acecourseinvestorsession1

Investing in Real Estate Basics

(703) 589-3848

www.TheModelHomeLook.com

[email protected]

Mike Ford

Licensed Home Improvements Contractor

Licensed Real Estate Salesperson

2

Course Outline – 1st Session

• Introduction, Backgrounds

• Student Expectations

• Market Review

• Types of Sales

• Finding the Best Deals

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Who is Mike Ford

Northern Virginia Native

Bachelor of Sciences degree in Business

Administration from Old Dominion

University.

Licensed Real Estate Agent - Coldwell

Banker Residential Brokerage.

Corporate Experience – Fortune 500 Companies – Motorola

Communications & McKesson Healthcare, National Healthcare

Trade Association

Entrepreneur – Owner of The Model Home Look

Community Volunteer – Youth Sports,

Home Owners Association

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Recognizing value in Real

Estate investments

We offer our real estate clients the opportunity to

make improvements that make their homes

more appealing to prospective home buyers.

We help clients discern the simple

improvements from the financial catastrophes.

5

The Model Home Look –

Home Renovation Knowledge

is Key

Our clients have been particularly pleased with

our knowledge of home construction, and

appreciate the guidance to improvements that

provide the most significant returns when the

time comes to sell their homes/investments.

6

Understanding Home

Values

www.themodelhomelook.com

We help all of our clients identify the home improvements that

will have the biggest impact on their home’s value.

7

Is it a good time to invest in

Real Estate?

In a market like this, when

people think things are so

bad in the market, so

horrible and the sky is

falling and property

values are dropping, that's

good news for real estate

investors

Jan-2011 Jan-2010 % Change

Sold Dollar

Volume

$279,113,480 $316,657,625 - 11.86%

Average Sold

Price

$440,938 $433,184 1.79%

Median Sold

Price

$360,000 $350,000 2.86%

Units Sold 636 732 -13.11%

Average Days

on Market

77 57 35.09%

Average List

Price for Solds

$454,197 $449,308 1.09%

Fairfax County – Sold

Summary, January 2011

8

2,930

1,531

318 549

867

2,579 2,791

1,190

360 700

1,060

2,036

Active

Listings

New Listings New Under

Contracts

New

Contingents

New Pendings Total

Pendings

Jan-10 Jan-11

Fairfax County Inventory

9

2 or less

BR

TH 2 or

less BR3 BR TH 3 BR 4 BR TH 4 BR Condo

Jan-10 $210,444 $259,548 $378,366 $345,808 $683,079 $397,705 $226,608

Jan-11 $160,000 $258,580 $397,665 $344,844 $681,983 $370,065 $232,436

Fairfax County Average

Sold Price - January

10

1550

783

1200

644

New Listings Closed Sales

2010 2011

Fairfax County – Year

to Date

11

• The biggest increase in sales was in

homes valued above $1M (+10.9%)

• Property type with the strongest sales

was Single-Family Detached (-1.9%)

• Construction status with strongest

sales was Previously Owned (-3.1%)

Quick Overview –

Regional Data

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Outlook

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As the new year begins, the local housing market

can look very different depending on what price

range you’re looking at. For instance, in the

strongest + 10.9% - 3.1% price range for home

sales—$1 million and above—Pending Sales are

up 10.9 percent over the last twelve months. But

in the $200,001 to $300,000 above range, where

sales are weakest, the numbers have declined by

12.6 percent during the same time period.

Outlook

15

Inventory overall is holding steady, having

fallen by 1.2 percent from a year ago. But

Townhomes have seen their supply inch up

by 3.1 percent while single-family detached

homes and condos have both seen their active

listings drop during the same time frame.

New Construction inventory is dropping the

fastest, down 9.7 percent from a year ago.

Outlook

16

The price range with the longest Days on

Market Until Sale is the $1 million and above

range, where the average market time is 123.

The ranges with the shortest market time are

$300,001 to $400,000 and $500,001 to $1

million, where it’s taking a comparatively

shorter 72 days for a home to sell, on

average.

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Prices

Median Sales Price was up slightly 1.1% compared to last January, registering in at $265,000.

If inventory continues to

decline, we could see prices

start to creep up.

92.30%

95.30%

92.10%

93.10%

95.80%

92.90%

Single Family

Detatched

Townhomes Condominums/Other

Jan-10 Jan-11

Percentage of List

Price Received at Sale

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Single Family

DetachedTownhomes Condo /Other

Jan-10 $300,000.00 $235,000.00 $215,000.00

Jan-11 $304,000.00 $241,500.00 $210,000.00

Median Sales Price –

All Properties

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Single Family

DetachedTownhomes Condo /Other

Jan-10 $295,000.00 $230,000.00 $205,000.00

Jan-11 $295,000.00 $238,000.00 $200,000.00

Median Sales Price –

Previously Owned

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Single Family

DetachedTownhomes Condo /Other

Jan-10 $410,000.00 $305,118.00 $350,000.00

Jan-11 $407,950.00 $310,450.00 $363,000.00

Median Sales Price –

New Construction

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• The average number of days between

when a property is first listed and

when an offer is accepted. Sold

properties only.

Days on Market Unit

Sales

22

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Days on market

Properties moving the fastest are

in the Core jurisdictions. If

interest rates remain at record

lows, we expect days on market

to continue to decline.

80 Days – Down 17.8%

Single Family

DetachedTownhomes Condo /Other

Jan-10 109 74 94

Jan-11 89 60 79

Days on Market - All

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Single Family

DetachedTownhomes Condo /Other

Jan-10 108 74 95

Jan-11 88 59 79

Days on Market –

Previously Owned

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Single Family

DetachedTownhomes Condo /Other

Jan-10 129 80 82

Jan-11 105 74 79

Days on Market – New

Construction

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Single Family

DetachedTownhomes Condo /Other

Jan-10 35,221 9,211 11,858

Jan-11 34,402 9,492 11,733

Inventory – All

Properties

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Single Family

DetachedTownhomes Condo /Other

Jan-10 29,759 8,347 10,866

Jan-11 29,470 8,614 10,934

Inventory – Previously

Owned

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Single Family

DetachedTownhomes Condo /Other

Jan-10 5,462 864 992

Jan-11 4,932 878 799

Inventory – New

Construction

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• Compares the number of active

listings available to the average

monthly pending sales from the last

12 months. Based on one month of

activity.

Months Supply of

Inventory

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7.15.6

4.9 5.0 5.6

14.0

7.7

5.95.1 5.0 5.2

11.0

$200,000

and Below

$200K -

$300K

$300K -

$400K

$400K -

$500K

$500K -

$1M

$1M and

above

Month’s Supply of Inventory

Jan-10 Jan-11

Inventory By Price

Range - ALL

31

6.8 5.2

4.4 4.4 4.8

13.4

7.4

5.5 4.5 4.3 4.4

10.4

$200,000

and Below

$200K -

$300K

$300K -

$400K

$400K -

$500K

$500K -

$1M

$1M and

above

Month’s Supply of Inventory

Jan-10 Jan-11

Inventory By Price Range

– Previously Owned

32

13.2

11.2 9.6

8.6

11.5

15.9 14.3

11.9 10.5 10.1

12.9 14.7

$200,000

and Below

$200K -

$300K

$300K -

$400K

$400K -

$500K

$500K -

$1M

$1M and

above

Month’s Supply of Inventory

Jan-10 Jan-11

Inventory By Price Range

– New Construction

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6.8

4.0

6.6 6.8

4.7

6.6

Single Family Detached Townhomes Condo/other

Month’s Supply of Inventory

Jan-10 Jan-11

Inventory By Property

Type

34

5.7

11.0

5.9

11.9

Previously Owned New Construction

Month’s Supply of Inventory

Jan-10 Jan-11

Inventory By Property

Type

35

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Inventory

Months Supply is 6.3 months.

6-month is the desired mark for a balance

between supply and demand.

Stable Market, Prices starting to increase,

Interest Rates Ticking Upward, Worst is

behind us

Summary

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The Wart on the ―National‖

Market

There are millions and millions of

foreclosures or people behind on payments

and the number is growing and growing

every day. Most of those houses don't have

equity because people took out creative

loans, interest only loans, borrowed 100

percent of their money and then when their

payments reset and the markets dropped

everyone lost the equity in their property.

Financial disaster in the housing market

as reported in the media

National Media Pressure

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Future of Local Market

We expect that rising demand

(propelled by job growth and Federal

spending) will bring traction to the

Washington housing market,

particularly in the Core, as liquidity

returns to the credit markets and

buyers regain confidence.

41

Future of Local Market

Inventory is declining and construction

remains low, which will help limit

future price declines, we are now

seeing prices starting to rise again.

Conditions will continue to improve

in the close-in communities, with

recovery arriving in the outer counties

later in the year.

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Northern Virginia -

Best Market for Long

Term Investor

• Local Economy is Stronger than the

rest of the country.

• Government procurement.

• Much of what has driven our local

economy is emotional. Buyers have

been sitting on the sidelines.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Fairfax County National Average

Unemployment Rate

Jan-10

Strong Local Economy

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Cheap Money

Mortgage Interest Rates

• 15 Year Fixed 3.68% APR – 4.29% APR

• 30 Year Fixed 4.10% APR – 4.84% APR

• Mortgages 5/1 Year ARM – 2.89% APR –

3.49 % APR

Rates provided by Bankrate.com.

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Types of Home Sellers

1. Distressed sellers who are headed

to foreclosure

2. Banks who have acquired

property through the foreclosure

process

3. Traditional Sellers

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Short Sale

A short-sale is simply negotiating with

the home owner's current lender(s) to

accept an amount that is less than

they are owed.

47

Short Sales

A properly structured short-sale

transaction can be an attractive

alternative and beneficial for all

parties to the transaction.

48

Distressed Seller

Eventually, most homeowners facing

foreclosure resign themselves to the

fact that they’re going to have to sell

their home. Agents present options,

such as a short sale, whereby lenders

may be willing to take less than the

balance owed on their homes.

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Short Sale Home

Owner Benefit

The homeowner is able to sell the

property, get out from under the stress

and strain of a foreclosure, and move

on with their lives.

It helps the homeowner because they do

not end up with a foreclosure on their

credit report.

50

Short Sale - Bank

Benefit

The bank that is taking the short is able to

avoid the high costs of the foreclosure and

the risk of the property reverting back to

them at auction, which results in additional

costs to secure and upkeep the property.

It is said that every foreclosure property that ends up as an

REO (Real Estate Owned by the bank) costs the lender

approximately $50,000.

51

Short Sale –

Investor Benefit

The person buying the property,

whether an investor or home buyer, is

able to purchase the property, usually

at a substantial discount

52

Short Sales – A

Simple Solution for

All, Right?

Negotiating a successful short-sale is a

complicated and time-consuming

endeavor.

The banks are overwhelmed, and are

not easy to navigate for the

inexperienced real estate agent or

investor.

53

Foreclosure

The legal process by which a

mortgagor of real property loses his

or her interest in that property for

failing to comply with the terms

and conditions of the mortgage

54

Foreclosures –

Good Deal?

Good deals are out there, but you can

never assume that you’re getting a

bargain simply because it’s a foreclosed

property. In states where home prices

have risen the most, foreclosed

properties sell within 5 percent of their

full market value.

Source: Study by First American Real Estate

Solutions, a Santa Ana, Calif., company that

maintains a national database of real estate data

55

Foreclosure –

Good Deal?

Homes that are discounted are often

located in unstable communities, are

poorly maintained, and require costly

improvements — reasons why the

prior home owners didn’t just sell the

property before defaulting.

56

Foreclosure –

Good Deal?

The lenders that own foreclosed

properties are usually prevented from

accepting offers lower than appraised

value, at least during the first several

months that a home is on the market.

57

Foreclosure

Risks

CLOUDS ON THE TITLE - Before you bid on a

foreclosed property at auction, make sure you

know what debts are part of the package. Conduct

a title search to determine if any liens or fees are

connected to the property. You may discover that

you’d be taking on the previous owner’s senior

liens (or first mortgages); junior liens (second

mortgages or additional claims against the

property), or tax liens (unpaid property taxes)

58

Foreclosure

Risks

PROPERTY CONDITION - Foreclosed

properties have previous owners who are in

financial troubles, thus the upkeep is

usually not maintained.

LOCATION - There are properties that

sound inexpensively priced but they will

not sell high as well despite the repairs

because of their location or neighborhood.

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Traditional Sales

Motivated seller who has to move

because of situations such as job

situation, retirement, family change,

etc…

They are faced with the reality of

market erosion and are now realistic

with pricing

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Finding the best deals?

Where to look?

• Focus on the best locations with

strong rental market.

• Understand how to see the ―bones‖

of the property.

• Take the emotion out of the

purchase.

Location, Location, Location

Fundamentals of Real Estate

61

Desirable Rental Market

Public Transportation

Shopping & dining

Affordability

Low Maintenance Costs

Junk or Treasure?

The ―Bones‖

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Strategy

1. Find a good agent who is a strong

negotiator

2. Have your financing in order to

strike fast

3. Zero in on a target location

4. Zero in on ideal property

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Strategy

5. Understand the costs associated with

renovations – Don’t under estimate!

6. Be patient, and don’t get caught up

in the emotion of the sale

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Investor Resources

Realtor.com, RealtyTrac.com,

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Seller Representation

• Full Service Listing Agents

• Discount Agency

• REO Specialist, Representing Banks

• Auction Firms

• For Sale By Owner

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Invest in Patience – Tax Implications

Investment profit, regardless of whether it comes from sale of stocks or real estate, is considered and is taxed at two levels. The tax rates depend on how long you own the property.

Hold an asset for a year or less and you'll face short-term gains that are taxed at ordinary income-tax rates. This could be as high as 35 percent. If your investment timetable is lengthier, federal tax laws reward you. By holding an asset for more than a year, you'll face a tax rate closer to 15 percent.

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Understanding Property

Value

• CMA – Comparative Market Analysis

• BPO – Broker Price Opinion

• Property Condition – Cost to bring it

into today’s standard

71

Managing Your

Investment Property

• You’ve done your homework, and

closed on your purchase.

72

Section Objective

In this section, we’ll discuss the cost

associated with home improvements

to increase the value of your real

estate investment

73

Reasons for Improving

• Pure Enjoyment – (if you plan on moving into your new home)

• Maintenance - Small problems often lead to large expenses

• Increase probability of selling or renting

• To appeal to homebuyer or renter expectations

• To replace the low quality ―builder grade‖ fixtures & amenities

74

Avoid Costly Mistakes

• Missing out on big money by not

making the proper upgrades.

• Ignoring simple repairs often lead to

big problems.

• A job done right the first time is

always less expensive.

75

Improvement Discussion

• Kitchens

• Baths

• Paint

• Landscaping

• Carpet & Flooring

• Furnishing

• Staging

76

Minimum Expectations of

Today’s Buyers and Renters

• Updated Kitchen & Baths

• Granite Countertops

• Stainless Steel Appliances

• Hardwood Floors

• Open Floor Plan

• New Carpet

• Fresh Neutral Paint

• Show’s Well

• Great Curb Appeal

• Finished Basement

Reoccurring Buzz Words in Real

Estate Advertisements

77

Minimum Expectations of

Today's Homebuyers

• Keep a very clean house

• Eliminate pet or food odors

• Remove clutter

• Maintain the lawn and landscaping

• Keep bushes and trees trimmed

• Make sure your furniture fits properly in the rooms

• Clean windows and remove screens

• Turn on lights

• Open blinds & curtains before every showing

What Sellers Can Control

78

Did you Know?

• Must reflect today’s homebuyer’s tastes.

• Must capture the buyer’s emotions!

Within 15 seconds a buyer has developed an

opinion of the property they visit.

Prospects must say ―Wow‖ when they

enter a home!

79

Public fascination with

Interior Design!

The world is fascinated with interior design. If you

have any doubt, you need only tune into HGTV, or

visit Crate & Barrel, Restoration Hardware and

other retailers.

80

Kitchen

When remodeling your kitchen for resale, steer clear of highly personalized looks and outrageous color schemes.

• Traditional Materials

• Quality Cabinets

• Commercial-look Appliances

• Natural Wood or Stone Floors

• Granite Countertops

What to look for:

81

Bathroom

• Must be clean, with no visible signs of water of mold.

• Caulk and clean grout.

• Replace pink or blue fixtures

• Remove wallpaper

A bath remodel may be a sure-fire

investment, often returning the highest

percent of the cost.

82

Tip

A fairly inexpensive way to update a

bathroom is to re-glaze the tub and

wall tiles.

Re-glazing a typical tub and shower

will cost less than $1,000.00.

Tub & Tile Re-Glazing

83

Paint

• Fix nail pops & cracks.

• 3-color with neutral paint color.

• Wallpaper is out, remove it!

• Hire a professional. A bad paint job

will turn off prospective buyers.

The best investment you can

make is fresh paint!

84

Landscaping

• It’s all about curb appeal!

• Fresh Mulch

• Mow the Lawn

• Trim Bushes

• Weed

If people drive by your home and are not

impressed they’re not going to walk inside.

85

Tip

Applying mulch dye, which can be

purchased from a specialty landscape

supplier, is a low cost way of making

the mulch look new again.

Expect to pay about $80.00 per gallon.

Mulch Dye

86

Carpet & Flooring

• Worn or outdated carpet should be

replaced

• Dirty carpet should be cleaned

87

Staging

Staging is what you do after you've

cleaned, de-cluttered, painted, made

repairs; it's all about dressing the

house for sale.

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Tip

To achieve this level is usually only feasible by hiring a cleaning crew. In fact, having a cleaning service return weekly while your house is for sale is probably a pretty good investment.

Get your windows professionally cleaned inside and out too.

Your home must be clean!

89

Tip

Clutter makes homes seem smaller and

disorganized.

Have you ever noticed that the really expensive

stores seem to have an expansive, clutter-

free layout, while "cheap" stores are often a

jumble of merchandise?

Eliminate Clutter

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Tip

Remove objects that your potential buyers won't be able to

identify with. For example, political and religious

items may turn off whole groups of buyers, because

they cannot "imagine" your home as their home.

Buying a home is an emotional decision, and you want

potential buyers to make an emotional connection with

your home by being able to "see" themselves in it.

De-Personalize

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Basement Makeover

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New Countertops & Wall Tile

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Granite Countertops

94

Countertop & Paint

© 2005 Interior Makeovers

© 2005 Interior Makeovers

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Kitchen Makeover

96

Kitchen Makeover

97

Kitchen Makeover

98

Bathroom Improvement

99

Bathroom

100

Hardwood Floors

101

Basement Improvement

© 2005 Interior Makeovers

© 2005 Interior Makeovers

2/16/2011Mike

Ford

(703) 589-3848 102

Kitchen Cabinets

103

Home Office

104

Formal Living Room

2/16/2011Mike

Ford

(703) 589-3848 105

Family Room

106

Builders have MODEL

HOMES – Why?

TO CREATE SALES

They understand that buyers want a

home in near-perfect ―model home‖

move-in condition where all the buyer

must do is turn the key in the front

door and move in.

107

Reasons Homeowners

Do Not Invest to Sell

their Home?

• Don’t have the time

• Think it is too costly

• Unsure of which improvements yield the highest return

• Believe their personal decoration style is appealing to today’s homebuyers

• Believe that a price allowance can be made when the home is sold