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Real Estate News

Updated: Sunday, January 23, 2022

After Financing Your First Rental, It’s All Downhill From There

At its most basic level financing a rental property is not much different than a primary residence as it >

Financing programs for rental properties will require more down payment and higher rates. Why? Because when someone finds themselves headed into some degree of financial stress, the last thing they want to give up is their primary residence.nbsp; When push comes to shove, the rental properties will be off-loaded first, securing the primary residence as a place to live. Financing the first requires more documentation, but after that, financing a second and third rental is easy-peasy in comparison.

With an initial rental, buyers must be able to comfortably afford the new purchase along with their current mortgage. Lenders use the mortgage payment on the new property which includes principal and interest, taxes and insurance in addition to what theyre currently paying on their current home. That might sound a bit unfair at first because a rental property typically generates enough income each month to more than cover the costs of ownership.nbsp;

Otherwise, real estate investors might pass on a unit that doesnt cash flow. The new property turns into a monthly expense instead of monthly income. Ultimately it means qualifying with two house payments even though the income is there, its just that lenders wont consider it. But things change with the next rental property.

With the subsequent unit, the income generated from the home can in fact be used to help qualify. That is after two years have passed. Why the time test? Lenders want to see the owners can properly manage the property, keep it rented and maintained. Being a landlord means extra work. After the first year or so of ownership, some first time investors find out that managing the property is simply too much work.nbsp;

If after two years have passed, the income can be used. Now there is effectively just one mortgage payment, the primary residence. The second rental unit mortgage payment is not only offset by the rent coming in each month but providing the owner with some additional income at the same time.

When investors discover this underwriting guideline for a second rental, they may decide to acquire a third or fourth. Qualifying for the second unit and beyond is much easier due to the fact that lenders willnbsp; use the additional income.nbsp;

In fact, its not uncommon for investors to own multiple rental units because its so much easier to qualify for the subsequent purchase. When an investor does own several rental units, a property manager is essentially a must. It can also be the case where investors who own multiple units decide the working world isnt worth it any longer and instead own, manage and maintain their units and live off the rent.

Theres a little math involved when considering a rental purchase but not very much. If theres a positive cash flow, then its time to submit an application and get the preapproval process moving forward. Youre then likely to begin looking for the next property. Yet the approval process will be much easier.


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Should You Hire an Interior Designer?

Whether youre moving to a new home or considering a refresh or remodel for your current one, you might be asking yourself whether or not you should hire an interior designer. A designer is someone who can create a beautiful space, but this scenario isnt for everyone.

The following are considerations and both pros and cons that come with working with a designer.

What is Your Budget?

Budget will have to be the biggest consideration when you think about whether you should hire a designer. Designers are not cheap, particularly when theyre experienced. If youre doing a remodeling project or moving into a new home, you have to think about the significant costs a designer can add to your overall budget.

Some designers will charge a flat fee. Others will charge by the hour.

Some designers will make purchases on your behalf and charge a percentage on each item they buy.

Regardless of the pricing structure, talk to some designers in your area to get a feel for the rates. You may figure out a designer isnt even in your budget. It could force you to sacrifice in other areas of your project that youd rather not if you hire someone.

What Services Do You Need?

Designers can do a lot of different types of work, and they may have varying areas of specialty. Services many designers offer can include design consultations, space assessment and space planning. Designers may offer purchasing and procurement or full-scale project management if youre doing a remodel or custom build.

Some designers wont work with you unless youre paying for their full services, but others will charge by the hour and work with you on an as-needed basis.

Do You Have a Distinct >

When you hire a designer, even if their vision is similar to your own, ultimately theyre bringing their personal >

If youre someone, on the other hand, whos indecisive and takes a long time to figure out what you like, a designer can actually end up saving you time and money. They can become someone who guides your decisions.

Some people love to make decisions and find that its easy for them to do so, and if youre that person, you could find it hard to work with a designer. On the other hand, if youre someone whos overwhelmed by choices, a designer can be well worth their fee.

You may find that a designer doesnt create a space you feel reflects who you are. A good designer will work with you to learn about your family, your priorities, and how you use spaces, but still they may not capture these elements as you would.

Are You Patient?

An interior designer can help you figure out the logistics of home design that you might not otherwise think about. They do tend to take their time with projects, however. Good design can take time, and designers will often carefully select items, and they may opt for custom pieces as well. If you want to work quickly, its unlikely a designer will be the best choice.

You might instead pick all of your items online or from a local store so that you can bring everything together at once rather than piece by piece.

For some people, hiring a designer is absolutely the best option. It makes things easier for them and helps ensure they get a beautiful and cohesive space. For other people, a lot of the fun of a home project or buying a new home is decorating it and personalizing the space, so you have to decide which category you fall into.


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What Should You Know About Buying a Starter Home?

You may hear the term starter home pretty frequently, but wonder as a buyer, what does that really mean?

When youre buying a home for the first time, you have to not only understand what a starter home is for you but also whether its best to skip ahead and invest in your forever home.

Whats Considered a Starter Home?

A starter home can be a single-family house, a condo, or a townhome. Starter homes are something the average first-timer buyer can afford but will likely outgrow. A starter home, >

These homes may be older, small, or generally modest. They might also be brand-new but still designed to meet the needs of entry-level buyers.

There arent going to be all the features you maybe hope to have someday, but you can envision that for the near-term future, a starter home will suit your life>

You may find that you stay in your starter home forever, for whatever reason. You might, on the other hand, move up eventually to a home thats in a more desirable neighborhood or is more expensive.

Whats a Forever Home?

A forever home is one that can be not just larger but may be updated or have more outdoor space. A forever home can have some of those features that are highly desirable and make a property competitive when it hits the market. It may have a big, private yard and be in a great school district, for example.

Of course, a forever home is subjective. For some people, that home may be one where they can envision raising a family. For others, a forever home might be a fixer-upper that needs some TLC but is in a great neighborhood.

A forever home doesnt have to be inherently luxurious, but one defining feature is that they tend to be bigger than a starter home.

The Benefits of a Starter Home

If youre at a point where you weigh whether you should buy a starter home or a forever home, both have pros and cons.

A starter home will be less expensive typically so you can save for a down payment faster. Then you can begin to build equity sooner as well. If you wait to afford a forever home, thats more time youre going to sink into rent and less youre investing in equity. When youre ready for your forever home, you can then use the equity youve gained to buy it.

The downside of a starter home is that youll likely outgrow it when you enter another phase in your life. For example, maybe youll get married or have kids, and a starter home will no longer meet your needs.

If you decide its time to move from your starter home, you have to sell or rent it. Youll have to find another home, get approved for another mortgage, and pay closing costs.

The Benefits of a Forever Home

If you think you might like to skip the starter home and go straight to your forever home, there are benefits. Theres a peace of mind that comes with knowing you plan to stay in your home for the long term without having to worry about selling it or moving.

You can take time to settle in and make the home perfect for your needs gradually.

The downside is that a forever home will probably be more expensive, meaning it takes longer to save a down payment and youre delaying building equity.

Which is Right For You?

The most important thing when youre buying a house, whether a starter or forever home, is to spend what you can genuinely afford. The general rule of thumb is to spend no more than 28 of your gross monthly income on anything >

If you shop for a forever home, it can be a good move in terms of taxes. When you sell a home too fast after buying it, you may have to pay a capital gains tax if the value goes up. Theres an exclusion of up to 250,000 if you file taxes individually or 500,000 if youre a married couple filing jointly for capital gains on real estate. You lose that exclusion if you own the home for less than two years.

Along with budget and tax benefits, think about the long-term value of a home before you buy one. You want to look for properties, no matter the price, have an excellent potential resale value. Sometimes you do also have to remember that what you think is forever right now might not really be forever.


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Assets and Your Mortgage Application: What to Know

When youre applying for a mortgage, you shouldnt underestimate the important role of including your assets. Making sure you list all your assets can affect the type of mortgage you get, as well as your interest rate.

When lenders are assessing applications for a home loan, they look at your credit score, debt and income, and also your total net worth. Your net worth is how much money you actually have. To calculate your net worth, the lender will subtract the debts you owe from your total assets. Your assets are >

Your lender will consider your assets to make a determination of how youd make your payments if you lost your job, for example, and whether you could float your expenses for a few months.

Below, we go into more detail about what you should know as far as assets and their role in the process of applying for a mortgage.

What Are Assets?

Assets are things you own with a monetary value.

We can usually group them into three broad categoriescash, cash equivalents, and property. Your total asset value will usually go up as you move through life. Your salary and income information are part of your mortgage application but arent an asset.

Cash and Cash Equivalents

Cash is anything you have on hand thats already liquid. For example, if you have money in a checking or savings account, this would be an asset. Cash equivalent assets might include what you have in certificate of deposits or money market accounts, for example.

Physical Assets

Your physical assets are things that theoretically if you needed to, you could sell for funds that you would then use to qualify for a home loan or make payments on it. This could include houses, cars, jewelry, art RVs or boats. If youre going to use a physical asset to qualify for a mortgage, you have to sell that asset before you close.

Nonphysical Assets

A nonphysical asset can include things you have that have value but arent liquid and dont have a physical presence. A house is a physical asset. An IRA or stocks are nonphysical assets. Yes, you can make them liquid, but theyre not immediately available.

Theres a fine line between nonphysical assets and liquid assets. A liquid asset can be converted into cash very quickly, so a stock you can trade and get cash from right away is a liquid asset. A nonphysical asset might be a retirement account, by contrast. Yes, you can get some money from it, but again, it can be more complicated to do so.

Fixed Assets

Fixed assets can include furniture and some types of real estate. The value can change over time, and you can sell them for cash, but it takes longer.

Equity Assets

If you have ownership in any businesses, like mutual funds, they can be equity assets.

As you might have noticed, there is often overlap in the categories of assets. Whats important is that you include an exhaustive list when you apply for a mortgage.

Which Assets Do Lenders See As Most Important?

In the eyes of a mortgage lender, cash and cash equivalent assets are most important. You could use these liquid assets quickly if you needed to pay your mortgage. Physical assets are also somewhat important to a lender.

If you have items like artwork that you arent sure of the value of, you may need to work with an appraiser.

Do Lenders Verify Your Assets?

Keep in mind that if you list any assets on your mortgage application, your lender will verify them and make sure everything you provide is correct. Your assets need to be traceable, and they need to be verifiable as your own.

As far as being traceable, if you have a big cash deposit in your account and theres no resource to trace it back to you, a lender might have questions.

If youre overwhelmed about including assets on your mortgage application, you might want to talk with a financial professional. They can help go over your assets and make sure there arent any red flags that would prevent you from being approved.


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Recruiting Directors In Your HOA

From time to time, it is necessary or desirable to recruit new directors. It may due to a vacancy or an upcoming election. Often volunteers are >

To All Members of Nottacare Condominium,

At the Annual Meeting, two positions for director of the board will be voted on. Anyone that is a owner in good standing current in HOA payments and no outstanding violations is eligible to run in this election.

Overview of Director Duties. The board has the authority to direct business including maintenance and financial oversight, rules enforcement and architectural design approval. The board has the authority to hire and oversee the professional management company.

The board meets four times a year for two hours to review business and to make decisions and enact policy. Between those meetings, there may be an occasion special meeting to deal with an urgent matter that cant wait for a regularly scheduled board meeting. The President has the authority to act on behalf of the board between meetings as long as the matter is authorized by the governing documents or in line with the approved budget.

Serving on the board gives you direct impact and influence on how HOA business is handled. While a management, financial or construction background is helpful, no special training is required other than the willingness and availability to serve. The office of director carries a term of three years.

All members have an obligation to serve in some capacity. We hope you will consider running for the board. You may be nominated by another owner or by yourself. If you are interested in being nominated, please email that desire and your contact information to or mail to Nottacare Condominum, 123 Easy St, Anytown USA by no later than April 1st. Please contact me if you have any questions.

Ima Daboss

President - Nottacare Condominum
Phone 666.666.6666

For more innovative homeowner association management strategies, see www.Regenesis.net.


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Buying near a "Christmas House"

A couple of weeks back, I talked about selling houses during the holidays when really serious buyers are out in force.

Since we bought our first house in the first week of January and sold it on Dec. 31, and bought our third house a week before Christmas, I thought I was standing on really firm ground in my recommendation.

That is, however, until my wife made me drive three blocks from my street to get a load of the "Christmas house."

Every gadget, gimmick and kind of light available on the market today covers this place from dusk to dawn and then some. Im absolutely certain that planes landing at the international airport across the river use it as a directional finder in foggy weather.

Christmas is not the only holiday that finds this house awash in decoration. The giant inflatable turkey that replaces the giant inflatable pumpkin the day after Halloween is replaced by the giant inflatable Santa Claus surrounded by enough fiber-optic animals to fill Albert Lea State Park in Minnesota.

Unfortunately, no wide open spaces exist between houses on this street, which means that how neighbors live is influenced heavily by blinding brightness and the perpetual ho-ho-ho-ing of the multiple Santas.

Im sure you are calling me a Grinch, and so be it. Although I do decorate my house for Christmas each year, we err on the side of minimalism and taste.

So, hes a snob, you are saying. Not really. I do, however, consider the sensibilities of my neighbors and the overall livability of the neighborhood, just as they do mine.

We celebrate the holidays, but the electric companys bottom line doesnt rise or fall on how we do it.

The owners of the Christmas house are exuberant about the holidays, for sure. But, as my wife suggests, how do sellers and agents trying to market a house on that street accommodate buyers who may not understand such exuberance?

There are probably as many people who would understand and who wouldnt, but in a slowing market with an increasing supply and declining demand, you dont want to play the numbers game.

Enthusiasm reflected by the decorations could be construed as "pushy" behavior in other matters. For example, if the neighbors see nothing wrong in imposing their "tastes" in decorations on others, what would stop them from running a gas mower at 7 a.m. every Sunday or repairing their cars in the driveway?

It comes down to location. People buy where they live and what they live in. It is sheer folly from a house-as-an-investment perspective to buy the nicest house around thats next door to a light show.

The few advantages -- eliminating the need to turn on your own indoor lights and saving money on electricity -- would be outweighed by the association of where you live and what is next door.

"Oh, you must live next to the Christmas house," people would say. "Ill bet it feels strange wearing sunglasses at night."

In their haste to buy, a lot of people often are willing get into potentially uncomfortable situations.

One fellow I know bought a house next door to a collector of old cars, and began to complain about "abandoned wrecks" after a few months.

When I reminded him that those "wrecks" were sitting in the neighbors front yard before my friend bought the house, he replied that he hadnt realized how much the cars would bother him.

You cant anticipate problems, no matter how much you wish you could. If you buy a house down the street from a new-home development in its first phase, you can assume that there will be more houses, dust and noise from construction and more people using your street.

Even if you buy in a "perfect" neighborhood, there is no guarantee that such perfection will endure forever. Thats if you are foolish enough to search for "perfection."

The owners of a house we once considered buying told us that we seemed to be people very much like them and exactly like everyone else in the neighborhood. We didnt run screaming from the house, but we went on to pick a neighborhood that reflected the diversity of where we had been living for six years, which was a block from a public housing project.

The housing-project neighborhood wasnt perfect by any stretch, but it wasnt as bad as everyone had led us to believe.

For some buyers, living near the Christmas house might be just the ticket.

Especially if they have a good supply of sunglasses.


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Buyer Beware: What You Need To Know About Warranty Companies

True story: Our four-year-old refrigerator died an ugly death late last year. After being diagnosed and fixedmore than onceby the same repair company, our warranty company finally authorized the purchase of a brand-new fridge.nbsp;

We were, frankly, pleasantly surprised by how easy the process was and also chalked it up to financial karma for having paid 60 every month for the last six years just to have the peace of mind of a warranty, plus 75 for each service call.nbsp;

Those calls were few and far between, save for an annual air-conditioning issue and the occasional other appliance/plumbing concern. To our very unpleasant surprise, the company canceled our existing deal when our contract ended. Apparently, we had made too many service calls. This was, of course, code for We had to replace your refrigerator and we need our 2,000 back.

We were invited to reinstate our coveragefor 2 times what we had been paying per month.

Welcome to the world of home warranties.nbsp;

The truth is, we had minimal problems in the six years leading up to our refrigerator replacement. The tradespeople were generally fine, the service was as expected, and the fixes were typically timely. Being dumped by our company and having to scramble for new coverage wasnt fun, but it definitely wasnt the worst that can happen with home warranties. If youve bought a new home and are considering whether you should renew your warranty after your initial period is over, or are buying/have bought an older home and are mulling a warranty, here are a few things to think about.

The cost

For many people, the fact that they can pay a small amount every month that protects them against a potentially huge expense like an air conditioning issue, provides peace of mind. But ask yourself this: Are you better off putting that 60 or so in an interest-bearing account and saving for a what-if?

Also, just because you have coverage doesnt mean everything will be taken care of by the company. Some problems wont be covered by the warranty, whether because the homeowner didnt purchase coverage for that item or because the warranty company doesnt offer coverage for that item, said Investopedia. Also, home warranties usually dont cover components that havent been properly maintained. Furthermore, if the warranty company denies a claim, the homeowner will still have to pay the service fee and will also be responsible for repair costs. In addition, warranties have numerous exclusions, as well as dollar limits per repair and per year.

The coverage

Many companies have tiered offerings and the lowest tier is just basic coverage. The cost of a home warranty ranges from 350 to 600 a yearmore if you want enhanced coverage for such things as washers and dryers, pools and septic systems, said Bankrate. In addition to the annual premium, expect to pay a fee for service callsanywhere from 50 to 125, depending on the type of contract you purchase.

The rules

Your ba>

Most major home warranty providers include air conditioning as one of their covered systems. In most cases, a home warranty company is going to do everything it can to repair an AC system before replacing it, said Consumer Affairs. Be sure to check your contract for fine print on what AC components may or may not be covered. Also check for the maximum coverage limit listed in your contract for AC units. Remember, you will be responsible for paying for any cost above this dollar amount if your AC needs to be replaced. If you know your home is at risk of needing repairs or replacement of costly items like an AC unit, its worth it to look for a provider that has a generous per item coverage limit.

Other options

Ask a friend, or give it a Google search and youll find lots of tales about frustrated and irritated homeowners ranging to horror stories about their home warranties. Ultimately, the choice is yours when it comes to opting for oneor not.

There are some other options you might want to explore before locking yourself into a contract. Before buying a home warranty, learn what coverage you may already have, said Money Talk News. For example, if youre buying a newly built home, know that: The home appliances and systems typically have one-year warranties. Most states require builders to warranty the homes structural elements for up to 10 years. Also, when you buy new furnishings and appliances, use a credit card that extends the products warranty. That can add as much as an extra year of protection.


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Can You Get a Mortgage with Bad Credit?

The real estate market remains hot right now, despite economic headwinds. Many people want to jump in and buy a home or upgrade their current home to a new one for good reason. Interest rates are incredibly low, so now could still be a buying opportunity, despite limited inventory and high prices in some locations.

If your credit isnt perfect, you may wonder if anyone will approve you for a mortgage. The short answer is maybe.

You arent alone if you dont have great credit. Around 15 of Americans have a credit score from 500 to 599, which is considered poor. Around 10 of people have credit in the range of 600 to 649, which is considered fair.

When youre applying for a mortgage, youre most likely to be approved with a score of at least 650, although even anywhere in the 600s can make it challenging. If your score is below 500, youre almost certainly not going to be approved for a mortgage, and beyond that, the following are key things to know.

Conventional Mortgages

Conventional mortgages tend to have the strictest requirements as far as your credit score. Freddie Mac and Fannie Mae are two companies offering conventional mortgages. Freddie Macs minimum credit score requirement is 660, with a down payment of 3. Fannie Maes minimum score for a 3 down payment is 620. If you make a down payment of at least 25, you may be eligible for a Freddie Mac conventional mortgage with a credit score as low as 620.

The majority of lenders follow similar requirements, because usually after your loan is closed, the lender will sell it to Freddie Mac or Fannie Mae.

You should be aware that in the eyes of your lender, theres a difference between having a low score because you dont have much credit history and having a low score because of bad credit history. Youre likely to be viewed more favorably with limited credit than with bad credit.

If youre close to the lending cut-off, you should be able to show that you have a debt-to-income ratio of no more than 36. You will probably also need to show that you have at least two months of cash reserves on hand.

What About an FHA Loan?

An FHA loan may be an option for someone with a very low credit score. You can be approved for these loans with a score as low as 500, but youll have to plan to put at least 10 down.

If you have a higher score, you may be able to put as little as 3.5 down.

Aside from VA loans, FHA loans have the least stringent approval guidelines.

As such, FHA loans are often used by people after a foreclosure or bankruptcy.

FHA lenders dont have to follow the above credit score requirements. They can require that your credit score is higher for approval. Many FHA borrowers have a score somewhere between 650 and 699.

VA Loans

For a VA loan, there is no minimum credit score, but you can only get this type of home loan if youre an eligible service member in the military, a veteran, or the surviving spouse of a veteran. While theres no set minimum score, individual lenders can create their own guidelines.

Should You Focus on Improving Your Score?

If you have less-than-perfect credit right now, you might want to focus on building your score. It can take several months, but its very unlikely interest rates will go up anytime soon based on what the Fed has said so far. The Fed says they expect rates will stay around zero through 2021 and maybe 2022, although theres no guarantee.

If you can make even modest improvements in your credit score, not only are you likely to be approved, but you may also get better terms. Focus on paying down your high-balance credit cards, cleaning up any errors, and in the meantime, also try to save for a down payment. If you have at least 10 for a down payment, a lender will see you as less risky.


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Seven Steps to Take to Prepare Your House to Sell in the New Year

The holidays are a wrap, and with the coming of the new year, many people are starting to make their new years resolutions. If selling your home is one of those resolutions, its beneficial to take steps now to prepare your house to sell in the new year. Getting a jump start on this preparation can help your home be ready for the spring/summer homebuying season, an annual tradition that typically sees an increase in buyer demand.

Preparing a house for sale in the new year involves more than taking down the holiday decorations. Some of the key steps to take before putting your home on the market in the new year include:

1. Decide on a listing date

One of the first steps is to decide when you want to put your house on the market and create a timeline for all the tasks that need to be completed before this happens. Work backward from the listing date to establish deadlines for each task. Establishing these deadlines can be a great motivator for getting all of the to dos done in order to showcase your house to its best advantage.

2. Hire a REALTOR

A REALTOR will guide you through the selling process and provide a plan for attracting potential buyers to get your house sold for the best possible price. REALTORS have reams of data and calculators at their fingertips to help you make the most strategic choices when selling your house.nbsp;

3. Give the house a deep clean

Deep cleaning goes beyond vacuuming and dusting. Giving your home a deep clean means getting carpets steam cleaned, mopping floors, cleaning windows inside and out, washing walls to remove stains and scrubbing bathrooms. Consider using professional carpet cleaning and maid services to really make your house sparkle and shine.

4. Get rid of all the clutter

De-cluttering will make your house seem more spacious and make it easier for potential buyers to envision themselves in the house. Start the de-cluttering process by cleaning out closets, cabinets, and garages. Donate clothing and other items of use and throw out items that are broken or cannot be used.

5. Make needed repairs and updates

Leaky faucets, chipped paint, running toilets, and squeaky doors may seem minor but really signal to potential buyers that your home has not been well maintained. To help attract buyers and get top dollar for your home, take the time to make needed minor repairs and consider updates such as repainting rooms with neutral paint colors, replacing worn carpeting, and modernizing bathroom and lighting fixtures.nbsp;

6. Spruce up curb appeal

Sprucing up the curb appeal of your home is an important step to take before putting it on the market. In fact, among REALTORS, 94 have suggested sellers improve their curb appeal before listing a home for sale. This recommendation is so common simply because the outside of your home is the first thing buyers see when they pull up to the curb and as the saying goes - you never get a second chance to make a first impression. Painting or replacing the front door, keeping the lawn mowed and weeded, trimming overgrown shrubs and trees, and repairing cracked walkways are just a few things that can go a long way to sprucing up the curb appeal of your home.

7. Stage it to sell

Staging your home can show it in its best light. The National Association of REALTORS Profile of Home Staging found that 40 of buyers agents cited that home staging had an effect on most buyers view of the home, and 83 of buyers agents said staging a home made it easier for a buyer to visualize the property as a future home. Staging a house can involve things like adjusting furniture layouts to make rooms appear larger, repainting rooms, opening curtains and blinds to let light in and adding extras like fresh flowers in vases, a bowl of fruit in the kitchen and folded towels in the bathrooms.

If selling your house is on your list of New Years resolutions, make sure to take the steps outlined above to get it ready to sell. This preparation can help your house stand out among the millions of homes nationwide projected to sell in the new year.


Jeffrey M. Fagannbsp;is the 2019 president of the Orlando Regional REALTOR Association and is regional vicenbsp;president of Watson Realty Corp.


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The Biggest Challenges House Flippers Face

There tends to be a glamorization of house flipping, likely brought about by watching home improvement and real estate shows. The reality is that house flipping can be a difficult and often disappointing undertaking. Thats not to say some house flippers dont find great success, but there are also so many challenges that can come along too.

If youre considering wading into the flipping world, when youre realistic about the challenges, youre already putting yourself in a better position to deal with them.

The following are some of the most significant challenges you might face along the way if you flip a property.

Finding the Right Property

Many homes are not a good investment in terms of flipping. You have to find neighborhoods that will appeal to buyers, but you need properties that are going to be priced below market value in that area. Your goal with flipping isnt to let the property appreciate slowlyits to sell quickly.

Some of the ways you can gain leads for properties well-suited to flipping include looking for probate properties, going to auctions or keeping up with foreclosure lists. Tax lien properties, wholesale properties, and short sales are other options.

You need to do the math before bidding on a property to know the highest price you can pay and still make a profit.

With each home you buy you have to think about the propertys actual value, current conditions of the market, comparable home prices, and how much you think itll cost you to make repairs and upgrades. These considerations have to be weighed against the possible listing price.

Funding

Some flippers can pay cash for properties, but if you cant, it can automatically put you at a disadvantage. That doesnt mean you cant work around this, but its something to be mindful of. For real estate investors, its not uncommon for mortgage lenders to want a significant down payment of 25 or more.

Youll also have to come up with the cash to do the work on the property, pay contractors, maintain the utility bills, and cover closing costs.

Along with planning for everything above, youre going to need a contingency to tap into if things dont go according to plan, which is almost inevitable.

You may be able to use equity from a rental property you already own or get an investor for private funding. Otherwise, your two primary options are a traditional lender or using your own cash, both of which have risks.

Delays

When youre an investor, and you experience delays on a project, it can be incredibly frustrating. Your contractors may have other jobs theyre working on, materials might not arrive on time, or machines and equipment might break down.

Once theres one delay, it often creates a ripple effect.

To avoid some of the impacts of delays, you shouldnt >

Unforeseen Expenses

Above, we mentioned the importance of having a contingency cushion built into your budget, and the chances are very high youre going to tap into it when youre flipping a house.

You might not have known there was mold behind a wall, or a pipe in the wall could burst unexpectedly. Weather and delays can also contribute to expenses you didnt initially account for.

The best you can do to plan for the unexpected is to try to budget for them ahead of time.

Not Understanding the Market

Finally, when youre a house flipper, you absolutely have to understand the market, and its not easy. It takes time, experience and research to grasp whats happening in the market at any given time. Many new flippers just dont get it but they jump in any way.

Its not always the prime time to start a new project. For example, demand might be down, or mortgage rates could be high. There can also be external issues in the local area where you are.

You cant just consider the trends when youre already entrenched in them. A good flipper is ahead of the trends, and you can time your purchases and flips accordingly. Factors to understand include local house inventory levels, trends in mortgage rates, and property values.

If youre lucky, youll find an experienced local realtor who can help you a lot as far as understanding local housing conditions.


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