Taking the idea of trying to time the market out of the equation, how do you know when the best time is to sell a house with equity? I get this question from even the savviest investors all the time. I was just reading some articles from an experienced investor in the Denver area. I know this investor well and have a high level of respect for him. He mentioned something that got me thinking, I don’t know for sure if I agree or disagree, but it is an interesting topic. He mentioned that he has a condo in another part of the country that has a little over $200,000 in equity. He plans to sell the condo this year and leverage that into two or three properties in Denver, where he lives. His arguments are:
- The $200,000 in equity is not growing. In fact, he is losing money on that equity because of inflation. Investing that equity into more properties will help him reach his financial goals much faster.
- He does not want the hassle of owning out of state properties. He wants to invest where he lives.
There is no argument from me on his second motive to sell. I own properties in several states and can tell you that my best, least stressful investments are all within 45 minutes of my office. My out of state properties perform okay when they are rented, but they are hard to manage without jumping on a plane, even with a property manager. Unfortunately, you just need to show up from time to time to get things done.
It’s his first argument that made me stop and think, although I do agree with the basic concept of not holding equity in real estate. I believe this for a few reasons. First, I agree with him that equity in property is producing a zero percent return, and if your goal is to grow financially, you are slowing it down by not leveraging. No one can have a good argument against that, but there are a lot of investors that want to own free and clear property. One advantage of a free and clear property is that you can have a higher cash flow, meaning fewer properties to reach the same monthly income goal. There is also something very comforting about owning property without debt. There won’t be a creditor or lender that can take it from you if things get financially challenging. From that prospective, it is very safe to own debt free real estate.
With that said, another reason I don’t like a lot of equity in houses is that you become a target to lawsuits. I am not an attorney, but I have friends and colleagues that are, and they agree with me on the risk here. Many personal injury attorneys get paid on what is called a contingent fee. This just means that their fee is contingent on them being able to win or settle a case and collect. A fee might be 40%-50% of the collected amount. Knowing this is true, how many attorneys would take a case where the defense appeared to be broke? You cannot collect from a dry well. On the flip side, if you got in a car accident, even if it was not your fault, and the other party wanted to sue, the opposing counsel would first look into your assets. There is no asset that is more transparent than real estate. They can look and see what properties you own and how much debt you have. Even an LLC that owns one house could be at risk if there was a slip and fall on the property. If the asset was leveraged, it would at least appear as if there was not much in the way of assets to pursue. Obviously, insurance is your first line of defense, but many lawsuits take place from mistakes that are not covered by insurance. Free and clear properties could create a target on your back.
So, you can see why I would agree with this investor’s position of selling his property to buy others with more leverage. There are a few augments that come to mind on reasons I might not agree.
First, we don’t have enough information to make that call. If I owned a property and I was considering selling, the first thing I would think about is what I would do with the money and how much is it going to cost me to get it. The returns would need to be high enough in the new investment to cover what I was making and pay me for the cost to do the transfer. For me, I might want to have the return sufficiently high enough that I can recoup all my costs in 18 to 24 months, and everything after that is additional profit above what I was getting with the old investment. I hear investors occasionally mention that they want to sell a property and cash in on their investment. Great! But what are you going to do with the money? If you don’t have a plan in place to reinvest proceeds, you will end up with a much lower return than just leaving the money where it is.
The other argument I would challenge this investor on, is that he can potentially keep the condo but still cash in on the equity. I love to use lines of credit on my rentals, this way there is a lien on title, so it appears to be encumbered, even if I am not using the money. It is also cheaper because I only pay interest if and when I use the funds. Setting this up in advance allows me to make quick decisions and take advantage of opportunities without keeping a bunch of cash in the bank. He might say that he can access more of the equity if he sells and can potentially buy more Denver real estate, which is true. With a line of credit, you would be limited to a percentage of the value, so you are limited on how much you can access.
It is important to point out that each situation is going to be different and based on the individual investor’s goals and needs. There are also many variables that go into this type of decision, and it can be tricky to navigate. It would be a good idea to have a trusted advisor look over your strategy to help you make the best financial decision for you. Please feel free to reach out to our office if you ever want to bounce an idea off us. Obviously, we would love to make a loan to you on your next project, but we are also opened to helping if you need a little hand holding.
When doing renovations, people rarely think about long-term resale value. Most families just want a really nice place to live and they work to create their forever home. However, life can be unpredictable. So while it is joyful to make a dream home, those dreams need to be balanced with an understanding of whether or not those granite countertops or that second story are good investments in the long run.
What is resale value?
We hear the idea of resale value quite often pertaining to real estate. The ideal is to buy a property that is a good investment and to have its value appreciate. Good maintenance and appropriate renovations help ensure that when it comes time to sell again, the property has gained equity and you’ll make money.
However, the amount of money you’ll make depends on market appreciation. Which is why it’s important to make improvements that fit the property and the neighborhood.
Location the key factor to consider
If you’ve bought a property by a highway or another not-so-great location, you probably got it for a good price. If that location’s value doesn’t increase during the time you own it, you’ll probably have to sell it for a similarly good price, even if you’ve done a lot of work on it.
Many property owners invest in renovations that aren’t in keeping with the neighbourhood. As a result, they end up selling for less than they invested, which can be heartbreaking.
Before you renovate, look at what has been selling around you – at what cost for what quality? If the most expensive home in your neighborhood sold for $400,000 after being completely renovated, it doesn’t make sense to style your house to a value any higher.
And really, how special are those $10-per-square-foot tiles anyway? Go with the $5 tiles instead.
Focus your investment to one or two elements per room. Make pricey items such as granite countertops, a fancy backsplash, or a higher end faucet; work like show pieces, similar to a piece of art.
Smallest may be best when it comes to resale
As for adding a second story to create more space for an expanding family, it may be worth it in the long run to hunt for a bigger home.
If you invest an extra $100,000 on a two-bedroom bungalow in a neighborhood full of two-bedroom bungalows, you may never recover that full investment. It may be a much better idea to take your equity and find a larger home in a neighborhood where your investment will hold and even grow in time.
When it comes to resale value, it’s always better to have the smallest house in an area with mansions rather than a $600K house surrounded by $300K houses.
Of course, creating a joyful home should always be the first priority. Just make wise decisions that will bring you prosperity and happiness for years to come.
Although, some believe, holding an Open House, is key to the sale of a house, in reality, it is, just, one, component, in an overall marketing/ selling plan and system. While, nearly every real estate agent conducts these events, the value of them, often, substantially differs, dependent upon, how they are used, and conducted. With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, 5 extremely important, key steps, to make them, as successful, as they might be. Unless/ until, these are done, effectively, and efficiently, there is the risk, they are wasted, in terms of time, money, effort, energy, and potential results.
1. Marketing/ promoting: The best results come from, determining the best approach/ way, to market and promote them. Which advertising media, might make the most sense, for this particular property? Why do you believe so? How will you achieve, the most, bang – for – the – buck? Start by identifying, the niche, if any, this house and property, fits, best, in, and, then, investigate the best options, to attract, the right, qualified, potential buyers. While everyone wants a big crowd, to be attracted to their Open House, unless/ until, it is, predominantly, real buyers, rather than house – hunters, you will probably not achieve the most desirable objective!
2. Greeting/ welcoming: You only get one chance, to make a first impression. This adage, is true, for, both, the house/ property, itself, in terms of curb appeal, staging, eliminating odors/ clutter, and other negatives. It is also true, of the agent conducting it, and how he greets, and meets, people, at the door, whether they feel welcome, and appreciated, and, directs them, forward.
3. Sign – in: You won’t be able to follow – through, effectively, until/ unless, you get, as much information, as possible, about everyone who attends. While I prefer to get them to, sign – in, via a digital tablet, at least, it’s very important to. at least, get them to do it manually. How can you follow – up, if you don’t have this? When you use a digital program/ application, you can stream – line the process, by automatically, transmitting follow – up, emails, immediately.
4. Show/ Questions and Answers: How well you show the house, often, depends on, how comfortably, you welcome and encourage questions, with genuine empathy, and the thoroughness of your answers/ responses!
5. Follow – up: A real estate agent should consider an Open House, both, as marketing for the subject house, as well as, for you, as an agent. Will you stand – out from the crowd, by being proactive, etc? Use the opportunity to, both, follow – up, for selling this property, as well as making appointments, to show other houses, to those, who aren’t that interested in this one.
All spotlights are on your house for a photo shoot that will make it an instant star. Like a celebrity, it will mesmerize people and possibly have a fan base from whom will emerge a possible owner soon. But is your house ready when the camera starts focusing on its beauty? Will real beauty be captured? If your house is soon to be an object of a photo shoot for a marketing effort, then these are some things you should follow according to the Florida Realtor Magazine.
- Brighten up the house. Photos always look best when light is great. The house should receive as much light as it can. With this, all interior lights should be turned on while allowing natural light from the outside to enter. Do this by opening doors, blinds, curtains and drapes.
- Refresh the house. Imbibe freshness on the house. Make it as clean as possible. If necessary, apply new paint on surfaces needing them. Check for some peelings or chippings on walls and repaint at once.
- Lose your identity of the house. Unless you’re preparing your house for a feature that will tell your story, personalizing it with pictures and other things will do just fine. But if the photo shoot is to sell your house, then start removing things that will give it your identity. Photographs, calendars, boards, and other things that will show your identity and give impression of the date should be removed.
- Eliminate unnecessary things inside and outside. Decluttering the house covers both interior and exterior portions. Reduce the number of furniture for showing. Shelves must be minimized of books and magazines. Countertops must be stripped off of unused kitchen gadgets. Jars, bottles, and other empty containers residing on the yard must be eliminated too. There’s always the recycling shop to monetize them.
- Accessorize, but not too much. Reducing the displays will be defeated if you’re just replacing them with other objects. accessorizing doesn’t mean that you have to equate what you’ve removed. Attractive vases are always good displays especially if there are flesh flowers on them. Give a scale view of the length and width of tables by putting smaller but attractive objects on them too. Center tables can host a dish garden instead of too many ceramic displays on it.
The house is a great object for photo shoots. By following the tips above, you’re sure to have wonderful photos of your house that are also good for viewing by potential buyers.
Do you want to know what is going to give you the best return on your investment? A while back, I was asked to participate in a YouTube Live video with a close friend of mine. Matt is an extremely savvy business owner and financial coach. In the past, he would travel all over the US teaching people some unique strategies to reduce debt and increase cash flow. The travel, though, burned him out. He moved his education away from the stage and onto the greatest educational platform on the internet, YouTube. His channel has taken off, and he just reached 100K subscribers, and they are still coming. People like him because he is extremely smart, direct and honest.
During this YouTube Live video, Matt lead a small team, including myself, to answer questions from viewers as they came in. One of the questions we received is an extremely challenging question to answer, but so, so important. “I have money. What should I invest in?”
I say this is a hard question to answer because the real answer is; “It depends.” It depends, are factors such as; your risk tolerance, your time, the amount of the investment, the people involved, your knowledge of the vehicle, your horizon, and so much more. Matt turned to me and I did the best I could to answer. I said that my advice would be to invest in something you are good at. You can make a ton of money in many different vehicles, so work with something you understand and enjoy. I know someone that is making a killing in crypto, but there is no chance I will be investing in that. Matt took the mic next and blew my answer out of the water. (I wished he would have went first). He said you need to invest in yourself and in business. Creating a business will create more income than a passive investment, but the key here is to invest in yourself. The reality is, no investment pays a higher return than investing in you.
I owe a tremendous amount of my success to the home study courses that I absorbed, as well as real estate and business coaches that I hired. I committed to two action items early on that made a difference to me in my career.
- I spent a minimum of $1,000 a year on home study courses. This was a lot of money to me and it was just one course a year!
- I would not buy another book or course until I implemented at least one thing I learned from the last book or course I went through.
After I started making money I started investing more in myself, which included mentors and coaches. Even recently I worked with a business coach to help me with Pine Financial. The knowledge I gained from dedicating myself to myself has paid me millions of dollars and continues to pay me today.
While we often, refer to, home ownership, as a core component, of the American Dream, it’s important, for us, to take a realistic look, at the obligations, and necessities, involved, if this is, to truly be a dream, instead of a potential nightmare! Before embarking on this house – hunting, process, carefully, introspectively, objectively, examine and consider, your personal reasons, persona, what makes you happy/ satisfied, and whether, it’s a good course, for you. After, you’ve determined, what’s best, for you, and know, what you want, it’s essential to clearly consider, and examine, what you might be able to afford. This means, proceeding, in a responsible, well – planned, and considered manner, focused, on preparing for the many contingencies, of home ownership. With that in mind, this article will attempt to briefly consider, review, and discuss, a few steps, which should, both reduce unnecessary stress and hassle, and maximize the potential enjoyment!
1. Reasons for buying that house: Why do you want to buy, any specific house? Does it meet your present needs, and into the future? Or, are you looking, at a shorter – term, and want to live, there, for a shorter – span, and, then, relocate, when needed and necessary? Are you the type of person, who enjoys moving, or would you rather, remain in your present quarters? What are your needs, goals, and priorities, in terms of location, neighborhood, schools, costs, transportation, conveniences, etc? Why, this house?
2. Down – payment: Do you have the necessary funds, to have the down – payment, while avoiding, placing too much stress, on yourself, because of using these funds? Smart homeowners prepare, and make their journey, far less stressful!
3. Needed reserves: The best way, to proceed, is to put together, several reserve funds, in order to ease your way, forward! Once, you’ve purchased your house, most people face monthly fixed expenses, which includes mortgage payments (including principal, taxes, and escrow items, such as insurance, etc), utilities (electric, heat, telephone, television, internet, etc). Realize, owning a house, requires preparation, for affording the costs of regular repairs, including appliances, heating, water, etc. Create a reserve fund, for this specific area. Also, realize, houses require attention, and certain items, have useful lives, and will need replacing, such as roofs (rated from 20 – 40 years), appliances (including washer, dryer, refrigerator, oven/ stove, dishwasher, etc), painting or power – washing, etc. At some point, many realize, their house needs certain upgrades, renovations, etc. The better prepared, the easier this process!
Many of us, who are involved, on a daily basis, with the many nuances of real estate, get so involved with buying, selling, marketing, and promoting homes, and making/ giving listing presentation, we often ignore, the many economic factors and other conditions, which impact the real estate market. Some of these factors are local, in nature, while others may be national or international/ global. Some are actual, while others are perceived (for example, belief in their job security, negative possibilities because of some action taken by government, etc). With that in mind, this article will attempt to briefly consider, examine, review, and discuss, how the overall economy impacts the real estate/ housing markets.
1. Mortgage/ interest rates: When the Federal Reserve announces they are raising, planning to, or considering raising rates, in most instances, mortgage rates follow. About 2 years ago, we witnessed historically low mortgage rates, and today, while, from an historic perspective, they are still relatively low, they are about one percent higher, than they were, at the low. When mortgage rates are low, many buyers qualify for a higher price, and thus, we often witness a rice in home prices. As they rise, generally, prices, and, especially, the rate of increase, slows.
2. Taxes: When local real estate taxes are comparatively low, the effect on monthly carrying charges, is a positive, for the housing market. When they rise, they cause homeowners, to have to pay more monthly. Some houses, neighborhoods, regions, counties, etc, have lower taxes than others, so when one region abruptly raises rates, that local market is hurt, and certain surrounding areas benefit. In addition, in higher tax areas, such as New York, New Jersey, Connecticut. Massachusetts, Illinois, California, last year’s tax legislation, may have potential longer – term ramifications, on the housing market. That inclusion, known as State and Local Taxes, or SALT, limited/ capped the federal tax deduction, permitted, for state and local taxes, to a total of $10,000. Since many houses in these regions, have much higher taxes, and, several of these areas, also have state and/ or regional taxes, these caps, have the potential, to harm the real estate market, especially, if, they increase, any more.
3. Jobs: Do people perceive, they have job security? Is the job market, strong, or relatively weak? Are incomes increasing? The more confident, and comfortable, qualified potential buyers, are, the stronger the market.
4. Overall economy, and world news: For example, if the present, partial government shutdown, continues, for a substantial period, many workers, industries, and small businesses, especially, will be negatively impacted! There seems to be lots of fears, doubts, and insecurities, about safety, etc. The more confident, the public is, the better off, usually, is the real estate market.