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Video: Agent Training – Fighting Appraisals

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Full Video Transcript

Wynn:

Good morning, everybody. We are talking appraisals today appraisals something that most of the time we don’t have to worry about. We have to know what to deal with. It’s you know, the bank’s going to send their appraiser out. They’re gonna take care of it and it’s gonna come back and they’re gonna say, Hey, you’re good. And that’s all we care about. 95% of the time, 99% of the time. That’s all we care about is, Hey, we have a good, good appraisal and you never see this appraisal report. You never do anything. Everybody should have a copy of the appraisal report. Yep. If you haven’t had an opportunity or a reason to look at one, you’ve probably never wanted to. And I would recommend if you never have to, never look at one of these things, right? So the full report is normally 30 to 40 pages.

Wynn:

I just printed out the first 10 pages because that’s where all the good stuff is. The last, last two thirds of it are all pictures. They’ll show, here’s a picture of the house here are the neighboring houses, if there are any deficiencies they’ll show pictures of what you need to fix. So like for VA or FHA, if there are lender-required repairs, they will note them on the report and they’ll show pictures on the report. So you would then know, Hey, I gotta fix this siding. I gotta fix this window. I gotta fix this door. And there’ll be actual pictures there. If there aren’t pictures there, always call the lender or call the appraiser because when we’re representing our sellers, we don’t wanna be writing blank checks to say, Hey, you have one that said, what’s that? Well, the windows replace fogged windows. Well, yeah, no, not all of that. Like tell me specifically what ones, same thing here with, with the repairs. Anything that needs to be, has to be specific. So we’re not gonna get into the last part, but we do want to delve into the first part.

Sam:

And, and like, for example, if it’s a VA, especially if it’s VA appraisal, those have to be fixed before closing.

Wynn:

Those have to be fixed before loan will get approved. Correct, yep.

Sam:

All right. Is there, I mean, because does that ever happen with FHA or conventional?

Wynn:

What FHA maybe does, does what happen with FHA conventional

Sam:

Where things are specified in the appraisal? Like this has to be fixed before the loan?

Wynn:

Well, it it’s all, so if there is an appraisal and all, so if you want to, we’ll, we’ll stay at this topic if you wanna switch to,

Wynn:

To reconciliation. Okay. right in that last little bottom section, you’ll see on this report here, which is one of my properties says this appraisal is made either as is, subject completion of plants and specifications on the basis condition of the improvements that have been completed or subject to the following repairs or alterations on the, for the repair. So, so in this case, we don’t need to do anything to the house, but if you need repairs, it’ll say, you know, it’s subject to the following repairs needing to be done. And then right, if you look so it’s three. So at the very bottom says there are two lines, it’s all caps, right? Assumes all systems function properly, blah, blah, blah. This will state where these caps are down in the bottom of page two, it’ll say rotten woods, fix, fix sodding, fix this, fix that, or it’ll say see pictures, page 12, 15, 18, or whatever.

Wynn:

It’ll specify. If you don’t have specification, you don’t know what you’re fixing, but we gotta gotta clarify, but it will say subject to. So yeah, if it does, you gotta handle it immediately. A lot of times, we’re so busy that, you know, we’re not necessarily Johnny on the spot with repairs. So couple notes with repairs, never do any repairs until due diligence or other contingencies are over with. Right? Because if you do a repair the house terminates under due diligence and the seller just paid a thousand dollars for repairs, it goes back on the market. And then the new buyer doesn’t give a crap about the repairs you just did. And you’re out a thousand bucks. So always wait until due diligence ends to do any repairs at all. I like to wait until all the contingencies are over that they can’t back out for any reason.

Wynn:

Then if they do, we would at least have the earnest money to compensate us for the repairs that were done. Now, in this case, some of these repairs may be extensive or lengthy and it might take a little bit of time. So you might need to schedule them up front. So as soon as you get these things back, call ’em immediately and get on the counter, say, Hey, if you need a roof repaired, right, don’t wait until the day before closing to say, Hey, can I get a roofer to repair a roof? So you can schedule the repairs, but I would recommend waiting until – what’s that?

Kelly:

You can get your quotes.

Wynn:

Yeah, you can get your quotes, get it on the calendar, get it all set to go. Because typically you’ll have, you know, 10 days or so between all the contingencies that end and the closing date to do all the, you know, spend all the money. But some of these things will, will need, you know, some wood siding, painting, exterior, replacing some roof shingles, things like that. For VA and FHA and that’s not necessarily a next day project. Unless you have a Tucker

Kelly:

Sam mentioned conventional but that does not include conventional.

Wynn:

Thank you by the way, say again,

Kelly:

Conventional appraisals

Wynn:

Do not conventional appraisals typically do not. I have seen one conventional appraisal in all my years that actually had repairs needed for a conventional loan. So it is possible. I was floored. I don’t even remember. I just remember it. I was like, it’s a conventional loan. I’ve never had a, never had a problem with that. But it can’t happen on any, anything. So let’s, let’s go ahead and delve into what a appraisal report looks like. I I said if you’ve seen them before, great, if you haven’t and this is the first time we’ll kind of break it down, I’ll go quickly. Because the purpose of this training is to what do you do if you have a low appraisal, right? How do you fight an appraisal? So the top part is the subject property got like part, top part of our top part of our purchase and sale contract.

Wynn:

And it has the contract price in the second. So they know what the contract price is, right. They know the answers to the test when they go out and look at this thing, they have all this information, they know the neighborhood, the site, all these things are there, you know, they gotta check the box for all these various, you know, if it says public, private, well, all these various things on the top part then you move down here to improvements. So the bottom part, the bottom third of page one talks about the improvements. In this case, this was a townhome you know, has heating, has a slab, all the various siding and walls. The interior exterior, you can see how this is all kind of broken down of what the subject property looks like. All the way down to the bottom of the first page.

Wynn:

So this is all, a lot of work goes into an appraisal. So like we, we love our appraisers. And they do a lot work and they’re doing all these all the time. So it’s not like we’re the, they’re the only ones that are doing the appraisal. I mean, they got 10 of these things to do 20 of them sometimes. So they knock them out, but it it’s it’s time. It’s very time consuming to do an appraisal and do it well. Well. what we’re normally typically concerned about is page two. So for, for realtors, page two is the comps, right? So first part talks about the property itself. Second part talks about the comps. So in this, in this case, there are three comparable sales. They can do more, you need at least three. Now in this case there were actually nine, nine comparable sales.

Wynn:

You need a minimum of three. Typically they do four to five. They’ll throw a couple extra in because if, as long as there is a nice bulk of houses, you know, they’ll throw a couple extras in just to make sure that they’re good. But what we’re gonna, we’re gonna look at here top of page two. The first column is our subject property. So underneath the subject, it shows sales price, price per square foot down below 1400 square feet it’s a townhome, quality of construction. Age is 12 years old, condition. There are various condition levels, C one C two C three number of bed rooms, number of rooms total, gross square footage of the unit. And then down additional features, patio, fence, updates, renovations, good insulated windows. So all these things are big bulk items that the appraisal looks at. Everybody tracking and following?

Wynn:

And then he looks at three other sales that are comparables in, in their mind. So in this case, you see the addresses up top and we’ll compare them all right here. So the first one here was, it sold for one, for $152k, right? Go on down. It has date/time of sale. So let’s circle this. Now this contract we had was done, this appraisal was done in March, right? March was when this contract was done. Date, time of sale. It says S for sale 05/21. All right. So in May of ’21, this house sold and because it sold so far in the past, they’re giving a credit of $15,061 in the credit plus column for that. Right. moving down a little bit more. It’s a townhome. So it’s comparable quality is the same quality, same condition, baths and bedrooms, right?

Wynn:

6, 3, 6, 3, 2 and a half square footage is 1740. So it’s a little bigger, so the detract $7,600 because it’s a bigger, and they’re saying you have to take value away from yours because that one is bigger. Okay. all the way down here, garage that has a two car garage that has a two car driveway. We have a one car garage drive-in garage. So they’re giving us a $5,000 credit because we have a garage and this subject number one did not have a garage. So we get a $5,000 credit and then the updates and renovations, we were good, they were average. And so we got a $6,000 credit. So they add and subtract up and say, that’s a net net adjustment of $18,461. So they throw that eight. They throw that on top of the $152k that they sold it for. And they say in today’s present value, it’s worth $174,610 is their adjusted sales comp.

Wynn:

Okay. And then we can do the same thing on two and three. So we’ll just kind of go through number 2, $155k sales price that one sold is 6/21. So June of ’21. So the first one was 10 months old. The second one is nine months old, right? They’re giving us a credit of $13,000 subtracting a little bit for square footage, giving us a credit for the driveway or for the garage and giving us a credit of $14,000 total after all the pluses and minuses, same size, everything else saying it comes in at $169k. And then lastly, the last one here sold in 8 of ’21, which was seven months old doing the same thing. Now this condition says C2, it’s a better condition. So they’re subtracting $5,000. It’s bigger, they’re subtracting square footage, this one has a covered patio, subtracting that. And at the end of the day, they’re saying it’s $183k. So those are the first three comparables. So the comparables on the first sheet are weighed slightly heavier. Not all comparables are comparable. So comparable number one, two and three, there is a slight weight difference to them as far as what’s, what’s most comparable.

Kelly:

Is there a difference when it’s a covered patio, Wynn? That you typically see, it’s not like screened in or anything. I’m just trying to remember the differences in value difference in value.

Wynn:

That, I’d have to look to see OP/CV patio. Yeah.

Kelly:

I didn’t know, what, screen – I would assume they could say maybe screen or something open. I would think open.

Wynn:

OP/CV patio, I’d say cover open, covered patio. I would say so. Just covered no screen. And so based on that, right, we’re just gonna keep going down. So based on those three comparables and the various weights that they have on one, two and three, you’re gonna come down to just above the reconciliation. And it has a right above that thickly line that says indicated value by sales comparison approach $175,000, right? Bad news. Huh? That’s bad news. Because we have a contract for $206k, $206,000. That’s a $31,000 difference. That’s a problem. That’s a problem. So what do you do when this happens? Right. First thing is after you get done crying, right? So the order of the order of things all goes back to the contract. What’s the contract say if an appraisal comes in low, the contract will say what has to happen.

Wynn:

That agent needs to notify us within a certain amount of time and provide us this information. And then we have a certain amount of time per the contract to renegotiate out what we want to do, right? So the four things that can happen, 1) we can drop our sales price to $175k. 2) They can come out of pocket $31k and meet us at $206k, because that’s what the contract price is. 3) We can work something out and negotiate, meet in the middle 50/50, or 4) if we can’t in this case, it was just too far. We came down, they came up, we just couldn’t make it meet, contract terminated. So if you get to a point where you need to fight an appraisal, right, there’s a process for fighting the appraisal, which we’re gonna go over here in a second. So then the next couple pages, I’ll just look real quick.

Wynn:

So that was the comparison approach. The, there are a couple different kinds of, there’s a comparison approach appraisal, which is used a majority of the time looking at past sales, what they’ve sold for and what, you know, what yours is worth based on sales comparative, right? The other is an income approach, right? They look at rents. So sometimes where we do a lot of stuff you will have rentals, maybe in a bad part of town that the sales, you renovate a house, the sales aren’t there, because everything else is a hundred thousand dollars, but yours is where $200,000. You just renovated it. If you can justify that price based on rentals, based on an income approach, sometimes they use that. So a lot of the business that we do income approach is used versus comparables because when you’re in some of these neighborhoods, you can’t, there are no comps, right?

Wynn:

So you do income. And from the income approach they do a gross, a gross rent multiplier. They take average rents that are typical in the area and then they multiply it by a factor that factor kind of fluctuates. But typically it’s somewhere between 1.3 and 1.5 times the rental amount of typical rents. Now the negative with that is when you are in a lower income, when you’re in a turning neighborhood, that’s getting gentrified, the rents are typically low around the whole area. So like it doesn’t help you out when you are trying to rent it out for $1500 a month because that’s what market rent is. But everything else in the neighborhood is $800 a month because they’ve had 10-years tenants. And that’s what the leases are. So I ran into that with one of my units here that I renovated where great renovation, I know what market rents are, but we got, we got dinged on the appraisal because even with the income approach, it still came in low because everybody in the neighborhood rented it under market. Right.

Sean:

You have like like my property has this situation. There’s no comps around it. And it has an amazing amount of rent. And has like five or six years of history. You can’t use that?

Wynn:

Well, they will take your, they will take your rents into account. So if you can provide your rents and your documented rents that weighs heavily because you can show, this is what is worth. The higher, the, the, the, in an appraiser’s mind, the higher, the rent, the nicer, the house, which makes sense. Right. So if you can rent something out for $2,000 a month, that’s gotta be a better house than renting it out for $600 a month. Right? Absolutely. So if you have documented rent yourself, that can go a long way, but if you’re flipping a house or buying it to rent it out and you don’t have documented rents, you need to go outside, you’re still gonna need to go outside to get enough sample size, to, to justify all these things. But that’s definitely one way that you can do it, the income approach. And then the last one is the cost approach. How much is it could do to cost? How much would it cost to build this whole thing up? Brand new construction, right. Based on all the various factors now, unfortunately there’s a lag with what appraisers have on their sheet. Like the cost of lumber is tremendous. Right. That’s not necessarily reflected. So it’s not up to date when they look at their data sheet, $90

Speaker 5:

$90 a square foot to build a brand new

Wynn:

Yeah. And that’s why that’s that just not the case. Yeah, I mean, years ago, so that’s so the cost approach, I’ve never seen used income approach. I’ve used, I’ve seen used a couple times with some of the business that we do, but more times than not, it’s the comparable approach. They look at sales and that’s what it is. Right. So back to page seven and eight. So the next couple pages are just his signature. So page one page. So it’s a six page page. One through six is quote on quote, you know, the, the business part of the appraisal page one through six, you got your three, three comps, everything else. Boom, boom, boom. And it says with $175k,uif they, after page six, they start adding on other comparables, the pictures, all that stuff. So here he actually added on three more comparables – comparables 4, 5, 6, 7, 8, and 9 on the next two pages. And you can see once again, there’s always the same subject property. So you know what you’re up against and then comparables, right? So here’s one, $213,000. Great. That’s better. Right? Let’s see. It’s better shape. So we’re subtracting $5,000 we’re we’re on page seven right now,usubtracting $5,000. It’s bigger subtracting $6,300 at the end of the day, it says, Hey, it’s worth $201,700, but that one closed October. So that was only a five month old. Right. U

Speaker 6:

I guess that was under the impression that he had to be within 6 months.

Wynn:

Ah, very good. Exactly. Six months is the standard. So when I’m looking at this and I’m real, wait a second. Our top two were 10 months, 9 months and 7 months old. Where are the houses within six months? Because in today’s market, 6 months ago to today is years, right? I mean that’s it’s night and day with the difference. So you want the closest sales in the closest amount of time. So we’ll transition to, how do you fight an appraisal report? What do you do? So you’ve been notified. The appraisal came in low. You say, what can we do? Try and work it out first, Hey, I’ll come outta pocket. I’ll drop the price, whatever, whatever, whatever. If that doesn’t work out, your first call is to the lender. Whoever the lender is, give them a call and ask them what the process is to fight an appraisal. Everyone lender has different protocols. Every lender has different procedures. With a VA loan, it’s called a Tidewater. You have three days. If a VA appraisal comes in low, the government gives you three days to justify why you need a reappraisal. Not a business business days,

Kelly:

Correct?

Wynn:

Business days, correct? Three business days. Um so it’s called Tidewater for a VA loan for conventional and other type loans. There’s not necessarily a name for it that I’m aware of.

Kelly:

From the time the lender’s notified that the appraisal is low? Or from the time I’m notified?

Wynn:

From the, from the time, from the time. That’s a great question. I think it’s from the time that the appraisal comes in and the lender gets it. Okay. Which is once again, I’ll just keep talking about the importance of a good team, having a good team that calls you immediately like Rhett, as soon as that comes in, he’s on the phone and he tells me it’s good or it’s bad. It’s good. It’s bad. Hey, what do we need to do? Because once you’re outta your time window, you may not be able to fight it. So if you are in your time window which is another reason of staying on top of timelines, right? When the appraisals do, you know, be talking to the other side, be talking to the other agent, constantly Hey, is the appraisal back yet.

Wynn:

How we looking, all these things. I got an email from a lender out of the blue yesterday. Hey, the appraisals back. I’m like, great. I gave them a call. Are we good? Are we not? He said, came in at value. I’m like perfect. The other agent did not send me anything, but they don’t need to. It’s good. It’s good. But don’t expect, never expect somebody to do our job. So like a lot of times we’re having to do both sides, keep an eye on the appraisal, even though we’re the seller, let’s keep an eye on the appraisal. Keep an eye on the lender, make sure all this stuff’s going.

Kelly:

I don’t mean to interrupt, but just for Sam’s knowledge, what I do Sam is when we get through due diligence, I reach out to the buyer’s agent, find out if it’s been ordered and when’s a date when it’s due back and I just mark it on my calendar. So because a lot of times it’s like you said, you only hear it if it’s bad, but it’s you good to like be in the know of what’s going on.

Wynn:

Yeah. Cause a lot of times your seller will ask, Hey, did the appraisal come back? And we always wanna have a

Kelly:

Most sellers obsess about the appraisal, especially in today’s today’s market.

Wynn:

Especially in today’s market. Um and of course we wanna have those answers when they call, we don’t wanna have to say, Hey, let find out and call you back. You know, we want be proactive. So when the appraisal comes in be let’s reach out to the client say, Hey, guess what? Appraisals good. One less thing we need to worry about on the way to closing. But if we need to fight it, here’s what we need to do. So call the lender, explain the situation and say, what do we need to do? And they will tell you what their process is. Every lender’s different, right? In this case they say type up an email, provide me with comps that you feel are good, right? You, you, and that’s where we need to do our digging to come up with comps that justify the sales price, right?

Wynn:

So you go into you do your comps, just like you normally do when you are doing anything else. And you need to find things within six months is the window. I mean it’s the same process of trying to find comps from the neighborhood, if not, zoom out, try and see same types and everything. Because we are not trained to do you know, one has a two car garage. One has a one car garage. You’re gonna get a $2500 credit. Like we’re not, we’re not at that level. Right? We just need sales, comparable houses to do it. When I looked in this case, there were 22 sales, 22 townhouses that sold in, within the last six months. Out of these nine properties that were on this report. Only four of them were on that report because the other five were longer than six months out.

Kelly:

Why would you do that?

Wynn:

I have no idea, but the

Sean:

One with the 10 and nine month sales.

Wynn:

Yep. Oh, better yet. Here’s another one. This one here was a two bedroom. So mine’s a three bedroom, two bath. One of these comps here that sold for $140k, by the way. So $140k was a two bedroom, two bath. Why he added a nonconforming house? Did the appraise report? I have no idea, but it’s on there. So once I got away from all the, all the old ones I went and I saw 22 houses, townhouses that sold within the, the area. I took away all the two bedrooms. I took away all the four bedrooms and I was left with 11. So I was left with 11 houses left that I could use to justify. Now here we are on the selling side. So we are trying to get the most amount of money for our seller.

Wynn:

So we want to pick out the best properties we can to justify why it would be. And so I followed the instructions. I typed up an email. Here are the comps I gave them the listings, I gave them the comps, I gave them the stats, all the, everything. I also gave my justification as to why I felt that these were not appropriate with a nice long soliloquy of boom, boom, boom, boom, boom. Got it all set up, sent it over there. She sent it up to the, they say, okay, well this is a two step process. One. They send it up to the board, to the appraisal board and then it goes back to the appraiser. So a couple days later, get an email back saying, yep, I reviewed everything. But I stand with my $175k value because basically you’re telling me how to do my job, which very, very few times you get to fight an appraisal and win. Very very few times because you’re telling somebody that they don’t know how to do what they’re doing.

Wynn:

But it’s our job to do everything we can for our client, our job to go down swinging. And if we get a low appraisal, we need to follow that quickly follow that process and do everything we can to get to, to, to come to a resolution. Now, would they go from $175k up to $206k? Probably not, but could we maybe get something right? Something’s better than nothing, right? Even if you can get something, maybe we can meet in the middle. This, this deal ended up falling apart over about $10,000. I, okay. We came down 10, they came up 10. There was about a $10,000 gap that, had this appraisal, maybe not gone all the way up, but say it goes from $175k to $185k. That’s maybe the difference is all you need.

Kelly:

And this was what kind of loan?

Wynn:

Keeping this. This was an FHA,uto keep this deal going. So,uyou don’t necessarily need perfect but better. And our job is to our clients and their client, our client’s best interest. So,uyeah, it’s a, it’s, it’s, it’s a lot of extra work. Ubut that’s what we, that’s what we do. I mean, that’s what we that’s our job. Ubut if you do get a low appraisal call immediately to the lender, see what the process is to fight it, follow to the T what they want. Some people want it emailed. Some people want a form. Sometimes there’s forms. You fill out this form. Sometimes you go online. Some, sometimes there’s like a portal. You go online and upload all your stuff. Uit all depends, but get it quickly, do everything you can, justify with not just a listing, don’t just send listings and nothing. I mean, right out of big paragraph. Here’s why, here’s why I don’t think this and this, and this was fair. This is why this and this and is better. Uyou know, and, and do the best we can to, to try and better

Sean:

Isn’t there a 3rd party who can, like, it sounded like you had six months comparables to better comparables. And this guy was using incomparable properties that were,

Wynn:

In my opinion, in my opinion, it was, they were old properties. One of them, wasn’t not a compare. Now I understand like if there were only three sales around, that’s one thing, but there were plenty of sales that he could have chosen.

Sean:

But there’s not a third party who can over cause the guy can just blow it off as like a

Wynn:

No, I mean, there, there is an adjudication process. I’m sure. To do that, but is that going to be within the time timeline of this deal? No. So like we could, we could I’m sure. Send a, send a you know, a strongly worded letter to the board and, and say, Hey, and in 6 to 9 months, when they get around to it, they may pull this up and say, Hey, you did it. But I mean, it doesn’t help us out now. And so I, I don’t wanna say we can’t do that, but like, it doesn’t, it it’ll serve a purpose in the long run. It just doesn’t serve a purpose now to try and help our client. But to your point though, you don’t want the same appraiser doing the same thing again and again, and again, if you have a bad you know, a bad appraiser, bad realtor, bad lender, if you have somebody that’s, that’s not doing what they should be doing.

Kelly:

Yeah. This would make me mad because you have 111 Birch circle at $217k.

Wynn:

Oh yeah. So you want the purpose of a profession versus a job is self-policing right. Military medical. We are in a profession, right? A lot of people don’t think of us as in a profession, but we self-police our own kind. And if there are bad apples, we need to make sure that we’re you know, helping everybody rise up with the sea level, whether it be other training. I mean, nobody’s trying to get anybody fired, but we wanna make sure this doesn’t happen again. And the justification, but yeah, there, and then my next question was this – of all of these you’ve chose nine. Why, why didn’t you choose this one here on page one? Why is this one on page seven? So 111 Birch sold for $217k. The comparable value is $220k. 20 Ashley Lane. So for $197k

Kelly:

So those not on these front 2 pages, it’s not weighted as heavily, correct?

Wynn:

It’s not it’s weigh as heavily, correct? It’s the back pages are more of a justification to back up the first page. Sorry. So cost of repairs. So the cost of the repair that’s gonna be on this report may not be actual cost of in real, in real. So Kelly had a question of going over just basic cost of repairing the basic typical repair list. So like

Kelly:

A window,

Wynn:

A window. So if you have to replace a window, windows have gone up. So a window replacement. It is, if you need to replace a whole window, you’re probably looking about $600, right? So every window you need to replace, now that’s a whole window. That’s the frame in everything. $600. because the window itself is gonna be $300, $350, and then it’s gonna be another couple hundred bucks to have somebody install it. So a typical window is about $600. Now if you only have to replace glass, so you have a foggy glass, a blown seal, right? Call a glass company. Rick’s glass. J is it J and L yeah. J and L they’ll come measure. And those are typically about $300 to, to they’ll come on site, take out the old or

Kelly:

Like three, $400, Big pane

Wynn:

That was a big I’m I’m saying your typical your typical 36 by 30. I mean your typical windows are on average about $300. Right? Somewhere in that ballpark. So these are rough estimates. Now they’re gonna come out and they’ll measure. And if it’s a weird size, they have to cut it. It might be a little bit more, but

Kelly:

This is a dumb girl question when, but what, when you’re looking at something like that and it says repair and or replace window and or glass, when, when, you know when you have to, what, what causes you to replace a whole damn window versus just the glass?

Wynn:

So for me it’s functionality. Okay. Right. So there’s nothing wrong with the window and it works. It opens, it stays open. You know, it locks, it has, I mean, it’s a good window.

Kelly:

Because those lock like the, what do you call ’em that keep the window up? The stoppers?

Wynn:

Yep. Yep.

Kelly:

You, you can’t replace those. It’s pain in the ass is what I’ve ran into a million times.

Wynn:

Like the, like when you open up window and it slams shut. Yeah. No, actually so Jesse there are, they tear apart people who know how to do windows, make you look like an idiot, cuz they’re like, oh da da da and it’s done. And it’s like, wait a second. What? those, there are adjustments in there and it’s spring loaded and a lot of times it Springs will break and they can just replace the spring. And then it works. So now, and the older windows are counterbalance. Right. You’ll see some of the old wood windows with like a pulley. Those are a little trickier because

Kelly:

Or and old one that’s like maybe rotted out or something.

Wynn:

Yeah. Yeah. If it’s, if, if it’s got the pulley on it, normally the pull, like it’s not worth break

Speaker 7:

Yeah the whole thing collapses. The window breaks. Pulley’s stuck.

Wynn:

It’s painted shut. Like it’s, it just, it’s not worth it. I would replace the window or if it’s rotten, like a lot of the on the exterior, you’ll see like rotten, the bottom part, kinda rotted out, just replace the whole thing. Some people Bondo and paint depending on the severity of the window, once again, it’s, if it says repair or replace, you can repair a window with Bondo and paint. Absolutely. Just have to make it functional. Right. You need to make it, make it look good, make it functional. Because if I’m buying a house for hundreds of thousands of dollars, I want a window that’s functional. And I’d be upset with a seller. And with a seller’s agent, if you know, they just put lipstick on a pig. So windows replacing the double pane glass about $300 a pop ish, replacing a window about $600 on average ish repairing wood rot behind underneath a you know, the the door door jam.

Wynn:

That’s typically about a hundred bucks on average to replace that. Somebody’s gonna come cut out some wood, put it in, caulk it, fill it, paint it typically about a hundred bucks to replace that. What are, what are some other repairs that are typical on amendments to address concerns? Chipping paint. So chipping paint paint is typically well when it’s, when it’s paint repaired depending on the patch. You can normally get away with a couple hundred bucks for chipping paint. If you need to paint like soffits if you’re going around in the soffit fascia are, are, you know, you know, to, to paint, repaint, that paint to match is typically $300-$400 to, to repaint that. Some wood repair, a lot of times you have some rotten wood around soffits and fascia or on siding typically repairing siding to replace about 30 linear feet of siding is about $600 to replace and repaint. Some of these older wood houses

Speaker 8:

Now are these Wynn Martin painter prices?

Wynn:

No, these are, these are contractor prices,

Sean:

30 linear like

Wynn:

Yep.

Sean:

The entire wall? Or,

Wynn:

Well, I’m just saying 30 linear feet per board. Not 30, not, not 30 linear feet. I’m saying if you get a, if you get the board and you need to patch in stuff, about 30 linear feet of patching. Not, not of, not of side. Yes, no, no, not a side. Let’s see, let’s talk blown-in insulation because I have the answer to that. We’re doing that right now. So blown in insulation in an attic an attic that is 600 square feet is probably gonna be about $800 to have a company come out and do blown-in insulation in an attic is about $800. Square feet, 600, 600 square foot attic, about 800 square, about $800. Leaks. A lot of times you have leaks under the sinks under the house. More times than not, it’s a leaky gasket. It’s, you know, parts, you know, those typically would run

Wynn:

$150, $200 for a plumber to come out, licensed plumber to come out and just kind of fix a couple things up. They have all the supplies on the, on their truck, so they don’t need to run to Home Depot. They don’t need to do all that. So it’s a service call, which is a hundred bucks and then, you know, an hour worth of their time. So $200 ballpark would have them fix the leaks around a house. If you need to repair a water line running a main water line is about $900, $800-$900 to have somebody come out and run a new water line from the meter into the house. Let’s see. What are some other things that we’ve had to repair? Paint. yeah, so I mean your, your typical amendment to address concerns, the bill is gonna be $1500 to $2,000 on average, right. To, to kind of do these things. Hey, how are you?

Speaker 9:

Good! I’m Dave with Ameris Bank Mortgage.

Wynn:

Hey, come on in, come on in. We’re finishing up here. Okay. So something to the things that I always, the way that I phrase this to my sellers is this, when you’re buying your next house, do you want that to be move-in ready? And they’re almost always like, of course I do. Yeah. Okay. Well, if you’re expecting that at, on that end, you’re gonna need to expect to sell yours in that same condition. Because everybody doesn’t want to pay a dime to sell their house yet. They’re gonna want them to do all their money before I buy that house. Now, if you don’t care and I’m gonna buy it as is and sell it as is, that’s cool. Or if I’m gonna fix it and fix it, but you can’t have an inequity of whatever and setting an expectation for the sellers to say, Hey, no matter how nice your house is, they’re probably gonna ask for some repairs, just know that it might cost, you know, on, on average $1500 plus or minus, maybe $2000.

Kelly:

What about lifted siding or lifted shingles? Can that get flagged on the appraisal?

Wynn:

Typical. Typically not typically, not.

Kelly:

Okay I thought it was weird that they didn’t ask for that.

Wynn:

Typically not no

Kelly:

On the front they’re all lifted. They didn’t

Wynn:

Ask typically not. Yep.

Kelly:

Like, like they’re lifted like bowed off the house where water intrusion. Like if I was a buyer’s agent, I would be like, you need to fix that because water can get in.

Wynn:

Is that a conventional loan? Yeah. That’s why see now if it’s a VA, it was a VA. They might flag it. If it’s a VA or an FHA,

Kelly:

Sometimes agents will do that. They’ll get all their little finicky repairs and the due diligence because they know an appraisal, and if the seller, if the contract says, oh, the seller’s gonna do $5000 or $6000 work, they’d be like, well I’ll just get her around the back end. Yeah.

Wynn:

I had a contract fall out when inspection report came, fell out. I was privy to some of the repairs that needed to happen. And before we took the next contract with there doing the home inspection right now I got with the seller. I was like, Hey, here’s some things that they found that are gonna be significant that anybody’s gonna find. So let’s fix th,em now before we take another contract and make sure the home is ready because we didn’t know before what some of these issues were, now we do. And so we wanna make sure that the home home’s good. Because once again, we wanna sell a good home. We’re not, we’re not in the business of selling bad homes to people. We want to, we wanna do what’s right? Yeah.
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Video: PCS Webinar Recording – Our Best PCS Tips in 30 Minutes!

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Full Video Transcript

Hey, everybody. Thanks for tuning in. My name is Pat Wilver. I’m one of the co-owners of Trophy Point Realty Group. I was a third ID veteran stationed here from 2014 to 19, and I decided to stick around Savannah after I got out of the army. We’re here today to talk a little bit about some things to consider when doing a PCS move. So we’re gonna start off with selling a home. We’re gonna, we’re gonna assume that you’re selling a home wherever you’re coming here from, and we’re gonna go over some, some tips and tricks in that regard. If that’s not the case, if you’re not selling, feel free to go ahead and skip ahead past this section, because it’s not gonna be super relevant to you. Now, when you look at selling, there’s a couple things to consider. First of all, is the, is the, the money factor, the monetary factor.

And that is, “Hey, if I sell this house, can I take the equity that I have in that house and take that cash and go put it to use somewhere else that’s gonna make me more money than if I were to hold onto this house and rent it out?” And if all you care about is the money, that’s the only question you wanna look at. If the answer is “yes, I can find a better use for that money elsewhere,” then you should sell you should sell or you should at least refinance and pull out some of that money. Also personal preference comes into play. Maybe you don’t want to be a landlord. Being a landlord can, can kind of be a pain. And some people just don’t want to do that. And that’s perfectly fine. There’s nothing wrong with that. So that’s the reason to sell. And then third, you might have to sell maybe you can’t qualify for a second mortgage.

Maybe you can’t you can’t qualify for a second mortgage or maybe you’re having a divorce or changing your financial situation where it’s just not feasible for you to to actually keep onto that house and then buy a second one. So those are the three main considerations. So let’s take a look here. Next slide. Alright. So factor one that we look at is money. So we already kind of talked about this a little bit, so let’s just go ahead and go to the next slide, but we’ll get a little more detail. So this is an example. Let’s say you can sell your home and put $50k in your pocket or you can rent it out and make $5,000 in profit each year. And that’s, let’s just say that that’s your cash profit. That’s your, your cash flow. The cashflow of about $450/month.

That’s a, that’s a really good cash return on your equity. Actually, that’s, that’s really good. You, if that was me, I’d probably wanna look at, hold on. How do I hold onto that rental and buy something else? If I was making that much cash that’s, that’s pretty solid. Especially if you bought that home with a VA loan and you don’t have any money down, that’s, that’s pretty sweet. So, but let’s say you’ve got that $50k of equity and you know, you’re not gonna cashflow or maybe you’re gonna be cash negative. That’s gonna be a situation where, you know, look, look possibly to selling that property. And, and there is some other options too, we’ll talk about later. You don’t necessarily have to sell, if you have a lot of equity in your home, you can look into into a cash out refinance perhaps, and you can pull out some of that money, not all of it, but some of it and your cashflow will probably go down a little bit, but that’s, that’s a way to hold onto your property.

So personal preference, right? So we, we kind of talked about this. Do you want to rent, even if the numbers don’t necessarily add up? You can, you can do a HELOC which basically you know, as a line of credit, that’s tied to your home, that you can, you know, take out money. A lot of people use those to renovate homes, people who flip houses like to use HELOCs for those or cash out refinances, put a new 30-year loan on, pull out some cash. Other personal preference – do you wanna be a landlord? There’s property management, there’s answering tenant questions and issues quickly, there’s covering maintenance items. You know, it’s, the air conditioning goes out, you know, boom, there’s probably a $7,000 bill that you, you have to cover. So that’s, you know, some people don’t wanna do that.

And then, you know, maybe, maybe you have a use for that equity outside of, outside of making money as an investment. Maybe you’d need it to make a down payment on your next house. You about to send your kids to college. Maybe you have some credit card debt that you’d like to pay off. That’s, that’s a use, that’s a good use of that equity. And that might be a reason to sell outside of, you know, looking for a better investment. So necessity, right? Maybe you need to free up your VA entitlement. It is possible to have two VA loans at the same time. I actually myself have done that. There are some things you need to go to. You’re gonna want to talk to a good lender about your situation and, and ask a question. Can I get a second VA loan?

And if so, you know, in my case, when I got my second VA loan, I had to bring some money to the table as a down payment. So you, you may have to do that. Especially if the house you currently own on your VA loan is, is worth a good amount of money. So maybe you need to free up that VA entitlement. Maybe you need to maybe you just can’t qualify for two homes at the same time. Maybe you’re starting out your career in the army. You’re not making a ton of money yet, or maybe you’ve got a lot of other debt obligations out there or your credit’s not so great. Again, that’s a lender question – you have to ask if you can even qualify for a second mortgage. Like we kind of talked about maybe you need to access home equity in order to make the next purchase. And then of course changing your financial situation, divorce, things like that. Sometimes will make it necessary to, to sell a house, even if you don’t want to.

All right. So let’s look a little bit into renting out your home after you move away. So let’s say that you decided you want to rent out. What does that look like? Here’s the bottom line up front. If you, if you want to self-manage, if you want to not have to pay a property manager, then you need to already have connections with handyman, contractors, and other vendors that you’ve worked with and you trust. It’s very difficult to, to self-manage from a distance, unless you already have these relationships built. And there are people that, you know, you’ve worked with before and you trust them. So if you’re going to PCS in three months and you’re trying to self-manage and you haven’t built any of those relationships, yet, it, it might be a little bit too late to do that. So that’s important. So let’s talk about, you know, what are some landlord duties, right?

Well, the hardest one is really placing a tenant. It’s finding that tenant placing in under property. This is very, very difficult. I tried to do it once from a distance and it just didn’t work out. I ended up hiring a friend of mine who is an agent. This is before I became an agent and I was still in the military, and I just hired him to find me a tenant. It’s gonna be very, very difficult to do from a distance, not necessarily impossible, but you’re gonna have to pay somebody to do something. If you pay an agent to do it, and they’re doing this as a one-off I’d probably expect to pay one month on rent and commission for them to do that work. Maybe if they do you a solid, they do it for cheaper, but you know, me personally, I, I don’t really even like to place tenants.

It’s a lot more work than it’s worth to me. Unless it’s a rental property, that’s really close to where I live and it, and it’s not a burden for me to drive over and show it. So we’re also, you know, figuring out tenant issues and questions. Tenant calls you, Hey you know, the, “the sink’s clogged” the, you know, “I locked myself out” or, “Hey, I think there’s something wrong with the, with the stove”. These are things that come up. And, and what makes it difficult, this is the important contingency plan, right? You know, what, if you’re at NTC, what if you’re deployed? What if they can’t get ahold of you? Who, who a) is gonna answer the phone when you can’t and b) who can make a decision, say if you’re out in the box at NTC and say, you just went out and you got 10 days and air conditioning goes out and it’s summertime, you know, who’s, you need to have somebody who can make that decision for you while you’re not around, because your tenants are not gonna wanna wait 10 days for you to get back from the box to approve a $6,000 repair, right?

So that’s important. That’s very important. That’s something, if you don’t have a good answer to that, you should just have a property manager to handle that for you property management, typically a low-margin business. So it’s a natural incentive for property managers to cut costs. There’s, there’s some good ones. There’s a lot of bad ones, most real estate people who do property management, they typically do it as a way to keep their their past clients kind of in-house and top-of-mind, because eventually down the road they’re gonna want to sell. And, you know, you want to be the first person they think of. So a, a lot of the incentive to do property management, it’s not so much to make money on the management. It is just to kind of keep your past clients kind of in the, in the circle, right?

So get recommendations – investor Facebook groups are a good place to go, you know, find your local area and search on Facebook for real estate investors. Ask some, ask some people there. You know, if not, Google, call around, I find referrals typically to be the best. And then cost, you know, in this market is typically 10% plus tenant placement fees. And the Savannah market is typically a half a month rent is tenant placement. Other markets are as high as a full month rent, tenant placement. And you also need to vet these people, right? So interview a couple, don’t just go with the first person you talk to. Go meet with them, check out their offices. It look organized, you know, do they, do they speak well? Do they write well? Ask them, you know, what kind of software did they use?

Are they using a professional software like Appfolio, or are they, you know, old school or, or no software at all? How many properties do they have under management versus how many people on staff? Right. If they have 300 properties under management and only one person on staff, that person is gonna be overwhelmed and they probably won’t be doing a good job. And then it’s also good, I think, to call as a tenant. You know, look up a property they’re advertising, pretend to be a tenant. “Hey, I’d like to see this property.” How responsive are they? Right. do they get back to you or do they kind of just, you know, let things slide? Because I, I see properties sometimes, you know, listed for rent that are at a good price that should have rented. And they don’t. And I, a lot of the times it’s because the property managers are just not following up with those leads. So you don’t want that to be your house.

All right. So let’s, let’s say you decided to sell, let’s say selling’s the best best decision for you. And instead of going that route. So hey inventory is super low, right? The pretty strong seller’s market, even with rates going up as they are we still find it’s a pretty strong seller’s market. So you think the house will sell itself. Right? And that’s not always the case. There are a few things that you can do to get every dollar of equity possible out of the sale of your home while – and this is bold and underlined – making the process smooth and easy. Because you got a PCs move. You there’s a lot of, there’s a lot of steps and a lot of moving pieces that go into selling a home. And it’s, you know, a lot of work when you’re also trying to clear post and, you know, figure out the, the kids schooling situation and find a new house where you’re moving, et cetera.

So the first steps, right? So we have here, number one, call trusted agent, as soon as you can. Of course, I’m an agent I’m incentivized to get you to use an agent, but there, there are really two big reasons why I recommend that. And one is I myself will use an agent in a market that I do not understand. Other markets that I invest in. I use an agent, even though I’ve done a hundred plus transactions here in the Savannah/Fort Stewart market. I just do that because there’s so many different things and it’s not just, you know, figuring out what the market value of the home should be, but there’s different customs and different things that people do in different markets. That if, if you don’t know how those things work you know, it’s, it’s, you’re gonna be missing out on some things making it difficult on yourself and possibly leaving money on the table as well.

If you don’t know an agent, like I said, I always say, ask your friends for recommendations first. Right? That being said, your friends might have worked with a dud and not even known it. So you still want to vet these people, but, but ask and always talk to a couple different agents. You want to, you want to interview them, you wanna make sure that they return your calls, right? If you’re talking to, if you’re talking to somebody who say they take, takes them a day to get back to you, right. You know, typically either they’re, they’re too busy, you know, to take you on or they’re just lazy. One, one or the other. And I’ve been there before where I’ve, you know, sometimes forgotten to text people back. And that’s when I decided to start bringing on new agents onto my team, because I knew that I was getting busy to the point where I myself could not provide the level of service that I need to.

So I hired more people and, and now we do that. And take a peek at some of their listings. Right. you always wanna ask them “Hey, can I see some of your old listings?” Or if you go on Zillow and you search that agent you’ll, you’ll see their old listings the ones where they represented the seller, look at some of the photos. Did they, did they look professionally down or were they cell phone pictures? How did they sell? Did they go under contract quickly? Things like that. You know, the good thing about when you’re trying to vet a real estate agent is it’s very easy to look at their past work, because it’s on Zillow, it’s on realtor.com for you to see, you know, how they are. And how much deal flow they have. Are they doing 20, 30 deals a year or are they doing two or three?

You probably don’t want to work with the guy that’s doing two or three or the person that just started. Unless that person is working with a, you know, a team like mine, where they have people that they can reach to for guidance and, and wisdom and things like that. Our, our younger agents, we always take them under our wing and their first few months in the business, until they’ve established and they got rock and rolling, we, we help them every step of the way. So not necessarily bad to work with that rookie, as long as that rookie’s got a mentor, that’s helping them out, right? Sometimes I find rookies are the best because they have the most time and they’re putting in the most work. And they’re so scared about doing a bad job, that they can be very, very, you know, really very good.

As long as they’ve got some guidance. So what it’s next, right? Call your agent and look at some look at some, what are some home improvement projects that we can do, right? What, what’s some stuff that we can do to add some value? There might be some very easy things that you could do to add a lot of value to your home, um depending on what you’re looking at. So here’s some examples, you know, you can mulch the flower beds, replace your beat-up doorknobs, fixing dents in the drywall, touching up paint, easy things. This is something, if you’re a little bit handy, you know, you can take, you know, the two months before you go to move and you can just work on that, you know, Saturday afternoons and get that done. And I think it’s good. That’s why you wanna call an agent sooner rather than later, because you can agent in your house six months before, you know, you’re gonna move, um they can go over some of that stuff. And that way you’re not stressed out trying to get all these projects done right in the last month before you PCS. And then there’s some bigger projects too that you might want to hire out to a contractor. Maybe your flooring is really beat up and it’s time for some new flooring. Maybe your kitchen cabinets are just trash and maybe you want to, you know, do a little bit of a bigger project. That might be worth it. That might not. That’s why you want a listing agent’s help. So your agent should be able to ballpark you what it’s gonna cost, estimate how much value it’ll, it’ll add to the home and then provide recommendations for good contractors who will do the job, right and at a fair price.

So there’s some things not to do, right? If you’re, if you’re in a cheap, cheap, old starter home and all the homes around you are cheap starter homes it’s not gonna get you a bunch of money to put in stone countertops. Okay? It’s just probably not gonna be worth it. Go for butcher block. It’s gonna be a lot cheaper. It looks nice. Like for real also the real hardwood flooring, you almost never, it almost never makes sense to put real hardwood flooring. I met a couple sellers who wanted me to sell their house and they were just bragging, “oh, I put this real hardwood in, it costed so much money. It’s gonna add so much value,” and it’s, they never want to hear it when I tell them it’s not, it’s not gonna add value because every other house in this neighborhood has the laminate floors, the vinyl plank floors, buyers here are totally satisfied with that.

They’re not gonna pay you $15,000 more for their hardwood that they don’t really care about anyway. Right? so yeah, take a look at recent sales in your neighborhood. You know, what, what do they look like? And of course, again, talk to your agent. They should know. And you know, anytime you’re thinking of any home improvement project, maybe you just moved into your house and you’re thinking, “Hey, you know what, if I do this?” Call your agent, ask him, “Hey, is this gonna add value?” and just because it won’t add value doesn’t necessarily mean you don’t do it. If you want to do it for you because you would enjoy it. But that way you at least know you know, how much money are you gonna invest in this project versus how much will you get out when you sell it?

So getting to the market, right? Talk to the lender and figure out how much your debt to income ratio can support a second mortgage. If you can get approved for second mortgage, I recommend buying your new home and moving into it. Before you sell the old one and that way vacant houses typically are able to sell for more 1) because you are going to, it’s gonna be a lot easier for agents to schedule appointments. They can just show up versus having a schedule, makes it easier on you as well. Also you can really do a deep clean, you can really make sure everything’s perfect. And you know, especially I know when, when I was in the military and even now to an extent, because I’m kind of cheap. I had just had all this beat up furniture because I was PCSing all the time and it all looks terrible.

And sometimes it, I haven’t, you know, sold a house PCSing. I kept everything I bought as a rental. But if you were like me and have beat-up, ratty furniture, it’s better if that stuff’s out of the house, right? Staging, staging is sometimes good even in this hot market. I recently did a, a renovation project, a flip it was a beautiful, gorgeous flip. And I spent, you know, about $2,000 staging and I think it was worth every penny. Sometimes it makes sense. Sometimes not – depends on your situation and you don’t necessarily have to stage all the rooms. Sometimes just a few little decorative pieces can go a long way. Your agent should know who a good stager is. So let’s take a look. This is the timeline. This is a rough timeline. So let’s say, you know, June 1st is your move-out day, right?

These are your kind of big touch points here, right? So you want to do the cleaning after you move out. You want to do the staging after that if, if that’s something you’re gonna do. The day after that, professional photos, photos take a day or two to get back, boom, listing’s live on the seventh, right? If it’s priced well in this market, you know, if it’s priced well, you typically under contract – say you list on a Friday morning. Typically by Sunday night, Monday morning, you figured out who’s gonna buy your house. Right? Couple days later, buyer’s gonna do their inspection, a couple days after that they’re out of due diligence. And that means basically they’re buying the house unless it appraises low or they somehow don’t get approved for the loan. Takes another week after that, and then we can typically expect to close typically in 30 days.

So June 10th, July 10th, typically 30 days is that that’s most contracts that we’re seeing, right? So we’re looking at about a 40, 45 day period between the time you move out and the time that that house is being sold, more or less. Now what this doesn’t account for is sometimes an, an inspection happens and a buyer backs out. Well, that’s gonna add, you know, five days, five to seven and days on your timeline or it doesn’t appraise and the buyer backs out. That’s gonna add about 20 days onto this timeline. Those are things that happen. It’s it’s, you know, anytime you go under contract on that house, just keep in mind that it’s not, it’s not happening until the, the money hits your bank account, right? So always, you know, don’t start making big plans until you’re getting closer to that, to that closing time.

Alright. So getting to the market, so hey, most people won’t be able to move out before listing that’s okay. We just modify that timeline. You know, you get the, you get the cleaning done while you’re still living there and we just work around the schedule. That’s not so big a deal. The big thing is, try to take it down some of your trinkets some of your different photos and stuff because you want to have the house be as neutral as possible to appeal to the widest amount of people. And so that they can imagine themselves living in the house, right? If it’s all, you know, all your personal effects and all your trinkets, well, they’re gonna come in and that’s still gonna be your house, not theirs. You want them to walk through the home and, and imagine their own personal effects on the wall. Also, you know, try to keep the moving boxes, put them in a garage, put them in a spare bedroom. It’s much better if all of your random junk is in one spare bedroom and, you know, buyer can open a door and say, oh yeah, this is where they’re stashing all their stuff versus having moving boxes all over the house. So yeah.

All right. So here we go. There’s a couple things that we can, we can look to do to make the, make the transition easier. Right now in this market, sellers are pretty successful in getting a seller rent-back period. And what’s good about that is you can, you can basically sell your house, say you sell your house on June 30th and you still live in it until July 30th, right? That allows you to do two things. One, it makes your move less stressful. And two, the biggest thing is it makes purchasing your new home in your new duty station a lot, lot easier because it is very difficult right now, if you make an offer, say you’re going to Fort Carson and you make an offer. And in that offer, it says, “Hey, this is my offer and it’s contingent on my house in Fort Stewart selling”. That offer is probably not gonna go anywhere.

It’s probably not gonna get accepted. So if the house is already sold, you don’t have to make that that contingency, right? So that’s a good thing about that. Especially if you can’t qualify for that second mortgage without selling the first home, that’s a great thing to look at. And that’s, that’s why you want, you know, we see this next bullet point, lots of moving pieces, right? The agent helping you sell your home and the agent that’s gonna help you buy your new home and the lender that’s gonna give you the money to buy your new home, should all be kind of touching base about your situation, because you know, the, the, the agent that’s gonna help you buy a new home and the lender are gonna have information that the agent agent who’s helping you sell your home needs to know. So make sure that, you know, you trust both these people. If you don’t know someone, you know, in a duty station you’re going to you know, ask, ask your agent. If you ask me, “Hey, do you know a good agent in Carson?” “Yes, I do.” “Lewis?” “Yes, I do.” Bliss, Hood, you know, Bragg. I, you know, so especially if your agent does a lot of military PCS moves, they I’m sure they know somebody where you’re going. Somebody who’s good.

So what’s the relationship look like? You know, you can be as involved as, as you want to. Most of the time, you know, our clients don’t wanna be involved cause they have a bunch of stuff going on. They don’t have time to worry about it. That’s why they hired us. You should hear from your agent at least once a week typically, you know, at least once a day, your first weekend on the market just kind of keeping you updated, “Hey, we got these offers,” this, that, “let’s, you know, let’s pick a time to talk about all of them.” and then you sit down and you go over all the offers and the pros and cons each one, you pick one, you go under contract. Once you go under contract, you know, it shouldn’t be an everyday kind of thing, just as things come up you should hear from your agent. Um you know, it’s best to let your agent do the job that they’re good at, but always trust with verifying.

Don’t be afraid to ask why. It’s something sometimes I forget to explain why upfront. I just assume that people know things that, you know, they shouldn’t know, or they wouldn’t know. And so, you know, I like when my clients ask me, “Hey, why are we doing this?” “Oh, well, this is why we’re doing it because of, you know, this thing.” never talk to buyers. Don’t talk to buyers, do not talk to buyers, do not talk to buyers. I have never seen a seller talk to a buyer and do anything but give the buyer information that the buyer can use as leverage. It’s best not to talk to them. Really, whenever buyers are looking at the house, you should not be in the house. Couple reasons – one, you know, they’re not going to, they’re going to feel rushed. They might feel like you’re looking over their shoulders.

They’re not gonna say the things to their agent that they want to. But two, the biggest thing is you never do anything good by talking to those buyers or especially their agent. I love when I’m working with a buyer, I love when the seller’s in the house and I just love to talk to them and I put on my friendly face and I’m I’m friendly, but I’m always trying to get – what kind of information can I get that’s gonna help me negotiate the deal? You don’t want to be there. All right, so, Hey, let’s move on to buying, right. How do we buy? So when do you make your money in real estate? It’s not when you sell. It is when you buy, right? You make your money when you buy. What that means is if you pay too much now, it doesn’t matter what happens in the market, you’re gonna be in a tough spot later. You know, why I like owning real estate is the homes tend to appreciate over time. And every month, you’re paying off your mortgage balance instead of paying off your landlord mortgage. And you, the other good thing is too, you buy a home, you own a 30 year fixed mortgage. Your payment’s not gonna change. Whereas rents have traditionally always increased. So how do we do it remotely? When we look at some, some quick things, let’s say, you’re, you’re gonna be somewhere for only a year. Maybe you’re going to you know, Fort Benning for the captain’s career course or something, probably don’t buy there. Right. I, I didn’t buy when I went to the career course. It’s probably best to rent. Unless you just find a smoking good deal, which are kind of hard to find in this market.

Right. do you believe housing prices would be worth more when you, when you leave? So say you’re PCSing to a duty station that just got word that they’re gonna lose a whole brigade that might make a big impact, right? A negative impact on the housing prices. So, you know, do a little research on the local economy you know, like Savannah Savannah’s growing Fort Stewart’s growing. It’s, it’s the only the only port it’s, it’s the only armored assets on the east coast, the only armored assets within 50 miles of the deep water port. I don’t think Fort Stewart’s going anywhere, right. It they spend a bunch of money modernizing the brigades that, you know, so anyway, I’m bullish on Savannah and on the Fort Stewart market. And then will you be able to cashflow the house as a rental when you PCS?

It’s always something to look at. If, if you expect that you’re gonna be somewhere for five years, that’s not so much of a consideration because in five years, you know, there might be some fluctuations in housing prices, but typically in five years you’re gonna see appreciation not only in housing prices, but in rental amounts. So that should be a, a little safer, but I think it’s always good, like, “Hey, can I at least break even, if I have to rent this place, can I at least break even on it?” “if something crazy happens to the economy and I have to rent this thing for a year or two after I PCS, can I?” And, and at least kind of break even it’s a, it’s something important to look at. So here’s an example. If you’re going to Stewart and you’re buying a house in the mid $200,000 price point in Richmond Hill, those places usually run for $1700 to $1850 a month give or take.

And here’s some of your numbers here. So with your mortgage property management costs maintenance, vacancy reserve, you’re looking at, you know, roughly two to $300 every month in cashflow. So, so that’s good. All right. Awesome. and in addition to, you’ve also got increases in your equity that come from paying off your mortgage every month and from appreciation. So I I’d say that’s a good deal. And, and don’t forget these property taxes and insurance is not the same everywhere. It’s different in Richmond Hill than it is in Savannah. And, you know, it’s, which is different than it is in Texas and North Carolina. So if you’re going to on different market, you know, these numbers might be a little different for you. And also this mortgage payment, I mean, rates are going up, right? I did just edit this, you know, two months ago when I did this slide, it was $1100 a month.

You know, now it’s closer to $1200, it could be more or less whatever. So key players, right? It’s real estate. And we’ve, I, I think I’ve hit on this a lot. They should put your interest first. They should be candid. They should have a decent background with recent transactions. And communicative is, is the biggest thing. If they’re responsive and they get back to you quickly and they, and they work hard and they have some work ethic ethic, that is probably the most important thing that you’re looking at. Home inspector, right? I have my home inspectors that I like and I use over and over and over again for my own transactions and for my clients. I found that every time a client wants to use their own home inspector, it doesn’t go well. I, I had a client use one that he wanted to use and the inspector ended up missing about $20,000 worth of foundation issues that should have been found. So lender, you know, I have lenders that I like to work with. And again, I find when clients bring their own lenders, I’m typically not too satisfied. Although sometimes I am, I have found some good lenders from clients of mine, but I’d say four times out of five, they bring me a, a terrible lender. And now as always trust but verify, right? Look at reviews, Google, Facebook, Zillow, things like that.

So get acquainted with the area, right? If you can, fly out. Even if it’s a couple months before, and you’re not even ready to buy yet, just fly out. Tour some neighborhoods, meet up with your agent, drive around for an afternoon with them and, and get to know what you’re looking at. That’s important. All right. You can’t always do that though. So Google street view goes a long way. If you’re looking at a house and you can’t go see it, pull it up on street view drive kind of “drive” around the neighborhood on street view, and check the check, the date stamp on that imagery. If it’s from 2008, you know, it’s probably not good imagery anymore, right? And then check the overhead map, right? Are you close to an airport, interstate, railroad check the commute, you know, you can go on Google and you can, you can put the commute from that address to where you’re gonna be on post and you can, can actually set your arrival time to say, “Hey, I want to arrive at 0630” or really probably 0615 at least.

And see what, you know, you can see what gate traffic’s gonna look like. And as always, your agent should be able to provide insight as well. So common pitfalls, right? Generally, you know, your homes built after ’85 are gonna be up to current building standards, except some of those between like ’85 and ’90, you’re gonna have polyline plumbing, which isn’t that big of a deal really, but they don’t use it anymore because it has had some issues. If you’re buying something that was built in 2005, there’s probably nothing majorly wrong with it, right. You know, big ticket items: HVAC water heater is, you know, they typically have a 10 to 15 year service life $5k-10k for an HVAC, depending on how large your house is. And typically $1,000-$1500 hundred bucks to get a water heater replaced.

And people always freak out about water heaters. Like that’s really not a super expensive item. And then your roof, 25 to 40 years, depending on the type of shingle. $5K-$10K to replace those roofs, typically different markets are different. You know, I was talking to somebody who’s doing stuff in Virginia and he says, he typically has to pay a lot more than that. This is, this is for, for my market in Savannah, kind of what I typically pay for a roof. So, you know, it’s always the old houses you gotta watch out for. But the newer houses are typically pretty easy, especially for me as an experienced agent who does a lot of renovation projects, I can typically know pretty well, whether the inspector’s gonna find major issues. Virtual tours, right? So you’re, you’re remote. What I like to do is, you know, I got a little stabilizing gyro and I run it on wide angle lines at 60 frames per second.

And I send the videos. I don’t FaceTime because FaceTime gets grainy. I’ll send videos keep them kind of short so they send easily on iMessage and WhatsApp. And I, and I give narration, I can kind of anticipate the questions that somebody would ask on FaceTime and I’ll say, “Hey, these counters are made out of this. And this flooring is made of that. And you know, the flow in the shower is good, et cetera.” you know, some people, especially if you’re a really, really kind of picky person, maybe you want to get some short term rental set up for the first couple months that you are, you know, do your PCS, get a short term rental, and you know, actually go that route. That’s not, there’s not anything wrong with that. And of course, if possible, you know, you, it’s not very efficient for you to fly out when you’re viewing homes, right?

Especially in this market, you’re gonna probably lose some bids before you lock one up, so lock it up. And then during your due diligence period, when that home inspection’s going on, if you want to see it, then fly out or drive out and, and take a look. It’s definitely, definitely what I would recommend. So here’s, here’s how we kind of lock them down, right? It’s like, like I said, this is a seller’s market. So what do we do to win offers? Well, number one is price. I mean, cash is king, you know, how much money you coming in with. That’s the most important tied into that is kind of the escalation clauses. So we can say, “Hey, we’ll pay you $225k, but if you have a higher offer, we’ll go up to $235k to beat it,” something like that. No seller closing costs, right?

It’s hard to get to sellers to pay your closing costs. I, I don’t ever recommend that people ask for closing costs in this market. Typically your average home that people buy here in the Fort Stewart market, you’re looking at $6,000 in closing costs for like a low $200,000 home. And if you up to $500,000, you’re probably looking at closer to like $12k, $13k in closing costs, just to give you an idea of what that’s gonna cost. An appraisal gap, you know, that’s that’s a way to win. You say, “Hey, if it appraises low, we’ll pay the difference up to $10k in cash,” boom, you know. Large earnest money deposits. Your earnest money is a deposit that you make within a couple days of going under contract that gets sent typically to the closing attorney to hold onto. And that’s kind of your good faith thing.

It means, “Hey, first of all, I’m in the financial financially secure enough position to make this deposit. And two, if I don’t fulfill the terms of the agreement that we agreed to, that you get to keep that money. So if it’s the day before closing and I back out of the deal you keep that money, right?” It’s a little bit of security. Option money is that’s an optional thing. And that basically says, “Hey, I have this due diligence period where my earnest money is, is refundable, but you get to keep, you know, $200-300 bucks regardless. If I back out during due diligence, because I find some problems, you still keep that money.” it helps keep your due diligence periods tight. You’re not gonna get a two-week due diligence. Okay. A couple years ago used to be able to get a two-week due diligence. Nowadays, I don’t recommend any more than 10 days and really 5 days should be enough time to get an inspection done on most houses.

This is an important point. You don’t need to pull all the available levers, right? I, I won one. Oh, here’s the most important – seller’s needs and wants, right? So I find out from a seller one time that he needs to sell his house before he can buy a new one. So we offered him a 45-day rent-back and that’s what won us that bid. There were higher bids, but we offered the rent back and we won it. So it’s always important for your agent to ask that seller’s agent, “what do you need? What do you want? What are things that we can do to win this bid that are important to your seller?” so that that’s an important piece as well. Awesome. So that pretty much ties it up guys. You know, this isn’t a live thing, so there’s not gonna be question and answer from the audience.

This is a recording. I encourage you, if you have any questions leave us a comment. Send us an email or, or a text. We’ll put some contact information up. We would love to talk to you. And there’s a lot of, this is a very general try to make this somewhat fast. There’s a lot of information in your specific situation that we probably didn’t cover. So hopefully now you at least know what questions you should be asking. Please reach out to us, ask us the questions, ask how we can help. Even if you’re not doing business in Savannah or Fort Stewart. And you’re trying to go somewhere else. If you happen to see this video and maybe you’re moving from Carson, to Bliss, give us a shout. We’re happy to recommend friends of ours out in those markets and help you out. Thanks, guys!
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Buying & Owning a Home Investing Savannah Market Selling a Home

Savannah Suburb Flip: Before & After

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Full Video Transcript

We’re heading out to a new property out in Georgetown little suburb of Savannah, about 15 minutes from downtown, and it’s a new place. We just bought it on Friday. Today’s Tuesday and we’re starting demo day. Got my contractors out there. They’re already out there. So we’re hoping to to catch ’em before they get too much done. It’s just fun. I don’t know, swinging a hammer, knocking out cabinets, like that shit’s fun. Right? Who, who doesn’t like getting licensed to destroy a house? You know?

I wanted to talk a little bit about the numbers and about, you know, how I decide what a good deal is. So this particular deal, first thing you do is just a little bit of digging and the easiest thing to do, you can do it from your computer is what will this house be worth when it’s fixed up? $289K was my number. It’s gonna be worth $289k. It’s a 4 bed, 2 bath, 2400 square feet. Big house. We’re gonna make it nice. The next thing I look at is where’s the seller at right now on his number? What does he want? And I knew that he was around $140,000 on what he wanted for it. So I said, well, that’s, you know, we could make that work. $73K is the rehab budget. If we add purchase price and rehab budget together and round up a little bit, we’ll call that $220k is our, is our all-in for hard costs.

Do not forget to factor in your various soft costs. My interest closing costs – it’s gonna be around $5k or $6k and then insurance is gonna run me about $1,000, you know, power and water. And so all in our soft costs are, are gonna be around $15k. I know I can sell it for $289k. Obviously there’s a good bit of room there, right? There’s, you know, sounds like we’ll make money. So I feel pretty good about this. You know, these, these projects, they should make you a little nervous going into ’em. And, and I find that, you know, the action is what takes away the nerves. When I see my contractors out there, you know, getting it done early in the morning makes me feel good. You know, we’re seeing progress. So demo days, man, they’re fun. Check it out. We are finally done with 18 Red Fox here in Georgia. I’m so excited to be done with this. It’s taken a little bit longer than we wanted to, and it’s always a little bit stressful, but we’re under contract already. We’re selling a place – we didn’t even have to go to market. So I gonna take you through, I wanna talk about all these different design decisions and how it led up to the final product, what you see before you right now. So let’s go take a look.

I love how you’re just greeted instantly with natural light from those windows. This is very well laid out – staging, I think, looks great. And I love the fireplace wall. I think looks great. You know, white and black is in right now. So we’re always trying to stay on top of the trends, but not only is it trendy, I think it’s something that’s gonna look good still 10 years from now, because this is a very classic kind of thing. One of the things we like to do when we’re flipping a house is we wanna try to make it appeal to the most amount of people as possible. So, I love how this turned out. I think the staging here really ties this together. When I walked in after the staging and I saw what Kelly, the stager, had done with this space, it just made sense. It just clicks with me. I’m like, oh, of course we’re gonna put chairs there. That makes total sense.

Love the kitchen. Man, they say kitchens and baths sell houses. So, if you’re gonna spend money in a house by God, spend it here. In, in this kitchen, some of the design elements, we wanted this to kind of be the statement. And you, you walk in and your, your attention’s drawn to this, right? Shelves are in, stainless steel vent hoods are in, you know, subway, tile back splash to the ceiling taking that all the way to the ceiling. Did it cost a little bit more money? Yes. Okay. A lot of people will stop it. You know, maybe at the top shelf or maybe they’ll just do a little run of back splash, but we’re talking a couple hundred bucks maybe. And, and what’s the difference in quality in that wow factor? I think, I think it’s pretty huge. So I love the way this turned out.

It kind of makes a statement and it’s very functional. Look how much space there is. This is a large run, and believe me, I know because I spent a lot of money on this stone, right? But it’s large. It’s very functional, you know, for cooking large meals, we can have some, you know, stools here for a little breakfast nook if somebody wanted to do that. Very, I think this is a really great combination between functionality and just, it looks good. So the color are good. You see the colors here. Grays, whites and blacks are very neutral. So that’s why we kind of go with, with this. And then we, you know, we throw on these, handles it just kind of give it a little, a little touch of pizzazz right? Or this sink. I love farmhouse sinks. I think it looks really good. It costs a little bit more money than a standard undermount sink. But well worth the money I think. And I love this. It took me a while to figure out how to even use this dang thing because it’s coming out here, but then what do you do here? And look at that, you know, that’s just, that’s cool. You know, that’s better than the sink I have at my house. So, you know, I kind of live in a shitbox and I make all these nice places for other people.

We definitely spent a lot more money in the master bath than the hall bath, but we still want this to look good. It doesn’t make any sense to have a kitchen that looks like that and then put like a vinyl insert shower, right? That just does not flow well. This costs more than a vinyl insert. Probably spent $2,000 to $3,000 more tiling this than if we would’ve just got one of those inserts that you get at Home Depot. But again, that’s, in my mind, a money well spent kind of thing and, and we didn’t get too fancy. This tile on the floor is pretty cheap. I think it’s like maybe $2 a foot. This subway tile is not very expensive. This vanity, you know, is, is kind of like an off-the-shelf. You could probably go to Home Depot right now and buy this, but it’s the simple things.

I think the black all the black fixtures are modern and it’s, and that costs just the same as any other fixtures would’ve cost. Maybe we spent a little bit more money on this light bar than another one, but we’re talking $50. I can’t stand when flippers – I’ll go into somebody’s house, they flipped and they’ve got the same frigging, $100 ceiling fans that everybody else has. And it just, there’s no character, there’s no style and they could have spent $50 a fan more just to go the extra mile. Just doesn’t make any sense to me. So we spend a little bit more money, not much. I think it looks great. This is the master. So this is huge, great closet. I love this bath. I don’t even remember what was here. It was dingy, nasty straight out of 1975.

I love this. This is one of the biggest showers that I’ve done. You’ll notice we don’t have doors on it. So I had some people ask me, oh, why not doors? You know, whatever. A couple reasons. One, honestly I think it’s big enough that you can get away without a door. Two, they cost a lot of money. They’re kind of hard to get right now with the supply chains and all that. And three, it doesn’t really stop a buyer from buying this place. This is a strong seller’s market, as we know, right now. So just not really worth it. If this was a smaller space you know, we probably would, but you know, we’re not even, we’re not even getting water over here. Right. So I don’t think it’s really strictly necessary to have that. So I hope you enjoyed this whole video and seeing the before and after and all the decisions that we made. I hope you learned a lot from it. We’re very excited about this. And you know, we just wanted to say that we do this for ourselves. We flip houses for ourselves and we also love to help clients. If you’re an investor and you’re thinking about doing this, or even if you’re just a homeowner and you want some advice – “how do I sell my house for more?” “What easy projects can I do to get top top dollar?” Or, or maybe you don’t even wanna sell. And you’re just wanting to do a renovation for yourself. Please give us a call. We’re happy to give advice, take a free consultation.

And, and I’ll be honest with you. It’s more important to me to do a good job for my clients because that’s their money. My money, you know, it’s my money. If I lose it, the only person I disappoint is myself. And I, I don’t wanna disappoint anybody else. So we love doing this for ourselves. I genuinely enjoy the process, and seeing a house transformed and then sold on to a new homeowner or a renter, depending on the situation. I love helping other people do it. I think it’s very exciting. It’s a great way to earn a living. So thanks for joining me.
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Buying & Owning a Home Investing Military

Video: Pat & Wynn on Closings Costs – Coffee with Kevin, ADPi

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Full Video Transcript

Kevin:

Hey guys Kevin here coming to you live from DC. And we don’t do this often. Well, if you’re in Adam, you know that I do coffee with Kevin videos. Usually every week, you’ll see one pop up in the Facebook group. But what I wanted to do was do some interview style stuff, because I’m sure most of you are sick of hearing me talk. You’re sick of looking at my stupid face. Now you have two other faces to look at, and those faces are our own ADPi ICC agents. Wynn Martin and Pat Wilver out of Savannah, Georgia, they’re my agents. They’re my team. I trust them with my life. And they both went to West Point, despite Pat’s beard. He did in fact go to West Point and they’re crushing it in Savannah. Their, their, their whole operation is growing and just exploding there in the market as they do really, really good business.

Kevin:

But what we’re here to talk about today as we you know, sip our coffees is closing costs. I’ve had a lot of questions in the group come to me privately, or, or, or, or just in the group, Hey, what what’s all involved in closing costs. I hear closing costs are like the worst thing ever. Well, I wanted to bring some agents on and I wanted to bring some ADPi certified agents on to talk about closing costs, what they are and why you shouldn’t necessarily be afraid of them, especially if you plan to VA house hack. And, and I say, ADPi certified agent, what does that mean? So over the last 12 months now, ADPi has been going through, finding agents, and vetting them and, and making sure that they are the best agents in that market to talk to veterans. They have to have a military affiliation.

Kevin:

You know, these, these two gentlemen have been to West Point and, and, and they’re veterans themselves, and they have to know what it means to invest. And these two gentlemen are investors themselves. So they know investments, they are qualified agents and have a military affiliation. So they, we, we, we just don’t want agents just like spewing crap about the VA loan that they just think they heard from their cousin’s, you know, brother, who’s a lender, you know. We wanted to talk to the real deal, so Wynn and Pat, thank you for your time. And let’s talk closing costs.

Pat:

Sure. Pleasure. Yeah.

Kevin:

So closing costs. So the biggest thing that I, I, the question that I get is I wanna use my VA loan. Does that mean I don’t have to pay closing costs? What do you guys say about that?

Pat:

Well, well, you do have to pay closing costs, but you can ask the seller to pay for up to 4% of the the purchase price of your house and closing costs. So generally you can get the seller to cover most, if not all, of your closing costs. But there is still closing costs. Somebody’s got to pay for them.

Kevin:

Okay. So, so what, what are these, what are these closing costs? Like, I have all this, you know, I’m paying, so, so that’s a good tidbit because you said up to 4%. So that means that, you know, if your house is $100,000, I mean, shoot man, you can get $4,000 paid for by the seller if you negotiate right. Is that math right?

Wynn:

Yes. When when you’re writing a contract, make sure that your agent is asking for an appropriate amount of closing costs, maximum amount, if you can. The last probably 10 or 11, we’ve done VA loans. The buyers have actually gotten money back. We’ve asked, we’ve negotiated for a good amount of money. Typically closing costs are three or three and a half percent on a VA loan in our market. So if you ask for 4%, you, you know, they pay too much, you get a little bit back and it’s nice to buy a house no money down and get a check back for, you know, like $1,500. Can’t beat that.

Kevin:

Sure. Can’t so you’re getting paid to buy your investment property.

Wynn:

A lot of times you can.

Kevin:

Whoa. That’s wild. So what, when, when these closing costs break out, what, who’s getting paid? How much are they getting paid typically? And like, why?

Pat:

Well, I mean, first you have an attorney, right? You got your closing attorney, some states, I don’t believe you use attorney we’re we’re in Georgia. So any kind of, you know, anything we talk about is gonna be specific to Georgia. Some things may be different. In Georgia, we have a closing attorney. Their take is usually attorney-related closing costs usually like $2k-$2,500. And that includes a big line of things. I’m holding up an ALTA settlement statement right here. So under the line on, you know, title charges and escrow settlement charges, you have title insurance for the owner and for the lender. In this case this, this particular example, this is about a $200,000 purchase price 100% loan to value VA. In this case, title insurance total was about $1,000 for the lender’s policy and the owner’s policy. Attorney fees in this case are $645. You have some associated, some, some assorted title-related fees, $45, $20, $195 for, for a binder, another $150. There’s a bunch of little,

Kevin:

But it’s kind of all like attorney-related.

Pat:

This is attorney-related stuff. And this isn’t really, this, this is gonna this is gonna change attorney to attorney. There’s so many closing attorneys that they have to be kind of competitive. But that’s, that’s, what’s involved that usually comes out to between $2k and $2,500.

Kevin:

And then title insurance itself correct me if I I’m wrong here, but that is, you know, you’re getting insurance on the title of the property to make sure that the title is coming from Joe, who’s selling the property and Joe is who he says he is. And he actually owns the property, giving it to, to you or transferring it to you and making sure that you own it.

Wynn:

Correct. And every, every state’s different some states don’t require deeds to be recorded in the courthouse. And so they could have a deed in a safety deposit box or buried in the backyard from long time ago. They could present it to a judge and say, this is legally my land. And so what title insurance does, it just prevents you know, it ensures both lender and the owner that that won’t happen. And if it does this title insurance company will go to bat for you.

Kevin:

Right. Okay.

Pat:

Do you want us to get into like what title insurance is, or?

Kevin:

No, no, no, no. Just kind of 30,000-foot overview. I think for our, for our, that’s

Pat:

A good discussion for another time though. I think,

Kevin:

Yeah, we got, Hey, there’s plenty of coffee, man. We got lots of coffee. Yeah.

Wynn:

Now another, another thing in the closing statement, besides the attorney’s fees are gonna be escrow, all VA loans have to have escrow. And that is basically your mortgage company is going to pay your taxes and insurance is what that is. So you’re gonna get a, a monthly statement for say, $1,000 a month. $800 is going to go towards a principle and interest. And then the mortgage company’s gonna set aside a little pot of $200 each month to go in a separate bank account. So when your annual taxes and insurances are due, they’ll pay them on your behalf. What they do at a closing is they collect, you know, normally, you know, three, four months worth of a escrow charges, which is taxes and insurance to kind of prime the pump. They, they take that out on the settlement statement, put it in a bank account to get started. And that’s your starting balance. And then every month in this example, $200 will go towards that. So when tax time comes, you’re covered, so that’s gonna be on the settlement statement also.

Kevin:

Yeah. And, and that’s a really good point, Wynn, because I, I remember Wynn, you know, two, two and a half years ago giving me this same exact speech, because I had so many questions on, on my lending statement. I was like, why am I giving a thousand or whatever it was dollars to escrow? Who is escrow? And but you know, I, I figured it out when that tax bill came and they were like oh your taxes have been deducted from your escrow account. And I was like, oh, so I don’t have to worry about calling the city and paying them? You know, it’s like, Nope, it’s all taken care of.

Pat:

Yep. Lender, lender does it. The, and you’re also paying your first year homeowners insurance also. So that’s in addition to the escrow you’re paying your first year homeowners, insurance premium you’re paying your escrow. This, this statement is two months of property taxes and three months of homeowner, it kind of varies

Kevin:

Yeah

Pat:

How much you’re actually gonna pay the escrow. And you also, we’re talking taxes and insurance. You’re gonna pay your part of the year’s property tax bill at closing. So that’s also gonna show up on your statement.

Kevin:

Yep. Yeah, absolutely.

Wynn:

One of the biggest dollar amounts that you’re gonna see on a VA settlement statement is gonna be under loan charges and it’s all gonna be different depending on the, you know, the state and the, the lender. You’re gonna have appraisals, credit, credit reports, flood certifications, e-recording fees, and then a VA funding fee. VA funding fee you can’t get away from. Now that will vary depending on your eligibility and if you’re disabled and what percent you are disabled. So fees talk to a talk to a, you know, an ADPi lender to see what those fees will be for each specific person. But those, those fees get rolled. The VA funding fee gets rolled into your loan more than likely I would recommend that it would. But that’s also gonna be on the settlement statement. You’re gonna see a whole chunk of loan items origination fees lender credits, all that kind of stuff will be, be on the settlement statement.

Kevin:

Yeah. And, and we call that we, we call that wrapping it into your loan, like, like Wynn was saying, and for those of you who are analyzing a property right now and you thinking, oh, I might might wanna use a VA VA house hacking calculator, a ADPi’s VA house hacking calculator the the base Excel spreadsheet that you have access to in operation Adam right now on the Facebook group, click on files, click on ADPi house hacking calculator that will let you, it gives you the option to roll all of your closing costs into the loan, not just your VA, but you can roll everything that you want and customize that, that property and that analysis the way you want it. So make sure you, you guys are using those products because they’re super helpful. What other fees are we talking about?

Pat:

Right? So we got the funding fee. We talked about, so we talked about taxes, there’s different kind of taxes. So of course there’s your property tax you pay to the city and the county, but whenever you purchase a property, you have taxes related to transfer of the deed, basically. In the state of Georgia you’ll have transfer tax and an intangible tax. Transfer tax is always paid anytime anybody buys a property, even if you buy in cash, you’re paying transfer tax. In Georgia, that’s $1 per thousand dollars of purchase price, right? So in the case of this property that sold for $197,000, that was $197, right. And tangible tax is something you only pay when you take out a loan and you pay that it’s $1.50 per $500 of loan amount in the state of Georgia, alright. This is gonna be different anywhere. Most states have similar taxes, but that’s the state of Georgia in this case $197 of transfer tax, $600 of intangible tax. And then you have court recording fees that’s $70 that’s kind of yep. You know, whatever yep.

Kevin:

Cost of doing business. Yep.

Pat:

Yep.

Kevin:

Yeah. Okay. What about what about realtor fees?

Wynn:

Right? Yep. Realtor fees and commissions. For all the hard work that the realtors do on both sides, it’s gonna vary from state to state. In Georgia, that’s a seller cost, so that’s not gonna be on the buyer at all. When you’re buying a house and you’re working with a realtor, you’ll probably be signing a, a, a buyer brokerage agreement, whether it be exclusive or non-exclusive. And then there’s a little checkbox somewhere that says you know, the, the realtor’s entitled to an X percent commission. If the seller doesn’t pay it, the buyer will or will not be responsible for any difference that is. You know, Trophy Point Realty here, we, we always say not responsible. We never have a buyer be responsible for anything. If we don’t get paid, we don’t get paid. But the, in, in the state of Georgia, sellers pay the commissions. So hopefully,

Kevin:

Yeah,

Wynn:

Most states they can negotiate to, to not have any commissions come out of the buyer’s side.

Kevin:

Yeah. And that’s, that’s really clutch because when you’re buying a property, you know, you’re kind of focused on analyzing the deal and making sure, and we’re talking investment property here, you wanna make sure it cash flows and you don’t wanna be, you know, totally stabbed with these hidden, oh, by the way you owe a 3% commission. No, that comes out of the seller’s end. But that also, you also need to understand that when you’re negotiating with sellers, know that they’re either, they either know or they’re being advised that, Hey, you’re gonna, you know, as a seller, you’re gonna have to pay 6% you know, in commissions, 3% to the agent that you’re working with 3% to people like, you know, that are representing the, the incoming buyer, guys like you. And you know, so you got to know what they’re, you know, when you’re, you’re buying a property or trying to figure out, okay, what’s, what’s the seller’s bottom line, you know?

Kevin:

Well, make sure you add 6%, if it’s on the market and it’s been listed and they’re working with agents because you know, that’s, that’s gonna be something you have to cut into. That’s why we always try to say, find for sale by owner (FSBO) listings, or find off-market listings. And maybe they’re not working with an agent. Maybe you can, or maybe the seller can, save 3% and then pass those savings on to you as the buyer. That’s why, you know, when, when we’re looking, if you’re looking for investment properties, always try to look off-market.

Pat:

We, yeah. We work a lot of, in the nature of our business, we work with a lot of investors. So we’re looking at a lot of off market deals. And you know, of course we wanna get paid. We try to work some, some payment in for ourselves, but

Kevin:

Of course yeah. Finder’s fee or, or something like that. Yeah.

Pat:

Yeah. But, you know, we, we try to make the deal work for both ends. We’d rather not get paid a whole lot and get a deal to work, you know, than… Some money’s better than no money

Kevin:

Because that investor’s gonna come back to you over and over and over again. Yeah.

Pat:

So it, it generally it’s gonna come back to us, you know, one way or another. But yep, absolutely.

Kevin:

Yeah

Wynn:

And then the last part of our settlement statement here in Georgia is miscellaneous. There’s a big spot for miscellaneous charges. That’s going to be home warranties, termite bonds, HOA fees, any liens that need to be paid off. Your upfront homeowner’s insurance, that’s gonna be down there in the miscellaneous

Kevin:

Home warranties,

Wynn:

Home warranties. Exactly. You can do a, a one year like an Old Republic or American Home Shield home warranty. That’ll be down here termite, bonds, termite letters, any of that stuff can be in miscellaneous. So, you know, it’s gonna be a couple pages. It’s you know, usually three pages, it’s like three pages and it’s, you know, it’s a whole bunch of nickel and dime stuff, but definitely have, have your lender go over it.

Pat:

We didn’t get prepaid interest yet.

Wynn:

Um yeah. And have your, your realtor will help you understand what everything is.

Pat:

Yeah. Pre prepaid interest. So if you close on a property, this is June, right? So you close on a property on June 15th. You’re gonna owe the lender, at closing, interest from, you know, the day you buy the, the property until the end of the month.

Kevin:

Kind of like a prorated. Like if you’re renting, you have to pay prorated rent. If you move in the 15th.

Pat:

Yep. Just interest though. Not, not premium. You’re just paying interest, but your first mortgage payment won’t actually be until the end of the first full month. So if you buy on June 15th, you’re not gonna have a payment on July 1st. You’re gonna have a payment on August 1st. So there’s, there’s some, there’s some ways that you can kind of, you know, play the timing game. I, I mean, I kind of like if you buy a property at the beginning of a month, you almost have two free months.

Kevin:

Yeah. Almost of, of like free mortgage. Yeah. And especially if that, if you have a tenant in there or you can quickly get a tenant in, if we’re talking an investment property here, you know, you’re, you might be able to bank an extra month of cashflow. Right. You’re not, you know,

Pat:

And that’s, that makes a big difference. Yeah. Yeah, we just did a refi on on a duplex that we’re house hacking, and, you know, we timed it pretty well. We’re not paying a mortgage this month, but we’re still getting the rent. I mean, that’s pretty cool. So

Kevin:

Can’t beat that. Yeah. Alright guys. Well, thanks. I think I think we covered most of it and, and like Wynn said, there’s a lot of, it appears like there’s a lot of nickel and diming and like everyone’s trying to get their end, but also remember, in the real estate industry, everyone, the, the entire industry is built around helping buyers find a home. So everyone is working for you. The lender is working for you, your lawyer is working for you, your agent’s working for you, the title company is working for you. All of these players, they all come together and yeah, they all need their little piece of the pie, but ultimately you know, the way the system is set up is that they want people to buy and own homes in America. Like they, they, they want people to, you know, the government and everyone, the system wants people to, to own homes.

Kevin:

So if you can go in and buy smart, we always say, buy smart upfront, buy right upfront, you can use all of these subsidiary services to help you. And honestly it does make your life a lot easier. I mean, especially if you’re an out-of-state investor like me, I rely on guys like Wynn and Pat to do a lot of the hard negotiating for me, I mean, I give them parameters and stuff, but they do the negotiations. They go and walk properties for me, they send me videos. Well, I can’t fly down to Georgia to go look at a quadplex, you know, but these guys can drive, you know, five minutes away, but of course they’re gonna get their end, you know, or whether it’s finder’s fees, or, or commissions or whatever, but you just it’s right on that end. So if y’all have any other questions you know, Pat and Wynn, Pat, where can, where can our viewers find you or get in contact with you?

Pat:

Yeah, so, so we’re on Facebook and Instagram at Trophy Point Realty, we don’t trying to get better at content creation and putting more stuff out there. Usually we’re too busy hunting deals to post on our pages. We got a website, TrophyPointRealty.com. Okay. We got a little blog on there that, you know, I try to write on a decent amount. Again, we get busy but look us up.

Kevin:

Cool. Yeah. Trophy Point Realty Wynn Martin, Pat Wilver. These guys are crushing it in Savannah. So if you’re interested in Savannah, first reach out to me because I can hook you up with all of the market analysis that you need. And then I will send you directly to Wynn and Pat to help you get some investment properties. There’s a lot of cashflowing going on down in the south and you should get on it while the gettin’s good as they say. So thanks guys. Thanks for, for taking the time. And I hope that we can continue working with you guys and maybe do some more of these coffee with Kevin’s in the future.

Pat:

Right, right on. Anytime. Thanks. Talk to you soon.

Kevin:

Thanks man.
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Buying & Owning a Home Investing

Video: Termite Damage

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Full Video Transcript

Okay. Here’s an example. When you find something, you have to address it. There are two ways to do a renovation. You can do it where you say, Hey, I’m gonna cover it up and not fix it because the next person I’m gonna sucker them and they’re gonna buy a house and it’s gonna be broke. Or the ethical thing to do. And the right thing to do is when you find a problem, you have to address it. In this case, we’re gonna address it – costs some money, costs some time, but it’s the right way to do it. So there are two ways to do a flip, two ways to do a renovation. I think it’s a right way and a wrong way, always there on the side of the road. Here we are in a renovation project here in Savannah, about a hundred-year-old house we have. We’re doing renovation on the bathroom tore everything out, rebuilding the bathroom from scratch. What I wanted to show you today, was an example of what termites can do to a house. Perfect example of termite damage. There was a leak. There was some water infiltration in the shower, came down, made all this wood nice and nice and moist termites, love dark, moist places. And they just feasted on this. And a lot, lot’s already been taken out from the bathroom here.

And this is right here. This will all be reframed. This – the damage – now this has to be sistered on because there’s nothing here to bite into. This was the termite damage. And it was to the point of where it had to be removed because the, the header itself, you could crush the entire header with your hand.

Yeah. All this, all this was destroyed. All this here all the way down should look like this.

And it was all, it was worse. It was worse than the other side. It was really bad. Yeah. You can still see some remnants of the good wood. But once again, when you’re talking about, when you’re talking about good wood, I always take a key. I always take a key and start really hitting into it to know if it’s soft, if it’s what’s going on. So even though this outside part, you know, the, the, the wood there is good, they can sister onto it. Put another piece, another piece on this side, solid wood behind there’s solid wood behind. So you don’t need to rip out this whole thing. You only really need to rip out whatever can’t hold a nail or a screw.

Example of what it looks like. So termites get in and just completely eat away at all these structural supports. And, and you have nothing left. So I mean, just comes right off in your hand which is why, you know, you want to have termite protection, a termite bond, especially in Savannah and south, termites are very rampant down here. And this is something that you’ll never know until you take this down. But, but once again, with a hundred-year-old house, don’t be surprised that we’re probably gonna have some termite damage somewhere. So even though it looks really bad, as long as there is a lot of good support structure here, you can replace all this at a nominal cost. So it doesn’t have to be painful for your wallet. The main thing is make sure all the termites are gone. This is old termite damage. There’s now a bond on this house, a termite bond. So it’s been protected for future termites. We’ll get this taken care of, get back on with the project, little extra cost involved but nothing that you know, nothing that’s gonna break the bank.
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Buying & Owning a Home Investing Savannah Market

Video: Initial Flip Screening & CMA

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Full Video Transcript

Hey, good evening, everybody. This is Pat Wilver with Trophy Point Realty Group out in Savannah, Georgia, here to walk you through a little deal analysis. This is the, the nerd stuff that we do before we put a deal in your contract. So I’m gonna show you my screen. Here it is. So this is, this is, this is my spreadsheet. This is what we look at. So this is a lot I, I really like spreadsheets. I enjoy making them. So yours doesn’t have to be anywhere near this complicated, as long as you get the same terms. And a lot of people look at a flip, you know, all they’re looking at is I buy it for this much. I put this much in the rehabbing. I sell it for this much, and my profit is the difference. And that is not the case at all. Because you’re paying interest. You’re paying well you’re probably paying a realtor. You’re paying insurance taxes, utilities, all kinds of things. So we’re gonna break it down real smooth. Like this is 806 East 33rd, Savannah, Georgia.

So this is where it is on the map right here. If you’re not familiar with Savannah basically this is the historic district. This is where the tourists hang out. This is the million-dollar homes and all of that. Here’s Forsyth park. This is all really nice stuff. This kind of a chic, locals-only district Starland district. This part of town called the east side is kind of on an up and up. A lot of investors are coming in, buying up distressed properties rundown places, fixing them up, making them nice, selling them, renting them, whatever the deal is. I really I’m pretty bullish on this part of town. So I’m, I’m, I’m pumped to get this deal and look at a little street view. So here she is, right. This is our, this is our new deal. So this block is a lot of these craftsman-style, little bungalows. Ours kind of unfortunately has this closed in porch, um now and it does add square footage. Usually more square footage is better. I’m not so sure. Well, I like the porch better, but it’s not in the budget. It costs a lot of money to, to redo the layout of a whole house. So we’re just gonna leave this as it is probably spruce it out, but let’s not get into that too much right now. Looking at the neighborhood. So this is a pretty decent street. This is honestly a decent little street. The thing about Savannah, if you’re not from here, is this town is very block to block and the character of neighborhood can really change quickly. So it’s important to really know it. If you don’t know the area, like it’s not enough to just look at the street view. If you are an out-of-state investor, you got to have somebody who lives here, who knows, you know, what what’s going on, whether that be a business partner, you know, an equity partner or an agent or whoever. So here’s your property. What’s the first thing we do? Well, the first thing that we do is, you know, before we do all the work at filling out all the cells in the spreadsheet, we kind of take a quick, quick look at the deal. In this case I was told that I could get the deal for $98,000,

Right? Actually I was initially told the price was $125k. And I worked a guy down, but let’s start with $98,000. So $98,000 for this, this is a 2 bed, 1 bath, about 1200 square feet. And I knew just, you know, by all the business I do around here that a property like that, you know, probably sells between $180k and $210k, right? So let’s, you know, go kind of in the middle and say $190,000 ARV. So it’s gonna be worth $190,000 when we sell it. That’s where we start. Now we apply this thing called the 70% rule, which is what we use to quickly screen a deal. So we take basically that final number $190 x 0.7 (70%) gives us $133,000. So $133 is kind of what we want our all-in number to be. Then we got to think of what the rehab budget is. So, you know, I said, this guy first pitched the deal to me at $125k. I said, well, you know, if, If your number’s $125k, it’s going to be pretty much turnkey. None of these houses ever are turnkey, by the way, if you don’t know means basically it’s good to resell just the way it is. It’s like a perfect house.

So $133k, usually the cheapest that you would do a cosmetic renovation on a house that big would be about $30,000, right? So $133k minus $30k equal equals $103k, probably want to get it somewhere, you know, $103,000 or cheaper. So that’s why, you know, if somebody pitches to me like a deal like this to me and they say I want $98,000, I’m gonna be instantly very interested, because I know that I can probably make this guy work. You. So I want to check it out. I actually got my rehab budget closer to $40,000, right? So $40,000, $190k x 0.7, $133k minus $40k gives $93k, right. $93K is closer to number. Right. But the, the cool thing about being a real estate agent, such as I am, means that I get to save a lot of money on commission selling the house. So I realize a little bit of efficiency. I can kind of take a deal that maybe somebody else can’t. So, you know, one thing that we’ve noticed lately

Is a lot of deals have been getting expensive, margins been getting thin. So if you don’t have some sort of efficiency built in, it can be hard to do some deals. So me, I’m an agent that’s in efficiency. Other people are contractors himself. That’s an efficiency because they save a lot of money. So anyway I like this deal, we put it under contract, here is a little bit of the analysis. Let’s go through it. So I’m going to focus on this video – um we’ll do a couple, couple series – this one’s gonna be more about ARV comps. So ARV means after rehab value. This is basically how we determine what we’re gonna sell it for. Right? So I have a spreadsheet here it’s pretty much already filled out. So this is the property. 810 East 33rd, 2 bed, 1 bath, 1254sqft. Alright, right. Here’s some data. I just, I didn’t fill it out. I use that for like quick approximation. So we’re gonna focus on this table right here. Here’s where I have some comparable properties that I’m using. So the first one’s 802 East 31st. Let’s take a look at that comp.

Go to East 31st, which is Paulson. Here it is. Okay. Oh, 1002 – got the wrong. Oh, oh we are starting whatever. We’ll start with this one. This is actually the second comp. We’ll start here. 1002 East 31st. This is 2 bed, 1 bath, 1,035 square feet. Let’s take a look at some pictures. Alright. This is another kind of craftsmanship style that, that porch you through there, um this one’s brick. Most of them aren’t brick. So this is a little unique. These windows look like the older style, single-pane. But I mean, curb appeal’s pretty decent, you know, good-looking house, corner lot. Okay. Here’s our backyard. I usually don’t start right with the backyard pics, but this is a pretty good-looking backyard. Right here we go. Living room. We’ve got some staging or maybe this is somebody’s furniture. Nice looking floors. Nice looking fireplace there. Okay. Yeah. This is a good, this is a good-looking house here. You don’t like the beige paint, but it looks good there. Here’s our kitchen. Hm looks pretty good. I’m not a fan of the island. That’s got linoleum, this price point. Typically you want butcher block or, or stone? Like a granite or marble, but it looks clean. Gas, stone, small kitchen, but you know, not bad. Bathroom looks good.

Seems to be a little bit small. Good-Looking bath. Good-Looking. You know, it’s good-looking house. Yep. Okay. Here’s our backyard, looks pretty big. All right. So that’s our first comp. So how do we, how do we compare this to our property? How do we do a CMA is what it’s called. So we’re here 1002. These 3 so first $206,000 is what it sold for. And it was a two bed, one bath, 1,035 square feet comes out to price per square foot of about $199. So the first thing we do is called a square foot adjustment. So our subject property 810 E 33rd, we call that the subject property, is 1,254 square feet. This comparable property, but the comp is only 1035. So we got to do a little adjustment. That adjustment ends up being $35,000. Right? So basically what we’re doing is when we do a CMA, you’re either adding or subtracting from this comparable sale. So we’re taking this $206,000, we’re adding $35,000 to it. We’re adding $35,000 because our subject property is larger, therefore more valuable than the comp anyway. Lost my train of thought.

Yeah, CMA. So square foot, the adjustment. So we’re adding that $35,000, right? If, if this comparable property would’ve happened to be larger, then we would have to subtract instead of add. So that’s what we do. So we have a square foot adjustment. So we take that $206k, we add $35,000 to it. And we end up raising the value of the house, but we have some more adjustments to do. So for, we have I said, Hey, comparable property is brick. It’s got a nice porch. It’s got more curb peel, right? We look at the difference between this property and this property, right? Even we’re gonna screw this up. We’re gonna make it look better, but it’s not gonna look that good. So little adjustment, right? We subtracted $10,000. How do I know $10,000? I don’t know, man. It’s just, it’s just what I think it is. Right?

This, this is always part science, part art. When you look at something like this, there’s no way to really quantify a house is not a stock or a house is not a hundred unit multifamily property. You value just off the numbers, you value these things, partly off the numbers and partly off how it feels. I don’t know, hard to explain. So that’s why, you know, experience, you know, you, you, you can make up for lack of experience in certain ways. And, and even I am not super experienced by any means. So $10,000 is what we give to that. So yard. So the yard, why do I have a $12,000 judgment for the yard? And that’s a negative $12,000. That negative means that the comparable property, this one at, at 31st street, right? That means that this property is better. And this one, we have a negative adjustment. Why? But you can’t see it from Google earth, but this house here, the one that we’re gonna flip has a, basically a garage kind of like a carport with pavement. It’s not like a nice backyard. It’s paved. It would be great if you, if you’re a mechanic, you know but not if you like a backyard, so we’ve got an adjustment, right?

There’s nothing that we could do to make the backyard of this property look as good as the backyard of this property, right? This backyard – short of tearing out all that concrete, doing totally new landscaping, that costs a lot of money. It’s just gonna be cost-prohibitive. It’s not gonna be worth it. And it’s gonna add a lot of time too. And time is money. So we’re doing a $12,000 adjustment. Comparable property has the current property kitchen is not as nice as a subject property. So we’re gonna have a nice kitchen. We’re gonna have butcher block, like, we’re gonna have subway tile, new appliances, gonna be bigger. Our kitchen’s gonna be better. I’m adding $3,000. Again, that’s just kind of, you know, a number the comparable property is in a better area, right? This, this 31st street. You know, I, I just believe that block is a touch better. Generally the closer to Anderson street, you are, the better. So I assigned $5,000 of that. Cool. All right. Let’s look at 802 east 31st. Where’s this house at? That’s this one. Go to east 31st. So this is the new construction. This one just got built. 1200 square feet, 3 bed, 2 bath. Sold for $255k, was on the market for forever. Actually showed this to two different clients. And I told them I thought I was overpriced and somebody bought it.

So this is, this is a cool-looking house. I mean, it’s got curb appeal. It’s a new construction too. So it’s got a builder’s warranty. Everything in there is modern. You don’t have to worry about a lot of maintenance. Like it’s pretty cool. Doo doo doo. Good looking house. Yeah. It’s a new construction lot. Carpet in the bedrooms. That backyard is pretty decent. Okay, awesome. So part of the reason, and this comes with, you know, living in Savannah and having shown this house to two different buyers, is… Let’s go down Paulson,

Let’s go to… Here’s 31st street. So here’s a vacant lot. This is where those two houses were built. Look what’s over here. This derelict, rundown commercial building here, right. Actually happened to know that there’s some plans to renovate this within the next couple years and make this a lot nicer. But it’s not right now. So the view from your front porch over here is this nasty stuff. I mean, that, that costs money. It’s hard to quantify. What is that worth? $10,000, $15,000, who really knows? Right. So our property’s back here. It doesn’t have that right in front of it, but you are gonna drive past it to get there. So it kind of factors in a little bit.

All right. So here we go. So $255, 1200 square feet is about 50 square feet smaller. So we have a square foot adjustment about $10,000, right? You can see my formula up here just don’t even, I’m not even gonna get into it right now. All right. Comparable property was new construction. I assigned a value of $25,000. That’s just what I feel like it’s worth, $25,000. What is it worth to you to have a new construction house? It’s actually worth a lot, um because of the maintenance that goes into an old house, even a renovated house is gonna have more maintenance than new construction. New construction has a builder’s warranty. It just, it’s always a better layout. Right? This new construction has an extra bedroom, $15,000. I usually throw $15,000 per an extra bed. An extra bed is worth more. Like going from one bedroom to two bedroom, hell it’s probably worth $30k, $40,000. Going from two to three, you know, $15k. Three to four is worth a little bit less. Going from four to five is worth even less still. You know, so because you think about the utility. If you go from one bed to two bedroom, doubling your beds, two beds to three beds, you know, three beds to four beds, that that number goes down.

Extra bath, $8,000 um curb appeal of the comparable property is better – $15,000, right? I think I use the same actually. I use a little. So you see how I have a $15,000 curb appeal adjustment here versus $10,000 on that brick house? Well the new construction house looks even better than the brick house. Hence, a larger adjustment. Compared property has a decent yard, but not as nice as that first one we looked at, the brick house, had a really nice big yard, right? So this is, you see how these adjustments are a little different each time. Here we go. Compared property near a condemned property. I give that a $10,000 and that’s $10,000 plus. So we are adjusting the price up now because of that, because the property that we’re gonna flip, 810 East 33rd is surrounded by, um, pretty decent-looking properties. Awesome. Alright. 733 East Waldburg. This is an interesting property. I’m really pumped how much this property sold for. So this property, our subject property is right over here. Right, right about here. And this property on Waldburg is right here. Alight? So it’s across Henry and Anderson. Usually I won’t

Use a property that far away as a comp in Savannah. You can get away with that in the suburbs where all the houses are the same. In Savannah, you can’t, but the reason I pulled this comp is because the character of this block is very similar to the character of this block. So this is a cool house. When this one listed, it listed for $240,000, I thought they were nuts. I said, they’re never gonna get this much money. Well, they got $230,000, very surprising to me. It took them you know, over three months to do it, but they got it. But this is a really cool house. I mean, look, it just looks, I mean, that’s a good-looking house. Hardwood floors, french doors. I mean, this is a cool house. With that kitchen, we got subway tile to the ceiling, all around, steel vent hood. These things look so good. That cost them like $250, by the way, it’s super cheap. The farmhouse sink. I mean this thing’s got it all look at. I mean, this is a lot of is a lot of friggin’ subway tile. It’s good-looking the kitchen. Butcher block too. Butcher block. It looks so good. It’s cheaper than granite. You know if I’m flip- I think I might never do granite again unless it’s in a really high price point. I I think butcher block looks good as hell.

Yeah, so good-looking good-looking spot. Bathroom looks great. Look at that tub. Come on. Highlighting this is, this is a $250 vent hood. They’re highlighting it, but it looks good. I mean, nobody knows how much this stuff costs unless you flip houses. This is a new HVAC. Yard, big yard. Not landscaped. Not that good looking. Still looks better than the concrete. It’s gonna be your yard. It is what it is. All right. So 3 bed/2 bath, 1,000 square feet.

So if we go back to the spreadsheet, plug it in at $230k, 3/2, 1,000 square feet, have a huge square foot adjustment. We’re adjusting $46,000, right? For a difference of 250 square feet. Wow. So that’s a lot. So we have our other adjustments. We got our curb appeal, $15k. Honestly, I feel like that should be like $18k. It’s a good-looking house. That great kitchen, $6k, right? Our kitchen is not gonna be that good. It’s gonna be good. It’s not gonna be that good. Do the $6,000. Hell, let’s give it $8,000. New HVAC, $3,000. So the HVAC that we have is not that old. An HVAC to do a swap-out on a house this size is like $4k-$5k. So put $3k there um… Compared property, slightly better yard, $3,000

Compared property has an extra bed, $15,000; extra bath, $8,000. Right? So that takes this is, this is a cool example, right? So this one sold for $230,000. It was 1,000 square feet, 250 feet smaller, right? So we had that adjustment. We added $46,000, but all of these other ones we took away from that, we end up with $221,000 is the adjusted sale price. You know, hopefully you’re starting to catch on to how we do these comparable sale analysis. So we took a property that sold for $230,000. It was 250 square feet smaller. And by the time I made all these adjustments, I said, Hey, this property, when you make it like an apples to comparison to, to our subject property would lead us to believe that our subject property looking at just this property alone is worth $221,000. You know, that’s kind of the difference that curb appeal and an extra bedroom like bedrooms are huge. Curb appeal is huge. Kitchens, you know, all that. So 705 East Duffy. That’s the last one we’ll look at. We’re gonna look at at least three properties when you do these. Of course, you know, the more you do the better, but, but four is perfectly fine. So this one on Duffy sold not too long ago,

We’re totally in the wrong. Here we go. This is it.

Come on

705 east Duffy two beds, one bath. So it’s good. I, I wanted to pull another two bedroom comp 832 square feet, so a lot smaller. This curb appeal. And this is just final sliding this curb appeal’s not great. It’s still better than, than ours. Ours doesn’t have a lot. Alright. This is like a standard house, LVP floors. This is the vinyl plank. Great walls. I mean, this is a standard, very standard flip. It’s got granite countertops. I wouldn’t have done granite, but whatever. Nice back splash. It’s a good-looking house. Separate laundry. This little bathroom. Yep, yep. Looks good. Okay. Backyard looks big, better backyard than ours. Wish I could show you. I should’ve got a picture of that backyard. Okay. So we got a feel for that one. Here we go. We plug it in. So $164,000, 2 bed, one bath, 832 square feet price for square foot, 197. So we do that adjustment. We’ll add $55k, right? $55K is the price.

We do some other adjustments. I said comparable property was in a better area. I like Duffy. It’s a good street. Curb appeal, not as big of an adjustment as some of the other ones. You know, that one on Waldburg was an $18,000 adjustment. This one’s only $6k, right? Why? Because the Waldburg house looked great. This house looks like just another regular house. Then we had a yard adjustment, right? So that comes out to $199k. So if we average everything out, right, this is our rehab value outputs, right? So if we average everything out, we get a CMA of $211,000, $211k. So what I did, you see my opinion here, $190k, anytime you see a blue cell, that means that it’s something that I’m filling out myself, right? So I filled out $190k. Why, why did I take $20k off this? Right. Why go through all the trouble of doing this analysis, just to take $20k off? And just to basically, I basically just threw it away. I was like, alright, I did all this work. I did all this research. But screw it because I’m right and it’s wrong. Well, first of all, we wanna be conservative in our assumptions. So you know, conservative assumption is – my, my light’s running out here, it’s getting very dark, so I’m gonna plug this thing in – a conservative assumption, you know, is basically when we’re looking at any deal, you wanna, you kind of wanna make sure you’re gonna make money.

I mean, that’s important. So you give yourself, you know, in the, in the engineering world, we call it a factor of safety. And a factor of safety basically says, Hey, you know, just in case I screwed this thing up, which I could I’m building in a little safety zone just in case. Sorry guys, hang on, can’t stop the show. There we go. Alright. So you’re building in a little, little cushion, little buffer. The other reason why is, I just, you kind of get an intuition, you know, once you do a certain amount of deals that no matter what the numbers are telling you they just don’t feel right. So we’re gonna use $190,000 when we do all the underwriting of this deal. Now bear in mind. When, when I go to list it, I’m probably gonna list it at $199k. Typically when it goes to listing a property for sale,

You don’t, you don’t really want to shoot for the stars, especially if you’re flipper. If you’re a flipper, the name of the game is doing the work quickly, listing it quickly, selling it quickly, so you can get your cash back and you can do another deal. It’s about volume. If you list too high, you end up stagnating that listing and, and that’s not good to do. So I’m definitely like I’m not gonna list this thing for $220,000, you know, for sure. $210K, maybe, you know, one of the things that, that I always do is I do my underwriting. Right. But I don’t lock myself in because the markets change. Somebody could list a house next door for $230,000. Right. And that’s gonna change the calculus. Right. So we’re, we’re sticking with $190k. I’m probably gonna list it at $199k. That’d be great if I get it, but you know, $190k, all right. $190K. That’s how we do a comparable sales analysis. So the next one we’ll go over rehab budgets. We’ll talk about soft costs, right? Including your taxes and appraisals and lender fees and all that stuff. But for right now, the part of these spreadsheets that we filled out, $98,000 purchase price. Right. And we know that our ARV is gonna be $190,000. We’ll take a look at the rest after we, we get some pictures of the property. Take care.
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Buying & Owning a Home Investing Military

PCS Moves, Part Four: How to Buy

4

When you bought your current home, you may have heard the phrase, “you make your money when you buy”. We say this pretty often in our office, because – let’s be real – we want our clients to make lots of money with us! Not only is a mortgage payment like putting money into an appreciating piggy bank (the piggy bank being home equity), but the house can also help you build wealth AFTER you’re no longer living in it, so long as you look ahead when you buy. Let’s take a look at buying vs renting, buying with the long term goal in mind, & best practices for buying when you’re out-of-state.

How do you even know whether you want to buy at the next duty station? I look at a few key factors:

1. How long do you expect to be stationed there?

2. Do you believe housing prices will be worth more when you PCS again? And,

3. Will you be able to cash flow the house as a rental when you PCS?

If you will only be at the next place for 1 or 2 years, you may want to consider renting unless you can find a great deal or will be able to get good cash flow on the property as a rental after you leave. This is because the costs of selling a home will typically be more than 1 or 2 years worth of appreciation.  I find that the break-even point on the costs of selling a home is typically between 12 and 24 months of ownership.

To answer the other 2 questions, it will be important to speak with some good agents to get their opinion on market rents and expected appreciation trends. Let’s say you’re moving to Ft. Stewart and want to buy a house in the mid $200k point in Richmond Hill, GA. Typically, those homes will rent around $1600-1800/mo, and a $250k mortgage should cost around $1100/mo.  Factor in $160/mo for property management, $100/mo for maintenance, $50/mo for vacancy reserve, and you’ll be looking at $190-370/mo of cash flow straight to your pocket, plus the profit you’ll capture as equity in the home by paying down the mortgage and normal market appreciation. That’s a pretty decent deal, and I expect Richmond Hill to continue to be a strong market over the next few years, so I would recommend buying a house like that. If you were looking at losing money every month instead, then it might actually make sense to rent, though you are taking on the risk that your rent will go up while you’re living there, especially if you plan to be at that duty station for three years or more. Unlike housing prices, rents are very sticky and typically do not go down; even during the 2008-09 recession, rents held steady while housing prices fell 40% or more.

homes for sale near fort stewart ga, homes for sale savannah

Who are the key players to have on your team?

The biggest factor in making sure you’re buying a good deal remotely is working with a trustworthy real estate agent, period. This is someone who will put your best interests first and offer candid advice even if it costs them a commission. As discussed in earlier blogs of this series, the best way to find someone trustworthy is to get a recommendation from friends or another trusted agent who may have relationships with someone in that area, and then doing your own due diligence on that person by researching them, getting information on their background, and checking out their recent transactions on Zillow to make sure that they actually have some experience.

The next piece of the remote-buying puzzle is working with a reputable home inspector. Your agent should have two or three good ones on speed dial, and if your agent is trustworthy, the inspectors they work with will be trustworthy as well. When I’m making offers for out-of-state buyers, I always engage my inspectors before going under contract to see when their earliest available inspection time is. Then, I can make the due diligence (or inspection period) length in the contract just long enough to give us a day or two after the inspection. It’s important to do this right now because sellers love contracts with a short due diligence period. Why? During due diligence, a buyer can back out of the contract with no penalty. After due diligence, they cannot.  If you can offer a seller a 4- or 5-day due diligence, you may be able to beat higher offers that are asking for longer periods of due diligence.

I believe in trust, but verify. Look up online reviews of your agent and home inspector. It’s not uncommon for a trustworthy professional to have one or two bad reviews from disgruntled customers, but if you see a lot, then maybe you shouldn’t place your trust in that person or company. I also like to look around Zillow to double check the rental estimates a person is giving me. If you see numbers that don’t line up, ask them about it. “You said I’d be able to rent this place for $1600/mo, but everything I’m seeing on Zillow is listed at $1300/mo – what’s up?”  Maybe they have some knowledge that isn’t accessible on Zillow that they can share, or maybe they’re fudging numbers on you. You’ll have to be the judge of that.

Don’t forget to check on property taxes and insurance rates as well. Your agent should be able to estimate these for you, and you can verify by going to a county or city’s tax assessor website and speaking with your own insurance agent about a property you are interested in.

I’ve got my team. Now what?

 

1. Get acquainted with the area

If you can, it’s really great to fly out to your new duty station for a long weekend so you can tour neighborhoods, even if it’s a few months before you’ll be moving. Google street view is a great tool to scope out a neighborhood from afar, but that only goes so far, and there’s nothing quite like getting on the ground and spending a day or two driving around. I absolutely recommend at the very least taking a google street view tour of a neighborhood that you want to make an offer on, and check to make sure that the imagery is relatively current (street view will tell you what month and year the imagery was captured). Also, take a look at the overhead map – how close are you to interstates, railroads, or airports? Is there a left turn onto a busy road at the end of a development you like that doesn’t have a stop light? Things like that can be aggravating.

Checking out drive times to work is also important. You can do this by going to google maps and setting your arrival time to a certain time, like 6:30 AM at your new unit or 6:00 PM at a potential house. Your agent should also be able to provide insight here.

 

2. Get to know potential common pitfalls

Other important investment considerations relate to the home itself. Homes built after 1985 or so are typically going to be built well and up to current building standards but there are still things to watch out for, like polybutylene (PB) plumbing that was common in the mid to late 80s.  I own a home with PB plumbing that hasn’t been an issue, but some folks have experienced issues with it and it is no longer used. HVAC systems and water heaters are typically expected to last 10-15 years, and roofs 25-40 years depending on type of shingle used. If you have an old roof, old HVAC, and old water heater, you might expect to spend $15k in a relatively short period of time replacing all of those items. Maybe the deal is good enough to justify those expenses, maybe not.

 

3. Get to know the homes

Video tours are a great way to get a better look at a home. When doing video tours for my remote clients I do a few things to make the video as useful as possible:

– Put my phone into a stabilizing gyro to keep it level and steady at all times

– Use a wide angle lens on my phone as I’ve found it to be better for giving a client the real feel of the home’s layout

– Keep videos 60-90 seconds long so they send easily in iMessage or WhatsApp

– Use a 60 FPS rate as I’ve found that reduces the choppiness of the image when I pan from room to room

* I do NOT like using facetime for virtual showings as the video quality often sucks and the buyer can’t look at the video again to get another look. I just try to be careful to narrate the answer to every question they might think of (ie: “These are stone countertops, this sink has good flow, this AC appears to be somewhat old, there is some minor scuffing on the floors, etc.”)

Another decent idea is to secure short term rental accommodations so you can house hunt in person. This might be a great option if you’re a single soldier and can rent a spare bedroom from a friend for a couple months, but isn’t a workable solution for everyone for obvious reasons. You might even be able to find month-to-month furnished rentals on AirBNB or Furnished Finder.

4. Lock down your house

Of course, once you find a good investment candidate, you’ll actually need to win the contract on it. This is not easy to do at the moment and some markets are tougher than others, but there are always levers that we can pull to make our offers stand out in a competitive situation.

What levers to pull depend on many factors including the buyer’s ability to pull them (if you don’t have much cash on hand, we can’t exactly guarantee to cover an appraisal shortfall for example), and the seller’s needs (if we can find out from the seller’s agent that they need a 30 day rent-back after closing then we might want to pull that lever). Here are a couple common tools that I’ve advised various clients to use:

  • Price price price! Price is often the number one consideration to a seller.  Sometimes winning a bidding war comes down to just that.
  • Not asking for any seller paid closing costs. Most winning contracts in my market are not asking for seller paid closing costs.  We can always negotiate for them after the inspection, but I typically advise folks not to ask for them up front.
  • Escalation clauses. I personally do not love escalation clauses as a seller, but they can be effective. You should at least offer to pay $1000 more than the next highest offer when you choose this option.
  • Appraisal gaps. You can say “I will pay $200k, and if it appraises low, I will cover the difference up to $10k.” You’ll also want to provide proof of funds showing that you actually have the $10k that you might end up needing to do this.
  • Large earnest money deposits. Earnest money is money that you put on deposit while you are under contract. This money goes towards your closing costs or down payment at closing, or is refunded to you if you don’t need to use all of it to close. If you terminate the contract during your due diligence period, you get it back. If you terminate after, you don’t under most circumstances. This money is basically insurance to the seller. It’s typically expected to put up 1% of the purchase price as the deposit. Putting more indicates your financial strength and desire to close.
  • Short (or no) due diligence periods. Never ask for more than 10 days in this market. If you’re buying a newer house, it might be worth rolling the dice to ask for none – a good agent can give a solid once-over of a house to check for the biggest potential issues.
  • Option money (non-refundable earnest money). Option money is saying “I want a due diligence period where I can get my earnest money back, but I will make a portion of that earnest money non-refundable for any reason”.  Typically, this will be $250-500. This again just demonstrates that you’re serious about the deal and don’t intend to jerk the seller around during due diligence.
  • And more. We elaborate on all these tools and offer a few more in our Ways to Win in Multiple Offer Situations blog.

As a remote buyer in this day and age, you have plenty of resources to help you succeed not just in finding any home, but a home that will continue to make you good money. Use these resources! Talk to agents, get recommendations, research agents & home inspectors online, research neighborhoods using maps, & figure out what you can offer to win a great house in a competitive market. A great real estate agent will propel you in every one of these facets. Always know my team and I are happy to talk and help you out any way we can. Get the conversation started online at www.trophypointrealty.com/contact. We’re looking forward to seeing you and fellow military build wealth through real estate!

Written by: Pat Wilver

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Buying & Owning a Home Life in Savannah Savannah Market

What We Love About Savannah (for Buyers)

WHAT WE LOVE ABOUT SAVANNAH

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living in savannah georgia

We get an average of two calls a week from people who are interested in Savannah real estate, sometimes from other countries. Our team loves living and investing in Savannah. Why are so many people so bullish on this city? Where will Savannah real estate be in ten years? Savannah has TONS to offer, but the answer to this question boils down to one thing: growth. 

What we love about Savannah is it’s a growth market that most people haven’t caught on to (at least not yet). You can still get property at some astounding value here, and there is a lot of growth yet to come that should drive appreciation in excess of national trends.

DRIVERS OF GROWTH

1. TOURISM

living in savannah georgia

Tourism is the most obvious industry that folks tend to think about when they think of Savannah.  Many buyers get their first introduction to Savannah as tourists, fall in love with the city, and subsequently decide to move here.  

As of 2019, Savannah attracted an estimated 14.8 million visitors, generating $3.1 billion in spending, which amounts to about 15% of Savannah’s total GDP. This is a stunning statistic when you consider that the current population is 398,000. That’s over 37 tourists to every resident.

A large part of what makes Savannah such a big tourist town is how easy it is to get here. Savannah currently has direct flights to 27 airports, including ones in DC, Boston, Chicago, Cincinnati, Dallas, Denver, Detroit, Grand Rapids, Houston, Louisville, Miami, Minneapolis, New York, Philadelphia, and Pittsburgh. Savannah International also has regular flights to major hubs like Atlanta and Charlotte, meaning most cities in the United States are only a one-stop flight away. The average non-stop ticket fare is $279.

2. PORT OF SAVANNAH

living in savannah georgia

Let’s dive into some cool stats about the port!

– 4.6 million TEUs went through Savannah’s port in 2020, and as of September 2021 4.1 million TEUs have been through.  This represents a 60% growth since 2010’s 2.8 million TEUs.

– In FY 2021, the port added an additional 210k TEUs of capacity

– The US Army Corps of Engineers $2 Billion harbor expansion will wrap up in December of 2021. This expansion will push the depth at high tide to 54 feet, which will allow vessels in the 16k TEU range to call on the port. This means that Savannah can accept the Neo-Panamax class of ships – any ship that can currently fit through the Panama Canal can call on the port of Savannah

– A $220 million Mega Rail project is almost complete, which will increase rail lift capacity to 2 million TEUs per year

– The port of Savannah handled 9.3% of US containerized imports and 10.5% of exports in FY 2020

The best part?  Plans are already in motion that will double the throughput of the port to 9 million TEUs by 2030.

3. POPULATION GROWTH

living in savannnah georgia

According to the Us Census Bureau in 2020, the expected 10-year growth rate in the Savannah HMA is 14%, which is double the annual rate for the US. This means an addition of roughly 1,850 households annually. Much of this growth is expected along the main travel arteries – including Pooler and Richmond Hill – which makes sense, because these are the main areas with the most new construction activity. It is difficult to build new inventory in the city of Savannah itself because the city is bounded by the river on one side and salt marshes on other sides. There’s not much buildable land to build on.

4. HIGHER EDUCATION

Savannah is home to three universities: Savannah State, Georgia Southern – Armstrong Campus, and the Savannah College of Art and Design (SCAD). SCAD is the biggest player and has a major impact on the economy and Savannah real estate in general.

SCAD’s campus is spread out throughout the roughly 2-square-mile area encompassing the downtown historic district, Victorian district, and Streetcar district, and owns roughly 130 buildings. Since its founding in the 1970s, SCAD has grown to a current enrollment of roughly 14,000 students.

The impact SCAD has on the local economy and culture is undeniable. These kids (or, their parents more accurately) have money, and they spend it. They will spend good money for a good apartment, and they spend money on food and drink.  

SCAD is also a major player in the redevelopment of run down buildings and neighborhoods. If you happen to own a property near a place that SCAD buys to redevelop, you just hit the jackpot. Most recently, they purchased the rundown Chatham apartments for nearly $39 million dollars and are undertaking a total renovation of the building to turn it into student housing.

SCAD brings a lot of culture to the town, being an internationally-renowned art school. A lot of these students end up sticking around and some of them start successful small businesses. SCAD also ties in nicely with the blossoming local movie/TV industry.

5. MAJOR EMPLOYERS

Savannah has a diverse economy. In addition to a robust tourism industry that generates 27,000 jobs, Savannah is home to other major employers such as Gulfstream Aerospace (8000 employees), Memorial and St. Joseph’s health systems (8100 employees), the universities (3800 employees) and Fort Stewart/Hunter Army Airfield which are home to tens of thousands of soldiers.

6. DESIRABILITY AS A WFH DESTINATION

Working from home is not exactly a new concept, but its adoption has been rapidly sped up due to the COVID-19 pandemic. Savannah is a desirable work-from-home destination for a multitude of reasons, including the low cost of living compared to larger cities like NYC or even Atlanta, beautiful and quaint city streets, and easy access to Tybee beach and many major cities as discussed earlier when we discussed the airport.

There’s also just a lot of great food and fun things to do in Savannah! Check out this interactive map showing some of our own favorite places and things to do: 

And check out this blog post to see more reasons why young professionals are moving to Savannah, as well as a list of our favorite up-and-coming neighborhoods in Savannah.

7. DESIRABILITY AS A RETIREMENT DESTINATION

Some of the same things that make this a great work-from-home destination also make this a great retirement destination. Also, the region’s best hospitals are both minutes from downtown Savannah, and, in addition to this, there has been robust development of senior living units.

Savannah in national rankings

Still aren’t sure? You don’t have to take our word for it. Here are some cool examples of the recognition Savannah’s gotten as a place to travel to and live in:

TIME Magazine’s 2021 Greatest Places in the World list (Alphabetically organized)

Travel and Leisure’s #3 best cities in the US

Forbes Best Places to Retire (Alphabetically organized)

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Buying & Owning a Home Investing Real Estate History Savannah Market

Why We Aren’t In a Real Estate Bubble

WHY WE AREN'T IN A REAL ESTATE BUBBLE

living in savannah georgia

Have you ever seen The Big Short? If not, stop what you’re doing and go watch it.  

If you have, you know the part where Steve Carell’s character, Mark, walks out of a mortgage lending convention and calls up his trading team back in New York to tell them to start buying credit default swaps. He & his team end up buying $500M of credit default swaps after Mark solidifies his fears that banks were mass-buying risky loans with little to no true oversight or regulation. Essentially, he knew the risky loans were going to ruin the entire market before anyone else was really even aware, and therefore decided to bet against those loans for pennies on the dollar so he could get a huge payout after the crash. (https://www.youtube.com/watch?v=ECmh0M-aHPg)

The thing is, everyone always wants history to repeat itself, and humans are naturally predisposed to see patterns in everything.  Sometimes that pattern-seeking behavior helps us, sometimes not so much. In the case of the housing market in 2021, a lot of folks want to think, “Housing prices are high. Last time housing prices were high, there was a big crash. Therefore, there’s a big crash coming.” If we look deeper into the causes of the 2007-2008 great financial crisis (GFC), we will see that this market is very different.

So, what blew up the housing market back then? In short: bad loans, bad lending practices, and too much development. The bad loans were adjustable rate mortgages, and the bad lending practices were that basically anyone with a pulse could get a loan back then. This worked well for a lot of people, until it didn’t. And when it didn’t work anymore, the ensuing collapse of the housing market and mass default of mortgages almost brought down the entire world’s financial system with it.

What is an adjustable rate mortgage and why is it bad?

An adjustable rate mortgage (ARM) is exactly what it sounds like: a mortgage where the rate can adjust. Most mortgages that people take out are at a fixed rate over a thirty year term, but some people take out ARMs. An ARM typically has a lower interest rate for the first 1-5 years, then, for the remainder of the term, the rate will typically increase and fluctuate based on some benchmark rate, like the ten-year US treasury. As the benchmark rate goes up or down, so does the rate of the mortgage.  

An ARM can sometimes be a good thing to get, like when you are pretty certain you’ll end up selling the home before your low teaser rate expires (and hopefully end up selling for more, as is typically the case because the U.S. housing market over the last 80 years has gotten more expensive almost every year).

A lot of people were doing this in the mid-2000s as the housing market skyrocketed. They would get a loan on a low-rate ARM, thinking they would sell in a year or two for a handsome profit.  

As a result, ARM products became very popular in the 2000s and many of the loans saw their low teaser rate expire in 2006-2008 – just as the wider economy was slowing down and the housing market was beginning to collapse.

Source: LPS Applied Analytics and Freddie Mac, https://www.frbsf.org/economic-research/publications/economic-letter/2012/november/housing-boom-mortgage-choices/

This was obviously pretty bad timing for a large number of folks who were betting on being able to get out of their ARMs before the teaser rate expired. Folks who intended to sell were not able to do so, and folks who intended to refinance into 30 year fixed rate mortgages were also unable to do so as their houses were unable to appraise as they became less valuable. Many folks were unable to come up with enough money to pay the higher rates and simply walked away from their homes.  

What about bad lending practices?

The widespread use of ARMs does not fully account for the problem. ARMs in and of themselves are not bad; a well-qualified buyer should be able to cover the higher payment that results from the expiration of the teaser rate. The problem in the mid-2000s is that many of these buyers were simply not qualified to purchase a house.

If you’ve bought a house since the GFC, you probably know what a pain in the ass it is to get a mortgage. Your lender would have asked you for bank statements, tax returns, may have asked you to explain large transactions in your bank accounts, etc. They do all of this to make sure that you are actually capable of making payments on the loan that they are going to give you.  This is a good thing!

Back then, many banks simply were not doing this. Buyers were getting loans without being made to prove any of the income or asset declarations they made on their loan applications.  The practice became so prevalent that it even got the name, the NINJA loan: No Income, No Job, No Assets. This wasn’t a problem during the teaser rate period of an ARM mortgage, but as soon as the rate increased many of these borrowers immediately defaulted on their payments.

The Mortgage Bankers Association (MBA) puts together a system of tracking how easily buyers can get credit to purchase homes, which is called the Mortgage Credit Availability Index (MCAI).  In October of 2006, this index hit a peak of about 900. (The index currently sits at 125.)

https://www.mba.org/news-research-and-resources/research-and-economics/single-family-research/mortgage-credit-availability-index 

How could they afford to do this?

You may be thinking to yourself, “Wouldn’t it be prudent for the banks to make sure that their borrowers can repay the loans?” Yes, it would be – if the bank intended to keep the loan on their books. But they sold these loans to other, larger institutions like pension funds, investment banks, & Fannie Mae & Freddie Mac. So once these loans were off the bank’s books, there was no more risk (for the bank). These big players were not diligently inspecting the loans that they were buying. There is a LOT more to it than this – for more detail, you can always watch Margot Robbie explain it.

So what does all this mean?

You don’t have to be an economist to know that the price of any item in any market is driven by supply and demand. Lending practices in the mid-2000s caused a massive increase in demand as millions of buyers who would not normally have been able to buy a home suddenly entered the market.  

So far, we’ve touched on the demand side of the equation. Let’s take a look at supply. The chart below shows single family homes that are permitted for construction going back to 1960.

You can see that there’s lots of natural variability, but that, for the most part, the average is about 1,000,000 units started each month, and almost never more than 1,400,000 until about 2002. Houses started then began to rise all the way to a peak of 1,800,000 in 2006, before falling off a cliff at the start of the financial crisis before most economists even knew what was happening.

Builders were building more homes to meet demand for new homes, naturally. But much of this demand was artificial demand fueled by these bad lending practices. When the music stopped and the bottom fell out, suddenly there were too many damn houses! Check out that graph after the recession officially ended in late 2009 – it took ten whole years for housing starts to crawl back up to the long term average of 1,000,000!

Why is today different?

First, almost nobody is getting ARMs. Why would you, when you can get a 30 year fixed at 3%?  Not much else to say there; the ARM is essentially dead for the time being.

Second, mortgage bankers are properly underwriting loans. Remember that Mortgage Credit Availability Index we talked about earlier? Go take another quick look at that. Don’t believe me?  Apply for a loan yourself and see how many documents your lender makes you turn in! By and large, only qualified borrowers are getting loans, and they’re getting them at fixed rates, meaning their payments won’t increase.  

Third, supply. Remember the housing starts chart a few paragraphs ago? Take another look – the oversupply of homes that we had in 2006 has all been consumed by the market and then some. We now have an undersupply of new homes. So many builders went bankrupt in 2006 that it really has taken the better part of a decade for that industry to recover, and in that time, the millennial generation has started to enter their prime home buying years.

The chart below shows what’s known as “months of inventory”.

In a balanced housing market, there should be about six months of inventory on the market. Currently, across the entire US Housing market, there are just over 6 months of inventory – this number was below 4 months at the peak of the COVID-related supply crunch.  

In the Savannah market specifically, months of inventory is around 2 months at the moment. Savannah is still very much suffering from lack of inventory, and local price increases over the last 2 years have been driven largely by this lack of supply.  

What does all this lead me to believe?

  1. Increases in housing prices have not been driven by bad lending, and are more likely a result of a lack of supply.
  2. As supply catches up with demand, it is likely that the rate of growth in housing prices will slow down to more typical historic levels of about 3% price growth per year nationally.
  3. I believe that Savannah in particular will see higher than average price growth due largely to the fact that Savannah has been and will continue to experience more population growth than the larger United States.  For more information on this, check out another blog here.

Actions speak louder than words though, so here’s what actions I’ve been taking: I’ve more than doubled my personal Savannah area real estate holdings in 2021. Could I be wrong about all of this? Maybe – but I have enough conviction in my beliefs that I’m willing to bet a substantial amount of money that I’m right.

Written by: Pat Wilver

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Buying & Owning a Home Investing Loans & Financing Savannah Market

Why Investing in Real Estate is a Great Decision

WHY INVESTING IN REAL ESTATE IS SO GREAT

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There are thousands of different ways to invest money, but I believe that investing in real estate is the surest way for someone to find financial freedom and create generational wealth. There are quite a few reasons, but they mainly deal with 3 core concepts: leverage, necessity/utility, and tax mitigation.

1. Leverage means that we can use debt to buy real estate. Often this debt is at a very low interest rate that is fixed over a 30 year term, making it safe debt to have, unlike your credit card.  

Leverage is the most powerful thing about investing in real estate, here’s why:

Let’s say you want to buy $100,000 in a company’s stock. Typically, this will be done in an all-cash transaction.  $100,000 in cash will get you $100,000 in stock. Simple.

You can use leverage to buy stock. This is called buying on “margin”. The problem with margin is that if the value of your stock goes down, your margin lender can require you to send in more cash in what’s called a “margin call”. Basically, let’s say you use $50,000 to buy $100,000 in stock, using a margin loan for the other $50,000.  If the value of your stock goes down to say, $80,000, your lender can say “hey asshole, pay me $20,000 by 5:00 PM today or I sell some of the stock in your account.”  With real estate, your mortgage lender cannot call your note due, even if the value of your house drops by 99%.  As long as you continue to make payments on time, the house is still yours.  

Anyway, back to the example. We bought $100,000 in stock straight cash, because we don’t want to mess with a risky margin loan. Let’s say that a year later, our stock is 10% more valuable, making our investment $110,000. Awesome – we made $10k! Let’s also say that this stock was paying a dividend yield of 1.5%, which is pretty typical. This means that they also paid us dividends equal to $1,500. Great – our investment is worth $111,500! Cool – that’s a 11.5% return on investment. Pretty good for a year!

Now, let’s apply that same example to a real estate investment, and let’s look at the power of leverage. Let’s say it’s a $100k house. Typically, you’ll be able to get a mortgage loan for 20% of the purchase price, so we need to come to the table with $20k. Factoring in closing costs, that’ll be about $25k. So we buy a $100k house for $25k in cash, taking out an $80k loan for the rest.

Let’s say that our house appreciates the same 10%, making it worth $110k at the end of a year.  Let’s also assume that our tenant paid enough rent to cover all expenses, and on top of that we were able to cash flow $2k on the year – not bad!  Let’s also assume that we paid down $3k worth of the loan balance over the course of the year.  So that makes our total gains on the year equal to $15k.

Here’s the fun part – you might be thinking that our return on investment is 15%, since the house cost $100k – but our investment was actually only $25k.  We made $15k on a $25k investment, which makes our return on investment a whopping 60%! Incredible!

Now of course, leverage works both ways: just as leverage amplifies our gains, it amplifies our losses. This is why it’s important to make sure that we can collect enough rent to cover our mortgage payments, and then some. Time heals all wounds in real estate, and even folks who bought a rental in 2005 are now sitting pretty if they’ve been able to hold onto the house through the housing crisis back in 2007-08. The only way to hold through the bad times is to make sure that the property can be rented. This ties into the necessity principle.

2. Necessity or utility means that people need a place to live. Shelter is right up there with water, food, and air. As long as people prefer sleeping in a house over the cold hard ground, they will be willing to pay for it.

This is pretty simple: everyone needs a place to live. The principle of necessity does not mean that you can never make a bad real estate investment. Far from it. What it does mean is that the value of real estate will never go to zero. Whereas a company can go bankrupt and the value of your stock goes to zero, real estate will always be worth something. Furthermore, people will always be willing to rent it (unless you never make any repairs). Rent is relatively inelastic, meaning that the prices do not typically fluctuate wildly. And they almost never go down more than 10%, even during a bad recession.  

Now, catastrophic local events can have a serious impact on values and rental rates. A town that is anchored by one major employer will see rental rates and real estate values collapse if that employer leaves, for example.  

3. Tax mitigation means that owning real estate provides some great tax-reduction benefits that we can use to lower our tax bill.

The tax benefits to owning real estate are huge. When you own a rental, all expenses can be written off your income, which is nice. The biggest thing about owning a rental is depreciation – let’s talk about it.

You know how when you buy a new car and drive it off the lot it’s instantly worth less? That’s depreciation. Got it? Good.

We can also depreciate real estate on our taxes, regardless if the house actually becomes worth less or notWhat does this mean? Basically, the IRS tax code says that, every year, we can deduct from our taxes an amount equal to 1/27th of the purchase price of the home. So that home we bought for $100k depreciates $2,700 each year in the eyes of the tax man (even though we know the house actually worth more now than it was when we bought it)! We can take that $2,700 and deduct it from our taxes. You remember that $3k of profit that we made from our rent? We can wipe out all but $300 of that on our taxes and only pay income tax on that $300. How cool is that!

Now, the flip side of that is a nasty little thing known as depreciation recapture. Say we sell that house 10 years down the line, after depreciating it a total of $27,000. The IRS is now going to want us to pay capital gains tax on that $27,000, in addition to whatever additional profit we made. That stings, but there are ways to avoid it. The first is never selling until we die, and then our kids can step-up the cost basis of the house when they inherit it (unless we died incredibly wealthy, which would be a great problem for our kids to have).

The other way is what’s called a 1031 exchange, which is a cool little tax trick where you can sell your rental and turn around and buy one that is at least $1 more expensive. You will then roll all of those capital gains that you would have had to pay tax on into your new rental. Then, just keep doing 1031 exchanges until you die and boom! Now your kids can deal with that shit!

And here’s one of my favorites. Say you want to take a trip to California. Great. Now, let’s say you’re interested in checking out some deals out there, or just getting to know the real estate market. All you have to do is set up an afternoon to tour around with a real estate agent and look at properties and boom – now it’s a business trip! You can write off your flights and you can write off hotel and meals for the day or days that you actually do real estate investing-related activities. Can’t write anything off your stock gains just by looking at the New York Stock Exchange! There are some other cool tax strategies, but way too many to list out. It’s best to know your situation and chat with someone who knows more, and to do your own research.

Other benefits

Leverage, necessity, & tax benefits all go a long way to explaining why I love real estate investing, but let’s hash out one more crucial thing: cash flow.

When we talked about leverage, we saw that our rental property was bringing in $3000 each year of cash flow after all expenses were paid. This $3000 accounts for about 12% of our initial investment of $25k. This 12% is what’s known as our “cash on cash” return, and can be compared to dividend yield on a stock. 12% is an incredible number to get on a rental property, and this means that in a little over 8 years, our rental income will have paid us back the $25k we initially invested (assuming you keep the rents the same, but in reality, you’ll probably raise rent). 

Here’s the cool part: if we’re diligent, we can save that cash flow to apply to a new purchase.

Let’s say it took us three years of saving to save up the $25k to buy that rental, and let’s assume that we continue to make the same exact salary from our job, and save at the same rate. That means we saved about $8,300 each year. Now, if we add on that $3k in cash flow from our rental, we are saving $11.5k each year, which means that we would have saved enough for the next rental after only 2.2 years instead of 3.

Then, we add another rental, making us an additional $3k each year. Now we’ve saved the $25k in only 1.7 years, and we buy another. In 1.4 years we’ve saved enough for another rental, then it takes 1.2 years, then 1 year, then .9 years. The more rentals we buy, the faster we can buy more. Ownership of rental properties snowballs, and as you build more income and learn more about investing, you will be able to turn your growth exponentially.

Written by: Pat Wilver

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