Category Archives: Investment Strategies

Home Improvements, Investment Strategies

Hey, What’s my Garage Worth?

When it comes to home improvement projects, one of the key considerations is the return on investment (ROI). The ROI measures the financial return or profitability that can be gained from a particular project. It essentially evaluates the value or gain generated from the investment made in improving or renovating a property.

Garage additions and renovations have historically shown positive ROI in many regions. The actual ROI can vary depending on factors such as location, the size and quality of the garage, and local real estate market conditions. Because of these factors, it’s important to note that there truly is no tried-and-true mathematical formula that precisely calculates ROI for home improvements – there will always be a variance.

To calculate the return on investment (ROI) for a garage project, you’ll need to consider the cost of the project and the expected increase in your property’s value as a result of adding the garage. Here’s a simplified formula:

ROI = (Net Gain / Cost of Project) x 100%

Cost of Project: This is the total cost of building the garage. Make sure to include all expenses such as materials, labor, permits, and any additional costs related to the project. Let’s assume the cost of your 22 x 23 garage project is $30,000.

Net Gain: To calculate the net gain, you’ll need to estimate how much the addition of the garage will increase the value of your property. Let’s assume the garage adds $40,000 to the value of your home.

ROI = ($40,000 – $30,000) / $30,000 x 100% ROI = ($10,000 / $30,000) x 100% ROI = 33.33%

In this simplified calculation, your estimated ROI for the two car’ garage project is 33.33%. This means that for every dollar you invested in building the garage, you can expect to gain an additional 33.33 cents in home value.

Keep in mind that real estate markets can be complex, and the actual ROI can vary greatly based on many factors including local market conditions and the specific features such as the size and the quality of construction.

Expert Tip: The only official way to calculate the net gain of the improvement is to determine the home’s value after the improvement is made. There is a unique type of appraisal called an “as-completed appraisal” where an appraiser will look at your renovation plans and your current home value and determine how much value the improvement will add to the property value upon completion. 

This type of appraisal is  normally completed if the home owner is  applying for a “renovation loan” and is based on the equity of the home , however this type of appraisal  can also be used by the home owner to see exactly how much value you are getting from your new improvement.

Remember, every home improvement project is unique and has its own set of variables. Your garage serves as more than just a place to park your car; it can be a valuable asset that adds both functionality and appeal to your property. Whether you’re looking to sell or simply want to understand the worth of this space, evaluating the value of adding a garage is an important step in maximizing your home’s overall value.

 

 

 

Green Home, Home Improvements, Investment Strategies, Real Estate Market, Real Estate Market Analysis

Getting an appraisal when you are already in contract

What happens in a scenario where the buyer decides to have an appraisal performed after the home is already under contract? What are the possible outcome if an appraisal comes in above the contract price or below it?

 If  the Appraisal is above the contract price: 

If the appraisal comes out higher than the contract price, it may be seen as a positive outcome for the buyer. It means that the property is valued higher than what they agreed to pay, potentially indicating that they got a good deal.

However, since the buyer has already agreed to purchase the property for $320,000, they are typically obligated to honor the contract. The buyer may still proceed with the purchase at the agreed-upon price or renegotiate with the seller based on the new appraisal value. Renegotiation could involve trying to lower the price or requesting additional concessions from the seller.

Appraisal below the contract price

If the appraisal comes out lower than the contract price, it can create some challenges for the buyer. The lender (if involved) might only be willing to provide a loan based on the appraised value rather than the contract price.

In this case, the buyer may face several options: a) Proceed with the purchase as planned, covering the difference between the appraised value and the contract price with additional cash from their own funds. b) Renegotiate with the seller to lower the purchase price based on the appraised value. This renegotiation is typically subject to the willingness of the seller to adjust the price. c) Terminate the contract if there are contingencies in place that allow for this, such as an appraisal contingency.

The buyer may be entitled to have their earnest money deposit refunded if they decide not to proceed with the purchase due to the low appraisal.

It’s important to note that the specific consequences and available options may vary depending on the terms outlined in the purchase agreement, any contingencies present, local real estate laws, and the willingness of both parties to negotiate or modify the contract. Consulting with a real estate professional or an attorney would be advisable in such situations to fully understand the implications and potential outcomes.

Before you make a home purchase

It important do research about your neighborhood. Try to find similar homes in the same price range so you can see how your house compares in quality and size etc. And even if there is no mortgage involved, it is always prudent to have an appraisal on a property you are interested in before you enter into a legal agreement. Purchase agreements should always have a contingency in the event the property appraisal comes in below or above your offering price. An appraisal could save you the loss earnest or deposit money, paying too much or even a possible breach of contract.

Home Improvements, Investment Strategies

Ways to Increase Value

What are the Top ways owners can increase their property value or generate revenue from their properties? In this two part blog I will give a 7 ways on how owners can increase their property value or generate revenue from their properties:

  1. Make improvements: Making improvements to the property can increase its value and make it more attractive to potential buyers or renters. Examples of improvements could include upgrading the kitchen or bathrooms, adding square footage, or improving curb appeal.

Let’s say a homeowner has a property that was built in the 1980s and hasn’t been updated since. The kitchen has outdated appliances, the bathrooms have old fixtures, and the carpet is worn and stained. The homeowner decides to invest in making improvements to the property by renovating the kitchen, upgrading the bathrooms, and installing new flooring throughout the property. After the renovations are completed, the homeowner hires a professional appraiser to evaluate the property’s value. The appraiser takes into account the improvements that were made and compares the property to similar properties in the area. Based on this analysis, the appraiser determines that the property is now worth $50,000 more than it was before the renovations were made.

In this example, the homeowner was able to increase the value of their property by investing in renovations and upgrades. The improvements not only made the property more attractive to potential buyers, but they also increased the property’s value in the eyes of the appraiser.

  1. Rent out a portion of the property: If the property has additional space, such as a basement, garage, or extra bedroom, it can be rented out to generate additional income.

Let’s say a homeowner has a property with a detached garage that is not being used. The homeowner decides to rent out the garage as a storage unit to generate additional income. The homeowner cleans out the garage, installs shelves and locks on the doors, and advertises the space for rent on local classifieds websites and social media.

After a few weeks, the homeowner finds a tenant who is willing to pay $150 per month to use the garage for storage. The homeowner and tenant sign a lease agreement that outlines the terms of the rental, such as the payment due date and the length of the lease.

In this example, the homeowner was able to generate additional income by renting out a portion of their property that was not being used. By turning the unused garage into a rental unit, the homeowner was able to generate steady monthly income without having to make any significant investments or changes to the property.

Keep track of your project costs with these free project cost templates.

  1. Convert the property into a rental property: If the property is not currently being used as a rental property, the owner can consider converting it into one. This can generate steady monthly rental income and potentially increase the property’s value over

time.   Let’s say a homeowner has a property that they inherited from a family member but they already have a primary residence. The homeowner decides to convert the inherited property into a rental property to generate monthly rental income. The homeowner hires a property management company to handle tenant screenings, lease agreements, and maintenance issues.

After making some minor improvements to the property, such as repainting the walls and upgrading the appliances, the property is listed for rent. After a few weeks, a tenant is found and they sign a lease agreement for a monthly rent of $1,500.

In this example, the homeowner was able to generate steady monthly rental income by converting the inherited property into a rental property. This can be a good option for homeowners who have a property that is not being used or who are looking to generate additional income without having to sell the property.  To keep track of your  rental income, Zillow offers Rental Income and Expense Forms and Tools  to down load and use for free. You can get them here.

End of Part 1.

Investment Strategies, Real Estate Market Analysis

How to Analyze any Market Quickly

Investment in Real estate offers many challenges but data science in the path of the uncompromising analytics and using analytics to minimize risk investing and invest in a market that is growing will give you the greatest advantage for a maximum return on investment

Here is how to pick to pick the best cities and neighborhoods to live in and invest in even if you don’t know anything about that market. The most successful investors always do their research before investing   when researching any neighborhood in the country, the best statistic data for any city is www.city-data.com . Here are some key things to look at.

Population Growth.  If a City is between one quarter and one million in population it should show a 20%% growth during 2000 and 2019.

In Columbus, OH the Population in 2019: 898,553 (100% urban, 0% rural). Population change since 2000: +26.3%
Read more www.city-data.com/city/Columbus-Ohio

In larger cities over one million like Los Angeles, an acceptable growth rate is about 15% per year. If the city is over two million then the acceptable growth rate is 10% per year. Larger cities means lower cap rates. Most investors don’t buy in a city with a declining population. Some smaller cities lose population to the bigger cities, so populations should be increasing and not decreasing. The smaller City of Dayton, Ohio lost -15% in population.

Median Household Income the rule of thumb for investors here is the Median Household income should increase 30% from that same nineteen year period 2000 to 2019.  Let’s look again at Columbus, OH. The estimated median household income in 2019: $57,118 (it was $37,897 in 2000) that is 33.65%.

Next Look at the Median Household Income or Condo Value

The rule of thumb for investors here is this value should be at least 40% or more. The estimated median house or condo value in 2019: $173,300 (it was $99,100 in 2000) Columbus: $173,300. The difference is 42.9%.

The site also has  inter active maps for any area  The Median Household Income Map  shows high and lower incomes breaks around the city. This is a good way to look at smaller neighborhoods  around the high median income areas. These are the places to look for good places to invest in real estate. The household income of the neighborhood should be from $40,000 to $100,000 income. The data indicates that delinquency rates increases with incomes less than $30,000.

Crime and change in Crime level – City Data

You want to make sure the city you are investing in has a crime number is lower than 500. That is the same for any size city above 100,000.

Crime data in Blue numbers under on the left are 666.7 on the Left but declining to 423.4 on the right side show the crime levels are declining. Also you can look at the rate of decline which is 63.5% over that same time period. The city of Grand Rapids, IL shows a decline in crime.

Crime level is tied to delinquency. The cost of delinquency for a landlord can include eviction fees and rehab costs that can absorb all the profit you make for the year or more.

When looking are some of the smaller neighborhoods  to move to or invest in,  here are some other things you want to consider;

Median Contract to be Rent $700 to $1000 per month. Never go below 6$50. In our example of Columbus, OH, the Median gross rent in 2019: $984.
Read more: http://www.city-data.com/city/Columbus-Ohio.html

Unemployment Rate

Each city has a map that shows the unemployment rate. For example,  cities like Columbus, Ohio, the unemployment rate is 3.3%. The area you invest in should never have an unemployment rate that is 2% higher than the nearest major cities’ unemployment rate with regard to risk. The nearest major city near Columbus is Cincinnati and their unemployment rate is 3.9% so Columbus has a very low acceptable unemployment rate.

Poverty Rates

The poverty level rule of thumb here is 20% or less. 15% or less is even better. Poverty level over 20% may indicate an unprofitable  neighborhood for investment. In our example City of Columbus, the percentage of residents living in poverty in 2019: 16.3%.

Job Growth

Finally you want to look at employment growth the last twelve months for your area which should show an increase and not a decrease. You can search by state at deptofnumbers.com/employment/states . Search job growth for all the major metro areas at deptofnumbers.com/employment/metros .

Cities that make the cut

Some of the best cities to invest in and live in are Provo Utah, Huntsville, Alabama which is also growing and Meridian, Idaho offers good potential for living and investment. Colorado Springs is also a good from job growth perspective and benefits from the bigger City of Denver. Tacoma benefits from Seattle. Orlando and Tampa also made the cut as did the city in the middle- Lakeland, Florida which benefits from both cities and was voted the number one place to live.  Best Places to Live in America

Remember all investing has some level of risk but knowing how to look for trends by using your cities local data, you can use some of the same rules of thumb that successful investors use to reduce your risk by analyzing your market before you buy.

Disclaimer. this is not financial or real estate investing advice. This article is for educational and informational purposes only.

 

Investment Strategies

Market Trends

If you combine record-low interest rates with a pandemic that has forced many people to work from home, the end result may be an increasing number of Americans that are considering moving.1 Here are the numbers from a recent Redfin survey:

•

In July, Redfin asked 1,000 people who were planning to a buy a home in the next 12 months whether or not the COVID-19 pandemic had impacted their plans. Three quarters of them said it did.

•

One quarter said the pandemic had forced them to speed up their moving timeline.

•

The biggest factors driving buyers’ change of plans? Low mortgage rates (55%), spending more time at home (52%), working from home more often (40%), and the desire to live somewhere less expensive (25%).

Please  call our office if you feel you need appraisal services for listing/ selling or buying.

1Dana Anderson, “Survey: 25% of homebuyers are moving—or moving sooner than planned—because of the pandemic,” Redfin, last updated August 5, 2020.