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  1. 1. Investing in Real Estate Basics Mike Ford Licensed Home Improvements Contractor Licensed Real Estate Salesperson (703)
  2. 2. Course Outline – 1st Session • Introduction, Backgrounds • Student Expectations • Market Review • Types of Sales • Finding the Best Deals 2
  3. 3. Who is Mike Ford Northern Virginia Native Bachelor of Sciences degree in Business Administration from Old Dominion University. Licensed Real Estate Agent - Coldwell Banker Residential Brokerage. Corporate Experience – Fortune 500 Companies – Motorola Communications & McKesson Healthcare, National Healthcare Trade Association Entrepreneur – Owner of The Model Home Look Community Volunteer – Youth Sports, Home Owners Association 3
  4. 4. Recognizing value in RealEstate investmentsWe help clients discern the simpleimprovements from the financial catastrophes.We offer our real estate clients the opportunity to make improvements that make their homes more appealing to prospective home buyers. 4
  5. 5. The Model Home Look –Home Renovation Knowledgeis KeyOur clients have been particularly pleased with our knowledge of home construction, and appreciate the guidance to improvements that provide the most significant returns when the time comes to sell their homes/investments. 5
  6. 6. Understanding HomeValues www.themodelhomelook.comWe help all of our clients identify the home improvements thatwill have the biggest impact on their home’s value. 6
  7. 7. Is it a good time to invest inReal Estate? In a market like this, when people think things are so bad in the market, so horrible and the sky is falling and property values are dropping, thats good news for real estate investors 7
  8. 8. Fairfax County – SoldSummary, January 2011 Jan-2011 Jan-2010 % ChangeSold Dollar $279,113,480 $316,657,625 - 11.86%VolumeAverage Sold $440,938 $433,184 1.79%PriceMedian Sold $360,000 $350,000 2.86%PriceUnits Sold 636 732 -13.11%Average Days 77 57 35.09%on MarketAverage List $454,197 $449,308 1.09%Price for Solds 8
  9. 9. Fairfax County Inventory Jan-10 Jan-112,930 2,791 2,579 2,036 1,531 1,190 1,060 867 549 700 318 360Active New Listings New Under New New Pendings TotalListings Contracts Contingents Pendings 9
  10. 10. Fairfax County Average Sold Price - January 2 or less TH 2 or 3 BR TH 3 BR 4 BR TH 4 BR Condo BR less BRJan-10 $210,444 $259,548 $378,366 $345,808 $683,079 $397,705 $226,608Jan-11 $160,000 $258,580 $397,665 $344,844 $681,983 $370,065 $232,436 10
  11. 11. Fairfax County – Yearto Date 2010 2011 1550 1200 783 644 New Listings Closed Sales 11
  12. 12. Quick Overview –Regional Data• The biggest increase in sales was in homes valued above $1M (+10.9%)• Property type with the strongest sales was Single-Family Detached (-1.9%)• Construction status with strongest sales was Previously Owned (-3.1%) 12
  13. 13. OutlookAs the new year begins, the local housing marketcan look very different depending on what pricerange you’re looking at. For instance, in thestrongest + 10.9% - 3.1% price range for homesales—$1 million and above—Pending Sales areup 10.9 percent over the last twelve months. Butin the $200,001 to $300,000 above range, wheresales are weakest, the numbers have declined by12.6 percent during the same time period. 14
  14. 14. OutlookInventory overall is holding steady, havingfallen by 1.2 percent from a year ago. ButTownhomes have seen their supply inch upby 3.1 percent while single-family detachedhomes and condos have both seen their activelistings drop during the same time frame.New Construction inventory is dropping thefastest, down 9.7 percent from a year ago. 15
  15. 15. OutlookThe price range with the longest Days onMarket Until Sale is the $1 million and aboverange, where the average market time is 123.The ranges with the shortest market time are$300,001 to $400,000 and $500,001 to $1million, where it’s taking a comparativelyshorter 72 days for a home to sell, onaverage. 16
  16. 16. Prices Median Sales Price was up slightly 1.1% compared to last January, registering in at $265,000. If inventory continues to decline, we could see prices start to creep up. 17
  17. 17. Percentage of ListPrice Received at Sale Jan-10 Jan-11 95.80% 95.30% 93.10% 92.90% 92.30% 92.10% Single Family Townhomes Condominums/Other Detatched 18
  18. 18. Median Sales Price –All Properties Single Family Townhomes Condo /Other Detached Jan-10 $300,000.00 $235,000.00 $215,000.00 Jan-11 $304,000.00 $241,500.00 $210,000.00 19
  19. 19. Median Sales Price –Previously Owned Single Family Townhomes Condo /Other Detached Jan-10 $295,000.00 $230,000.00 $205,000.00 Jan-11 $295,000.00 $238,000.00 $200,000.00 20
  20. 20. Median Sales Price –New Construction Single Family Townhomes Condo /Other Detached Jan-10 $410,000.00 $305,118.00 $350,000.00 Jan-11 $407,950.00 $310,450.00 $363,000.00 21
  21. 21. Days on Market UnitSales• The average number of days between when a property is first listed and when an offer is accepted. Sold properties only. 22
  22. 22. Days on market 80 Days – Down 17.8%Properties moving the fastest are in the Core jurisdictions. If interest rates remain at record lows, we expect days on market to continue to decline. 23
  23. 23. Days on Market - All Single Family Townhomes Condo /Other Detached Jan-10 109 74 94 Jan-11 89 60 79 24
  24. 24. Days on Market –Previously Owned Single Family Townhomes Condo /Other Detached Jan-10 108 74 95 Jan-11 88 59 79 25
  25. 25. Days on Market – NewConstruction Single Family Townhomes Condo /Other Detached Jan-10 129 80 82 Jan-11 105 74 79 26
  26. 26. Inventory – AllProperties Single Family Townhomes Condo /Other Detached Jan-10 35,221 9,211 11,858 Jan-11 34,402 9,492 11,733 27
  27. 27. Inventory – PreviouslyOwned Single Family Townhomes Condo /Other Detached Jan-10 29,759 8,347 10,866 Jan-11 29,470 8,614 10,934 28
  28. 28. Inventory – NewConstruction Single Family Townhomes Condo /Other Detached Jan-10 5,462 864 992 Jan-11 4,932 878 799 29
  29. 29. Months Supply ofInventory• Compares the number of active listings available to the average monthly pending sales from the last 12 months. Based on one month of activity. 30
  30. 30. Inventory By Price Range - ALL Month’s Supply of Inventory Jan-10 Jan-11 14.0 11.0 7.1 7.7 5.6 5.9 4.9 5.1 5.0 5.0 5.6 5.2 $200,000 $200K - $300K - $400K - $500K - $1M andand Below $300K $400K $500K $1M above 31
  31. 31. Inventory By Price Range – Previously Owned Month’s Supply of Inventory Jan-10 Jan-11 13.4 10.4 6.8 7.4 5.2 5.5 4.8 4.4 4.4 4.5 4.4 4.3 $200,000 $200K - $300K - $400K - $500K - $1M andand Below $300K $400K $500K $1M above 32
  32. 32. Inventory By Price Range – New Construction Month’s Supply of Inventory Jan-10 Jan-11 15.9 14.3 14.7 13.2 12.9 11.211.9 10.5 11.5 9.6 10.1 8.6 $200,000 $200K - $300K - $400K - $500K - $1M andand Below $300K $400K $500K $1M above 33
  33. 33. Inventory By PropertyType Month’s Supply of Inventory Jan-10 Jan-11 6.8 6.8 6.6 6.6 4.7 4.0Single Family Detached Townhomes Condo/other 34
  34. 34. Inventory By PropertyType Month’s Supply of Inventory Jan-10 Jan-11 11.9 11.0 5.7 5.9 Previously Owned New Construction 35
  35. 35. Inventory Months Supply is 6.3 months.6-month is the desired mark for a balancebetween supply and demand. 36
  36. 36. SummaryStable Market, Prices starting to increase, Interest Rates Ticking Upward, Worst is behind us 37
  37. 37. The Wart on the ―National‖MarketThere are millions and millions of foreclosures or people behind on payments and the number is growing and growing every day. Most of those houses dont have equity because people took out creative loans, interest only loans, borrowed 100 percent of their money and then when their payments reset and the markets dropped everyone lost the equity in their property. 38
  38. 38. National Media PressureFinancial disaster in the housing market as reported in the media 39
  39. 39. Future of Local MarketWe expect that rising demand (propelled by job growth and Federal spending) will bring traction to the Washington housing market, particularly in the Core, as liquidity returns to the credit markets and buyers regain confidence. 40
  40. 40. Future of Local MarketInventory is declining and construction remains low, which will help limit future price declines, we are now seeing prices starting to rise again. Conditions will continue to improve in the close-in communities, with recovery arriving in the outer counties later in the year. 41
  41. 41. Northern Virginia -Best Market for LongTerm Investor• Local Economy is Stronger than the rest of the country.• Government procurement.• Much of what has driven our local economy is emotional. Buyers have been sitting on the sidelines. 42
  42. 42. Strong Local Economy Unemployment Rate12.0%10.0%8.0%6.0% Jan-104.0%2.0%0.0% Fairfax County National Average 43
  43. 43. Cheap MoneyMortgage Interest Rates• 15 Year Fixed 3.68% APR – 4.29% APR• 30 Year Fixed 4.10% APR – 4.84% APR• Mortgages 5/1 Year ARM – 2.89% APR – 3.49 % APRRates provided by 44
  44. 44. Types of Home Sellers1. Distressed sellers who are headed to foreclosure2. Banks who have acquired property through the foreclosure process3. Traditional Sellers 45
  45. 45. Short SaleA short-sale is simply negotiating with the home owners current lender(s) to accept an amount that is less than they are owed. 46
  46. 46. Short SalesA properly structured short-sale transaction can be an attractive alternative and beneficial for all parties to the transaction. 47
  47. 47. Distressed SellerEventually, most homeowners facing foreclosure resign themselves to the fact that they’re going to have to sell their home. Agents present options, such as a short sale, whereby lenders may be willing to take less than the balance owed on their homes. 48
  48. 48. Short Sale HomeOwner BenefitThe homeowner is able to sell the property, get out from under the stress and strain of a foreclosure, and move on with their lives.It helps the homeowner because they do not end up with a foreclosure on their credit report. 49
  49. 49. Short Sale - BankBenefitThe bank that is taking the short is able to avoid the high costs of the foreclosure and the risk of the property reverting back to them at auction, which results in additional costs to secure and upkeep the property. It is said that every foreclosure property that ends up as an REO (Real Estate Owned by the bank) costs the lender approximately $50,000. 50
  50. 50. Short Sale –Investor BenefitThe person buying the property, whether an investor or home buyer, is able to purchase the property, usually at a substantial discount 51
  51. 51. Short Sales – ASimple Solution forAll, Right?Negotiating a successful short-sale is a complicated and time-consuming endeavor.The banks are overwhelmed, and are not easy to navigate for the inexperienced real estate agent or investor. 52
  52. 52. ForeclosureThe legal process by which a mortgagor of real property loses his or her interest in that property for failing to comply with the terms and conditions of the mortgage 53
  53. 53. Foreclosures –Good Deal? Good deals are out there, but you can never assume that you’re getting a bargain simply because it’s a foreclosed property. In states where home prices have risen the most, foreclosed properties sell within 5 percent of their full market value.Source: Study by First American Real EstateSolutions, a Santa Ana, Calif., company thatmaintains a national database of real estate data 54
  54. 54. Foreclosure –Good Deal?Homes that are discounted are often located in unstable communities, are poorly maintained, and require costly improvements — reasons why the prior home owners didn’t just sell the property before defaulting. 55
  55. 55. Foreclosure –Good Deal?The lenders that own foreclosed properties are usually prevented from accepting offers lower than appraised value, at least during the first several months that a home is on the market. 56
  56. 56. ForeclosureRisksCLOUDS ON THE TITLE - Before you bid on a foreclosed property at auction, make sure you know what debts are part of the package. Conduct a title search to determine if any liens or fees are connected to the property. You may discover that you’d be taking on the previous owner’s senior liens (or first mortgages); junior liens (second mortgages or additional claims against the property), or tax liens (unpaid property taxes) 57
  57. 57. Foreclosure RisksPROPERTY CONDITION - Foreclosed properties have previous owners who are in financial troubles, thus the upkeep is usually not maintained.LOCATION - There are properties that sound inexpensively priced but they will not sell high as well despite the repairs because of their location or neighborhood. 58
  58. 58. Traditional SalesMotivated seller who has to move because of situations such as job situation, retirement, family change, etc…They are faced with the reality of market erosion and are now realistic with pricing 59
  59. 59. Finding the best deals?Where to look?• Focus on the best locations with strong rental market.• Understand how to see the ―bones‖ of the property.• Take the emotion out of the purchase. 60
  60. 60. Fundamentals of Real EstateLocation, Location, LocationDesirable Rental MarketPublic TransportationShopping & diningAffordabilityLow Maintenance Costs 61
  61. 61. The ―Bones‖Junk or Treasure? 62
  62. 62. Strategy1. Find a good agent who is a strong negotiator2. Have your financing in order to strike fast3. Zero in on a target location4. Zero in on ideal property 63
  63. 63. Strategy5. Understand the costs associated with renovations – Don’t under estimate!6. Be patient, and don’t get caught up in the emotion of the sale 64
  64. 64. Investor,, 65
  65. 65. Seller Representation• Full Service Listing Agents• Discount Agency• REO Specialist, Representing Banks• Auction Firms• For Sale By Owner 66
  66. 66. Invest in Patience – Tax ImplicationsInvestment profit, regardless of whether it comes from sale of stocks or real estate, is considered and is taxed at two levels. The tax rates depend on how long you own the property.Hold an asset for a year or less and youll face short- term gains that are taxed at ordinary income-tax rates. This could be as high as 35 percent. If your investment timetable is lengthier, federal tax laws reward you. By holding an asset for more than a year, youll face a tax rate closer to 15 percent. 67
  67. 67. Understanding PropertyValue• CMA – Comparative Market Analysis• BPO – Broker Price Opinion• Property Condition – Cost to bring it into today’s standard 70
  68. 68. Managing YourInvestment Property• You’ve done your homework, and closed on your purchase. 71
  69. 69. Section ObjectiveIn this section, we’ll discuss the cost associated with home improvements to increase the value of your real estate investment 72
  70. 70. Reasons for Improving• Pure Enjoyment – (if you plan on moving into your new home)• Maintenance - Small problems often lead to large expenses• Increase probability of selling or renting• To appeal to homebuyer or renter expectations• To replace the low quality ―builder grade‖ fixtures & amenities 73
  71. 71. Avoid Costly Mistakes• Missing out on big money by not making the proper upgrades.• Ignoring simple repairs often lead to big problems.• A job done right the first time is always less expensive. 74
  72. 72. Improvement Discussion • Kitchens • Baths • Paint • Landscaping • Carpet & Flooring • Furnishing • Staging 75
  73. 73. Minimum Expectations ofToday’s Buyers and Renters Reoccurring Buzz Words in Real Estate Advertisements • Updated Kitchen & Baths • Granite Countertops • Stainless Steel Appliances • Hardwood Floors • Open Floor Plan • New Carpet • Fresh Neutral Paint • Show’s Well • Great Curb Appeal • Finished Basement 76
  74. 74. Minimum Expectations ofTodays Homebuyers What Sellers Can Control • Keep a very clean house • Eliminate pet or food odors • Remove clutter • Maintain the lawn and landscaping • Keep bushes and trees trimmed • Make sure your furniture fits properly in the rooms • Clean windows and remove screens • Turn on lights • Open blinds & curtains before every showing 77
  75. 75. Did you Know? Within 15 seconds a buyer has developed an opinion of the property they visit.Prospects must say ―Wow‖ when theyenter a home! • Must reflect today’s homebuyer’s tastes. • Must capture the buyer’s emotions! 78
  76. 76. Public fascination withInterior Design!The world is fascinated with interior design. If youhave any doubt, you need only tune into HGTV, orvisit Crate & Barrel, Restoration Hardware andother retailers. 79
  77. 77. KitchenWhen remodeling your kitchen for resale, steer clear of highly personalized looks and outrageous color schemes. What to look for: • Traditional Materials • Quality Cabinets • Commercial-look Appliances • Natural Wood or Stone Floors • Granite Countertops 80
  78. 78. BathroomA bath remodel may be a sure-fireinvestment, often returning the highestpercent of the cost.• Must be clean, with no visible signs of water of mold.• Caulk and clean grout.• Replace pink or blue fixtures• Remove wallpaper 81
  79. 79. TipTub & Tile Re-GlazingA fairly inexpensive way to update a bathroom is to re-glaze the tub and wall tiles.Re-glazing a typical tub and shower will cost less than $1,000.00. 82
  80. 80. Paint The best investment you can make is fresh paint! • Fix nail pops & cracks. • 3-color with neutral paint color. • Wallpaper is out, remove it! • Hire a professional. A bad paint job will turn off prospective buyers. 83
  81. 81. LandscapingIf people drive by your home and are notimpressed they’re not going to walk inside. • It’s all about curb appeal! • Fresh Mulch • Mow the Lawn • Trim Bushes • Weed 84
  82. 82. Tip Mulch Dye Applying mulch dye, which can be purchased from a specialty landscape supplier, is a low cost way of making the mulch look new again. Expect to pay about $80.00 per gallon. 85
  83. 83. Carpet & Flooring• Worn or outdated carpet should be replaced• Dirty carpet should be cleaned 86
  84. 84. Staging Staging is what you do after youve cleaned, de-cluttered, painted, made repairs; its all about dressing the house for sale. 87
  85. 85. TipYour home must be clean!To achieve this level is usually only feasible by hiring a cleaning crew. In fact, having a cleaning service return weekly while your house is for sale is probably a pretty good investment.Get your windows professionally cleaned inside and out too. 88
  86. 86. Tip Eliminate ClutterClutter makes homes seem smaller and disorganized.Have you ever noticed that the really expensive stores seem to have an expansive, clutter- free layout, while "cheap" stores are often a jumble of merchandise? 89
  87. 87. Tip De-Personalize Remove objects that your potential buyers wont be able to identify with. For example, political and religious items may turn off whole groups of buyers, because they cannot "imagine" your home as their home. Buying a home is an emotional decision, and you want potential buyers to make an emotional connection with your home by being able to "see" themselves in it. 90
  88. 88. Basement Makeover 91
  89. 89. New Countertops & Wall Tile 92
  90. 90. Granite Countertops 93
  91. 91. Countertop & Paint © 2005 Interior Makeovers © 2005 Interior Makeovers 94
  92. 92. Kitchen Makeover 95
  93. 93. Kitchen Makeover 96
  94. 94. Kitchen Makeover 97
  95. 95. Bathroom Improvement 98
  96. 96. Bathroom 99
  97. 97. Hardwood Floors 100
  98. 98. Basement Improvement © 2005 Interior Makeovers © 2005 Interior Makeovers 101
  99. 99. Kitchen Cabinets2/16/2011MikeFord(703) 589-3848 102
  100. 100. Home Office 103
  101. 101. Formal Living Room 104
  102. 102. Family Room2/16/2011MikeFord(703) 589-3848 105
  103. 103. Builders have MODELHOMES – Why?TO CREATE SALESThey understand that buyers want ahome in near-perfect ―model home‖move-in condition where all the buyermust do is turn the key in the frontdoor and move in. 106
  104. 104. Reasons HomeownersDo Not Invest to Selltheir Home?• Don’t have the time• Think it is too costly• Unsure of which improvements yield the highest return• Believe their personal decoration style is appealing to today’s homebuyers• Believe that a price allowance can be made when the home is sold 107