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Outer Banks Real Estate Buyers Guide


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Matt Huband-Broker/Owner of Hometown Realty Outer Banks developed The Outer Banks Real Estate Buyer\'s Guide after answering the same questions from clients over the years. This guide gives potential buyer’s a basic understanding of what they can expect when purchasing real estate on the Outer Banks of North Carolina. Topics include: What makes a great vacation rental, The mortgage process, What do management companies do, How much does it cost to own a beach house, plus so much more. If you are thinking about a 2nd home or investment property on the Outer Banks the Buyer’s Guide is where you need to start.

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Outer Banks Real Estate Buyers Guide

  1. 1. Outer Banks Real Estate Buyer’s Guide Your Outer Banks Beach House Is Waiting For You!!! Matt Huband-Broker/Owner Hometown Realty Outer Banks www.HometownOBX.Com Outer Banks Real Estate Buyer’s Guide All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 1
  2. 2. Current Market Commentary For 2009 Wow!! Times have changed in real estate over the last few years!! It was not long ago that I had buyers bidding up houses and actually buying homes they had never seen before. Mortgage lenders were giving away money so fast to just about anyone who was breathing. People were buying and selling homes like they were stocks. That led to an incredible rise in real estate values from 2001 to 2005, especially here on the Outer Banks. Like the saying goes “all good things must come to an end” which has created the unbelievable buying opportunities we have today. In 2008 buyers stayed on the sidelines waiting to for the right opportunity. So far in 2009 all those buyers have come rushing back!! Prices are back to 2003-2004 levels!! Mortgage rates are at an all time low creating affordable payment options. Lenders are starting to lend money again!! The last few years has created the perfect storm for buying an Outer Banks beach house in 2009. It really is an incredible time to be a buyer on the Outer Banks!!! A buyer who purchases now gets an opportunity to select from the best houses on the market before they are gone. If you are looking for an investment property, great news, home prices are down and rental income has been going up!! That makes owning a beach house more affordable!! I hope this guide will help you answer some basic questions about buying real estate on the Outer Banks. Please don’t hesitate to contact me with more questions as I am sure you will have some. Now is the time to start looking for your new beach house!! To set up your Outer Banks excursion email me at Or Call 252-255-0221 Ext 2 All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 2
  3. 3. About Me I am originally from Richmond, VA and have spent years living on the Outer Banks during the summers and now it’s my permanent home. I have a degree from Virginia Commonwealth University in Real Estate & Urban Land Development after which I spent many years in the property management field as well as banking. I am now the Principal Broker and one of the owners of Hometown Realty Outer Banks. I have seen the many changes the Outer Banks has undergone and I am excited about what lies ahead. If you are looking to buy or sell on the Outer Banks I want to be your realtor. I have the knowledge and experience from Corolla to Hatteras to help you find or sell your Outer Banks Beach house. I work with people who are looking for 2nd homes, investment property, land or new construction. I work at your pace and take you from the initial meeting to closing. Since I started selling real estate over 5 years ago I have consistently been one of the top producers on the Outer Banks. I have a dedicated team of lenders, attorneys, appraisers and home inspectors to make your transaction go smoothly. Hometown Realty is one of the largest independent real estate companies in the country. Hometown has over 300 agents with 10 offices located in Richmond, VA and the Outer Banks of North Carolina. Let me show you why we are “The Exceptional Exception” in Real Estate on the Outer Banks. MATT HUBAND 252-255-0221 Ext 2 OR 252-480-9283-Cell Email: All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 3
  4. 4. PO Box 2223 Kitty Hawk, NC 27949 Advantages of Owning 2nd Home/Investment Rental Real Estate I’m glad you’ve decided to invest in Outer Banks property –the time has never been better!! It’s also more rewarding to stay at the beach in your investment than just to have a few stock receipts!! Read on to look at some of the benefits of property ownership. Tax Deductions: If you hold the property as a second home, property taxes and interest may be deductible. If you hold the property as a rental investment, you may be able to deduct interest, depreciation, property taxes, and other expenses associated with ownership. Please consult your tax advisor for more specific details as they apply to your own tax planning Appreciation: Real property has demonstrated a strong return on investment and acts as a hedge against inflation. With home values on the Outer Banks dropping over 40% in the last 2 years buying a beach house at the bottom of the market offers a tremendous potential for appreciation. Depreciation: Contact your accountant for more information about how depreciated a beach house will affect your tax liability. Income: A property held for investment purposes must be rented or available for rent to qualify as an investment property. From Corolla to Hatteras Island, you are sure to produce excellent rental income. The owner also has the liberty to use the property for personal use, with some restrictions. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 4
  5. 5. How do you choose the right Outer Banks beach house? Just like when you go to buy anything, what you can afford has everything to do with what you look at. When you are looking at property on the Outer Banks the first thing you need to do is determine what price range you want to start looking in. A lot of people experience “sticker shock” when looking for a beach house. What you can expect to pay for a house on the Outer Banks may be and in most cases is drastically different from your local real estate market. You cannot compare what kind of house you can buy for $300,000 in your area to what you will get on the Outer Banks. Remember, with a house on the Outer Banks you are only steps away from the beach and that is why you are looking to buy!! So how do you find out how much you can afford?? You need to figure out how much money you will have for a down payment, how much out of pocket monthly expense you can afford, and do you need to rent out the house to help cover the expenses. Then you need to talk to a lender to see what programs and interest rates you can qualify for. I can walk you thru this entire process to help you feel comfortable about buying an Outer Banks beach house. So let’s get started!!! The Mortgage Process Pre Qualifying How to find the right loan: Interest Only, 30yr Fixed, A.R.M., Etc. How much can I afford? Managing your debt: Knowing how much you can afford will better enable you to make all the right decisions. Strengthen your negotiating position: Knowing how much you can afford will save you time and money. You will not waste time on properties that are above or below your buying power. You will be able to enter negotiations with strength and financial confidence. The best time to talk to a lender is prior to looking at any property. This will help you narrow down your search to a specific price range of property and will save you time in the long run. Pre-Qualified buyers are viewed as serious buyers by sellers. What Lenders Should I talk to? Working with a local lender that has many years of experience is recommended. They are familiar with our market unlike out of state lenders who many times cause delays in approval and/or added inconveniences for you. However if you have a good relationship with a local lender in your area that is licensed to do business in North Carolina please contact them as well. It is always a good idea to get at least 2 quotes. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 5
  6. 6. How much money will I need for a down payment? With the drastic changes in the mortgage industry over the last 2 years many lenders are requiring a minimum of 10% to 30% down. With the current mortgage environment changing daily it is more important than ever to contact a lender before you begin your search. It’s likely a local lender will have a program that meets your specific criteria. What is the Best way to Shop for a Loan? In order to make the best decision, most borrowers call lenders to compare the discount points and interest rates. If you decided to do this, make sure that you are comparing “oranges to oranges.” It is important that when you compare the different estimates that you make sure that you do this within the same time period. Rate changes happen more than once a day. You also need to find out if there are any application fees, and what other charges the lender will charge for the loan. What Do I Need to Know About Getting A Loan? Today, lenders rely more on a credit score and down payment. The higher the credit score, the better chance of receiving the loan. Also lenders are requiring full documentation such as pay stubs or tax returns. Factors that will determine what your credit score will look like are: outstanding debt, payment history, credit history, credit use, and negative information. Taking 10 to 15 minutes to talk to a lender will help you determine if you are ready to buy. To learn about your mortgage options please contact: Linda Barber w/ Wells Fargo Home Mortgage 1-800-407-8746 or 252-441-7610 Joey Barrow w/MetroCities Mortgage 252-353-6400 Let Linda or Joey know that you are working with Matt Huband and they will take excellent care of you. Finding the property that suits your needs. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 6
  7. 7. Narrowing down your area of preference Knowing what you are looking for will be very helpful in deciding which area of the Outer Banks will fit your needs. Do you want a “beachy” feel? Is it luxurious surroundings you are looking for? Are you into recreational activities like surfing and fishing? Do you want to walk to the beach or drive?? I can help you find the right area that will fit your needs. Old House vs New House Do you want a newer home where you have to drive to the beach or an older one where you can walk to the beach?? Keep in mind that the closer you get to the ocean the more expensive it will become. Also, you are never more than a 5 minute drive to the beach from anywhere on the Outer Banks. Income vs. Entertainment What is most important to you in owning this home? Do you want to maximize on the rental income or do you want to use it as a family retreat or both? How much will it cost to own a beach house?? Since most of the houses on the Outer Banks are used as weekly vacation rentals many people want to know what portion of the rental income will help pay for the expenses and what will be left over to go towards the mortgage? As a general rule I use a 60/40 split. 60% of the gross rental income will go towards the expenses of the house such as, utilities, management fees, pool/hot tub cleaning, maintenance, taxes and insurance. The other 40% will be left to help cover the mortgage. The expenses on these houses will vary depending on size, whether you have a pool or hot tub, and what the current management companies charge among other things. Knowing how much the house is going to cost to operate along with your down payment amount and mortgage payment will give you the information you need to make an informed decision. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 7
  8. 8. What You Can Expect to Pay on The Outer Banks Northern Beaches: Duck, Corolla, 4-Wheel Drive Area $400,000-$3,000,000+-Many choices on both the Oceanside and Soundside abound. Most homes are located in private subdivisions with beach access & community pools, tennis courts or recreation facilities. The average home price is around $700,000 and the area enjoys great rental income year after year. Main Beaches: Kitty Hawk, Kill Devil Hills, Nags Head, South Nags Head $200,000-$3,000,000+-The main beach area is where all the action is. Most of the shopping, dining and entertainment on the Outer Banks takes place here. This area also has the most diverse offering of houses and price ranges. The average home price is around $500,000. Southern Beaches: Rodanthe, Waves, Salvo, Avon, Frisco, Buxton, Hatteras $200,000-$3,000,000+-This area is unlike any other on the Outer Banks. It is a step back in time with little commercial development and beach houses of all shapes and sizes. This is the fishing and water sports mecca of the Outer Banks. The average home price is around $500,000. Once you know the answers to these questions I can start to send you listings via email to narrow down your selections. Then all we need to do is set a time for you to come down and view the properties. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 8
  9. 9. So what makes the BEST rental home you ask? 500 FEET OR LESS TO THE BEACH  MINIMUM OF 5 BEDROOMS, PREFERABLY 6 OR MORE  HAVE ALL MASTER SUITES IF POSSIBLE WITH KING BEDS  ELEVATOR  PET FRIENDLY  HEATED POOL  HOT TUB  GAME ROOM  THEATER ROOM  MULTIPLE APPLIANCES  2 KITCHEN AREAS IF POSSIBLE  PROFESSIONAL DECOR WITH A THEME  UP TO DATE AND EXTREME ELECTRONICS, I.E. PLASMA TV'S, SURROUND SOUND  Entry Level Rental Properties will not have all of the above. Regardless of what you want to spend on your investment, you want as many of these things as possible to make a GREAT rental property that will appreciate and increase your rental income each year! My job is to work within your financial situation to find the best possible home to meet your needs. This is done by gathering rental income histories, expense reports, and maintenance records. I can break down each house with a detailed spreadsheet on expenses and income to give you a realistic view of your monthly costs. In the rental market buying the house that will cost you less in repairs will go a long way to making a successful income producer for you. I know the market trends and work with you rather than selling you which makes the buying process less stressful. Finding The Right Management Company There are a large number of Rental Management companies on the Outer Banks. The rental commission can be negotiated by the property owner and the property manager. The week-to- week commission ranges from 15% to 22% based upon the extent of services the owner desires. Rental management terms are from January 1st through December 31st. New agreements are normally signed by September with most companies to appear in the following year’s internet catalog. Most houses that are purchased are already with a rental management company. When you purchase a house with a management agreement already in place the new buyer will have to honor all booked rentals 180 days from the date of closing. I can answer any questions you may have about this process. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 9
  10. 10. Rental Companies Usually Offer the Following Services: Year Round advertising and marketing on the internet, in publications, and a vacation rental catalog listing all available properties with profiles of each home’s amenities.  Some maintenance  Cleaning and inspecting after each guest  Booking reservations by phone or online  Administering Security Deposits  Owner and Guest Accounting Services  Linen Service, Spa Service, Pool Service if Desired (Additional Fees are associated with this)  Spring Cleaning, Fall Cleaning after rental season is over, and winterizing the property if desired. Rental Companies are accustomed to caring for properties in the owner’s absence. There are a number of good companies to choose from. If you purchase a property during the rental season, you will have to honor the agreement in place at that time. You may sign with a new company at the end of the summer for the following year. If you home is not currently in a rental program it is a good idea to look around your area to see which rental companies have houses in their program. Some rental companies prefer to do business in certain areas or have a large amount of rental homes in a specific location which is an indication that they have a good hold on the rental market in that area. I can assist you with your choice of rental Company when the time comes. Rental Income…It Just Keeps On Coming In… Many guests begin looking and pre-booking their vacations for the following year while they are on vacation. They are required by most rental companies to send in a small deposit to hold that week. Management companies then send out the rental agreements in January/February to all the renters who have pre-booked weeks for the upcoming rental season. A deposit of 50% of the rental amount at the time of the rental contact being signed is required. The second half is due within 30 days before their vacation date. You as the owner get a % of the deposit money when the renters send in the new rental contract in January/February and the rest comes to you as the renters satisfy their weekly stay. By doing so, it insures that the property will continually be receiving income throughout much of the year, NOT just in the summer. You will have income that comes in as much as 8 to 10 months per year. With more and more renters coming down year round it makes owning a beach house more affordable. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 10
  11. 11. How Using Me As Your Buyer’s Agent Benefits You I can offer you complete representation services through the BUYER AGENCY SYSTEM. Under this system the Real Estate Broker(ME) represents and works for the Buyer(YOU) in the purchasing of a home- as the Agent for the Buyer-and has a duty to represent the Buyer. Here Are 3 of the Most Important Ways Buyer Agency works for you. ▪Meaningful Savings are Possible-I will help you negotiate to obtain the right price, terms and conditions. ▪You Are Represented-I will do a comprehensive market analysis on the property you select. This will help you establish fair market value before an offer to purchase is made. ▪You Are Exposed to a Larger Market-In addition to MLS listed properties, our Buyer Agency System allows us to show you a wider variety of available homes, including unlisted properties- for sale by owners, foreclosure sales and homes not yet on the market. Allowing Me to Work For You Has Many Other advantages: ▪Arranging Property Showings ▪Assisting with financing ▪Providing accurate information/disclosure of material facts. ▪Explaining forms and agreements ▪Monitoring escrow and closing ▪Keeping your bargaining and financial position confidential ▪Promoting and protecting your best interest ▪Negotiating the right price and terms for you ▪Discussing property re-sale issues ▪Assisting in writing the offer with your best interests in mind ▪Comprehensive market analysis * Negotiation Skills: I am an experienced at negotiating the best price and terms. *Market Knowledge and Consultation: Many times I know of areas or properties unfamiliar to buyers that will best fit their wants and needs. Because I do this on a daily basis, I can help buyers identify and secure well priced properties quickly. *Loyalty: Once a Realtor enters into an agency with their client, they have certain duties to their principal. They must look out for their client’s best interests. Not only does this help during the “Under Contract” stage, but it will help through closing. *Trust: I must adhere to the strict Code of Ethics and Standards of Practice. You can be assured that we will have an honest and ethical relationship. * Buyers receive representation at no additional cost, the Seller pays the Broker* As your REALTOR I will guide you through each of these turns. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 11
  12. 12. 1031 Tax Deferred Exchange…Commonly Asked Questions What is a Tax-Deferred Exchange? It is a process that allows a taxpayer to exchange an investment or business property and defer the payment of the capital gains tax. Normally there is a delay between settlements of the property being relinquished and the replacement property. What authorizes a Tax Deferred Exchange? While exchanges have been used for many years, in June 1991, IRS regulation 1.1031(k) provided specific and clear guidance to implement the famous quot;Starkerquot; case decisions. What are the criteria for a Tax Deferred Exchange? The properties must be like-kind. This means that the property being relinquished must currently be used as an investment or business property. It is not important how the buyer plans to use the property. The replacement property, the exchanger, desires to purchase must be identified in 45 days be located in the United States, and be settled in 180 days. It is not important how the property is currently used, only that it will be used by the exchanger as an investment or business property. Like-kind investment or business property includes: townhouses, rentals, land, farms, office condos, warehouses, vacation, etc. What is the Role of the QUALIFIED INTERMEDIARY? The 1031 tax regulation provides for the use of a Qualified Intermediary when accomplishing a deferred exchange of investment or business real estate. The Qualified Intermediary plays an important key role by: - Providing the Required Exchange Agreement - Accepting Assignments of all Exchange Contracts - Providing Notification of the Assignment to all Parties - Furnishing Instructions to the Settlement Agent - Establishing a Qualified Escrow Account - Receiving the 45-day Identification Notice - Delivering Escrow Funds for Settlement - Arranging for Direct Deeding of Properties - Giving a Final Accounting of Escrow Funds and Interest Earned How are capital gains figured? The potential capital gains that can be deferred are simply the profit plus all the depreciation taken on the property being relinquished. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 12
  13. 13. What are the reinvestment requirements in an exchange? To be totally tax free, the acquisition cost of the replacement property (ies) must be equal to or greater than the adjusted sales price of the relinquished property. The total cash equity (equity less selling cost) from the relinquished property must be reinvested in the replacement property (ies). Any cash not reinvested (known as quot;cash bootquot;) is subject to capital gains tax. The replacement property must have mortgage debt or new cash added - equal to or greater than the mortgage paid off, or assumed, on the relinquished property. How is the replacement property identified? Normally, up to three potential replacement properties are identified by address or legal description. The identification must be made in writing, signed by the exchanger, and delivered to the qualified intermediary. How are the exchange escrow funds controlled and secured? The Qualified Intermediary normally controls the funds so that the exchanger has no right quot;to receive, pledge, borrow, or otherwise obtain benefits of the cash...held in the escrow account.quot; Realty Exchange Corporation only holds funds in federally-insured banks. Are there special rules for Qualified Intermediary? The qualified intermediary should be an experienced real estate professional who understands all aspects of the exchange and contract process. The regulations specifically exclude the exchanger's agent, broker, attorney, accountant, most family members, and others with a business relationship with the exchanger. What is the first step in conducting a Tax-Deferred Exchange? Contact your local real estate attorney to find out how to get started or ask your Realtor. All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 13
  14. 14. I hope you found this investment guide to be helpful in your search for a new beach house!! Contact me today so I can go to work for you!! Matt Huband-Broker/Owner Hometown Realty Outer Banks 252-255-0221 Ext 2 252-480-9283 Cell 866-902-4479 Fax Email: Visit my website All information is deemed reliable but not guaranteed. Property of Hometown Realty Outer Banks © 2009 Pg 14