In case you did not know it, title insurance is not cheap And that is exactly why I do not just go out and get title insurance on every option that I buy. For example, here in Florida, an owner's title insurance policy on a residential property valued at 175,000 costs 950. So, for options that cost less than 10,000 on properties valued at less than 150,000 that do not belong to sue-happy owners, I forgo insuring the option. And to date, knock on wood, I have never had an owner renege on our option agreement by refusing to sell the property after the option was exercised.
Your own background and interests will have a major influence on what type of commercial property you choose. Many of my students have already owned businesses, so they have experience as commercial tenants and naturally gravitate toward the type of property with which they are familiar. If you're not sure where to start, I would recommend a small apartment building, a small office building, or a building with retail on the ground floor and some apartments above. From both purchase process and management perspectives, these types of buildings are not substantially different from single-family or one-unit to four-unit residential properties. Get a few of those under your belt, and you'll be ready for bigger deals.
Say you borrow 100,000 to buy a house on a straight loan at 8 percent interest with a term of 20 years. You'd pay 8,000 ( 100,000 x 0.08) in interest each year for 20 years. At the end of the 20 years, you'd have to make a single payment to the bank of 100,000, which repays the principal. These loans are used more often for commercial properties than they are for residential properties and may be fixed rate or adjustable rate. See It's Payback Time Mortgage Repayment Plans earlier in this chapter for more about repayment plans. Commercial property owners who sometimes sell their property after five or ten years may want this type of mortgage, because unlike the homeowner, they're not necessarily interested in paying off the property.
In sharp contrast with the simple documents you use to rent residential property, commercial leases are lengthy, complex contracts. A key element of a commercial lease is the way the rent is structured, and the lease is typically referred to in terms of the rent structure. The primary types of leases are the following
Whether those statistics are precise or not, they clearly identify a growing trend that will ultimately result in almost total immersion in the Internet by home buyers and sellers. There is so much incredible information on the Internet and real estate companies are so engrossed in responding to consumer expectations to capture clients there's little doubt that, in a few years, surfing the Internet will be as old hat as opening the classified section in the newspaper to check out the real estate advertisements. Eventually it will be rare to encounter consumers who have not immersed themselves in the Internet in their home buying or home selling quest.
Some states also provide different assessment ratios for different types of properties. I discuss assessment ratios in Oh so valuable Assessing property for taxes earlier in this chapter. For example, commercial properties may be assessed at higher assessment ratios than residential properties. What that means is that if you have a residential and a commercial property that have the same market value, the commercial property pays a higher amount of property taxes than the residential property of equal value.
The Wilkes Street Townhouse (Old Town Station) project was sold. In Joey's November 1978 meeting with his partners there was some debate on the matter. But Joey was not as optimistic as his partners on the future of the housing market, and decided to sell the project. The project yielded nearly 80,000 in profit which stayed within the company to cover overhead expenses. At that time, the sum was nearly enough to cover an entire year's overhead. It turned out to have been the right decision. The project really was too fancy for the area, Joey explained. And its performance in the market supported this assessment (see Exhibit 1). Joey considered what happened next a real shame. The buyer, a well established general contractor, failed to foresee the coming rise of interest rates and the volatility of the housing market. Instead of moving quickly to build and sell units, they acted slowly, believing they might fetch higher sales prices later. They would have made a bundle of money on...
Many people think that real estate investments must be made in large and complicated properties, and that just isn't necessarily true. Real estate investors often start small with residential properties close to home. I'll briefly discuss different types of properties, management issues, particular advantages and disadvantages, and getting help with your client's investments. With the exception of the list of investment properties, you can expect some state exam questions on all the material in this section.
Many investors start by investing in small residential properties (such as one- or two-family houses) close to home. They're usually familiar with residential properties, and the close proximity enables them to keep an eye on the property. Many small investors who own one-and two-family houses think they can manage them themselves. Moreover, these kinds of investments don't provide enough income (at least initially) to warrant paying for outside management services.
The National Association of Residential Property Managers (http narpm.net) and the Institute of Real Estate Management (www.irem.org) provide an extensive network for professional property managers as well as resources for property owners seeking managers, matching service, and the like.
Currently in Ukraine financing of construction of non-residential (or commercial) and residential properties is performed according to different structures. Whereas construction of commercial property may be financed without difficulties from own funds of customer or commercial loans, construction of residential property through third party financing is permitted only through special Construction Financing Funds and Real Estate Operations Funds, institutes of joint investment, non-state pension funds and by way of issuance of corporate bonds.
Boroson, Warren, and Ken Austin, The Home Buyer's Inspection Guide Everything You Need to Know to Save and Get a Better House, paperback, 19.95. Carey, Chantal Howell, and Bill Carey, Going Going Gone Auctioning Estate, 2 ed., paperback, 16.95. Molloy, William J., The Complete Home Buyer's Bible, hardcover, 29.95. Shemin, Robert, Unlimited Riches Making Your Fortune in Real Estate
Current tax law states that real property wears out in one of two ways. It either wears out over 27.5 years in the case of residential property, or it wears out over 39 years in the case of nonresidential property. Residential property is defined as someplace where you can live. This depreciation may be taken over what is referred to as a straight line. That means that the same amount of depreciation expense is taken each year until the asset is fully depreciated, when the basis equals zero. Adjusted basis is equal to the acquisition cost minus depreciation that has been taken. To calculate the amount of depreciation expense that can be taken, subtract the land value from the acquisition cost to obtain the value of the improvements. Then divide the value of the improvements by either 27.5 for residential property or by 39 for nonresidential property.
The second of the three approaches is the sales comparison approach. The sales comparison is the best approach to use in valuing single-family residential property. The approach is based on the principle of substitution. Someone will not pay substantially more for a house today than a similar house sold for yesterday. The subject property is compared to a number of houses that sold recently, which are referred to as comparable sales, or comps. The houses are compared based on a number of different factors, called elements of comparison. These elements of comparison include
A binder, or offer to purchase, may be the first step toward solidifying a deal in some parts of the country, in different parts of the same state, and, in recent years, among different brokers in the same market area. A binder is used for residential real estate. A similar agreement, called a letter of intent, is used in commercial real estate transactions. A binder is used primarily to signify that a deal has been made and an agreement has been reached to go forward with more formal contract negotiations. At the point at which there's an accepted offer, the binder is signed by both buyer and seller. A binder often is accompanied by an earnest money deposit or down payment to signal the buyer's seriousness in going forward with the purchase. In other parts of the country, binders are not used, but a sales contract is prepared immediately.
According to mortgage industry giants Fannie Mae and Freddie Mac, through the year 2010, it is expected that ethnic minorities will account for three of every five first-time home buyers. Currently, less than half of all minorities own their own homes, but there was a 24 percent increase in black home ownership and a 39 percent increase in Hispanic ownership between 1994 and 2000.
There are straightforward and generally agreed upon guidelines that you can apply to any income-producing residential property for determining the quality of the investment for a particular individual. Standard forms are easily available in all states, and with just a moderate amount of training, you can complete them quickly and explain them to others. There are computer programs that let you perform the same type of analyses, only a lot faster.
If you can't answer yes to this question then you have no choice but to steer your career toward commercial real estate sales. In residential real estate, you won't become successful without working some nights and weekends during your first couple of years. As I mentioned at the beginning of this chapter, my own ego controlled my decision to become a commercial real estate agent. However, once I removed my ego and focused on the financial rewards of residential real estate, I made the right decision for myself. I truly believe that one of the reasons I was successful at residential real estate was because, as a young adult, I played only a few team sports. Most of the time, I competed in individual sports where the ultimate winning and losing was done by me. Very few people answer no to this question. However, key differences exist between your ability to purchase what you sell in residential real estate and what you can purchase in commercial real estate. First and foremost, it's...
Department of Housing and Urban Renewal (HUD) defines predatory property flipping as the practice whereby a property recently acquired is resold for a considerable profit with an artificially inflated value, often abetted by a lender's collusion with the appraiser. And on June 2, 2003, HUD imposed a rule that places time restrictions on the resale of properties financed by Federal Housing Authority (FHA) loans. This was done in an effort to try to curb predatory lenders and dishonest real estate investors from ripping off unsuspecting home-buyers by reselling or flipping properties at artificially inflated sale prices. However, as far as I am concerned, the only thing that this rule has accomplished is to stop honest investors from using FHA loans. I suspect that crooked investors, appraisers, and lenders are still using FHA loans to perpetrate fraud they are just using more sophisticated scams, which HUD has not caught on to yet For a detailed explanation of HUD's rule...
Requests have been recently approved. This strategy is covered in Chapter 7. Keep in mind that a single-family house that can be rezoned for use as a professional office has a lot more profit potential than a house that can be used only as a residential property because the monthly rental rate for a professional office is much higher than the rental rate for a single-family house. And the value of a piece of income-producing property is determined by the annual amount of rental income the property generates the higher the income, the higher the resale value. When you look at a property with rezoning in mind, you must always ask yourself the following three questions
An important component in determining the value of residential property is the comps that is, what people have been willing to pay for comparable properties in the area recently. With commercial property, comps are considered but typically don't carry as much weight because it's hard to find commercial comps. Commercial real estate doesn't turn over with the same rhythm and pattern that residential properties do. And though you might find recent commercial sales, finding truly comparable properties may be a challenge. Think about the makeup of commercial areas where A smart investment strategy is to buy residential properties adjacent to commercial areas and then either wait for them to be rezoned or initiate the rezoning yourself. Once rezoning occurs, your equity increases dramatically, because commercial properties are almost always more valuable than residential properties.
I You're looking to rev up your real estate business, whether you're just starting out or have been in the business for a while. Some of you may be deciding whether to specialize in commercial or residential real estate and may be considering which real estate company to join. Others have already launched careers, hung licenses with good companies, and are now looking for advice on how to climb the success curve faster and higher. Still others are interested in refining specific skills, such as prospecting, selling, running their businesses more efficiently, or building customer loyalty.
The Boston Sunday Globe was the principal vehicle for advertising residential real estate. Jeff found that there were four brokerage firms who regularly advertised properties for sale, sometimes on an exclusive listing basis. He contacted all four brokers to find what they had for sale and what advice they had to give him. Since Jeff and Mary did not know exactly what they wanted or how much they could afford, the brokers were not always very helpful, and wished to show them properties all over town, not just in desirable locations. They were surprised at how unsystematic the brokers typically were. One broker, Joel Gibson, appeared to have more property listed than the others and provided them with information on recent sales.
Serious thought needs to be given to the street location of an office. (See Personal Exercise 20.) In the past, consumers generally walked into real estate offices to seek assistance with finding a home. This customer behavior pattern may not exist in all marketplaces, however. In addition, lower rental rates are causing a trend in residential real estate companies to move into actual office buildings. Here are some factors a broker should consider when selecting a street location for an office
Because of this, it is important to avoid buying property unless you are sure it is free of contamination. In a residential subdivision there is less of a risk than on a busy highway where a toxic factory might have existed in the past. However, if toxic waste travels underground to a residential property, the owner is still liable for cleanup.
What causes a bust in the real estate market Things such as high interest rates, government deficits, and better investment opportunities can cause what is known as disintermediation, which is the sudden flow of funds out of thrift institutions (which grant real estate loans) into the general money market (where real estate loans are not common). This drying up of real estate funds raises havoc in the housing market. In short, real estate activity is directly tied to the availability and cost of mortgage funds
Appraisers use one of three methods, and the applicable method depends on the purpose of the appraisal as well as type of property. The three methods are cost, market or sales comparison, and income. Many appraisals of residential property compare the first two methods and then arrive at a reasonable estimate of current value based on that comparison. Commercial appraisers tend to rely on the third method.
When the flow of savings again returns to the thrift institutions that act as intermediaries for the placement of mortgage loans, this process is referred to as reintermediation. If yields on government bonds plunge or the stock market crashes, money may reenter banks and thrift institutions in search of safety. As money returns to thrift institutions, the funds available for real estate loans increase, interest rates soften, more buyers can qualify for loans, and the housing market begins to pick up.
Lenders will generally loan a higher percentage of the appraised value with an insured mortgage. There may be times when a potential home buyer does not have a sufficient down payment to qualify for a conventional loan. In this case, an FHA-insured mortgage may be appropriate. However, the insurance premium is an added expense to the borrower.
I once overheard a conversation between two real estate agents. They were discussing a pending transaction and the question arose as to what home inspection company to recommend to the buyers. Don't have them use Home Pro, they'll find everything that's wrong with the house said one agent. Why wouldn't you want an inspector to find everything that's wrong, particularly if you're representing them Because if they do, it's possible that the buyers will become unhappy and back out. That means you don't get paid. Of course, if you are putting their interests first, above everyone else's including yours, you would want the inspector to find everything that is wrong. Easily said, but when a really nice payday is hanging in the balance, it clearly presents a challenge to some agents. By the way, guess which inspection company I used when my wife and I were buying an investment property Right Home Pro.
A couple of years ago I was working with an associate in my office in locating a home for our daughter and grandson. She was an experienced real estate professional with a complete grasp of all the technological innovations as they relate to real estate. Her husband is a computer engineer at the local Hewlett-Packard plant. I'm not sure whether they have a computer in every room, but close. All that was noteworthy, but here's what really impressed me. Several years before she had worked with a home inspection company in an administrative capacity. When we located the home we wanted to buy and made an offer on it we naturally made it subject to a full home inspection. She was a virtual fountain of useful information before, during, and after the inspection. Is it important to your real estate career to be able to use the tools of technology productively Of course. Just remember what really matters most to your customers and clients.
A package mortgage allows home buyers to pledge household items of personal property, in addition to the real estate, as security for a loan. For instance, lending institutions may allow items such as ranges, refrigerators, dishwashers or air conditioners to serve as security, thereby allowing the home buyer to finance major appliances over the term of the loan at relatively low mortgage interest rates. This practice allows lenders to increase the amount of a loan with no added administrative costs and little additional risk. It allows buyers to purchase home appliances and other major items of equipment they may otherwise might not be able to afford.
Through the current economic climate, the housing market in Chicago has experienced high foreclosures and short sales with a number of sales being closed that were not indicative of buying patterns many being priced too high. Buyers have turned to value shopping while playing the waiting game in hopes that prices will drop. Almost every cash deal has a subject to appraisal contingency and buyers want verification of value in many instances it makes the deal tall apart, says Jim Kinney, Vice President of Luxury Home Sales at Baird & Warner. Closely tied to employment rates, the market should not plan on seeing changes until a decrease in unemployment occurs. Having lost over a decades worth of employment back to pre-1997, increases in demand should start to become apparent. Once there is a response to buyer demand, development activity and new construction will Increase in response to Inventory being pulled off the market.
Don't cut yourself off from other income. If you have developed a reasonably stable income from listing and selling residential real estate, it is a good idea to maintain at least a minimal level of activity in those functions. You should retain your residential sales expertise and stay in touch with previous contacts to take advantage of their follow-up business. You may also need the money. Before you burn any bridges behind you, make sure you won't have to go back over the river now and then.
Actually, he was right to a certain extent. On major issues, state law will resolve such matters as what essential services a landlord must provide to a tenant. For example, under most statutes, you cannot rent an apartment that has not got sufficient plumbing. The ability to have running water is an essential element of a residential property. However, most statutes don't resolve who pays the water bill. The parties to the lease agree on that issue.
The appraisal chapter is filled with challenging mathematical concepts based on number of previous chapters. The simplest of the three approaches to determining value is the cost approach. In this approach the appraiser performs a mini sales comparison approach to determine land value and then adds the depreciated current construction costs to that to obtain the value estimate. In the sales comparison approach the appraiser finds sales of comparable properties that are similar to the subject property. Adjustments are made to the comparables for any differences between the comparable and the subject. Those dollar value adjustments result in an adjusted sale price for the comparable which will be an indication of the value of the subject property. The income approach establishes a value estimate for the subject property based on the amount of income the subject property could generate. For single-family residential property this is accomplished through the use of a gross rent...
Viewed from the outside, a job in residential real estate may appear to be glamorous, high paying, and not all that tough. That's how it looked to me. For example, most people know that, although commissions are negotiable, 6 percent is common. Let's see, sell just two 200,000 houses per month and you'll gross a tidy 24,000, or 288,000 per year Wow Lifestyles of the Rich and Famous , here I come You won't starve if you close two such sales a month, but it doesn't, in fact, put you in quite that high a tax bracket.
Most people, when they think of real estate, think in terms of either residential real estate or commercial real estate. What's more, when given the choice of investing in either of these two categories, most people prefer residential real estate for the simple reason that they are reasonably familiar with residential property (almost everyone has lived in a house ). Therefore, they have a reasonable idea as to what they are looking for if they are looking to invest. For instance, even the most naive investors would know that a house must have a kitchen, a front door, and a roof, to attract even the most disinterested tenant. However, when it comes to commercial property, many people are so unfamiliar with what a tenant could reasonably expect, that they shy away from commercial real estate altogether. In this chapter we are going to compare residential real estate with commercial real estate, and discover many other categories of real estate that are equally valid.
Consider writing a dollar limit for repairs into the initial contract. The number isn't etched in stone, but it helps keep a lid on the potential amount for which your seller is responsible. The buyer may still refuse to lift the home inspection contingency until additional lender-required issues are dealt with, but the limit helps most sellers most of the time.