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This is the course material for the first session of Investing in Real Estate Basics. The course is offered by Fairfax County Adult Education and presented by Mike Ford, President of The Model Home Look in Fairfax, VA.

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  1. 1. Investing in Real Estate Basics <br />Mike Ford<br />Licensed Home Improvements Contractor<br />Licensed Real Estate Salesperson<br />(703) 589-3848<br /><br /><br />
  2. 2. 2<br />Course Outline – 1st Session<br />Introduction, Backgrounds<br />Student Expectations <br />Market Review<br />Types of Sales<br />Finding the Best Deals<br />
  3. 3. 3<br />Who is Mike Ford<br />Northern Virginia Native<br />Bachelor of Sciences degree in Business Administration from Old Dominion University.<br />Licensed Real Estate Agent - Coldwell Banker Residential Brokerage.<br />Corporate Experience – Fortune 500 Companies – Motorola Communications & McKesson Healthcare, National Healthcare Trade Association<br />Entrepreneur – Owner of The Model Home Look <br />Community Volunteer – Youth Sports, Home Owners Association<br />
  4. 4. 4<br />Recognizing value in Real Estate investments <br />We help clients discern the simple improvements from the financial catastrophes.<br />We offer our real estate clients the opportunity to make improvements that make their homes more appealing to prospective home buyers.  <br />
  5. 5. 5<br />The Model Home Look – Home Renovation Knowledge is Key<br />Our 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.<br />
  6. 6. 6<br />Understanding Home Values<br /><br />We help all of our clients identify the home improvements that will have the biggest impact on their home’s value. <br />
  7. 7. 7<br />Is it a good time to invest in Real Estate?<br />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, that's good news for real estate investors <br />
  8. 8. Fairfax County – Sold Summary, January 2011<br />8<br />
  9. 9. Fairfax County Inventory<br />9<br />
  10. 10. Fairfax County Average Sold Price - January<br />10<br />
  11. 11. Fairfax County – Year to Date<br />11<br />
  12. 12. The biggest increase in sales was in homes valued above $1M (+10.9%)<br />Property type with the strongest sales was Single-Family Detached (-1.9%)<br />Construction status with strongest sales was Previously Owned (-3.1%) <br />Quick Overview – Regional Data<br />12<br />
  13. 13. 13<br />Timing the Market – Regional Forecast<br />Pending Sales decreased 7.2% from last year to arrive at 9,403.<br />New Listings fell 2.9% since last September<br />Overall inventory near even at 65,441<br />Median Sales Price up 1.9%<br />Inventory could creep up putting pressure on prices<br />
  14. 14. Outlook<br />14<br />As the new year begins, the local housing market can look very different depending on what price range you’re looking at. For instance, in the strongest + 10.9% - 3.1% price range for home sales—$1 million and above—Pending Sales are up 10.9 percent over the last twelve months. But in the $200,001 to $300,000 above range, where sales are weakest, the numbers have declined by 12.6 percent during the same time period.<br />
  15. 15. Outlook<br />15<br />Inventory overall is holding steady, having fallen by 1.2 percent from a year ago. But Townhomes have seen their supply inch up by 3.1 percent while single-family detached homes and condos have both seen their active listings drop during the same time frame. New Construction inventory is dropping the fastest, down 9.7 percent from a year ago.<br />
  16. 16. Outlook<br />16<br />The price range with the longest Days on Market Until Sale is the $1 million and above range, where the average market time is 123. The ranges with the shortest market time are $300,001 to $400,000 and $500,001 to $1 million, where it’s taking a comparatively shorter 72 days for a home to sell, on average.<br />
  17. 17. 17<br />Prices<br />Median Sales Price was up slightly 1.1% compared to last January, registering in at $265,000.<br />If inventory continues to decline, we could see prices start to creep up.<br />
  18. 18. Percentage of List Price Received at Sale<br />18<br />
  19. 19. Median Sales Price – All Properties<br />19<br />
  20. 20. Median Sales Price – Previously Owned<br />20<br />
  21. 21. Median Sales Price – New Construction<br />21<br />
  22. 22. The average number of days between when a property is first listed and when an offer is accepted. Sold properties only.<br />Days on Market Unit Sales<br />22<br />
  23. 23. 23<br />Days on market<br />80 Days – Down 17.8%<br />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.<br />
  24. 24. Days on Market - All<br />24<br />
  25. 25. Days on Market – Previously Owned<br />25<br />
  26. 26. Days on Market – New Construction<br />26<br />
  27. 27. Inventory – All Properties<br />27<br />
  28. 28. Inventory – Previously Owned<br />28<br />
  29. 29. Inventory – New Construction<br />29<br />
  30. 30. Compares the number of active listings available to the average monthly pending sales from the last 12 months. Based on one month of activity.<br />Months Supply of Inventory<br />30<br />
  31. 31. Inventory By Price Range - ALL<br />31<br />
  32. 32. Inventory By Price Range – Previously Owned<br />32<br />
  33. 33. Inventory By Price Range – New Construction<br />33<br />
  34. 34. Inventory By Property Type<br />34<br />
  35. 35. Inventory By Property Type<br />35<br />
  36. 36. 36<br />Inventory<br />Months Supply is 6.3 months. <br />6-month is the desired mark for a balance between supply and demand.<br />
  37. 37. Stable Market, Prices starting to increase, Interest Rates Ticking Upward, Worst is behind us<br />Summary<br />37<br />
  38. 38. 38<br />The Wart on the “National” Market<br />There are millions and millions of foreclosures or people behind on payments and the number is growing and growing every day. Most of those houses don't 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. <br />
  39. 39. National Media Pressure<br />Financial disaster in the housing market as reported in the media<br />39<br />
  40. 40. 40<br />Future of Local Market<br />We 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. <br />
  41. 41. 41<br />Future of Local Market<br />Inventory 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.<br />
  42. 42. 42<br />Northern Virginia - Best Market for Long Term Investor<br />Local Economy is Stronger than the rest of the country.<br />Government procurement.<br />Much of what has driven our local economy is emotional. Buyers have been sitting on the sidelines.<br />
  43. 43. Strong Local Economy<br />43<br />
  44. 44. 44<br />Cheap Money<br />Mortgage Interest Rates<br />15 Year Fixed 3.68% APR – 4.29% APR<br />30 Year Fixed 4.10% APR – 4.84% APR <br />Mortgages 5/1 Year ARM – 2.89% APR – 3.49 % APR<br />Rates provided by<br />
  45. 45. 45<br />Types of Home Sellers<br />Distressed sellers who are headed to foreclosure<br />Banks who have acquired property through the foreclosure process<br />Traditional Sellers <br />
  46. 46. 46<br />Short Sale<br />A short-sale is simply negotiating with the home owner's current lender(s) to accept an amount that is less than they are owed.<br />
  47. 47. 47<br />Short Sales<br />A properly structured short-sale transaction can be an attractive alternative and beneficial for all parties to the transaction.<br />
  48. 48. 48<br />Distressed Seller<br />Eventually, 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.<br />
  49. 49. 49<br />Short Sale Home Owner Benefit<br />The homeowner is able to sell the property, get out from under the stress and strain of a foreclosure, and move on with their lives.<br />It helps the homeowner because they do not end up with a foreclosure on their credit report.<br />
  50. 50. 50<br />Short Sale - Bank Benefit<br />The 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. <br />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.<br />
  51. 51. 51<br />Short Sale – Investor Benefit<br />The person buying the property, whether an investor or home buyer, is able to purchase the property, usually at a substantial discount<br />
  52. 52. 52<br />Short Sales – A Simple Solution for All, Right?<br />Negotiating a successful short-sale is a complicated and time-consuming endeavor. <br />The banks are overwhelmed, and are not easy to navigate for the inexperienced real estate agent or investor.<br />
  53. 53. 53<br />Foreclosure<br />The 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<br />
  54. 54. 54<br />Foreclosures – Good Deal?<br />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.<br />Source: Study by First American Real Estate Solutions, a Santa Ana, Calif., company that maintains a national database of real estate data <br />
  55. 55. 55<br />Foreclosure – Good Deal?<br />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. <br />
  56. 56. 56<br />Foreclosure – Good Deal?<br />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.<br />
  57. 57. 57<br />Foreclosure Risks<br />CLOUDS 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)<br />
  58. 58. 58<br />Foreclosure Risks<br />PROPERTY CONDITION - Foreclosed properties have previous owners who are in financial troubles, thus the upkeep is usually not maintained.<br />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.<br />
  59. 59. 59<br />Traditional Sales<br />Motivated seller who has to move because of situations such as job situation, retirement, family change, etc…<br />They are faced with the reality of market erosion and are now realistic with pricing<br />
  60. 60. 60<br />Finding the best deals?<br />Where to look?<br />Focus on the best locations with strong rental market. <br />Understand how to see the “bones” of the property.<br />Take the emotion out of the purchase.<br />
  61. 61. Fundamentals of Real Estate<br />Location, Location, Location<br />61<br /><ul><li>Desirable Rental Market
  62. 62. Public Transportation
  63. 63. Shopping & dining
  64. 64. Affordability
  65. 65. Low Maintenance Costs</li></li></ul><li>Junk or Treasure? <br />The “Bones”<br />62<br />
  66. 66. 63<br />Strategy <br />Find a good agent who is a strong negotiator<br />Have your financing in order to strike fast<br />Zero in on a target location<br />Zero in on ideal property<br />
  67. 67. 64<br />Strategy<br />Understand the costs associated with renovations – Don’t under estimate!<br />Be patient, and don’t get caught up in the emotion of the sale<br />
  68. 68. 65<br />Investor Resources<br />,, <br />
  69. 69. 66<br />Seller Representation<br />Full Service Listing Agents<br />Discount Agency<br />REO Specialist, Representing Banks<br />Auction Firms<br />For Sale By Owner<br />
  70. 70. 67<br />Invest in Patience – Tax Implications<br />Investment 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.<br />Hold an asset for a year or less and you'll 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, you'll face a tax rate closer to 15 percent.<br />
  71. 71. 68<br />Like Kind Exchange<br />Popular strategy during the boom market when people were selling their house within 2 years of ownership. Seller wanted to avoid capital gains tax.<br />
  72. 72. 69<br />Like Kind Exchange<br />"The parameters here basically can be pretty broad, as long as you trade an investment property, or business property, for a similar one," says Davis. "For instance, you can swap undeveloped land for developed land, or vice versa. You can swap a residential rental home for a commercial property. The only restriction: The exchanged property can't be a personal asset. It has to be an income-producing asset."<br />Keep in mind that a like-kind exchange will only postpone your tax bill. When you ultimately dispose of the investment property you acquired in the exchange, you'll owe taxes.<br />
  73. 73. 70<br />Understanding Property Value<br />CMA – Comparative Market Analysis<br />BPO – Broker Price Opinion<br />Property Condition – Cost to bring it into today’s standard<br />
  74. 74. 71<br />Managing Your Investment Property<br />You’ve done your homework, and closed on your purchase.<br />
  75. 75. 72<br />BREAK<br />
  76. 76. 73<br />Section Objective<br />In this section, we’ll discuss the cost associated with home improvements to increase the value of your real estate investment<br />
  77. 77. 74<br />Reasons for Improving<br />Pure Enjoyment – (if you plan on moving into your new home)<br />Maintenance - Small problems often lead to large expenses<br />Increase probability of selling or renting<br />To appeal to homebuyer or renter expectations<br />To replace the low quality “builder grade” fixtures & amenities<br />
  78. 78. 75<br />Avoid Costly Mistakes<br />Missing out on big money by not making the proper upgrades.<br />Ignoring simple repairs often lead to big problems.<br />A job done right the first time is always less expensive.<br />
  79. 79. 76<br />Improvement Discussion<br />Kitchens<br />Baths<br />Paint<br />Landscaping<br />Carpet & Flooring<br />Furnishing<br />Staging<br />
  80. 80. 77<br />Minimum Expectations of Today’s Buyers and Renters<br />Reoccurring Buzz Words in Real Estate Advertisements<br />Updated Kitchen & Baths<br />Granite Countertops <br />Stainless Steel Appliances<br />Hardwood Floors<br />Open Floor Plan<br />New Carpet<br />Fresh Neutral Paint<br />Show’s Well<br />Great Curb Appeal<br />Finished Basement<br />
  81. 81. 78<br />Minimum Expectations of Today's Homebuyers<br />What Sellers Can Control<br />Keep a very clean house<br />Eliminate pet or food odors<br />Remove clutter<br />Maintain the lawn and landscaping<br />Keep bushes and trees trimmed<br />Make sure your furniture fits properly in the rooms<br />Clean windows and remove screens<br />Turn on lights<br />Open blinds & curtains before every showing<br />
  82. 82. 79<br />Did you Know?<br />Within 15 seconds a buyer has developed an opinion of the property they visit.<br />Prospects must say “Wow” when they enter a home!<br />Must reflect today’s homebuyer’s tastes.<br />Must capture the buyer’s emotions!<br />
  83. 83. 80<br />The world is fascinated with interior design. If you have any doubt, you need only tune into HGTV, or visit Crate & Barrel, Restoration Hardware and other retailers.<br />Public fascination with Interior Design!<br />
  84. 84. 81<br />Kitchen<br />When remodeling your kitchen for resale, steer clear of highly personalized looks and outrageous color schemes.<br />What to look for:<br /><ul><li> Traditional Materials
  85. 85. Quality Cabinets
  86. 86. Commercial-look Appliances
  87. 87. Natural Wood or Stone Floors
  88. 88. Granite Countertops</li></li></ul><li>82<br />Bathroom<br />A bath remodel may be a sure-fire investment, often returning the highest percent of the cost.<br />Must be clean, with no visible signs of water of mold.<br />Caulk and clean grout.<br />Replace pink or blue fixtures<br />Remove wallpaper<br />
  89. 89. 83<br />Tip<br />Tub & Tile Re-Glazing<br />A fairly inexpensive way to update a bathroom is to re-glaze the tub and wall tiles. <br />Re-glazing a typical tub and shower will cost less than $1,000.00.<br />
  90. 90. 84<br />Paint<br />The best investment you can make is fresh paint!<br />Fix nail pops & cracks.<br />3-color with neutral paint color.<br />Wallpaper is out, remove it!<br />Hire a professional. A bad paint job will turn off prospective buyers.<br />
  91. 91. 85<br />Landscaping<br />If people drive by your home and are not impressed they’re not going to walk inside.<br />It’s all about curb appeal!<br />Fresh Mulch <br />Mow the Lawn<br />Trim Bushes<br />Weed<br />
  92. 92. 86<br />Tip<br />Mulch Dye<br />Applying mulch dye, which can be purchased from a specialty landscape supplier, is a low cost way of making the mulch look new again.<br />Expect to pay about $80.00 per gallon.<br />
  93. 93. 87<br />Carpet & Flooring <br />Worn or outdated carpet should be replaced<br />Dirty carpet should be cleaned<br />
  94. 94. 88<br />Staging<br />Staging is what you do after you've cleaned, de-cluttered, painted, made repairs; it's all about dressing the house for sale. <br />
  95. 95. 89<br />Tip<br />Your home must be clean!<br />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.  <br />Get your windows professionally cleaned inside and out too.<br />
  96. 96. 90<br />Tip<br />Eliminate Clutter<br />Clutter makes homes seem smaller and disorganized.  <br />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?  <br />
  97. 97. 91<br />Tip<br />De-Personalize<br />Remove objects that your potential buyers won't 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.  <br />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.<br />
  98. 98. 92<br />Basement Makeover<br />
  99. 99. 93<br />New Countertops & Wall Tile<br />
  100. 100. 94<br />Granite Countertops<br />
  101. 101. 95<br />Countertop & Paint <br />© 2005 Interior Makeovers<br />© 2005 Interior Makeovers<br />
  102. 102. 96<br />Kitchen Makeover<br />
  103. 103. 97<br />Kitchen Makeover<br />
  104. 104. 98<br />Kitchen Makeover<br />
  105. 105. 99<br />Bathroom Improvement<br />
  106. 106. 100<br />Bathroom<br />
  107. 107. 101<br />Hardwood Floors<br />
  108. 108. 102<br />Basement Improvement<br />© 2005 Interior Makeovers<br />© 2005 Interior Makeovers<br />
  109. 109. 2/19/2011Mike Ford<br />(703) 589-3848<br />103<br />Kitchen Cabinets<br />
  110. 110. 104<br />Home Office<br />
  111. 111. 105<br />Formal Living Room<br />
  112. 112. 2/19/2011Mike Ford<br />(703) 589-3848<br />106<br />Family Room<br />
  113. 113. 107<br />Builders have MODEL HOMES – Why?<br />TO CREATE SALES<br />They understand that buyers want a home in near-perfect “model home” move-in condition where all the buyer must do is turn the key in the front door and move in.<br />
  114. 114. 108<br />Reasons Homeowners Do Not Invest to Sell their Home?<br />Don’t have the time<br />Think it is too costly<br />Unsure of which improvements yield the highest return<br />Believe their personal decoration style is appealing to today’s homebuyers<br />Believe that a price allowance can be made when the home is sold<br />