Drick Ward

A few years ago, it was common in many markets for real estate investors to buy houses, update or repair them to bring them current to buyer's tastes, and sell at a profit a few months later. For most markets, those days are gone. The problem with flips (and flippers) is that they were primarily in the get-rich-quick game-which may work for a while, but doesn't last forever. You can still make money by applying some of the principles touted on HGTV, TLC, and the like, but it's a slower path to your payday. I call this strategy a "slow flip". In earlier articles, I covered the concept and finding the right house.

Each house is different and has different needs, but the basic approach is to get something that can be improved to your personal tastes, but still be suitable for the neighborhood (or you'll have to wait decades to get your money back and by then your choices will be dated).

We've all heard that kitchens and master baths are the two areas you'll more consistently recoup your money. Here are some ideas for hose rooms and a few other places:

• Kitchen - quality AND quantity of cabinetry and counter space. Old pressboard cabinets could be replaced. Quality wood cabinetry might be sanded and stained or painted. Countertops should be appropriate for the neighborhood (starter homes don't need granite unless it's expected in that neighborhood - your Realtor^® can advise you on this.) If you are replacing cabinets and countertops, consider a redesign - older homes may not have had as much space as what buyer's expect today. Be sure you've got enough electrical outlets and that they are GFCI protected, add a built in microwave range hood, ensure the cabinets allow for today's taller and wider refrigerators. Replace florescent lights with recessed lighting and add under-cabinet lights for prep areas on countertops. Be sure the refrigerator has a water line. Ceramic tile floors complete the room.
• Master Bath - consider heated ceramic tile floors unless the floors are already in top notch shape. Larger bath rooms are more likely to accommodate dual sinks and consider adult height countertops for the bath vanity. If you're doing any plumbing work in the shower, would a rain can coming out of the ceiling be an option? (It's a real selling point for tall people.) Update the light fixtures to something current looking.
• Whole House Flooring - Hardwood might need to be sanded and refinished, carpet might need to be removed (and in homes of a certain age, there may be hardwood beneath the carpet). Vinyl might be replaced with tile, decks and cement can be power-washed, sealed, and if appropriate (such as garage floors) an epoxy overlayment.
• Rooms and Doors - consider updating old hollow core cheap doors with panel doors, look to see if adding a doorway could change the use of a room (for instance, a hall bath that is adjacent to a bedroom could become a second master if there is room to add a door connecting the two - even if it means relocating a closet in the bedroom so the door has a place to go.)
• Other Things - skylights add natural light, old rickety sliding glass doors can be replaced with energy efficient French doors. A portico at the front door might be a welcome addition when you get home on rainy days.
• Yard - a hedge provides a natural barrier, extra privacy, and it's green. Check to see what plants grow well in your area and try to stick to those that are indigenous as they will be easier to grow. Planning your landscape and getting the changes in during year one will make you much happier in year three when your plans have all filled in. If installing an inground sprinkler system is appropriate for the neighborhood and region, it's best to get that done BEFORE you start making your other landscape updates.

Get general ideas of prices for the things you're most likely going to want to change. That information will be useful in creating your budget, which will be my next post.

For answers to all your residential real estate questions in Hampton Roads,
Contact Drick Ward - Exit Realty Central
757-227-9007

A few years ago, it was common in many markets for real estate investors to buy houses, update or repair them to bring them current to buyer's tastes, and sell at a profit a few months later. For most markets, those days are gone. The problem with flips (and flippers) is that they were primarily in the get-rich-quick game-which may work for a while, but doesn't last forever. You can still make money by applying some of the principles touted on HGTV, TLC, and the like, but it's a slower path to your payday. I call this strategy a "slow flip".

Get a Realtor^® who understands your objectives (educate them if you have to). You generally want a property that you can purchase 10% below market due to the fact that it needs repairs or updating to be truly competitive on the current market. Since you're going to live in it for a few years yourself, you don't need to hold to the traditional 20% below market in order to come out ahead. Some people want to search for themselves, that's not a good idea. Why don't you want to find the property yourself?

• Realtors^® have the MLS that's the database of properties for sale
• Realtors^® have better search tools
• Realtors^® do this every day
  • We know the neighborhoods and what's expected in each
  • We recognize value more easily than those unfamiliar
  • We hear about properties that aren't on the market yet
  • We have connections with the professionals you'll need

Once you've selected a Realtor^®, get your financing lined up so you know how much house you can purchase. Also, establish your repairs budget which is usually 10% - 15% of purchase price. Based on your financial information and your level of tolerance for making repairs or adding updates, decide if you want an older home that needs updating, a foreclosure home that needs repairs, or a combination of the two.

In my next post, I'll provide some ideas on what changes can be made to improve the subject property.

For answers to all your residential real estate questions in Hampton Roads,
Contact Drick Ward - Exit Realty Central
757-227-9007

A few years ago, it was common in many markets for real estate investors to buy houses, update or repair them to bring them current to buyer's tastes, and sell at a profit a few months later. For most markets, those days are gone. The problem with flips (and flippers) is that they were primarily in the get-rich-quick game, which may work for a while, but doesn't last forever. You can still make money by applying some of the principles touted on HGTV, TLC, and the like, but it's a slower path to your payday. I call this strategy a "slow flip".

Traditional flippers were not just finding properties that NEEDED to be repaired or updated, they would also over-improve properties that had nothing wrong with them. This approach is not going to be as profitable now, so it's best to stick to the properties that NEED to be updated or repaired. You know the ones I mean, the kitchen and bath floors have peel-and-stick tile flooring, the kitchen appliances are avocado green or harvest gold, where wallpaper is present, it's dated, stained, peeling at the edges, or all of the above.

Ideal candidate properties can be found on the foreclosure market, but know your limitations before deciding whether you want the house that needs repairs or the one that just needs updating. If you're comfortable doing the work yourself, that's one way to build sweat equity, but realize it will take much longer than you originally estimate (no matter what) and you must be prepared to do the job right, this isn't something you're going to unload on an unsuspecting stranger in 3 months. The difference in a slow flip, is that you

1. purchase,
2. repair or update,
3. move in yourself for at least two years or longer (to avoid capital gains taxes),
4. then sell (or rent out for up to 35 months before selling to realize additional appreciation with time and still avoid capital gains taxes).

In my next post, I'll explain more about finding the right property for you.

For answers to all your housing questions in Hampton Roads,
Contact Drick Ward - Exit Realty Central
757-227-9007

It was a great time to buy, it was an awful time to buy. Ok, that's the extent of the similarity to a literary work we all had to read some years ago. But now that I have your attention, I'm puzzled at the logic some military people rely on for their purchase decision. We have a large military presence in Hampton Roads, so people often arrive for only a few years, then transfer. When screening prospective tenants for the rental properties I manage, I always ask if they have considered purchasing. Here's a recent response...

"I have no intention of purchasing a home here. We will be leaving in 3 years." Really? Have you even considered the impact on you and your family with all the facts?

• Cash out of pocket. For the renter, assume three one year leases with $25 increase each year. Start at $1,200. At the end of three years, you've paid $44,100 in rent. For the buyer, a comparable house selling just over $175,000 with all closing costs paid and a PITI of $1200/month on a VA 100% loan. At the end of those same 3 years, you've paid $42,000, but let's add 3 years of home warranty so you don't have unexpected expenses if the water heater breaks-just to keep it similar to the renters. You've paid about $44,100. Wow - pretty close to what the tenants paid.
• Future value. Well, for the tenant the future value is zero. They didn't buy anything, so that's easy math. For the homeowner, let's assume a modest 2% appreciation which nets them about $10,700 over the three years. I personally think it's reasonable to expect more than 2% appreciation, but for the sake of argument, we'll keep it conservative.
• Tax advantage. The renters paid taxes on all the money they made, so they get no tax advantage. The buyers, however, were able to deduct their real estate taxes and interest each month, so that's about $30,000 in interest and another $3,500 in real estate taxes for a total of $33,500 that according to the IRS, they did not make so they did not pay taxes on that amount over the three years. If you're able to close before the first-time buyer credit expires, you get a gift of $8,000 from the government-that's not like making an extra $8,000. It is the government paying $8k of your taxes for you, which is like making quite a bit more (how much more depends on your tax rate).
• More opportunities. Homeowners this year can spend $5,000 in energy improvements for their home and get $1,500 of it back as a tax credit. Renters don't have that option so they are paying higher utility bills AND can't do anything about it. It's the homeowners who get the best benefits when the government starts passing out tax advantages.
• Stability. What if appreciation is more than 2%? What if rent goes up by more than $25 a month each year when the lease is renewed? The homeowner knows what to expect in expenses and has the benefit of a rising market, the renter has no control over rent increases and doesn't benefit as house values rise (in fact they are then more likely to have rent increases.)
• Contingency plan. We don't know what the future will hold, so if it's not a good time to sell in 3 years or if you get unexpectedly transferred sooner, you might have to keep the place and rent it out until the market improves. That would mean you've got to rent at the next place you go.
  • Now compare the rental applications of the two people at their next duty station. One has built credit by paying a mortgage and they can say that they own real estate elsewhere. The other has a lower credit score and doesn't own anything of value. Which application do you think is going to get approved and quite possibly be on more favorable terms?
  • Since you're not in the area, you'll need someone to manage your rental while you're gone, so what if that costs you $200 a month more than you are bringing in? Don't you think the tax savings and appreciation during your absence will balance that out if not eliminate it completely?
  • What if you need to borrow some money at some point during the three years you are here? Don't you think you'll have a greater likelihood of favorable terms and loan approval if you are a homeowner with good credit?
• Costs of selling. This is the only one where renters make out better. They have no cost of selling because they have nothing to sell. If the homeowner pays $12,000 to sell their place after 3 years, they have almost broken even - not to mention all the tax savings they retained, the better standard of living they had while in their home, and the ability to exercise more control over their financial future.

So, to summarize..

Now when you factor in the reality that...

1. 1. 1. we are at the bottom of the market
      2. interest rates on mortgages are low
      3. there is ample supply of housing to select from

It seems like a no-brainer. I would understand if someone says they don't want to buy because they are leaving in a year, but if you're here for 3 years, it seems crazy NOT to buy.

This post does not examine all the aspects of home ownership, be sure to discuss that with your real estate agent and consider what makes the most sense for YOU in YOUR situation.

For more information on housing choices in Hampton Roads,
contact Drick Ward, or search for yourself at www.ExitVirginiaBeach.com

Great news for Hampton Roads residents who own a home with Chinese drywall. You may be entitled to a tax deduction worth tens of thousands of dollars. Senator Jim Webb contacted the IRS and they responded. Check with your tax preparer for details on how this may apply to your unique situation, but be sure to check on it this year. Read the full story from the Virginian Pilot.