Quick sale investor promise?

Is a quick sale to a real estate investor worth it?

House flipping is a misunderstood industry.  Sure, these investors promise a quick sale, but legitimate home flipping is valuable to the real estate industry and the community.  Home flippers revitalize run-down homes, and market appealing homes to home buyers.  In a low inventory housing market, home flips have become a significant percentage of home sales in a low inventory market.

House flipping data

quick sale
House flipping is a significant portion of home sales (Home Stats infographic from nar.realtor)

ATTOM Data Solutions (attomdata.com), the data solutions behind Realtytrac, recently released its Home Flipping Report for Q1 2018.  The report indicated that there were 48,457 U.S. homes that were flipped, which represented 6.9 percent of all home sales.  Although the number of homes flipped decreased 3 percent from last year, the percentage of flipped homes in the home sale inventory increased!  The number of flipped homes decreased to a two-year low, but the home flipping rate is the highest since 2012.  The average gross profit of $69,500 is at the highest point since ATTOM started collecting the data in 2000.

Given the stats and profits, it was just a matter of time for the mom and pop home flipping business to become corporatized.  Using the power of the internet and corporate financing, companies such as Opendoor, Offerpad, and recently Zillow have become players in house flipping business.  Whether corporate flippers are profitable or have a sustainable business model is for another column.  But, there is no doubt that home sellers are seduced by one-click instant offers and promises of a quick closing.

How real estate  investors operate

House flippers are known to buy foreclosures and other financially distressed properties.  However, these real estate investors also go after other properties too, as long as it’s financially feasible (it’s a business after all).  Other types of targeted homes include estate sales, divorce sales, long-time rentals, and outdated or obsolete homes.  So, if you haven’t already received a letter offering you a quick offer and fast closing, it’s just a matter of time.

For some home sellers, a quick sale to an investor is fitting.  The seller is disposing of a home that would otherwise continue to be a financial burden and deteriorate further.  However, many realize they can sell for more on the open market (MLS).

Is a quick sale to an investor all it’s cracked up to be?

If you’re thinking of selling your home (or even currently selling), you might be fascinated by the idea of a quick sale.  But for most, the dream of selling for a large sum and closing quickly is just a fantasy.  You should realize that home flipping is risky business, and the investors build their costs into their offer.  So, be prepared for a really low offer.  A typical investor offer is about 70 percent of the home’s value minus rehab, carrying, and marketing costs.

Before you sell to an investor, do your due diligence.  Compare multiple investor offers.  Verify that the investor is legitimate.  Be wary of investors who include extended contingencies.  Be aware that “wholesalers” will tie up your home while looking to sell their purchase contract to other investors.  Although most investors promise “cash” deals, the reality is that most investors actually borrow money.  It is not uncommon for investors to back out or default on a deal because their financing doesn’t come through.  Most important, have your attorney review any contract before you sign.

Also, talk to a Realtor.  You could possibly sell your home for more than the investor’s “instant” offer.  Marketing your home on the MLS at a price appropriate for its condition could net you more.

Original is located at https://dankrell.com/blog/2018/10/11/quick-sale-promises/

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Vacation home buying

Buying a vacation home

Vacation Home
Vacation Homes (infographic from realtor.org)

A trip to the beach or mountains may have you wondering about owning your own vacation home.  And as it happened you’re not alone!  An April 1st 2015 National Association of Realtors® press release estimated that vacation home sales bounced back to peak levels in 2014.  There was a massive 57.4% increase over 2013 sales!  In contrast, during the same period there was an estimated 7.4% decrease in investment home sales. And an estimated 12.8% decrease in owner occupied home sales (realtor.org).

Although your motivations may be personal, the NAR’s 2015 Investment and Vacation Home Buyers Survey revealed that there are various reasons to buy a vacation home.  Not a surprise, a majority of those surveyed (33% of respondents) indicated the primary reason they bought was to use for vacations or family retreats.  However, 19% of respondents indicated their purchase was for a future retirement home, while 11% or respondents bought for the home to be used as a rental property.

Do the research

You’ll find vacation homes in different styles, sizes and prices.  However, your favorite destination may dictate the price range and style.  You may realize that although you are able to afford the week’s rental at your favorite retreat, you can’t afford to buy a vacation home there.  However, if you broaden the search area, you may find suitable and lower priced vacation home nearby.

Benefits

You may have heard others talk about the benefits of their vacation home, such as being able to visit any time they desire without having to worry about reservations, or restrictive check-in and check-out times.  They usually don’t have to worry about having too many guests either, as they can invite whomever they wish to keep them company.  And they don’t have to worry about special accommodations – it’s their home after all!

Disadvantages

There are benefits of owning your own vacation to be sure.  However, it’s probable that you may not hear vacation home owners talk about the downside.  Jeff Brown, writing for US News and World Report, stated: “A second home can produce a wonderful family tradition or turn into a stress-inducing money pit.” (The Pros and Cons of Investing in a Vacation Home; usnews.com; February 10, 2016).  Brown quoted Alison Bernstein, founder of Suburban Jungle, saying: “It is less expensive to stay in hotels in various destinations than it is to upkeep a home, including the hidden expenses of caretaking, overall operations of a home and property taxes…However, for those that are able to enjoy it, it is definitely worth it.”

Brown points out the increasing costs of ownership.  Property taxes, insurance, and possibly a condo or HOA fee can increase.  Additionally, the vacation home requires regular maintenance just like your primary residence.  Repairs may compel you to make extra trips to work on the home rather than being a relaxing holiday.

Brown cautions that a vacation home may not be the best vehicle for investment because of the volatility of resort property.  Additionally, if you need the money, it’s more difficult to tap the equity in a second home.  Applying the tax advantages can be tricky too, so consulting with a tax professional before buying a vacation home would be wise.  Self-managing the property can become aggravating, as it can be difficult to find tenants during the off season; however, hiring a management company can be pricey.

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Real estate bargains

real estateThe typical real estate investor and the average home buyer have something in common – they both are looking for a home that makes financial sense, a bargain if you will. After all, who wants to overpay for their home? Although the investor’s priority is purely financial, a home buyer’s priority is a mix of lifestyle requirements that fits a budget. Even with priorities in line, both investors and home buyers don’t always recognize a bargain when it presents itself.

Finding a bargain home is not as easy as some will have you believe. Bargain hunters typically look for distressed properties such as foreclosures (also known as “bank owned” or REO homes) and short sales. Although there was abundant opportunity to buying such homes immediately after the housing crash, many were hesitant due to lack of market confidence. However, as confidence was revived in the housing market, the courthouse real estate auctions were once again attended home buyers and investors looking for good buys. And as home prices increased, so did the price for distressed properties; making it more difficult to find the bargain home. Even “motivated” home owners may not be as motivated as you think in today’s market.

real estate bargains
from Trulia.com

This phenomenon is corroborated by a recent study of “bargain homes” by Trulia’s research blog. Ralph McLaughlin reported on January 7th (Where Is A “Bargain” Really A Bargain?; trulia.com) that advertised bargains were actually good buys in 55 of 100 housing markets. Furthermore, hot markets tend to offer less price discounting than cooler markets; home sellers are less inclined to make price reductions in markets where there is increased buyer competition. Locally, the Baltimore metro region was found to be in the top discounted markets for bargain homes (with an average discount of 11.3%); while the Washington DC metro region was found to be in bottom of discounted markets with an average of 4% discount on a bargain home.

It’s clear now that home prices were at the bottom during 2008-2009. At that time, home inventories swelled and there was an abundance of (what would seem today) “cheap” homes for sale. I wrote at that time (If Cheap isn’t Selling, What is?; May 28, 2008) about how cheap homes were not selling, and how home buyers changed their focus from “buy anything” to buying quality homes that impart value. Of course, one of the main reasons cheap homes were not selling quickly was that there was an additional cost associated with the purchase; most of the cheap homes were distressed and required rehab, or at the very least needed updates and minor renovations.

For most investors, the concept of a bargain home is strictly the result of numbers in a formula; and for some home buyers, the bargain may be about getting a good price. However, a bargain home could be more than just the price tag. Maybe the bargain home is also the “value added” home. Rather than just focusing on price, buyers should also be aware of a home’s potential. Of course there is always risk when buying a home, which we experienced during the financial meltdown eight years ago.

Regardless, many lament having not bought homes at or near the price bottom. But hindsight is 20/20. And what didn’t seem like a bargain just a few years ago, is in comparison to today’s increasing home prices and an active housing market, a missed opportunity.

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Post crisis real estate investing

by Dan Krell ©2012
DanKrell.com

horseWatching an interview of Chef Bobby Flay this week, talk about the possibly of buying a horse at the Fasig Tipton Yearling Auction in Saratoga Springs, NY, I heard him say, “I’m actually looking at this like buying a building, literally…it’s like buying a really expensive piece of real estate…”

Well, why not buy that expensive piece of real estate? Some experts are still saying that real estate is still one of the core investment assets. For example: Brad Case, of the National Association of Real Estate Investment Trusts®, in his June 2011 article in Financial Planning (“School is in”; 41, 3), discussed the importance of real estate as an investment class. Case stated that, real estate is a “basic” investment class. He continued by quoting some of the most influential financial experts on real estate investing: “…Burton Malkiel, the Princeton professor and former member of the Council of Economic Advisors who wrote the famous investing manual, A Random Walk Down Wall Street, said, ‘There are only four types of investment categories that you need to consider: cash, bonds, common stocks and real estate.’ Mark Anson, who led the largest pension funds in both the U.S. (CalPERS) and the U.K. (British Telecom), completely agreed: ‘Equity, fixed income, cash and real estate are the basic asset classes that must be held within a diversified portfolio’…”

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Ann Marsh, in her may 2012 article “Real estate’s rehabilitation” (Financial Planning, 42, 56), also agreed. She stated that not only are financial planners urging their clients to buy into real estate investment trusts (REITs), some planners are urging the “outright” purchase of individual buildings.

Of course, when thinking of real estate investing, most people think about residential real estate – in particular flipping homes or owning rental properties. Investors looking for rental properties tend to look at long term value (appreciation) as well as having a positive cash flow; while home flippers are interested in renovating a home and selling for a quick profit.

commercial real estateResidential real estate is not the only opportunity for investors. Some real estate investors look for deals in commercial buildings; the market downturn has added to the possibilities too. Investors in commercial properties tend to look for development opportunities as well as long term retention.

Another way to invest in real estate is through a real estate investment trust (REIT). The REIT investment structure has been around for many years, and may provide the real estate investor access to investments they might not otherwise purchase on their own. There are many types of REITS, some invest broadly in many types of real estate; while some are focused on specific types of properties (e.g., shopping centers, storage centers, apartments, etc).

Clearly, there are many risks involved in real estate investing. Of course there are financial risks, but there also a time investment required. Additionally: cash flow can become an issue when tenants stop paying rent, or unexpected maintenance issues need attention; rehab or development costs can skyrocket when unexpected obstacles are encountered; and when selling, you may not realize the sale price you initially estimated due to market fluctuations, bad appraisals, etc.

Although some real estate investors are successful; many real estate investors lose money. Before you decide to invest in real estate, you should consult investment, financial, real estate, and other professionals to assist you with the research and due diligence.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 6 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.