Monday, October 30, 2006

Market Moves Forward with Motivated Buyers, Sellers

I just returned from a conference of top agents from the Washington, D.C., metropolitan area, and while they are working harder this year than last year to turn a deal, they are moving forward with their businesses by working with motivated sellers and buyers.

"The market is the market," one told me. "You have to sell and buy real estate in this market, not last year's market, and not the market you wish it would be."

One thing all top producers had in common was that they "get it" about what kind of market in which they find themselves, which is more than what they could say about most of the buyers and sellers who are trying to move from one property to another. Here are a few of the excuses seller's are using to justify the price of their houses.

What sellers say: "I need X-number of dollars from the sale of my house."

The truth is: With all due respect, it doesn't matter how much you "need." The market determines the sales price of a house. I just saw a home that has now been on the market for 328 days in Loudoun County, Virginia -- the sales price has dropped $150,000. That seller understands it doesn't matter how much he "needs," however, he would probably have sold it earlier if he would have dropped the price quicker.

What sellers say: "I have a bigger lot."

The truth is: You can't live on the lot. While the size of your lot will make the property more desirable (for some buyers), it doesn't necessarily mean it adds more value in a buyers market. Price according to other houses like yours, not other lots. This is particularly true in a subdivision where the lots are mostly created exactly alike.

What sellers say: "There's one special buyer out there … ."

The truth is: While this may be true in some instances, for most properties, there are several buyers -- if you have the house in the right condition and price. Overpricing a property and waiting for a stupid buyer is a waste of everyone's time.

What sellers say: "Advertise more."

The truth is: A property priced right is the best advertising you can use. The best property with the worst price still won't sell. The best property will at least bring about some offers, but not necessarily the asking price.

What sellers say: "If I don't get X-number dollars, then I just won't sell."

The truth is: Most sellers using this line mean they have their house overpriced and will die in it rather than drop the asking price.

There are three determining factors of the salability of a house: location, price, condition.
In areas where commuting is a daily battle, location definitely makes the property more desirable than a house miles and miles away. Location may also mean the location in the desirable community. The former model home facing the four-lane highway may be in great condition and be in the right community, but the location on a busy road could adversely affect the salability of the house.

Price is what most homeowners are battling in today's market. If a house looks great and is over priced it will not sell. Even some "fixer uppers" I've seen these days are overpriced. They may be asking for less than other homes in the community (which are also overpriced), but they're still not moving because there's a great looking house in the neighboring community that sold for the fixer upper price a week earlier.

When a house has more amenities than the competition, this doesn't automatically mean it's worth $50,000 more. In today's market, it may mean it's just going to sell faster.

Finally, the condition of a property is vital to the salability factor. Many of these top producers are challenging sellers to drive around with them to compare the seller's house with those that are already on the market. Those that tour other houses, usually end up pricing the house appropriately, to make their house a "good deal" against all the other comparable homes in the area.

Remember, if someone can remodel a kitchen for $30,000 -- then why would they pay $50,000 more because you have one that was remodeled last year. Sellers and buyers who understand the market are cashing in and getting good deals. Sellers need to focus more on equity gain over the last several years, while buyers need to get off the fence and get a good deal.

Published: September 15, 2006

Determining Rent Determines Your Wealth

One of the most important aspects of the investment game is creating a positive cash flow from your rental properties. The basic principles apply: buy low/sell high; cover your monthly expenses with your monthly rental payments; go to the bank a happier, richer person.

Setting up just how much you want to walk away with each month, however, isn't as simple as adding up all your expenses, tacking on an additional 25 percent and sitting back waiting for the tenants to move in.

There are two basic systems for determining the rent to charge.

The first is "return on investment," directed by how much money you want to make on your investment plus the amount of annual expenses for the investment.

For example: if you put $20,000 down on a property and you want to receive a 10 percent return on that down payment (total of $2,000 per year); First add up all your expenses (say, $12,000 per year for mortgage and $2,000 for maintenance and upkeep). Then add in the desired annual return, thus you would need to bring in $14,000 per year in rental income to meet your goal -- ergo, the rent charged would be $1,200 per month.

Unfortunately, for most investors, the above formula is not how they determine the monthly rental. Instead, you may be at the mercy or blessing of the market analysis method.

This method is not unlike conducting a comparative market analysis (CMA) for a property for sale. Find out what the price of the latest sales for properties like yours in your neighborhood or city and list the house at, below or a little above that average (depending on the state of the market).

In rentals, you do the same. What are the rentals going for in your area for your type of property? What's the condition of your investment property compared to those that just rented. Make an adjustment for condition and location, set the rent level and get the house listed.

The blessing of this method is that if you're in a market with job growth and there's a shortage of affordable housing to purchase, you could possibly charge hundreds of dollars more per month than the same period a year ago, if the market demands it.

In Montgomery County, Maryland, a suburb of Washington, D.C., that type scenario exists currently. According to the local MLS, last year at this time the average single-family home rented for about $2,500 per month. This year, the rent average has shot up to more than $2,800 per month -- that's $3,600 more per year. That type of cash flow growth makes any investor very happy.

There are various mistakes to avoid in the setting of your rental level. The first is getting greedy and trying to grab too much rent than the market will allow. Fortunately, most times, the market will tell you pretty quickly if you're listed too high. It just won't rent.

In your research, determine what's the average days on market for a rental. If it's 45 and you've been on the market for 60, then you may have a pricing issue. But also check on the condition or amenities offered in your property. You may have a really nice condo, but the ones across the street have a pool and playground and yours is priced the same as those units; obviously, the consumer is going to choose more for their money.

Leaving the unit vacant too long could eat up all your profit for the year. If your expenses are $2,000 per month, for instance, and you let the unit sit vacant with a price of $2,400 for a month, you're behind now by $2,000. If it rents the next month for $2,200 -- you've not only cut back your cash flow, you've decreased the balance sheet. Now you're income is short $2,200 for the next year (the amount of rental income you could have gotten if it had been priced right to begin with). Put it into a second month without adjusting and you could quickly go into the hole in your investment business.

As you move forward year after year, keep up with the rents in the area long before the term of your tenant's lease comes to an end. Knowing what you're unit will rent for ahead of time, keeps you on track with keeping good tenants in your unit on a consistent level to maximize your rental cash flow.

Published: September 8, 2006

National MLS Created One Listing At A Time

The latest buyer survey by the National Association of Realtors® revealed that 80 percent of all buyers now begin their search online for real estate. That's quite a surge in just a few years, when the number of cyber surfers for real estate was at about 7 percent of all buyers when real estate and the Internet met. If any industry benefits the consumer online, it's the real estate industry. Millions of houses advertised online for buyers to peruse, read over, view floor plans, and watch video tours. It's all there, it's free, but we really take for granted what it takes to create such a system.

Today's electronic MLS system began years ago on paper. Realtors across the country would turn in their listings with a picture into the processing manager, who then turned them into the local Realtor association. Associations would then print up a book or cards and then hand deliver them to the offices -- usually one per agent -- either weekly or twice per week. The MLS book was one of the most highly sought after commodities in the Realtor's tool box.

The ultimate purpose of the MLS is to offer a co-op between competitors so they can sell each others properties and get paid for doing so.

The electronic MLS system starts and ends with these licensees. Without the licensees of the state, belonging to brokerages, who gather millions of data and pay billions in fees, programming costs, etc., there would be no,,, or any other internet-based real estate database for that matter.

While there would be places online for homeowners to "advertise" their homes for sale, there would not be a pure database, whereby, buyers and sellers could come together with secure data that is updated on a daily basis. I can't think of any other databases of homes for sale online that are operated like the MLS.

The fsbo-type websites are NOT databases, but advertising, much like what you would find in a newspaper website. Once the property is sold, the ad for that property, most times, remains online and buyers don't really know if what they're clicking through is still on the market or not. Meanwhile, Realtor-operated MLS's are internally regulated and agents can be fined for registering erroneous information or not updating information soon enough.

In fact, the information is so good, other website operators have taken aim at these online services to steal the information and place them on their own sites to draw homebuyers. NAR's Center for Realtor Technology, has even released two programs to help stop "scraping" of the data by online data predators.

NoScrape is a program that places the data into a rendering, or graphic file, from which data cannot be copied. Computers aimed at scraping data from real estate sites cannot strip the information from this type of web page. A second anti-piracy program is reCaptcha, which "is a way to tell computers and humans apart and is based on CAPTCHA technology. CAPTCHA is short for Completely Automated Public Turing test to tell Computers and Humans Apart. It identifies the party trying to access your site as a human or a computer program by generating questions that only a human can answer correctly," according to

reCaptcha displays a securitized system whereby the user must retype distorted images of a word to gain passage to parts of the web. These type of programs are also used by financial, ticketing and blogging websites to ensure humans are using the site, rather than computers.

When I read articles about how the Realtors have the MLS locked up and should just open it free to all consumers (i.e., private sellers who want access, other web sites who want to draw buyers and sellers, etc.), I'm reminded of the little red hen, who once having gathered the wheat, ground it up into flour, made the cakes, and baked them, asked, "And who would like to eat the cakes?" The Cat, the Dog, and the Duck all said, "I will, I will."

"No, No." said the Little Red Hen. "I will do that." And she did.

Published: September 1, 2006

Tuesday, October 10, 2006

What Do Agents Really Bring to the Table?

I hate going to the dentist. I've always had good teeth, only one cavity in my head, so why spend all that money (not to mention the dental insurance) on a service I've never really needed. As long as I brush and floss, why do I need someone with a doctor's degree to look over my teeth, clean them, whiten them, etc.?

Besides, I've pulled teeth myself -- when I was just a grade school kid, in fact. So if I can pull teeth at that age, with just a string and a doorknob, why on earth do I have to pay a professionally trained tooth puller now? As I reminisce on those days of my early tooth-pulling, I even recall getting paid for pulling my own teeth! That's right. Every morning after pulling my teeth, I had money under my pillow.

Obviously, anyone who has received quality dental care in the past sees right through the absurdity of this argument. However, when it comes to real estate agents, everyone wants them to provide their services for discounted prices – even free.

Licensed real estate professionals bring state-mandated training and knowledge to the table for buyers and sellers. In fact, agents have to get as much, or more, training than what it would take for some college degrees before being given permission by the state to represent buyers and sellers in the transaction.

By the time a transaction is over, it is chock full of legally-binding documents controlling the transaction, pulling two parties together to exchange hundreds of thousands of dollars to complete a transaction that they may be involved in only a couple of times in their life.

Both the buyer and seller must perform to the contract, and most times, they don't even know how or what they're supposed to do to perform the paragraphs they just agreed to perform.
Nearly half of the buyers are purchasing for the first time, according to the National Association of Realtors. They only think agents are there to usher them into houses and that's it. And that's because hundreds of thousands of agents make that tooth extraction look so easy.

Why should you have a real estate agent on your investing/buying/selling team when it comes to building wealth?

There's talk on Capitol Hill of how the real estate industry has a "strangle hold" on the business. It makes me want to, not so much defend, as much as bring to the forefront what licensed professionals actually bring to the table for consumers.

You've heard the term, "You get what you pay for," and that doesn't go wasted on agents as well. Many sellers would love to get through the transaction themselves, without any help from a "middle man," to save the commission dollars. It sounds like it makes sense, "Hey, why pay thousands of dollars of your money to sell a house when you can do it yourself?"

But every agent has a real estate license regulated by the state. This means they are knowledgeable about various aspects of real estate law, rules and regulations, such as:

  • What rights exist for land and how they can be traded
  • How title can be held and how to ensure clear title to the land
  • Financing: traditional, non-traditional, owner-held, etc.
  • Fair housing laws: federal, state and local
  • Local limits on the sale and trade of real estate
  • State disclosure laws and regulations on the trade of real estate
  • Contracts and forms

Most sellers and buyers I've talked with, while having access to plenty of "information" on the internet about the sales transaction, do not have a handle on the nuances, pitfalls, and inherent dangers of legal problems they can face in the midst of this huge investment.

Published: August 25, 2006

Single Girl Power Growing Influence in Real Estate

Ladies, take note, you've begun taking a larger role in the area of homeownership over the last few years, according to a new study from the Joint Center for Housing Studies at Harvard University.

"Not only are unmarried women a large segment of the home buying population," says Rachel Bogardus Drew, the author of the report, "but they are fast-growing, too, increasing their share of home buyers by 50 percent in eight years. The value of their home purchases over a 3-plus year period totaled more than $550 billion ... ."

The study is as much a report on the sociological changes in our country as on the buying practices of women. The continued breakdown of the family has pushed women to start fending for themselves, financially, instead of waiting for the combination of salaries with a mate to purchase a home.

"Two out of three female buyers were previously married, though that share drops significantly for younger buyers," Ms. Drew points out. "They also have lower incomes than unmarried men and married home buyers, but are less apt to finance their home purchase."

Still, the overwhelming buying segment is made up of married couples at 63 percent, but now unmarried women are the second highest buying group (at least when looking at marital status) at 20 percent in the last three years. Unmarried men make up 17 percent of the buying pool.

The demographics paint an admirable picture of the group, being older than their unmarried male counterparts, and facing many obstacles, demonstrating their determination to get in the real estate ownership circle. They also have lower incomes and many of them are buying with children in tow (30 percent).

Financially, they've demonstrated that even with lower incomes, homeownership is available. At $37,000, their median income is 11 percent less than single men, but account for why they are less likely than married couples to live in single family homes -- however, the majority of them were move up buyers in the last three years. They are plodding along with wealth growth, taking a patient path to building their net worth by buying low, selling when the market grows and moving into a larger, more expensive dwelling.

The growth of this demographic has not gone unnoticed, as both for-profit and not-for-profit entities have begun initiatives to help women in their quest for homeownership. One of the groups was the Women's Mortgage Industry Network (WMIN), which was launched four years ago and is sponsored by Freddie Mac. The group's goals include engaging "the mortgage industry and non-financial service providers in a targeted education and counseling campaign that it believes will help close the gap in homeownership rates," according to information from

One of the most interesting points of this report was one of the buying options Ms. Drew uncovered in her report of single women, purchasing in a co-housing community.
"Co-housing communities, though relatively small in number -- about 50 in the U.S. -- are an attractive choice for women who want the privacy of their own home with the benefit of a supportive, surrounding community. These communities typically consist of 12 to 42 self-sufficient private dwelling units, but also include a common kitchen/dining space where meals are shared as well as communal outdoor space. Other arrangements help to pair single mothers looking for a shared living situation," she writes.

"By pooling incomes single mothers can often afford to buy a more desirable home, and by living together they can share household tasks and childcare, which can free up valuable time. Living with someone can also provide critical emotional support and help make single parenting less exhausting and lonely."

Obviously, this is a growing segment of the real estate industry and will continue it's upward trend with the aging of the baby boom generation and the natural selection of women living an average seven years longer than men.

Published: August 18, 2006

Do Brokers Compete or Hold a Monopoly?

There's a lot of press these days on how much real estate agents are charging to sell houses. The House Subcommittee on Housing and Community held a hearing a couple weeks ago on residential brokerage services, where groups like the Consumer Federation of America (CFA) and American Homeowners Grassroots Alliance bemoaned the current commission-only business of real estate agents across the country.

To hear the CFA's take on these independent contractors (who have no job security, biweekly pay check, benefits, vacation/sick leave or traditional company support), they are all totally overpaid and consumers are being fleeced by a "fixed" commission rate that's being protected by the industry at large.

Obviously, I know a lot of real estate agents. Some are doing very well financially, on the other hand -- with the current state of the market -- some are looking to get out of the business. Most agents I know make a good living, but nothing extravagant. They draw in about the regional median income, but do not have the benefits that come with a full-time job. In fact, they have to pay for all their expenses – everything from paper clips to expensive advertising and marketing.

They get to pay for all of this, because they're taking a risk to make an above-average income. You won't see too many of them defending the latest commission charges these days because many markets across the country are off by as much as 30 to 40 percent. Instead, they are out looking for business. They're trying to get sellers to price right and buyers to get off the fence; meanwhile, the mortgage is due, the kids still want to eat and they have to market clients' properties with no guarantee of getting paid for it.

Mr. Stephen Brobeck, executive director of the CFA, calls the current residential brokerage system "a cockamamie system that restricts competition and consumer choice," in his testimony on July 25, 2006. Much was said in his testimony, thus I'll limit my response to the part where he calls on the real estate industry to be regulated like a utility -- you know, the power and gas companies.

What's really scary is that he is saying this in front of some pretty influential and powerful people in this country who may not really understand how a real estate agent makes his or her money.

Yes, they get paid on commission. And when you look at the average price of a house in the Washington, D.C. market, it makes some in Congress wag their heads at how much each agent must be walking away with from the settlement table.

Well, let's work in real numbers. Last year, the local MLS reported the D.C. area real estate market created roughly $44 billion in sales. The average commission, according to Real Trends, an industry watchdog group, stands at 5.1 percent (not the 6 to 7 percent touted in Mr. Brobeck's testimony). At that rate, with a commission split of 50/50 between brokers and their 30,000 agents, the average commission income would be roughly $37,400 each.

To be totally upfront (something I didn't see portrayed in some of the testimonies I read) the 80/20 rule can be applied in real estate -- except I would surmise it's more like a 70/30 rule: about 70 percent of the sales are done by 30 percent of the agents. Thus, you have some very successful agents on the top, and the rest are digging around for the remaining commission dollars.

A lot of money exchanges hands in this business, being divided between a lot of people. So while the dollar amounts sound expensive, they really only create an average income compared to any other industry in the region. But here's the catch -- agents only collect their pay if they are successful.

They only collect their split of the 5.1 percent commission if the transaction actually goes through. There's no reward for second place. If the agent gets the listing, spends her own money up front to market it, charges all her gas to her credit card, then she hopes to get paid back once the sale goes through … if the sale goes through.

Unlike other professions where the attorney gets paid even if his client goes to jail, or the surgeon gets paid even if his patient dies -- the real estate agent only gets paid the commission when the house sells. There's no paycheck for failure in real estate.

Published: August 11, 2006

Vacation Investors: Keep Up or Get Out

I wouldn't say that I'm frothing at the mouth right now while sitting in my vacation rental, but I'm getting close. My bride and I just spent breakfast making a list of why we'll never rent this unit again at one of my favorite beach communities.

I've rented several properties here in the past -- that's why I'm back this year. But this time has been pretty irritating. Not a disaster, mind you. We're still enjoying the beachfront pool club with tennis courts, Olympic swimming and private beach privileges that come with the $2,000 per week rental (after taxes, fees and insurance), as well as the views of a lake with plenty of turtles, cranes and various water fowl.

It's just that when I plop down that much money on a beach rental I have a certain expectation. You know, like there would be remotes for the 5 televisions, 2 VCRs and 4 DVD players that actually work. (And this is just getting started.) Unit L35 is quickly becoming a unit I'll never rent again.

There are two management components to investment property that every investor must take into mind. First is the investor track. Secondly there is a management company track.
Under the investor track, the individual investor has certain responsibilities, such as providing the furnishings, keeping the property in generally good order (painting, carpet, decking, etc.). The property management group is the one that joins the investor to keep the property in daily working order for all the visitors that will pay to stay at the home.

First let's deal with the investor track. A vacation rental can be a cash cow if you set it up right. Purchase with enough cash down so that the rents coming in not only pay your monthly costs (mortgage, insurance, property management fees, etc.), but you also have enough cash at the end of the month to save up for maintenance and upgrades of the unit over the years.

When investing in vacation rentals, keep in mind it's as if you're setting up your own little hotel. The rental not only includes the dwelling, but also all the stuff -- furniture, linens, kitchen utensils, and items needed on a daily basis. It also includes the niceties, i.e., DVD players, hot tubs, bicycles, gas grills, etc.

In residential investing, you only have to make one renter happy all year. In vacation rentals, depending on the length of the season, you could have dozens you have to satisfy in hopes that they will want to come back again and again. Thus, don't be cheap. Cooking wares from the local dollar store will not last long. After the first few uses, they'll look like what they are cheap.

Purchasing electronics on the same basis is really a disaster. While you may not want the top of the line in home entertainment, the cheapest components will break down very quickly. Remember, you are renting to people who are on vacation. They will most likely be watching several movies per week. The $49 component will break down (like the unit in my daughter's room, which has damaged up one of her DVDs).

This brings me to the property management track. Once we walked into the house, we discovered in two days various problems with the property and service of the management team:

  • Mildew spewed out of the Jacuzzi on its first use
  • Missing light bulbs throughout
  • A hot tub that comes on by itself and won't shut off without unplugging it
  • The garbage disposal was jammed and had to be cleaned of seashells and pebbles to get it to work.
  • Out of the eight remotes in the house, only two work. I've had to purchase batteries for them only to find out some of them still don't work.
  • The garage is full of debris
  • The outside shower had to be cleaned of pine needles, leaves and twigs before anyone could use it
  • The gas grill is a mess (okay, maybe now I'm getting picky, because what gas grill ISN'T a mess?). But the igniter doesn't work and I've purchased a lighter to ignite it for grilling tonight.

The owner next door bemoaned that there used to be two separate companies employed for cleaning and inspecting the properties -- now there's one that cleans and then sends its own crew in afterward to inspect. This may be why the cleaning crew put rugs in the washer and left us note to please move it to the dryer.

If you're going to get in the real estate investment game you must show that you care about the property. Besides, if you don't care how it looks when you're renting it out, then why should the vacationers care to come back?

Published: August 4, 2006

Normal Market Produces Buyer Opportunity

by M. Anthony Carr

Buyers scurry, afraid of buying at the height of the market. So why aren't builders running scared? Because the underlying principles of a good market remain sound in the midst of the market fears. While nationally, the industry has cooled to "more sustainable levels," according to the National Association of Home Builders, "The Bureau of Labor Statistics reports strong job gains in many of the fastest-growing states, with 37 states exceeding their pre-recession peak levels of employment in 2005."

The group recently released a mid-year housing report on its real estate trends website, A cooling of the market this year will still result in the third highest level of housing starts in the last few years.

That's why you keep seeing building projects going up. Definitely, not as many houses are being constructed in 2006 as last year, but the NAHB report points to several positive market growth indicators in various regions across the country.

Job growth is continuing upward. Unemployment is dropping. Businesses continue to expand and economists across the country continue to estimate that the need for more housing will stretch beyond the current inventory surplus.

The National Association of Realtors still is holding to 2006 being another very strong year -- the third highest on record. NAHB members are still bull on the housing market. What we're seeing in '06, it seems, is a transition year. For buyers who have no choice but to buy because of social or lifestyle reasons (birth of new baby, marriage, retirement, in-laws moving in, new job, relocation, etc.) they will buy now and unwittingly pick up a great deal.

For buyers who are too skittish about the market, they will miss a financial boosting opportunity. In markets where it has normalized (D.C., Miami, Chicago, Phoenix) buyers who buy based on rock-hard solid economic evidence, will be excited in a few years that they bought a house low and now stand to earn a handsome profit a few years later.

Ask anyone in the D.C. area if they would have bought property in 1990 (the last time the market took a time out) and held it to today. They would grin.

At that time the average home price was about $179,000, prices were dropping and the job market was faltering. Today, housing prices are up over last year by 4 percent, employment is up nearly 64,000 jobs compared to a year ago and the job market is still chugging along in the D.C. area. Home sales have leveled off and rentals are skyrocketing. I smell opportunity.

We have 20 percent more jobs headed this way in the next four years over the last four years -- that would be 256,000 jobs. While other areas may not be as robust, they are still growing. If the new employees don't buy houses, they'll rent and that's causing pressure on rents as they begin growing nationally at a double-digit rate for some areas.

M/PF YieldStar, a real estate market intelligence firm, estimates that 2006 and 2007 will be boom years for rental markets and multi-family housing starts. Occupancy rates surpassed an average 95 percent mark in the 4th quarter of 2005 for the 57 metropolitan areas the group tracks.

The real item to watch for buyers is the interest rates. As buyers keep waiting for prices to "bottom out," their buying power evaporates with the ever growing interest rates. Just a year ago, a household with an income of $100,000 could afford a $450,000 price range. Today, that same income is now dropped to about $394,000 simply because of the interest rate power. Current rates stand around 6.8 percent nationally and experts are talking about hitting the 7 percent mark before the end of the year.

In addition, as the jobs keep growing, the rentals will disappear and pent up demand will nearly burst forth in another few months. Buyers -- pull out your checkbooks and get on board now while the market has leveled. There's a reason they call it a "buyers" market.
Why aren't the builders fearful? With the job growth, you have to live somewhere, and workers will live in either one of their new units to purchase or one of the new units to rent.

Published: July 28, 2006

Thursday, August 17, 2006

Picking and Choosing the Next Real Estate Boom Area

Everyone's looking for the next real estate rush -- the place where people will be able to buy at $100,000 and sell for $200,000 in six months. So I get emails about whether one town is a better place to buy over another. Is it time to buy or sell waterfront property? Is land the next boom market for real estate?

The answer, simply, to all the above is "yes." Yes, if all the parameters that support a growing economy are in place and about to move forward. Yes, if the investment meets your goals on your budget at this time. Yes, if you have the proper financing in place to create a positive cash flow or find a property that is moving up in value at a clip higher than inflation.

Real estate, unlike stocks or bonds, is a good investment any time … you just have to know where to buy. Like the old adage goes: location, location, location. The location is key and depends on the economic picture of that location at the time. Wouldn't you have loved to have bought a house in the D.C. market, for instance, seven years ago? Any property would have done you proud. The whole market grew at 153 percent in that period of time. Thus, location and timing were key, all based on the advent of the latest economic boom, coupled with an affordable, but low supply of adequate housing.

So where can you find that formula now? Start looking at smaller markets where federal spending or private investing is moving upward. For the start-up investor, look around your state first. And then use the following points as a guide on whether it's a good time to buy:
Low housing prices. Where do the prices stand as compared to the potential for rental income?

If a rental unit can be purchased so that the monthly rent covers the mortgage and tax payments, then this makes for a good start on the investment road. While many would-be investors look at the asset growth of an investment, they should really be looking at the net rental income instead. If you can make 8 to 12 percent annual return on the value of a home in rental income, that is a good investment indeed.

To find housing prices, start with a web search such as, "springfield virginia housing prices," or whatever community you're researching.

Stable economy. What's happening on the state and local basis. Again, begin your search by finding the state/local economic development authority. You'll be looking for economic growth as compared to the U.S. economy and how it's headed as compared to the past few years. Look for economic forecasts, charts, employment/unemployment data, etc. Pour over these with a fine tooth comb to find out if the community where you want to invest is moving upward, headed down, etc.

New jobs/plants/federal spending planned. In the above searches for the current economic picture, look for what's happening as far as growth. Are new corporations moving in to the market? Are current companies expanding their facilities? Are there job cuts or job growth? If you see indications that growth is on the way, get your check book out and start looking for an investor mortgage. But make sure you check one more thing.

Rental vacancy rate. Okay, the housing prices are within your budget and the economy is stable; heck, it's even about to grow. Great. How's the rental inventory? Is there a lot of it? Is there too much of it? The vacancy rate let's you know how long your property will be on the market and how much rental income you'll be able to pull in each month. Will you have a positive or negative cash flow each month?

Once you have these points in your plan covered, you're now ready to start looking at property. Get together your real estate team (agent, lender, insurance agent, contractor, etc.) and hit the road to building wealth.

Published: July 21, 2006

Friday, July 28, 2006

Ensure Smooth Transaction by Protecting Your Credit Identity

He has struck again. As some of you know, an identity thief hit me about three years ago and opened several cell phone accounts in my name. Like many consumers who have been victimized by this ever-growing crime, I didn't know anything about it until I was denied credit with a cell phone company who asked why I needed another cell phone when I already had five open with them. Oh, by the way, you owe us $1,200.

It took a few days to clear up that episode and about a year later, the ID Thief struck again. I was ready that time with alerts set up on my credit reports, requiring any issuer of credit to call my home phone first before approving. That's what happened and we thwarted the attack.

Then last week hit.

Before I go into Part Three of this credit story, let me just reiterate the importance of protecting your credit, first of all, from your own misuse -- too much debt, missing payments, etc. -- but also from those in our society who would lift your identity and mangle your credit as easily as pick up a piece of candy at the corner drug store.

For a detailed step-by-step approach to understanding how ID theft happens and what you can do to protect yourself, let me refer you to the Federal Trade Commission's webpage on this crime.

Here, you'll find a complete guide on how ID Theft happens, and also what to do if you find yourself the victim of ID Theft, including worksheets, phone numbers of the credit bureaus, etc.
For most home purchasers, without good credit, you can't buy a parking spot, much less the home of your dreams. Don't wait until your mortgage application to see if you are who you think you are. The home purchase process is fast paced -- taking weeks, not months to complete. If you wait until you make application to ensure you have clean credit, you may find yourself with an identity mess that takes too long to remedy.

Is it a large problem? The National Criminal Justice Reference Service reported that in 2004, 3.6 million households, representing 3 percent of the households in the United States, discovered that at least one member of the household had been the victim of identity theft during the previous six months. Two-thirds of those households lost money due to the theft at an average loss of $1,290.

This problem's not going away. And as I found, it will probably follow me the rest of my life. In talking these issues over with a fraud representative from one of my credit card companies, he said, "Once you take care of it, they'll stop for a while, then just wait. About a year later, you'll start seeing credit issues again." And that's about how long it took.

What I have found is frightening. Our Social Security numbers area handed around between corporations like a cheap date's phone number. My particular bandit now has my number (where from I have no idea). He had one of my credit cards in his hands that my credit card company had provided him when he convinced them that he was me. Fortunately, the company has a system set up where they notify me by email whenever a change is requested by me. If it's not me -- please call. I did and they cancelled the card.

Here are some items I've been seeing continuing to happen across the credit arena that should change -- if not by corporate self-policing, then by legal edict. Until they do, we consumers are pretty much on our own to protect ourselves.

Medical insurance providers continue to use our SSNs on their member identification cards.
Twice this week, when the credit departments of both Sprint/Nextel and Cingular called me to verify I was requesting more phones, they asked me to "verify" my SSN with them to make sure I was who I said I was.

(Never give your social security number to anyone who has called you. I reprimanded the callers and talked with their managers. Will this change, who knows? Spring/Nextel, Cingular -- wake up, dudes, the credit coffee is spilling over.)

Payroll departments printing your SSN number on your pay stub.

Merchants who have still not converted over to the receipt system that blanks out your credit card number on the stub except for the last four digits.

Companies/agencies/organizations continuing to use the SSN as an identifier. (I gave blood recently and they wanted my SSN. Why? They didn't know, it was just on the form.)

As you invest in real estate, your credit becomes a pivotal part of the plan. Without it protected, you'll not only have credit headaches, you'll be limited in how you can grow your personal wealth. Take notice and take action.

Published: July 14, 2006

Grandpa's Liens Could Cause Bumps in Transaction, Inheritance

Liens on properties have existed probably since the sale of real estate began. A lien is simply "the lender's right to claim the borrower's property in the event the borrower defaults," according to "If there is more than one lien, the claim of the lender holding the first lien will be satisfied before the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc."

The word itself comes from the Old French, according to It means to tie, bond or constrain. Thus a lien on the property places a constraint on the title which needs to be removed before it can be sold free and clear.

Liens are a necessity of owning a piece of the real estate pie for most people. Your mortgage is a lien; however, there are more liens than just for mortgages. Non-real estate companies and entities can order liens on your property. Creditors, the IRS, subcontractors, even your homeowners association, can all order a lien on your property. provides a more in-depth look at this financial instrument: "[A lien] gives you standing as a creditor to be paid from proceeds if the property is sold or refinanced. Because property to which liens are attached often changes hands or is refinanced, usually a lien will eventually produce enough cash to pay off a judgment, with post-judgment costs and interest."

Liens can take a homeowner by surprise. If you ever have a dispute with a creditor and in the absence of pesky phone calls think they just got tired of chasing you down -- beware. You may have a judgment on your credit and a lien on your property. They're going to get their money, they'll just be patient about it.

Such is the case of a 93-year-old grandfather whose children wrote me regarding his reverse mortgage with a balance of $240,000. When his children researched about selling the house and paying off the mortgage and using the proceeds to pay for assisted living, they found three judgment liens on the property.

The question in an email to me was: "What happens if there is not enough money to pay off all the judgments? How do we get the title cleared for the new buyer of the house? I understand that the judgments are paid in order of date of filing but what do we do with the other judgments -- do they stay with my father or the property?"

Keep in mind, the lien debt has nothing to do with the mortgage amount. The creditors want their money and the lien is just a tool for them to force the landowner to pay up. The liens stay with the property, and liens don't have to be removed before transferring title from one owner to the next, but the purchaser needs to be aware that there may be other debt connected to the house besides the mortgage.

(This is especially true for investors purchasing a house in foreclosure -- title search done early is imperative.)

In the above case, the property can be transferred to the kids easy enough, but then they must still deal with the liens. If they sell the house, the proceeds of the sale will generally pay off the liens in order. Again, warns: "If the new owner wants to transfer the property to someone who will need financing or who wants clear title, however, the lien will have to be cleared up. In the real world, judgment liens tend to get paid off sooner or later."

Published: July 7, 2006

Sellers Face Contingent Dilemma

Contingencies in contracts will always exist. It is a rare thing to find a written contract which satisfies both parties right up front without a contingency.

In a sellers market, even if the buyer writes it with no contingencies, the seller will tack on a few of his own -- must find home of choice, comes to mind. Even so, when sellers add contingencies, it's usually only a couple that are easily remedied and which don't cost the buyer much money. When buyers add contingencies, on the other hand, it means the seller may face delayed expenses (such has home inspection defects) or have the chance that the house may not sell at all. Here's what I mean.

A Washington, D.C. area seller writes that he has "drastically lowered" his price, has a great agent and is "very realistic about the market," but that he's turned down two contingent contracts with unrealistic buyers. Having lowered the price to 30 percent below appraised value, the two contracts have both been contingent on the buyer selling his or her home first before completing the sale.

In further discussion, both buyers, according to this seller, are very unrealistic about the value of their own homes, and want to put them on the market way overpriced.
"They think my house is a great deal because I have lowered my price," Tired Seller writes. "Then they write a contract based on the equity they 'assume' they have in their home. They want to list it way overpriced ... . My plan is to just keep lowering the price until it sells. Any advice?"

First of all, if you've already drawn two contracts, then you may have hit the low-enough point. Now, work on the marketing and seller subsidies up front. In addition, before rejecting an offer outright, I would write a counter that the buyer can only list the property for a certain amount. Don't say, "market value price," go ahead and have your agent draw up a comparative market analysis on the buyer's house and base the price on that CMA.

In addition, ask the buyer to follow the same modus operandi you have -- be willing to drop the price every other week until it draws a contract. Write all this verbiage in the "Other Terms" section of the contract. Remember, in real estate everything is negotiable.

When a contract comes through, in a buyers market a seller needs to remember to keep his or her cool. You don't need to roll over a play dead, accepting any terms the buyer offers. Remember, you have a contract in your hand. While the buyers may have dozens of other homes to choose from, they have chosen yours because it obviously fits their housing needs. They also obviously like your price, so now concentrate on the terms. In today's market, if your house is priced right, then you only have to focus on terms to get a winning contract on the board.

The challenge of accepting a contingent contract in many MLS's around the country, is that the status changes from Active to Under Contract/Contingencies. The problem with that is with so many homes on the market, 99 percent of buyer agents search only Active listings for their buyers -- they rarely seek out UC/Contingencies status. Why bother? They are obviously in negotiation with a buyer already.

So switching the status may mean your home lingers toward closing while waiting for the buyers' home to sell. On the other hand, the buyer becomes much more motivated to sell and may be willing to drop the price right away to elicit a quick sale.

The No. 1 contingency in contracts today is the home inspection. Instead of fearing this contingency, the astute seller will conduct his or her own home inspection and fix the problems before the buyer finds something later. Be tough on your own house. If it has an old air conditioner -- have it worked on and serviced. Make sure all the plugs work properly.

If you are a do-it-yourselfer, make sure you have the permits or at least professional inspections necessary to show you did the work right. I've seen sellers redo the plumbing and/or electrical work of the previous owner who was a DIY because they just didn't know it was done wrong.

In other words, the seller who anticipates the challenges from a buyer will be ahead of the game. Don't wait till you "find out" that you have termites -- look it up and uncover the defect before it's a surprise. Be willing to accept contingencies, but also be willing to negotiate to make it work for you as well.

Published: June 30, 2006

Wake Up Buyers -- Deals Abound

It's not a buyers market officially in a lot of areas, but it's now starting to favor buyers after years of transactions where buyers had to escalate prices by the tens of thousands and nix home inspections, appraisals and the like. Thus, my advice to buyers -- get out there and catch a deal while you can.

All the indicators keep pointing to a healthy, vibrant real estate market in most cities around the country. Slowing down, doesn't mean dead, it just means, well, slowing down.
In the last five years, several markets have created an astounding amount of job growth, which is the first indicator and supporter of a robust real estate market. Washington and its Virginia/Maryland suburbs lead the way in the six markets that created more than 100,000 jobs in five years:

Washington DC: 369,000
Miami: 253,000
Phoenix: 221,000
New York: 157,000
Los Angeles: 155,000
Houston: 118,000

Economic forecasters predict that in the next four years, the Washington, D.C. area will create 40 percent more jobs over that period than were created in the last four years. With that kind of growth, why the slow down in the market? It's for a multiple reasons:
Rentals are cheaper than owning. In the markets above, appreciation upwards to 50 percent priced or shocked some buyers out of the market. Thus they turned to renting instead, hoping to wait for the market to slow down or slip back.

"The rental market is very good right now," says Leonard Wood, an apartment and condo builder from Atlanta and chairman of the National Association of Home Builder's Multifamily Leadership Board. In an e-newsletter from NAHB, Mr. Wood said, "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."

Rising mortgage interest rates. Part of the economic cool is orchestrated by the Federal Reserve's moves upward on interest rates. A growing economy can turn into an inflationary economy -- which damages buying power for homeowners and consumers of all products alike. Thus interest rates are raised to slow down the economy. As interest rates move up, buyers are edged out of the market.

Consumer confidence. A recent Associated Press report pointed out that consumers are up and down on the economy. "Consumer confidence, which reached a four-year high in April, lost ground in May," AP quoted Lynn Franco, director of the New York-based Conference Board Consumer Research Center. "Apprehension about the short-term outlook for the economy, the labor market and consumers' earning potential has driven the Expectations Index down to levels not seen since the aftermath of the hurricanes last summer."

The challenge for home sellers and buyers is that economic forecasts many times are driven by the "feelings" of people and investors, rather than reality.

Here are the facts: Jobs "grew" last month. The Expectations Index was the second highest ever. Interest rates are still historically the lowest they've ever been. We are nearly at full employment. Fear, many times, drives a market, rather than reality. As a homebuyer looking for a house to live in or as an investment -- look to the facts.

When a market levels or cools -- this is when the smart consumer can really get his or her money's worth. How would you like to buy a house at a 5 or 10 percent discount? It's happening now in markets around the country. Sellers are still mopping up from years of equity growth, but they have to move now and are willing to negotiate downward on their asking prices.

(Sorry sellers, you're not going to like this next paragraph.) Buyers -- name your price. If the asking price is $500,000 -- start at $20,000 or $30,000 below. Start somewhere and get the ball rolling. Then start your list of add ons: home inspection, home warranty, closing costs (some loan programs allow up to 6 percent), and more. Don't be bashful.

My word to the sellers -- don't be offended. If your house has been sitting on the market for 60, 90 or 120 days -- consider that any offer is a good offer. Let the negotiations begin.

Published: June 23, 2006

"Losing" on Real Estate Price a Matter of Perspective

When it comes to pricing your house when you’re ready to sell it, keep in mind you must sell in the market you’re in today. It doesn’t matter what your former neighbor got six months ago, or what properties are listed for now. All that matters is this -- whatever the last sale price in your neighborhood of your model -- that’s probably your sale price now.

When you’re looking at what you’ll gain on the sale of your house, let’s keep it in perspective. If house prices increased year after year at 4 percent per year and then suddenly people were selling their houses for 1 percent less than last year’s asking price, would that be reasonable? If so, then when property is moving up at 20 percent per year for several years and then suddenly you have to sell it for 5 percent less than the prices last year, would that be reasonable? The challenge is when we move from percentages to dollar amounts. If 5 percent represented $5,000, most people wouldn’t blink. It’s when 5 percent represents $25,000 that sellers start to freak.

In the DC area, we were experiencing astounding rates of appreciation as a region, 20 percent from 2004 to 2005 prices. Many homeowners have experienced a doubling in property values over the last five years. The average home price is now about $540,000, according to the local multiple listing system. Now, price appreciation has subsided and is sitting at a mere 5 to 8 percent region wide (depending on where you’re standing). Sounds pretty healthy, still, right? You would think.

However, there are stories from the field on how sellers are defending their prices as if their lives depended on it. While sellers are sitting on hundreds of thousands of dollars of equity, they can’t stand the idea of dropping their price by $25,000 or $50,000 to sell it today. The house that was $260,000 in 1999, is now selling for $569,000 today. But some sellers now want that same type appreciation and can’t imagine selling it for less than $589,000. Bringing it down the $20,000 or $40,000 to sell the property seems, well, just not fair.

What’s even scarier are the agents who are defending their prices in a correcting market. I have to keep in mind that nearly half the agents in the country (as well as here in the Capital region) were not in business five years ago. They’ve just now entered a market where prices have to be corrected, dropped -- improved, as it were.

However, as I talk with agents around the region about their listings, they’ll be the first to let you know, "It won’t sell for what the seller’s asking," but they’re too afraid to tell the seller the sobering news.

The market is like playing Russian roulette. Sometimes you don’t know what you have until you pull the trigger. Somebody needs to blink. Sellers seem to be saying to buyers, "I’ll drop my price, just make an offer." While buyers are blankly replying, "I’ll make an offer, just lower your price."

It’s this stalemate that has played a part in creating an abundant supply of houses on the market in the DC area. We’re talking upwards to 200 percent more homes on the market in any given year-to-year comparison. And, folks, after a dearth of homes in this area, it’s a good thing. Is it affecting prices? Sure thing. Will prices come down? Absolutely. Are sellers going to lose money? Well – in some cases.

For sellers staying in the same area, keep in mind, if you have to drop your price by 5 percent, then the seller of the house you’re buying (usually a lot more expensive) is probably doing to drop the sales price by about the same percentage point. It means that while you may "lose" money on the sale of your home, you’ll more than likely "gain" it on the purchase up.
Keep in mind, the market is the market. When it’s time to buy, buy. When it’s time to move, then sell. Work with the market you’re in, not in the market you wish it would be.

Published: June 16, 2006

Pricing Right Sellers' Job No. 1

It seems during a slowing market, the last person to get the message that the house needs a lower price is the seller. After all, the seller has the most to lose by "improving" the price and it's a tough decision to let go of a dream of cashing out.

A sellers market builds over time. If new jobs enter a particular area and housing doesn't keep pace, home shortages create a sellers market where prices increase and bidding wars begin. Then, one of two events happen to make a market cool down: the economy stops growing or prices become too expensive (combined with an ample supply of rentals). A normalized/buyers market is born and sellers need to get on board or hit the showers.

In the Washington, D.C. area, jobs are continuing to enter the market at a projected rate of 65,000 in 2006 (which is on top of more than 70,000 new jobs in 2005). According to the Center of Regional Analysis at George Mason University, the area has a deficit of housing by about 160,000 units. With plenty of rentals available this past year and skittish buyers, the area has just come off one of its hottest markets ever. It's cooled, slowed, normalized.

When people ask if it's crashing, I just point out that if you were driving at 120 mph and slowed to 75 mph, how would it feel? The lower speed limit may seem a lot slower, but it's still faster than the speed limit. We're running at that fast, but slower pace, now.

Nevertheless, as inventories grow and days on market increase, those in the business know what will sell a house more than anything else -- a price correction. Call it "reduced," "price cut," "realignment," "price improvement," "repositioning," or whatever you want -- the price needs to come down to where the buyers are biting.

I've collected quite a few excuses that sellers and some agents hold onto, instead of biting the bullet and bringing down the price.

"My house is worth it." Well, according to who? Usually, this statement is followed by a shopping list of items that have been added to the house: hardwood floors, 9-foot ceilings, new appliances, upgraded bath/kitchen, you name it. Yeah, your house is unique, just like everybody else's. The reality is while your house may have all those neat amenities, so do the other dozens, scores or hundreds of homes in your market area that are also on the market.

"It's a great looking house." It better look great if it's going to beat out the competition. Location, price and condition will always be a factor in any market. It may look great, but looks have nothing to do with real value. When you start thinking that your house pales all the competition it means one thing you probably haven't seen other houses like yours on the market.

"I have to get this much or I can't sell." Oh, I really like this one. What a seller needs doesn't matter to the buyer. The buyer is looking for as much value in a community of high-priced houses. In the DC area, the average price lingers around $550,000. For that price, many buyers want the house to look good, have plenty of amenities and be connected with a realistic seller who is motivated.

"If I can't get my price, then I'll take it off the market." My question to that statement is: "Then why are you on the market to begin with?" Look at what it's going to take to sell your home and realize your true goal -- getting that next property. Looking at only what your house will draw is too short sighted. The real question is, "What kind of deal can I get on the next house?"

The reality of most sellers, when they are dropping the asking price, is that they are still walking away with a boatload of money, just not as much as they wanted. They really haven't "lost" anything. They've doubled their gain. When pricing your house, look at these hard-core realities: what were the last few "solds" in my type of home; what is my true goal -- to get a certain amount of gain, or to get to the next house; and, finally, am I really in the game or am I playing around? Get serious. Price right. Get the next home of your dreams.

Published: June 9, 2006

7-Ways to Make Money On Investment Properties

The market has cooled in various cities across the country and fair weather investors are starting to worry about how they'll be able to make money now that their houses aren't escalating at astronomical rates.

I just have to say to these folks -- breathe. If all you want to do in real estate is make money on the basis of appreciation (asset growth), then you need a primer on how to make really good money in real estate.

The authors of Investing In Real Estate, Andrew McLean and Gary Eldred (2006, John Wiley & Sons Inc.), have provided that primer, listing eight ways to grow your wealth in investment real estate.

The key to building true wealth in real estate is through buying and holding. A good tenant can create wealth for you by paying for the mortgage, insurance, taxes and monthly fees through their rental payment to you. In addition, consider this: you have just taken over an asset leveraged by a fraction of the value. In other words, let's say you purchased a condo at $150,000 for $15,000 down payment. If it grows at 5 percent per year ($7,500 first year, etc.) you're making more than 50 percent on your money that you actually invested -- can't get that kind of power behind mutual funds.

Real estate investing allows investors several ways to make and/or save money that other investment tools will never allow or have the ability to provide. As Mr. McLean and Mr. Eldred point out, no one can predict short-term price increases -- but that's why the savvy investor doesn't look to just appreciation to make money. Here's how you can build wealth through your real estate investing:

Positive cash flow. This is simply what it sounds like -- the rent covers the mortgage, taxes, insurance, fees, etc., and once all that's paid, you have money left over at the end of the month. A wise investor will also have enough money in reserves to cover all these expenses for a few months in case the property goes vacant.

Equity growth via amortization. As the mortgage shrinks from the mortgage payments, your equity grows (and so does your net worth). This is one of the most powerful means of wealth growth -- using OPM (other people's money) to build your net worth. The tenant is providing the investor with hundreds or thousands of dollars per month to pay off debt, which turns into equity for the landlord.

Capital improvement. This is the fixer-upper that most people think about when investing in real estate. Purchase a property for $50,000, put in another $25,000, and voila, the house is now worth $125,000 ($50,000 more than the initial investment).
Wholesale purchases. The most effective way to build net worth and equity is to buy a house for a bargain price. These properties would be the pre-foreclosure, foreclosure, tax sales, etc., where the investor buys the property well below market price. In essence, you make your money when you buy the house at such a low rate.

Lowering tax bills. One of the greatest benefits about real estate investing is all the tax breaks allowed for these type investments. Uncle Sam allows many tax deductions, tax credits and other government-sponsored programs connected with real estate investing that cut the investor's tax bill, thus, increasing the bottom line and equity growth.

Smart asset management. Many novice or ignorant real estate investors lose money simply by not managing the asset wisely. For instance, painting properties before the wood is actually peeking through will keep the asset in good shape, seal the wood, and protect it from more expensive damage. Managing the asset is just as important as buying smart and cash flow. The real estate investment is a commodity, not a money machine, and must be managed and protected to maintain future wealth growing potential.

Asset value growth. As your property increases in value, so does your wealth. This is the old fashioned principle of buy and wait. Buy at today's prices and with time, your asset will grow in value because of local appreciation. In addition, your equity will grow along with the amortization principle mentioned above.

Rent appreciation. As the cost of living increases, so, too, should your rent cash flow. Increasing your rental income per month by 5 percent could result in hundreds of dollars of cash flow per year -- year after year.

Published: June 2, 2006

Practical Things to Remember When Home Shopping

Most folks are always looking for the ever-elusive "dream home." Not too long after settling into a new dwelling, many residents begin to pick apart the house they just rented or bought.
Someone who really likes the idea of a laundry chute (great, no more walking the dirty clothes to the laundry room), rethinks that idea when they now have to climb up two flights of steps to put away the clothes.

Here are some practical things to think about when you're looking through your pool of homes that you're hoping to buy.

Measure your furniture I mentioned this recently about a couch that wouldn't fit into my basement once I finished the space. You might say the excitement about the two sleeper sofas dimmed to the degree that I was realizing I couldn't use them the way I had planned. Fortunate for me, I had hired the perfect decorator who pointed me back to the furniture manufacturer who directed me to a couple of fellas that dismantle, move and reassemble furniture. Thus -- when shopping for a home, don't forget the measurements of your large furniture: couches, big screen TVs, mattresses, pianos, etc. More than likely, they will convey with the house.

Why is that conveying? Okay, so it sounds great that the pool table (or 2 sleeper sofas) conveys. Be sure to ask yourself -- Why? Why would the owner part with this piece of furniture, extra refrigerator, etc.? Play a quick game of pool, see if the refrigerator really freezes and cools, and why would they let go of these two perfectly good sleepers? Sometimes, it may be they just won't have room in the next house for them or no longer need them. Meanwhile, they may be handing over a white elephant to the next owners.

Sounds great. What if it breaks? So the hot tub stays? Great. What if it breaks down? Again, is this really a benefit to the house or is it something that has cost the owners hundreds or thousands of dollars a year to maintain? Find out if a large piece of equipment, appliance, etc., has had any repair problems.

What about conveniences? Sure, the house is located deep into the community on a cul-de-sac, but what does that mean when you need a bag of sugar or flower? Is the shopping just a few minutes down the road or does it mean a 15-minute jaunt down Hwy. 1? If it's a newer development, how long before they will be constructing the business section of the development?

What kind of wiring? This analysis has become more important as homeowners look more toward broadband, high-speed Internet access for work and pleasure. When walking through an older home, be sure to really understand what all the coaxial connections really attach to: antenna, cable, digital cable, satellite. In addition, if you're accustom to other type connections, such as DSL or Fiber Optics, at least find out if these services are available if the house doesn't have them connected already.

Planes, trains and automobiles. If you're looking for a quiet neighborhood, don't forget to come by and check out the community during rush hour. It may be convenient to the main thoroughfares, but are those roadways so close that you can hear the traffic (or see it) before tuning to Traffic on the Nines? How about the sounds from above? I've talked with many owners who, aware that the community was near the airport, had no idea they would have to straighten up their pictures on the walls after each airplane flew over.

HOA Documents. Don't just thumb through the homeowners association documents. Be sure to really understand your limits under these binding documents. In a community near Washington, D.C., for instance, no residents can park a pickup truck on their property. Imagine the surprise to a new homeowner who just didn't happen to read about that limitation in the docs. When I've bought properties, this is one of the sections of the HOA docs I turn to immediately.

More detail is better than the big picture when it comes to selecting your next property. Research, drive by and really get to know your target property before making a final decision. Happy home shopping.

Published: May 26, 2006

Renewable Energy Homes Still A Dream of the Future

As I was growing up, everything was supposed to happen by the year 2000. All cars would be running on electricity or alternative fuels. All clean air was supposed to be depleted, and we would all have portable phones (well, we got that one right). Another item I thought would be in use a lot more by the 21st Century was the integration of renewable energy into our daily living at home.

At one time I wanted to build myself an earth home (meaning 1 or two sides of the house would be underground); heated by solar power; and operated by photovoltaic panels, which would convert solar energy into electricity stored in a bank of batteries. Ah, yes, the dream of green living.

Unfortunately, builders have not seen the public support swelling for such alternative, renewable energy sources, thus houses are continuing to built with energy technologies that haven't changed at there core over the last several decades: central air conditioners, forced air furnaces, heat pumps, fossil fuels and natural gas. At least the politicians are getting it. A recent Pew Research study showed that support for more funding of renewable energy from both political parties is growing in the face of the latest oil crisis. In addition, research continues to bring these technologies into an affordable price range so that they can be used on a more massive level.

The National Renewable Energy Laboratory, operated by the Department of Energy, is the nation's primary laboratory for renewable energy and energy efficiency research and development.

The group operates on a $220 million budget, dedicated to the development of renewable energy. An example of the group's mission was depicted in a Habitat for Humanity house build last year in Wheat Ridge, Col. The home, on Carr Street in that town, is a net zero energy house, meaning it creates as much energy as it consumes -- now that's what I'm talking about.

Built under the Department of Energy's Building America Program, "The house features superinsulated walls, floors, and ceilings; efficient appliances; a solar water heating system; heat-recovery ventilation system to assure indoor air quality; compact fluorescent lighting; and windows coated with thin layers of metallic oxide to help keep heat in during the winter and out during the summer. The home's 4-kilowatt photovoltaic system is sized to produce excess energy in the summer to balance out winter consumption," according to the NREL website.

Just in case you were wondering if this type home is only for the eccentric energy consumer, Pulte Homes, one of the largest home builders in the country, is working with Building America Program to develop home construction that consumes 50 percent less energy than the average home consumes today.

An online flier at about the Pulte homes (built in several Las Vegas, Nev., suburbs) describes the materials packages used to build the houses:

Windows: Spectrally selective glass, which lets visible light through, but keeps the solar heat gain out. This lowers the cooling load during the summer and reduces the fading of furniture caused by sunlight.

Roofing System: Unvented roofing system, which changes the home's thermal barrier from the ceiling to the roof deck. Ductwork for air conditioning and heating is located "inside," surrounded by attic air at close to 80-degrees Fahrenheit rather than as much as 140-degrees Fahrenheit, as in a typical attic.

Heating System: Smaller heating system, since the house can be so energy efficient in the heating mode that the gas water heater located in the garage provides hot water and also space heating in many houses. In other houses, the furnace is downsized and uses an efficient sealed-combustion design.

Cooling System: Smaller air-conditioning unit, since improved air-tightness and energy efficiency measures allow the air conditioner to be downsized by 30 percent.
As the auto industry has begun to respond to our energy crisis with the introduction of hybrid and alternative fuel cars, we can only hope the building industry will begin to do the same on a mass-production basis. The above products and others like them is a good start.

Published: May 19, 2006

Lessons Learned From Remodeling Project

It wasn't too long ago … okay, it was actually several months ago, that I let you into the world of my remodeling project and provided you with some tidbits of what to be aware of during this August type project. Now that I've entered my seventh month of the project I've learned even more, all for your benefit.

First, I'll share some items that I did right. Then other items that I would do differently.

What We Did Right

Get professional help. I don't know about you, but we have a lot of life going on in the Carr household. Even for a handyman who feels confident in demolition, reconstruction and finish work, (and that doesn't necessarily mean that I'm talking about me) the biggest problem is finding the time. Remodeling a kitchen, finishing a basement or constructing an addition is not for the faint at heart or the time challenged.

The professionals would include landscapers, construction artists and interior decorators -- anyone that has to actually bring your concepts to fruition.
Pick the right contractors. We hired three such professionals: Tom for landscaping and painting; Jim for the finishing of the basement and all the residual projects connected with that project; and finally, Susan was our "creative" consultant on the colors, materials, furniture and art choices.

From day one, we decided on the right contractor for the right job. Tom and his team really knew how to set up beds, design the layout and pick out the healthiest plants. All but one plant has survived the winter and they're all now in full bloom. I have a holly plant that is starting to shed leaves and dry out, but the guarantee on the plants is 12 months, so I'll be able to get it replaced.

Tom also headed up the painting of our interior and some outside repair work. His bid on this job wasn't the cheapest, but his method of painting – one coat of primer on all walls, two coats of paint to follow – guaranteed a professional, seamless look throughout. It was worth the added expense.

My second contractor is a professional's professional, providing only the best quality in work and craftsmanship. Jim, a former educator, now manages teams of contractors on jobs throughout my market area. He has headed up plumbers, electricians, carpenters and painters, to name a few.

Finally, Sue's color selections and advice on furnishings brought confidence for both my wife and I in finding direction and focus on what the final product would look like.
Get bids in writing. Both my contractors provided detailed bids with designs for all the work they would be completing. It gave both of us a stake in the ground as far as work requested and work completed -- and deviations from both.

Doing Things Differently

Looking back, of course, there are things we would have done differently. But there were also parts of the project that we learned had to be done differently. As we moved forward with the demolition, construction, and finally material selections, we found out just how realistic our plans and dreams really were. And with those realizations came delays and budget changes.

Concentrate on the plans earlier. If we had spent more time looking over other people's remodeling jobs, pricing materials and touching base on what we really liked and what we really didn't, things would have gone quicker and the budget more inline. Most of our budget increases were based on our selection in materials, such as upgraded doors, lighting, flooring, etc. The question in remodeling, we learned was not so much on how much can we get with our budget (bulk purchasing), to more of what would we be happy with over the next several years (quality purchasing)?

Take more measurements early and often. Okay, this is where the "I think that will fit," vs. "I know it will fit," can get expensive and frustrating. The 80-inch sofa that you believe should fit in the 83-inch tall doorway may not fit if you can't compromise the 30-inch width of the door with the 32-inch breadth of the sofa. Measurements are most important when it comes to ordering furniture and placing them in the rooms.

Use storage better. While I now have about a quarter of my earthly belongings in storage, what I have in storage has been the biggest challenge. All my files should have stayed at the house, while all extraneous furniture should have gone away. Another way to have made this work better would have been to have a yard sale early on. As it is now, we just want to get the job done and get our stuff back to the house.

Published: May 12, 2006

Low Monthly Payment Key to Investing

Many people have emailed me lately with their woes of buying pre-construction dwellings a few months ago in hopes of grabbing a quick buck by flipping the dwelling once they go to settlement. In the heated market last year and previously, many a novice investor made a lot of money in this way. However, the warning given at that time that a buyers market could cause them much pain and financial suffering went unheeded by many and now they're paying for it.

In today's less fevered market (but still healthy in parts), many new homes are being placed on the market and the would-be investors/sellers are now homeowners without two things: the cash to go to settlement or a renter to make their monthly payment for them. They gambled that they would never have to go to settlement, instead, walking away with a lot of cash in return for being in line with deposit money a few months ago.

This is why when people ask me about a good place to invest, I do not point to the markets that have been moving upward for long periods of time and where they cannot cover their monthly payment with the fare market rent. If you want to build cash flow and seeking more money coming in each month than going out, then look for the long-haul principle of buy and wait.

Investors look for two ways to grow wealth: asset growth and cash flow. Hopefully, you can get both in the same property, but sometimes you have to settle for one or the other.

Eventually, a market will appreciate so much that the going rents won't pay for the monthly payment for the come lately investor. Thus, the investment creates a cash shortage each month -- which isn't necessarily bad. For instance, if your rent is $1,000 per month, but the mortgage is $1,200 -- the $200 monthly shortfall may be affordable and provide a good return on investment in the long haul, just like a good stock, if the asset is growing at a healthy rate.

For instance, if the property is appreciating at 10 percent and surpassing the $2,400 per year in payments you're having to make beyond the rental income through the year, then the asset growth builds your wealth and the renter makes the majority of the investment per month for you.

If you're looking to invest in short-term real estate, i.e., fixer upper to flip, then mortgage programs designed to create a low monthly payment may be the tool to use. These would be various adjustable rate mortgages (i.e., cost of funds index or Option ARMS) and interest-only mortgages.

Some of these type programs enable the investor/buyer to qualify for more property, control cash flow, and wait for property values to rise before selling/exchanging for a larger, more profitable investment over the next few years.

For instance, the 2/1 buy-down is making its way back into the market place. This is a mortgage that begins its interest rate 2 points lower than the fixed rate (4.5 percent in today's market), then moves up another percentage point the next year and then finally a fixed rate on the third to 30th years. This type loan was what I used on my very first mortgage. I was so excited to get a starting rate of 10 percent. By the time it increased to the 12 percent mark, fixed rate mortgages were headed downward and I refinanced to 7.5 percent (again, very excited at the time to have such a low rate).

Another adjustable rate mortgage popular with investors is the Option ARM., defines an Option ARM as a loan program with an adjustable rate mortgage "with added flexibility of making one of several possible payments on your mortgage every month, in order to better manage your monthly cash flow."

Again, this type loan provides very low monthly payments -- lower than those mortgages with fixed rate mortgages. The primary concern for any ARM and especially the Option, is the changing payment year over year. In particular for the Option ARM, you could find that while you're in the false security of having a positive cash-flow each month, your mortgage is increasing in value because you're paying the lowest allowed payment, which doesn't even pay enough interest to keep up with the mortgage. Thus, you would be in a negative amortization situation -- owing more than what you originally borrowed.

Before trying these mortgages -- get advice -- plenty of advice -- from a qualified, experienced mortgage professional who can explain all the benefits and liabilities (that means, dangers) of these programs.

Published: May 5, 2006

The Bath: Enjoy It Before You Sell It

Friends of mine decided to sell their townhouse a while back and immediately knew what they had to do to demand top dollar, if not, multiple contracts: get the house in shape. A couple of weeks, two contractors and $10,000-plus later, they had new carpet; new kitchen appliances with white flooring; new paint throughout (including the demolition of a mirrored wall); power-washed/stained deck; and a few plumbing issues taken care of.

Once all the work was done, they sat back in their newly revamped dwelling and sighed: "Why didn't we do this sooner?" The investment was quite small when you consider the benefit, but many homeowners wait till it's time to sell the house before they replace all the items of their home that have been bugging them for years.

Giving your home a facelift could be more affordable than you think. This was especially brought to mind during a visit to one of my favorite restaurants. Visiting the restroom, I was appalled at the condition: old plywood; an old mirror losing its reflective backing; mildewed caulking; and a stench very unbecoming this particular establishment.

A bathroom is probably one of the easiest and most affordable rooms to give a face lift and provide a "wow" factor for buyers coming into your home. I'm not even talking about a complete remodeling, just a face lift that can change the room's look and shift your personal feelings about the room.

Think about it -- when you walk into a 20- to 30-year-old home, would you be more excited about one with the original vanity, sink, faucet, shower door, mirrors and lighting? Or would you have a wow factor when seeing fresh paint, upgraded hardware, a modern vanity, and a dual showerhead found in most fine hotels? In addition, how would you like to create that wow factor for less than $1,000? It can be done.

Looking over a few large home improvement web sites will give you a grasp of how attainable this face lift can be. What you want to spend on the bath is up to you. You can upgrade your showerhead for as little as $6 for a low-grade plastic energy saver model or as high as $3,750 for a multiple head shower tower. We'll keep our budget a little in the middle for a run of the mill bathroom, that says is about 100 square feet.

Sinks: ($150 - $400) This can be as bland or fancy as you want.
Vanity: ($150 - $900) For every bland sink, there's a vanity to match.
Faucet Hardware: ($30 - $100+) There are hundreds of models from which to choose -- from chrome to polished brass.
Lights: ($50 - $100+) Again lots of choices.
Towel racks, etc.: ($50 - $100+)
Paint/Caulking: ($50 - $100+)
Flooring: ($45 - $100+)

Obviously, you can push the budget up a lot higher than what's quoted above, however, I'm talking about a budget-conscious face lift, complete with a wow-factor, not gutting the bathroom for a complete remodel.

Your facelift can be as low as a few hundred dollars or a couple thousand bucks. But here are a few fix-its that are really (really) cheap, require a very minimal investment and just some good old-fashioned elbow grease:

Deep cleaning: maybe all this room needs is just a good cleaning. Think sanitizing. Really get down to the nitty-gritty and cut the grease in all the crevices.

Kill the mildew with a commercial spray. White caulk gleaming from underneath mildew can make all the difference.

Remove old caulk and recaulk the complete bath.

Regrout floor and shower tiles.

Before you invest a lot of money to make the next owner happy with your home -- work on a redo so that you enjoy it yourself.

Published: April 28, 2006

Don't Forget: Security Deposit is the Renter's Money

Every state has its own laws regulating the care of security deposits from renters. The first rule from every state is to the landlord, reminding him or her that the security deposit is NOT their money. The security deposit comes from the tenant and belongs to the tenant until the term of the lease expires.

State laws govern the handling and care of the security deposit from how much it can be, where it has to be deposited, how much annualized interest it must earn, what can be taken out of it at the end of the lease, and the time when it's supposed to be returned to the tenant. has a state-by-state listing of how much landlords are allowed to charge for deposits. The highest is "no statutory limit," which means the landlord can charge as much as possible -- nearly half the states have no limit on deposits. The state of California has the highest regulated security deposit allowance – up to three-and-a-half months rent. Those with limits stand between 1 and 2 month's rent. Thus if your rent is $1,500, the most a landlord could charge in Virginia and Maryland, for instance would be $3,000, where landlords are allowed to charge up to 2 month's rent for deposit.

The market also plays a role for landlord's fees. While the law applies no limits in 24 of the states, most people are going to walk away from a rental where the landlord wants too much money up front. The market limit may be one or two month's rent -- charge more and your unit may never get rented out.

There may be some comfort to tenants to know that the security deposit is not just a free loan to landlords. Real estate law and state regulations limit what the landlord can do with the money. First of all -- they must not co-mingle the funds in personal accounts. Your landlord should have a separate account established for deposit moneys. The check goes into that account and is held until the end of the lease.

Unfortunately, if you check violations with the state real estate commission, the co-mingling of funds requirement is also the one most violated, most times out of ignorance of this statute by private real estate investors. If you're concerned about your deposit money, require your landlord to provide a copy of the deposit slip, showing that it's been deposited.

Depending on your state of residence, it may be required to be placed in an interest-bearing account -- or not. Tenants in the Washington, D.C. area, enjoy this little bit of "investment" and are supposed to receive interest at the end of the rent period, as well as their deposit amount. And that brings up the final point about security deposits -- how much are you going to get back at the end of the lease.

The whole reason of the security deposit is to protect the landlord from damage to his or her investment outside of usual wear and tear. If your cat has marked his territory throughout the house and ruined the carpet -- you may have just lost your deposit. If the carpet has just aged over time, then you should not lose your deposit so the landlord can recarpet in between tenants.

Legal advice web site has a good list of deductions. Here are just a few of them:
Ordinary wear and tear (Landlord's responsibility):
Curtains faded by the sun
Water-stained linoleum by shower
Minor marks on or nicks in wall
Dents in the wall from door handle bumping it
Moderate dirt or spotting on carpet
Damage by tenant: (Tenant's responsibility):
Cigarette burns in curtains or carpets
Broken tiles in bathroom
Large marks on or holes in wall
Doors off its hinges
Rips in carpet or urine stains from pets

To protect your security deposit, here are some tips on how to make sure you get as much or all of it back at the end of the lease.

Be aware of your lease requirements. I get emails all the time from tenants who just simply signed a lease and never read over it, thereby never knowing that some of the things they did to the apartment or house was going to be repaired from funds out of the security deposit.
Conduct a move-in inspection. Most jurisdictions have a move-in inspection form whereby the landlord and tenant can walk through and note defects in the property at the time of move-in. Any holes in the wall, stains on the carpet, discoloration of fabrics, and working order of appliances can be noted and discussed as to responsibility of the tenant or the landlord to have it fixed.

Take care of the property. While you may be renting the house and the landlord is responsible for providing a functioning dwelling for you, this doesn't mean that the landlord is an ATM machine to take care of the tenant's blatant mistakes. If the garbage deposal breaks because you've allowed your silverware to continually dump down into it, the landlord may have a word with you about who's going to pay for it.

Return the property to move-in condition when you move out. Keep your move-in inspection form in a secure place so you can substantiate that you have left the property in as good or better condition than when you moved in. The primary argument between landlords and tenants over deposit money is because of the property condition at the end of the lease and who should be responsible for fixing, cleaning, or repairing it. With the advent of digital photography (with date stamps) this task has gotten even easier.

When it comes to the security deposit, all parties need to understand the rules and requirements for both sides.

Published: April 21, 2006

Vacation Properties Come With Extra Expenses

There's nothing like a short jaunt to the beach (or mountains) to release your stress, get your first seasonal sunburn and start thinking about buying a piece of vacation rental property.
Come on, we've all done it. Just when the sand is about completely shaken out of all the towels and swimsuits, you start drooling over the prospects of owning your own home on or near the water.

How difficult could it be? If it's a rather affordable area, then it's going to take care of itself as far as monthly payments are concerned, right? Twelve prime rental weeks from Memorial Day to Labor Day is just the right amount of time and income to cover the 12 months of the year, right? Keep in mind that a vacation rental property has some unique expenses that you'll not face in your primary residence.

Your cost of housing isn't just the purchase of the land and lot, but also everything that's in it. If you want repeat renters, then it's got to be nice -- every time. At least check out auctions/sales from used hotel furniture before heading to the new furnishings store. Some investment sales include all the furnishings so you don't have to go shopping. But remember that you're renting out a property as a place for people to relax and think about nothing -- especially about the frayed couch coverings, bad springs in the master bedroom and leaky faucet in the bath or kitchen. Your house has to compete with the likes of at least a nicely furnished and operated local hotel.

Cleaning services
In between each rental, you're going to have to have the dwelling cleaned out. Through the summer, unless you've had 12 groups of very conscientious vacationers, you're going to have to have the place shoveled out at least a dozen times. The cleaning is more than just what you would do to prepare for dinner guests. These guests are paying you $150 to $300 per day for a week of vacationing – it better be as clean as a brand new home. This means a gleaming kitchen and bath, fuzz-free carpeting, crystal clear windows and a fresh smell throughout.
Wear and tear repair After these folks have paid you to live on a weekly basis in your home, then you've got to come in and repair what they have broken. What you're used to seeing at your home now, may not cut it in your vacation property. They expect to see near-new carpeting or flooring, meaning that if it's getting worn, it's time to replace it. Peeling paint? Repaint it. Mildew in the bath? Re-caulk it. Sun-burned or algae-covered decking? Blast and stain it. These are not necessarily inexpensive repairs, but this property is now a commodity. A commodity that you want your customers to be banging on the door each year to rent.

Utilities and Management fees
Just like your house at home, you are going to have to keep up the property. Hopefully, you've charged enough weekly rent to carry, not only your mortgage payment, but also the costs of carrying association dues, water, trash, electric and other utility costs (through the whole year, not just for the prime rental season). You'll need to keep up the exterior as well, so you may need funds for a landscaping crew.

Many of these services may be included with the contract you'll have with your property management company. And if you're thinking of managing the property yourself -- then think again. Managing vacation rental property is a totally different ball game than residential rentals. In a residential rental, the tenant joins you, the landlord, in keeping up the property.

Remember, the vacationing renter is there to be treated as royalty -- or at least close to it.
Giving up prime rental periods Another aspect of owning vacation property is to actually to be able to enjoy the property yourself a couple weeks a year. The challenge is letting go of the prime renting season to assure that you have enough weeks rented out during prime time to alleviate or completely pay for the challenges of paying mortgage payments through the rest of the year. So, kiss bye-bye to the Independence Day Getaway -- that's one of the highest-rent, most-desirable rent weeks of the year.

Personal time to open and close the property
Finally, remember that week you wanted to take to enjoy your vacation rental property? Well, this is probably going to be the same week that you're either getting the property ready to rent out the first week (de-winterizing the property) or getting it ready for the cooler months (winterizing).

Vacation properties can be a great way to buy a house now for the future (retirement or actual vacationing) at today's prices. But the smart investor will remember that with income and wealth building, come expenses and upkeep.

Published: April 14, 2006