Which comes first?

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You are ready to retire and you want to find a new smaller house to move into. Which comes first?  Do you buy the new house first before your sell the old one? Or do you sell the old one first before buying the new one?  Many folks will buy the new house before selling the existing one but are surprised to find this is not always the best approach. The reason?  Because most buyer/ homeowner’s cannot afford to pay for two mortgages so they offer the seller a contract with a contingency. The contingency basically says the purchase of their new home is contingent upon the selling of the existing home.

This seems to makes perfect sense for anyone who is buying house while already owning one. But ideally, you do not want to buy a new house until you have already sold the old one. Why? One reason is because everyone else is offering contracts with the same kind of contingencies and most sellers don’t like them! Let’s think like seller for a moment. Your house is on the market and along comes a buyer, “I want to buy your house and I will pay full price but I am selling my house and it has not sold yet.  “And, I cannot buy your house until mine sells.” Do you have a deal? There’s no way to know for sure but if you accept the buyer’s offer you will probably have to take your home off the market for as much as 90 days and if the buyer fails to sell his house, your deal falls though.

Which comes first, the chicken or the egg? Should you buy the new one first or sell the old one.
Which comes first, the chicken or the egg? Should you buy the new one first or sell the old one.

Your real estate agent will be able to negotiate a better deal for you if you’re able to buy a house without worrying about selling another. Let’s think like the seller again. Your realtor is holding an open house and you receive two offers; the first offer is a full price offer of your selling price of$205,000 but has a contingency. The second offer is a bit lower at $197,500 but the buyer’s are qualified and can close in two to three weeks. Which offer would you take? Most sellers will accept the lower offer with good reason; the contract with the contingency might take as much as 90 to 120 days to reach settlement and you will likely have to make a few more mortgage payments in the interim.  if the mortgage is $1,200 per month, that’s another $3,600 to $4,800 plus you still have to hope the buyer sells and closes on his home.  By taking the lower offer, you know you have a deal and because of the mortgage costs you’ll save over the next few months it’s really just as good a deal as the full price offer.

So if you want to increase the likely hood that the seller will accept your offer and you want to save money, buy your next house without a contingency. This means that you will have to sell your current home first. If you do, you could be without a place to live for a time because you sold one before buying the other. But there is a solution if the idea of selling first worries you. Instead of putting the contingency on the home you are buying, put it on the one you are selling. Tell the buyer of your old house that you need at least a 30 day contingency to find a place to live.  Most buyers will agree because they are busy dealing with their own mortgage process and it will give you the time you need make an offer on a new home. Remember, it is always easier to buy a new home than it is to sell an existing one.

Three Reasons to Like the US Government

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The US Department of Agriculture and  Rural Development is committed to help in improving the economy and quality of life in rural America. There are still reasons to like the US Government- Here are three:

Assistance for Home Owners    

Their programs help rural communities and individuals by providing loans and grants for housing and community facilities. They provide funding for single family homes, apartments for low-income persons or the elderly, housing for farm laborers, childcare centers, fire and police stations, hospitals, libraries, nursing homes, schools, and much more. The site contains useful information on how to apply, what you need to become eligible and list of participating lenders.  Currently, there are 35 States that offer rural development loans and assistance programs.

US loans for Rural neigborhoodsSmall Business Support

Through its Business Programs, government’s agricultural department offers Rural Development loans that provide for business credit needs in under-served rural areas, often in partnership with private-sector lenders. They also has an official website that supports small business loans for business start-ups, growth, financing and exporting.

Energy Programs

A future where America runs on cleaner, homegrown fuels is a priority of the President. As part of his Win the Future incentive, the President has called for 80 percent of America’s electricity to come from clean sources by 2035, including wind, solar, nuclear, clean coal and natural gas. The government’s Agriculture Department offers Energy/ Bio fuel Incentive and payment programs found in the Energy Loan and Assistance programs that will help attain the goal of ensuring America’s energy independence one home or business at a time.

Seven Principles of a Healthy Home

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The National Center for Healthy Housing NCHH is an organization dedicated to establishing healthy, energy efficient and safe homes for families of all income levels. The NCHH also provides educational programs, tools, and resources to help home owners to create and maintain healthy homes. Their website helps you identify and fix the health hazards in your home that could make you and your family sick.healthy home

A study conducted by the group examined 248 older homes in NY and Boston that underwent energy conservation improvements such as installing new insulation, new heat and air systems and improving ventilation. They wanted to see if installing newer systems would have a positive impact on the health of the occupants. After six months, the results showed that after the improvements were made subjects reported reduced sinusitis and other allergies by 20 %, hyper-tension by 14% and obesity by 11%.

The NCHH suggest the following seven principles for maintaining a healthy home. They are:

Dryness: Damp houses provide a nurturing environment for mites, roaches, rodents and molds, all of which are associated with asthma.

Clean: Clean homes help reduce pest infestations and exposure to contaminants.

Pest-Free: Recent studies show a causal relationship between exposure to mice and cockroaches and asthma episodes in children; yet inappropriate treatment for pest infestations can exacerbate health problems, since pesticide residues in homes pose risks for neurological damage and cancer.

Safe: The majority of injuries among children occur in the home. Falls are the most frequent cause of residential injuries to children, followed by injuries from objects in the home, burns, and poisonings.

Contaminant-Free: Chemical exposures include lead, radon, pesticides, volatile organic compounds, and environmental tobacco smoke. Exposures to asbestos particles, radon gas, carbon monoxide, and second-hand tobacco smoke are far higher indoors than outside.

Ventilated: Studies show that increasing the fresh air supply in a home improves respiratory health.

Maintained: Poorly-maintained homes are at risk for moisture and pest problems. Deteriorated lead-based paint in older housing is the primary cause of lead poisoning.

The NCHH conducts key research on aspects of childhood lead poisoning, lead hazard control, reducing exposure to allergens and other residential hazards.  Results from these studies have been used to shape federal and state regulations relating to safer construction and residential housing.

If you or members of your family are suffering from allergies and you live in an older home, check out the website for tips on how to make your house a safe place for adults and children to play. Visit   Healthy Home today!


Sources: http://nchh.org




Analyzing Your Investment Property

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What is Discounted Cash flow Analysis and Valuation?
The objective of Discounted Cash Flow Analysis is to project the future cash flows of your investment and then, discount them  back to the present, in order to account for the time value of money.  The rate used to discount the cash flows is usually the cost of capital or a required rate of return for a particular investor.

The sum of the discounted cash flows is called the Present Value of the investment.  If this figure is larger than the initial investment (Net Present Value is positive), then generally the investment is viewed favorably.

Why is Discounted Cash flow Analysis important?
The value of any given investment is the sum of the cash flows it will generate in the future.  In adding up these cash flows, it’s extremely important to take into account the “time value of money” because, to put it in simple terms, a dollar received five years from now is less valuable than a dollar received now.

In analyzing your investment property, the most relevant measure of performance is the cash flow you will receive from the investment, whether it’s the monthly cash left over after paying the mortgage, insurance, and taxes, the tax benefit of yearly losses, or the
cash proceeds you take home when you sell the property, and the value of these cash flows to
you  at the present moment.

Hot Springs Appraisals now offers two new property evaluation reports for the home buyer, home renovator, investor or realtor. 


Reduce Risk and Increase Investing Success

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Reducing risk or exposure when investing can save you from future financial headaches and keep you from becoming that owner who is suddenly motivated to sell. Looking at the mortgage or note instrument used in connection with the real estate investment can help you determine if your purchase is a good buy.  Ratios are good indicators that can help you determine if your purchase decision is a stop or a go.

You have found a property that looks like it might be a possible good investment. The home is in fairly good condition and is located in a neighborhood that is stable to increasing. You have discovered that after speaking to the owner, the first loan is $30,000 and the second loan is $10,000. The owner is asking $70,000 but your rough estimate (after doing your homework) is closer to $60,000 with the home in its present condition.

The Total Loans-to-Value Ratio

The total loans to value ratio is derived by dividing the total amount of loans by the estimated value of the property. The loan to value ratio for our property is $40,000/$60,000 = 67%. The percentage of loans relative to the estimated value of the property should always be less than 75%. Even if you are purchasing in a fast moving market, the percentage should not exceed 85%. By not exceeding the 85% rule you give yourself a cushion and better chance of reducing your risk.

The Equity-to-Debt Ratio

Dividing the equity in the property by the total amount of debt yields this important ratio. The equity in our property is $60,000- $40,000 = $20,000. The Equity to Debt Ratio is $20,000/$40,000 = 50%. The general consensus is, the higher the ratio, the more secure the financial position. Mortgages with an equity to debt ratio lower than 25% percentage means you will likely have to hold the property for a longer term to wait for your equity to increase to recapture a profit.

 The Discount-to-Debt Ratio

In our example, the seller is further willing to discount his second mortgage of $10,000 to $7,000 if he can receive cash. The discount to debt ratio is used to measure mortgage risk and is found by dividing the amount discounted by the equity or $3,000/$20,000 = 15%. This percentage represents the cost necessary to bring the underlying loan, in this case, the second mortgage current if it should ever go into default. Mortgages are not always discounted but when they are, a ratio of more than 15%, indicates that your loan is in a good position and is “covered” at least on paper anyway.

If all three ratios meet your criteria – low debt, high equity and mortgage risk covered, then you may want to proceed. But before you do, make sure your real estate has the right location. Ask yourself, would I like to own this property? Would I live here? If not, why? Are there any features you absolutely do not like? Too close to a busy road? Low lying area- possibly flood prone? Too close to commercial plant or constant noise? Don’t select properties that are good deals but may be hard to sell or you may have to discount your asking price heavily because of adverse location factors which in some cases may be incurable.

When to walk away from a property

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You are examining potential properties for investment. You have analyzed all the numbers and determine it would be a good investment on paper. But when you have the inspection done on the property you find everything is not what it appears.
If these repair items come up in the home inspection report be wary-The cost of correcting these conditions may be too costly and turn your financial plan into a black hole.

The home inspection reports says there is an infestation of termites.
Termites can do a lot of damage that is not always seen. Termite treatments are costly. Even if the seller pays for the treatment, the damage to the structure of property could be permanent.

Water damage from Plumbing or Roofs
Next to termites this is the second most costly damage to correct. Chronic long term damage from leaks causes dry rot in floors wall and ceiling and can even extend to rot in within structure walls. What will this cost and is it allowed for in the budget? Unless you know for sure what the cost of the damage is likely to be, it’s better to walk away it could be more extensive and costly that you can safely estimate.

Structural Defects
If the inspector finds unusually large cracks in the foundation, walls, floors or ceilings, this could be a sign of serious structural defects. The causes could have something to do with the how the home sits on the site and may be affected by grade or topography of the property. Unfavorable site factors may or may not be correctable.

Evidence of other foundation problems like evidence of site flooding which cause foundation blocks to sink into the ground causing them to shift possibly causing permanent settlement issues.

Or, if there has been previous damage due to an earthquake or tornado. This is the most extensive damage and the most costly to fix. In some causes it may not be feasible or worth the investment.

If you think you can determine the cost of repairs and reduce the purchase price to compensate for the repairs, it might be worth it. But if you suspect any hidden damage to the home than walk away from the property and find another one.

Ways to Increase Value

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There are many ways to add appeal to you house. There are many design tips and tricks to add pizzazz to the existing floor plan and attract potential buyers. But appraisers tend to focus on the home’s major components relating to quality of construction and the condition of the improvements that add to the overall value of a property.

Upgrades in older siding. Upscale fiber cement siding offers quality and according to Realtors Cost to Value Averages 2008, is the most preferred exterior improvement with the highest return. Midrange vinyl and foamed backed vinyl siding are second and third in this category.

Upgrade kitchens and baths. These areas of the home not only help the seller to add significant appeal but also provide a good cost to value.

Upgrade windows. Upscale vinyl windows, midrange wood windows and vinyl windows are the preferred types and all are energy efficient of course.

An Additional Bedroom or Bath. If the home is smaller than the average house in the neighborhood, than adding an additional bedroom or bath will increase a property’s value.

An Additional Living Area.  Additional living areas such has family rooms, recreation and even sun rooms have become more popular and show not only an increase in desirability but also in return.

Adding a Garage. The garage offers more storage to the home and better utility to the property.  Features like this that offer utility and “better livability” are one of the many improvements that hold their value and makes sense when it comes to investing in home remodeling.


Solar Kits for Any Size Home

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There are three main types of solar energy kits available on the market today. Each one has a specific purpose and different capabilities. The price you’ll pay for a solar kit will vary greatly depending on the size of system you require and the amount of power you want to generate.

 Make sure your kit comes with everything you need including all the wiring.  Some kits may require additional purchases or does not come with customer service. Take the time to find this out first!

Grid Tied Solar Kits – this type of solar energy system is designed to help you reduce or eliminate your power costs. Ideally, if your system is large enough, you’ll be able to store excess energy and sell it back to your power company.  Kilowatts generated from these kits can be at the lower end of 2.3 kilowatts or up to 12.65 kilowatts. Prices range from $2,000 to $50,000 for these kits.

 Off Grid Solar Kits – if you desire to be completely free from the power company or live in a remote area, an off-grid system is the answer. Off grid solar kits are designed to power everything you need, including appliances, lights, heat, and air, with a battery backup system in the case of cloudy days.

You can generate around 300 watts of power with an off-grid kit or even as much as 1800 watts of power with a larger kit! You’ll need to purchase a grounding rod, conduit, and wire separately.

The prices for off grid solar kits have a wide range, beginning somewhere around $800 for a small system to $35,000 and up for larger systems. The larger the system and the more power you want to generate, the more it will cost.

 Solar RV & Marine Kits – ideal for powering your recreational vehicle or boat, these systems are easily installed and very affordable. The kits contain solar panels, an amp charge controller, and battery, mounting hardware and output cables. These kits can produce as little as 10 watts of power or up to 340 watts of power. Prices range from $175 to $1,800.

It’s very possible for a homeowner to purchase a solar power kit and install the solar energy system without too much trouble. The directions included in the kits are very detailed and are geared toward someone who has never installed a system previously. A good customer service department should be able to answer all of your technical questions concerning the installation of your system.

Many people also opt for purchasing their own kit and then having it professionally installed. Some sellers of the solar kits will offer to install it for you for an additional price.
To learn more: http://www.go-green-solar-energy.com/solar-energy-kits.html#ixzz1xV768EZg


Converting your Property to Produce Income

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Should I convert extra space in my house to a income property?

In slow times, the additional income can help to cover your mortgage or household expenses.  Here are a few things to consider-

Is it legally permissible? Check with local zoning boards first to see if approval is needed. If your home is in a community with a property owners association, you should also check with them.  Some private subdivisions may have restrictions even if the city or county does not.  Ignoring local zoning rules can be costly.  The penalties of putting in an illegal apartment can negate the future possible income.

Is it practical and feasible to convert the property to an income unit? Homes that have a hillside walk out basement tend to be more practical to convert then a second story consider the cost of additional plumbing and electric for an upstairs kitchen. You may also need to consider the cost of a separate  entrance. Tenants will likely use a common driveway and some additional site work may be necessary for adequate parking.

You may also ask yourself  if you have to,  are you wiling to give up some of  your privacy?  Consider that homes or  units may share common walls or areas such as stairways or  hallways.

Do you know you know your local rental income  market? Owners should be aware of what units similar in size and utility are leasing for.  Is there is an adequate demand in their area? If the rental market is slow, you may need to reduce your price at first to attract long term renters.  Realtors that offer property management are very knowledgeable about their local market and may be able to help you determine what features are desired by tenants and what your unit should rent for.



Finding the Right Property to Buy

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property- new pharmacyEven though the recent recession has led to an unavoidable decline in the real estate market, we can always plan for the next recovery which always succeeds a down turn.

Long term statistics reveal the total value of all property in the United States are now increasing overall, which is nice to know, but doesn’t help us much because not all properties are increasing at the same rate. Some properties are staying the same or even decreasing in value.  So when attempting to find the right property to invest in, the trick is to look for the properties that are increasing in value and preferably increasing at a faster rate than the average home in the neighborhood.

To increase your chances of finding such a property, let’s look at some features that tend to add desire and demand.  Learning how to recognize properties with features that are desirable will help you choose the properties that are likely to increase in value.

Buy in the Path of Progress

As a town or city’s population starts to grow, it is not too difficult to see where the areas of progress are.  Generally, areas of development tend to move outward from the main core of a city or town.  If you go out into your neighborhood what do you see? Is there land being cleared for new subdivisions? Are the roads being widened? Are there new shopping centers going up? This is the path of progress. Land in a new salonthis area and the area immediately beyond is growing in value faster than land in other areas not developed or already over-developed. There are other ways to find the path of progress in an area.  Check the local newspaper for clues- When builders develop in an area they place fancy, colorful ads to entice perspective buyers.  Locate several of these areas on a map will also help you find the path of progress.

Notice where companies are building their factories or manufacturing plants.  Although many factories seem to be located out in the “middle of nowhere”,  these companies are also are interested in bargains and tend to build where land is inexpensive.  But inexpensive does not mean worthless. Factory workers need places to eat, relax after work and shop on the way to and from their job and it’s not long before the land in these areas sprout up restaurants, cocktail lounges and a variety of retail shops.

Vacant land is not the only type of property to look for in the path of progress. There are many other property types such as houses, condominiums, apartments, office buildings and various commercial buildings that can also be good investment s and the kind of property you choose depends just as much on your investment objectives as the area you invest in.

Buy on or near the Water

There is something alluring and captivating about real estate located on water.  People love to be near it, swim in it, boat in it or even just look at it. If you are looking in an area that has water,  buy as close to it as you can and you can expect a better than average return.  Many cities are now spending money to revitalize river ways and canals, so opportunities to invest in these areas are increasing. To avoid the risk of property damage caused by flooding, make sure your property is located in a 100 to 500 year flood plain elevation. Have the levels checked before you buy.

Buy on a Hillside or Hill top

People love to live on Hill sides and hill tops.  It might be because they like the view or maybe they just like to be “king of the hill”.  Whatever the reason, people are willing to pay more for hillside property than flat land or bottom land. The price of hillside or hilltop lots average as much as 50% more than the other types in the same development.  Be aware of any steep areas of the site that may be prone to erosion before you build as the washing away of dirt under a foundation can cause problems that are difficult and costly to treat.

The old maxim, the three most important things in real estate is, location, location, location really does apply when finding and choosing the right property.  Although it is not the only thing to consider, finding real estate with one or more of these features could mean greatly increasing your chances of making a very profitable investment decision.