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Is it time to sell your Home?
So, you’re at that crossroads—thinking about selling your home. And boy, it’s a big decision. You’re weighing up whether to dive into listing it yourself or to bring in a listing agent.
Selling a home? It’s more than just sticking a ‘For Sale’ sign in the yard. There’s the inspection, getting everything in tip-top shape for showings, handling open houses, managing multiple offers, figuring out the right price—the list goes on. And if you’re also eyeing another home while juggling this, it’s a whirlwind.
That’s where I step in. I know this local market like the back of my hand. I’ve seen homes listed and sold, and the tricks to leverage those offers for the best deal—whether it’s the price or the terms you’re after.
Now, let’s talk about risk and reward. Sure, the idea of bypassing agent commissions through a “for sale by owner” sounds appealing. But here’s the deal: while you might save on commission, you might miss out on maximizing your home’s value.
Let’s explore why a listing agent, like me, could be the game-changer:
- Top Dollar Guarantee: When it comes to selling, homes listed with an agent tend to fetch more. Trust me, the data I have access to is gold—it paints a clearer picture than those flashy real estate websites.
- Market Insights: I breathe this market. From street vibes to the overall trends, I’m equipped to guide you through the maze of buying or selling.
- Shared Risk: Selling involves risk. With an agent, you’ve got someone sharing that load, guiding you through legally and financially.
- Process Mastery: Negotiation isn’t just about price. It’s the nitty-gritty details—repairs, closing costs, inspections—I’ve got it all covered. Plus, ethics and insurance? It’s all part of the package.
- Connections Matter: I work closely with everyone involved—title companies, inspectors, lenders. Details? Deadlines? I’ve got a handle on it.
- Buyer Screening: No time for tire-kickers! I make sure potential buyers are seriously and financially prepped before they step foot in your home.
- Marketing Maestro: Marketing a home isn’t just a sign in the yard. I’ve got strategies, connections, and MLS access to get your home noticed by serious buyers.
- No Cost Until Success: As a seller, you only pay when the deal’s sealed. All the legwork I put in? It’s all upfront, long before any commission comes into play.
In the end, it’s about more than just cost—it’s the know-how, the strategy, and the peace of mind. If you’re ready to take the leap but need guidance, I’ve got your back. Let’s make this selling journey not just successful, but downright rewarding. And hey, why not get pre-approved for your new home along the way? Killing two birds with one stone, right?
For more information, click here to view a copy of my complete Seller Guide.
-Jason
2023 FANTASY OF TREES
2023 FANTASY OF TREES
When: Nov. 22, 2023 – Nov. 26, 2023
Presented By: East Tennessee Children’s HospitalPrice:
Adults – $10 Seniors (60+) – $8 Children (4-12) – $5 Children (3 and under) – Free Fantasy 4 Pack (Online Only)
The beloved East Tennessee Children’s Hospital Fantasy of Trees, sponsored by Axle Logistics, is making a much-anticipated return in 2023. It’s the ultimate holiday gathering you simply can’t afford to miss. This yearly affair stands as the hospital’s primary fundraiser, drawing in nearly 60,000 attendees over Thanksgiving week. Immerse yourself in a wonderland featuring over 350 exquisitely crafted trees, festive decorations, storefront displays, door adornments, stunning table centerpieces, and a charming Adopt-a-Tree forest adorned by local students—everything up for grabs at attractive prices.
For over thirty years, the East Tennessee Children’s Hospital Fantasy of Trees has been a cherished tradition among families and communities in the region. Come be a part of this enchanting holiday tradition and relish in the magical moments you’ve grown to anticipate with your loved ones.
The impact of the Fantasy of Trees is profound; in 2022 alone, it raised over $1.3 million. This generous contribution allowed the hospital to acquire a Lifeline ambulance, vital for ferrying pediatric patients to and from East Tennessee Children’s Hospital.
Visit my website for more information.
-Jason
7 Steps to Homeownership
Buying a house in Tennessee in 2023 can be tricky due to the unpredictable housing market. Whether you’re a first-time buyer or aiming for a strategic investment, successfully navigating this market requires knowledge and careful planning. In this blog, we’ll provide step-by-step instructions to make the process easier for you.
Key Takeaways:
- Benefit from Declining Prices: Take advantage of lower home prices in the current market.
- Stabilizing Mortgage Rates: Expect 30-year fixed rates to stabilize between 6% to 6.5% in 2023.
- Maintain a Healthy Credit Score: Aim for a score of 670 or higher for a better interest rate.
- Plan Your Finances: Allocate 20% for a down payment and 2-5% for closing costs.
7 Steps to Buying a House in Tennessee:
Step 1: Check Your Financial Health
- Use home affordability calculators to understand your financial readiness.
- Check your credit score, ideally aiming for 670 or higher.
- Maintain a steady employment history and review your Debt to debt-to-income ratio (DTI).
Step 2: Plan Your Down Payment and Closing Costs
- Plan a down payment of around 20% of the home’s sale price.
- Budget 2-5% of the total purchase price for closing costs.
Step 3: Get the Preapproval Letter for Your Mortgage
- Understand types of home loans (Conventional, FHA, VA, USDA).
- Apply for a pre-approval letter to determine how much you can borrow.
Step 4: Start Your Home Search
- Consider using Tennessee For Sale By Owner websites.
- See homes in person, keep your schedule open, and attend open houses.
Step 5: Make an Offer
- Make your offer appealing by including the offer price, preapproval letter, and proof of funds.
- Be aware of home-buying contingencies and be prepared for counteroffers.
Step 6: Schedule a Home Inspection & Appraisal
- Hire a Tennessee home inspector to identify issues.
- Get the property appraised to determine its market value.
Step 7: Close the Sale
- After meeting all contingencies, close the deal by paying closing costs and signing paperwork.
Tips for Buying a House in Tennessee:
- Prioritize early savings for one-time and recurring costs.
- Maintain a healthy credit score by paying bills on time.
- Organize loan paperwork to streamline the process.
- Explore first-time homebuyer programs for assistance.
Bottom Line: Now is an opportune time to buy a house in Tennessee with declining prices and stabilizing mortgage rates. Plan your finances in advance and follow these tips to confidently embark on your journey to homeownership.
-Jason
Click here to view my buyer’s presentation
What is a Encroachment?
Encroachment definition
Encroachment happens when a neighboring property builds or extends something that intrudes onto or over another owner’s property without permission.
Takeaway 1:
Encroachment, whether intentional or unintentional, occurs when a structure or feature on one property extends illegally onto a neighbor’s land, often discovered during property inspections or surveys.
Takeaway 2:
Easements, granting limited rights to use another’s property, can be a solution, but resolving encroachment may involve discussions with the neighbor, selling easements or land, or resorting to legal action.
Takeaway 3:
Promptly addressing encroachment is essential to avoid title problems, potential liability, and other complications in the future.
If you’re settling into a new home, you might find yourself in a tricky situation with a neighbor. Encroachment, where something from their property extends onto yours without permission, can be a source of tension. It could be an unintentional overgrown hedge or a more significant problem like a garage spilling over onto your land.
Dealing with encroachment can take various forms, from amicable conversations to more formal resolutions. It’s advisable to address these issues sooner rather than later to prevent complications down the road.
So, what exactly is encroachment? In real estate, it’s like a defensive player in football crossing into the neutral zone before the snap—it’s something where it shouldn’t be. Whether it’s a neighbor’s garage, fence, roof, or tree branch encroaching onto your property, it’s considered encroachment.
Encroachment can be deliberate, such as a neighbor knowingly building on your land, or unintentional, especially when there’s uncertainty about property boundaries. To protect against encroachment, knowing your property lines is crucial. A professional land survey can verify these lines and help you avoid unintentional encroachment.
Now, let’s clear up a common confusion: encroachment vs. easement. An easement is a mutually agreed-upon right to use someone else’s property for a specific purpose, while encroachment is the unauthorized use of a neighbor’s property. However, encroachment issues can sometimes evolve into a prescriptive easement, granting legal rights after years of open use.
Resolving encroachments requires open communication with your neighbor. Minor issues can often be resolved through friendly discussions, while more complex problems might involve selling easements or land or even going to court.
Ignoring encroachment can lead to serious consequences, such as title issues when selling your home, potential liability problems, and the risk of your neighbor gaining legal rights over your property through a prescriptive easement.
In conclusion, tackling encroachment issues early is essential to prevent future complications, and seeking legal advice from a real estate attorney can provide guidance in resolving these matters. Remember, this information is for reference only and doesn’t substitute professional advice tailored to your situation.
– Jason
Tax Ramifications of Gains from Selling Your Residence
Many individuals selling their homes may find their profits are usually exempt from taxation, and some may not even need to report the sale to the IRS. However, certain exceptions exist, and understanding the rules for excluding profit from your taxable income can help minimize your tax liability.
Do I Need to Pay Taxes on the Profit from My Home Sale? The tax implications of your home sale depend on the duration of ownership and residence in the home before the sale, as well as the amount of profit you earned.
If you owned and lived in the property for at least two of the past five years before the sale, you can exclude up to $250,000 of profit from taxation. If you are married and file a joint return, this exclusion doubles to $500,000. The law allows you to exclude this profit from your taxable income. However, if you sold your home at a loss, you cannot deduct that loss.
You can use this exclusion each time you sell your primary residence, provided you meet the two-out-of-five-year ownership and residency requirement and have not claimed the exclusion for another home in the past two years. If your profit exceeds the $250,000 or $500,000 limit, the excess amount is reported as a capital gain on Schedule D.
Qualifying for this Tax Exclusion To qualify for this tax break, you must satisfy three essential tests:
- Ownership: You must have owned the home for a minimum of two years (730 days or 24 full months) within the five years preceding the sale. This ownership period doesn’t need to be continuous and can be at any time within that five-year window.
- Use: You must have used the home as your primary residence for at least two of the five years leading up to the sale.
- Timing: You should not have claimed the exclusion for the sale of another home within two years before the current sale.
For married individuals seeking the $500,000 exclusion, both spouses must meet the ownership and residency requirements, and they must file a joint return. These criteria ensure that the home sale qualifies for tax-free treatment.
Special Circumstances Even if you don’t meet all the standard requirements, some special rules may still allow you to claim the full or partial exclusion:
- If you acquired ownership of a home as part of a divorce settlement, the time the place was owned by your former spouse counts towards your ownership requirement.
- Short temporary absences can be counted as time lived in the home, even if you rented it to others during these periods.
- If one spouse is granted use of a home as part of a divorce or separation agreement and the other spouse lives in the home, these days of use count towards the ownership and use test.
- If one spouse passes away and the surviving spouse has not remarried before the home is sold, the period the deceased spouse owned and used the property can be included in the ownership-and-use test.
Special Considerations for Certain Professionals Members of the uniformed services, foreign service, and federal intelligence agencies can suspend the five-year ownership and use test period for up to ten years while serving on qualified official extended duty. This flexibility allows them to meet the two-year use test, even if they didn’t live in the home for the full two years within the five-year period before the sale.
Qualifying for a Reduced Exclusion In some cases, you can treat a portion of your profit as tax-free even if you haven’t met the standard two-out-of-five-years tests. A reduced exclusion is available if you sell your home due to circumstances like a change in employment, health, or other unforeseen events, such as a divorce or multiple births from a single pregnancy. This reduced exclusion allows you to exclude less than the full $250,000 or $500,000, depending on your specific situation.
Deciding Whether to Claim the Exclusion In rare situations, it might be advantageous to forgo the government’s exclusion and pay tax on your home sale. This strategy can be beneficial if it helps you preserve the exclusion for a subsequent sale of another home within two years. Remember, although you can use the exclusion multiple times in your lifetime, it cannot be used more frequently than once every two years.
Reporting the Home Sale You generally need to report the sale of your home on your tax return if you receive a Form 1099-S or if you fail to meet the requirements for excluding the gain. If you don’t receive a Form 1099-S, it means you’ve assured the closing agent that all the profit on the sale is tax-free by meeting specific conditions. If you receive the form, it’s essential to ensure your paperwork is in order to respond to the IRS if necessary.
Calculating Gain on the Sale of Your Home To determine whether you have a gain or loss from the sale of your home for tax purposes, you need to pinpoint your adjusted basis. This adjusted basis includes the original cost of the home and the cost of capital improvements. Capital improvements are expenses that add value, extend the life, or provide a new use to your home, such as a new roof or a remodeled kitchen. Routine maintenance and minor repairs, like painting, are not considered capital improvements.
You add these improvement costs to your original cost to calculate your adjusted basis. However, you also need to subtract certain deductions you’ve claimed, such as depreciation, casualty losses, or energy credits. If you postpone paying taxes on the gains from selling a previous home, you must subtract that gain from your adjusted basis.
The original cost of your home is typically the amount you paid for it, including any settlement and closing costs, excluding routine expenses and prorated property taxes and interest. If you built your home, the original cost includes the cost of the land and construction expenses, such as payments to contractors, architects, and utility connection charges. Inherited homes have their basis based on fair market value at the time of the previous owner’s death.
Your adjusted basis is the cost of your home adjusted for improvements and deductions you’ve claimed. You need this adjusted basis to calculate the gain or loss when you sell your home.
Inheriting a Home If you inherit a home, the basis of the property is generally the fair market value at the time of the previous owner’s death, except in special cases, such as in 2010.
Divorce and Tax Basis After a divorce, the tax basis of a home received from your former spouse depends on the timing of the divorce. If the divorce occurred after July 18, 1984, your basis will be the same as it was when you were married. However, if you divorced before this date, your basis will generally be the fair market value at the time you received the property.
Postponed Gains under Previous Rules In the past, homeowners could postpone paying taxes on gains from the sale of a home by using the proceeds to purchase another home. This was known as “rolling over” gain. However, this option is no longer available for personal residences sold after May 7, 1997. Homeowners are now required to choose between excluding the gain or reporting it as taxable income.
Converting a Second Home to a Primary Residence It was once possible to extend the tax break for principal residences to a second home by converting it into your primary residence before selling. After living in the home for two years, you could qualify for up to $500,000 of tax-free profit. However, Congress has limited this option for homeowners who converted a second home to a primary residence after 2008. Now, a portion of the profit may be subject to tax if the two-year ownership and use test isn’t fully met. The proportion of gain subject to tax is based on the time the home was used as a second home or rental property after 2008.
Understanding the tax implications of selling your home is crucial to making informed financial decisions when it comes to real estate transactions. If you have specific questions or need guidance, it’s advisable to consult with a tax professional or financial advisor.
Housing market predictions for 2024
Curious about the U.S. housing market’s outlook for the next five years? The housing market is a dynamic and ever-evolving landscape, making precise predictions a challenging task. However, considering current trends and expert insights, we can anticipate a few significant developments in the near future. In this article, we will delve into housing market projections for the next five years and their potential impact on buyers and sellers.
In general, the housing market is poised to maintain its strength over the next five years. Nevertheless, certain factors may influence the market, such as escalating interest rates and an expanding supply of homes.
Home prices are expected to continue their ascent but at a slower pace. The rapid price increases observed in recent years are likely to decelerate in the upcoming years, though prices are still projected to rise, albeit more moderately.
Housing supply is anticipated to increase, offering some relief from the previous shortage. The scarcity of available homes for sale has been a driving force behind surging home prices, but as more homes are built and enter the market, this shortage is expected to ease.
Mortgage rates are set to rise due to the Federal Reserve’s actions to combat inflation. This will lead to higher borrowing costs, potentially reducing demand for homes. However, over the subsequent years, a reversal in this trend is expected, with interest rates gradually receding, potentially sparking renewed demand in the housing market.
Despite rising interest rates and a growing supply of homes, the housing market is projected to remain competitive in the near future. This can be attributed to several factors, including robust job growth, population expansion, and limited land supply.
While these trends offer valuable insights into the housing market’s future, it’s essential to consider additional factors that may influence it. Predicting the housing market’s course is challenging, as external factors can exert significant impacts.
Some economists maintain optimism, but even those who initially predicted price increases through 2023 are modifying their forecasts. According to the National Association of Realtors (NAR), the U.S. housing market is expected to cool off in 2023 after experiencing a 40% surge during the Covid-19 pandemic.
Rising interest rates are set to increase mortgage costs for new buyers, but a price collapse similar to the 2008 market crash is unlikely due to stronger lending standards. The COVID-19 pandemic drove market growth with record-low borrowing rates, first-time buyers entering the market, and limited supply due to underbuilding. Analysts and economists have differing opinions on whether prices will remain flat or plummet in the next five years. Nevertheless, a market slowdown is a shared expectation.
The U.S. housing market is influenced by property supply and interest rates that determine mortgage rates. In 2021, the median existing-home price in the U.S. soared by 16.9% to $346,900, reaching its highest sales level since 2006, driven by low interest rates, price growth for single-family homes, low foreclosure rates, and high sales figures. However, the pandemic-induced boom subsided in 2022, with a significant decline in home sales.
Projections indicate that the U.S. housing market will see a slowdown in price growth over the next five years, with some experts foreseeing price stabilization while others predict modest declines. This projected slowdown is attributed to various factors, including rising interest rates, increased housing supply, reduced demand, and affordability challenges for buyers.
Rising interest rates are expected to raise the cost of borrowing for home purchases, potentially decreasing buyer demand and putting downward pressure on prices. A key factor contributing to the expected market slowdown is the growing supply of homes. A shortage of supply has been a major driver of rising home prices, but this is expected to change as new construction projects come to fruition. Additionally, homeowners who hesitated to sell during the pandemic are expected to list their homes in the coming years, increasing the inventory of available homes.
Affordability is another significant factor in the housing market’s future. With record-high home prices, many potential buyers, especially first-time homebuyers, struggle to afford homes. The combination of rising interest rates and high home prices could lead to reduced demand and subsequently lower prices.
However, it is crucial to note that experts do not foresee a market crash similar to 2008. Lending standards have become more robust, reducing the risk of widespread defaults and foreclosures. The current economic climate is also different, characterized by a strong job market and a more stable financial sector.
In summary, the U.S. housing market is expected to witness a slowdown in price growth over the next five years, but a catastrophic crash akin to 2008 is unlikely. Factors such as rising interest rates, an increase in housing supply, and affordability challenges are expected to contribute to this slowdown, but the overall economic health and lending standards should mitigate the risk of a severe downturn.
Housing market predictions for the next five years suggest a significant shift towards a buyer’s market, with falling prices and changes in demand dynamics. These changes are attributed to rising interest rates, limited inventory, and high prices that have sidelined many potential buyers.
It’s essential to monitor these trends as the housing market continues to evolve, and while there may be potential advantages for buyers, rising rents could impact their ability to save for down payments. As the market transforms, it will be crucial to watch for broader economic implications.
Do I need or want it?
Navigating the real estate market to find the ideal home that aligns with your budget can be a challenging endeavor. To streamline this process, creating a comprehensive checklist distinguishing between your home buying needs versus wants is paramount. This categorization of priorities will not only facilitate your search but also play a pivotal role in your overall home buying strategy.
Distinguishing Between Needs, Wants, and Must-Haves:
Must-Haves: Your must-have items are non-negotiable necessities that you cannot compromise on under any circumstances. These encompass fundamental elements like functioning plumbing, reliable electricity, and a heating/air-conditioning system. Furthermore, factors such as safety and accessibility also fall under this category. Ensuring a secure and safe living environment is unquestionably a must-have.
Needs: While needs are slightly more flexible than must-haves, they still represent elements crucial for your lifestyle and location preferences. These could include factors like proximity to work, adequate parking, access to quality schools, and similar considerations. Needs are high-priority items that significantly influence your home selection.
Wants: The wants category offers flexibility. These are elements you desire but are willing to compromise on if the property doesn’t fully align with your wishlist. For instance, while you may desire high ceilings and exposed brick, you might be content to forgo these aesthetic preferences if the property meets other essential criteria.
Key Questions to Ask Yourself Before Buying a Home:
- Remodeling Potential: If a prospective home doesn’t meet a specific need, consider whether remodeling is a viable option. Be sure to evaluate the feasibility of any renovations while adhering to building codes and assessing associated costs.
- Realistic Expectations: Understand that finding a home with everything on your wishlist is often unrealistic. Home buying involves trade-offs and compromises. Visiting open houses can help you better understand the available options within your budget.
- Long-Term Goals: Consider how long you plan to live in your new home. This can influence the size and type of property that best suits your needs, especially if you anticipate changes in your family size or lifestyle.
- Current Living Situation Analysis: Identify what you love and dislike about your current living situation, including aspects such as kitchen functionality, bedroom count, location, or storage. These insights are essential for shaping your home-buying checklist.
Home Buying Essentials:
Location: The commute to work and proximity to essential services should align with your priorities. Assess your preferences regarding school districts, neighborhood safety, and liveability.
Space: Determine the space requirements based on your family size and lifestyle. Consider factors like the number of bedrooms, bathrooms, storage options, and outdoor spaces.
Budget: Establish a realistic budget that accounts for your annual income, credit score, and down payment capacity. Stick to this budget as a fundamental decision point in your home search.
Home Buying Preferences:
Amenities: Distinguish between essential amenities like HVAC systems and garage space (usually falling under needs) and optional ones such as a hot tub, landscaping, or a pool (typically categorized as wants).
Aesthetics: Don’t dismiss a home solely based on aesthetics, as many cosmetic features can be changed or updated after purchase, including carpets, paint colors, flooring, and appliances.
In conclusion, it’s essential to manage your expectations and create a well-defined needs vs. wants checklist to streamline and optimize your home shopping experience. By doing so, you’ll increase your chances of finding a home that not only suits your requirements but also aligns with your budget.
Reach out to me and I would be happy to sit down and help you with a list that fits your needs. -Jason
Market Update with Claudia Stallings
Wallace Chief Operating Officer Claudia Stallings recently sat down with Don Dare, of Knoxville’s WATE 6 On Your Side, to share some insights about home sales in 2023 and what we can expect for the housing market moving forward.
We know much has changed over the past three years regarding home values. Stallings’ report outlines the East Tennessee market through the third quarter of 2023, but she notes that “each home’s value depends on location and condition.” She advises consumers wanting to check on their property values to reach out to a Wallace Real Estate agent, who can offer a free evaluation that is property-specific.
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Our very own Claudia Stallings Shares Market Update with WATE. 2023
5 Ways to Invest in Real Estate
Exploring Investment Options: From Real Estate to REITs and More
When contemplating investment opportunities, a myriad of choices is available to discerning individuals seeking to allocate their capital. Among these options are stocks, bonds, exchange-traded funds, mutual funds, and real estate, each offering promising prospects regardless of one’s level of financial acumen. Notably, the volatility inherent in forex or cryptocurrency investments often renders them unsuitable for novice investors. The selection of an investment avenue should hinge upon the investor’s desired degree of involvement, initial capital allocation, and their tolerance for risk.
Investing in real estate through the acquisition and ownership of properties stands as an investment strategy that combines the satisfaction of ownership with the potential for significant financial gain. Diverging from the methodologies employed by traditional stock and bond investors, prospective real estate proprietors can leverage their investments by contributing a fraction of the total property cost upfront and subsequently amortizing the outstanding balance along with accrued interest over time.
Distinguishing a prudent real estate investment necessitates an assessment of the likelihood of success, measured in terms of return on investment. While a high-risk endeavor can be enticing, it should ideally be counterbalanced by a commensurate potential reward. Even when opting for investments characterized by a higher probability of success, it is imperative to acknowledge that there exists no guarantee of profitability. Hence, prudence dictates that one should abstain from committing funds to real estate, or any other investment, if the prospect of losing said capital is untenable.
Notably, the conventional mortgage structure typically demands a down payment ranging from 20% to 25%. Nevertheless, in some scenarios, a mere 5% down payment can facilitate the acquisition of an entire property. This ability to secure an asset promptly upon signing the requisite documents emboldens both real estate speculators and landlords, who can leverage second mortgages on their existing properties to fund additional acquisitions. Here, we elucidate five key avenues through which investors can capitalize on real estate holdings.
KEY TAKEAWAYS
- Aspiring real estate owners can access properties through leverage, by remitting a portion of the total cost upfront, and progressively retiring the outstanding balance.
- One of the primary avenues for generating income in real estate is by becoming the landlord of a rental property.
- Real estate investors who specialize in refurbishing undervalued properties and reselling them can also reap substantial profits.
- Real estate investment groups (REITs) offer a more hands-off approach to real estate investing.
- Real estate investment trusts (REITs) are akin to dividend-paying stocks.
1. Rental Properties The ownership of rental properties presents an appealing opportunity for individuals equipped with do-it-yourself (DIY) renovation skills and the fortitude to manage tenants. Nevertheless, this strategy necessitates substantial capital to address initial maintenance expenses and cushion against periods of tenant vacancy.
Pros:
- Yields regular income, coupled with the potential for property appreciation.
- Optimizes capital utilization through leverage.
- Facilitates the deduction of numerous associated expenses from taxable income.
Cons:
- Tenant management can be an arduous and time-consuming endeavor.
- Properties may sustain damage from tenants, affecting potential income.
- Income can be adversely impacted during vacancies.
Historical data from the U.S. Census Bureau attests to the consistent increase in the sales prices of new homes—a rough proxy for real estate values—from the 1960s until 2007. Notably, this trajectory was disrupted during the financial crisis but subsequently resumed its upward trajectory, even surpassing pre-crisis levels. The long-term ramifications of the COVID-19 pandemic on real estate valuations remain uncertain.
2. Real Estate Investment Groups (REIGs) Real estate investment groups (REIGs) present an attractive option for individuals desiring to own rental real estate without the concomitant burdens of day-to-day management. Participation in REIGs requires the deployment of capital resources and access to financing.
REIGs operate akin to small-scale mutual funds focused on rental properties. Typically, a company acquires or constructs a portfolio of apartment complexes or condominiums, enabling investors to purchase units through the company and, thereby, join the group.
While individual investors may own one or multiple self-contained living spaces, the group collectively manages all units, overseeing maintenance, advertising vacant properties, and conducting tenant interviews. In return for performing these management duties, the company receives a portion of the monthly rent.
A conventional lease in a real estate investment group bears the name of the investor, and the rental income generated from all units is pooled, providing a hedge against occasional vacancies. Consequently, investors continue to receive income even if their own unit stands unoccupied, provided the vacancy rate across the pooled units does not experience an excessive surge that could compromise cost coverage.
Pros:
- Imposes less direct involvement compared to owning individual rentals.
- Offers both income and potential appreciation.
Cons:
- Subject to risks associated with vacancies.
- Incurs fees akin to those accompanying mutual funds.
- Vulnerable to unscrupulous management practices.
3. House Flipping House Flipping is an avenue suited to individuals possessing extensive experience in real estate valuation, marketing, and renovation. The practice of house flipping mandates substantial financial resources and the capability to perform or oversee, requisite property improvements.
This facet of real estate investment embodies the dynamic and speculative nature of the industry. Analogous to how day trading diverges from the strategies employed by buy-and-hold investors in stock markets, real estate flippers distinguish themselves from buy-and-hold landlords. Real estate flippers frequently seek to profitably divest themselves of undervalued properties within a span of fewer than six months.
Pure property flippers typically abstain from investing in property enhancements. Therefore, an investment must already possess the intrinsic value necessary to yield a profit devoid of any alterations; otherwise, it is discarded from consideration.
Flippers who are unable to promptly sell a property may encounter difficulties, as they typically lack a sufficient reserve of unencumbered capital to meet mortgage obligations over the long term. This scenario can precipitate a cascade of escalating losses.
Pros:
- Engages capital for a shorter timeframe.
- Can yield rapid returns.
Cons:
- Mandates in-depth market knowledge.
- Vulnerable to unexpected downturns in once-hot markets.
4. Real Estate Investment Trusts (REITs) Real estate investment trusts (REITs) offer an ideal solution for investors seeking portfolio exposure to real estate without undertaking conventional real estate transactions. A REIT is established when a corporation, or trust, leverages investors’ capital to procure and operate income-generating properties. REITs are publicly traded on major exchanges, functioning similarly to conventional stocks.
To maintain its REIT status, a corporation must distribute 90% of its taxable profits as dividends. By adhering to this stipulation, REITs circumvent corporate income taxation, a liability that conventional corporations must confront before determining whether to disburse after-tax earnings as dividends.
Similar to traditional dividend-paying stocks, REITs represent a dependable investment option for individuals desiring regular income. Moreover, in comparison to other forms of real estate investments previously discussed, REITs provide investors with access to nonresidential assets, such as malls or office buildings, which are typically beyond the reach of individual investors. Furthermore, REITs, being exchange-traded trusts, offer superior liquidity by obviating the need for real estate agents and complex title transfers to facilitate the withdrawal of investments. In essence, REITs represent a more formalized variation of real estate investment groups.
It is essential to distinguish between equity REITs, which hold physical properties, and mortgage REITs, which engage in real estate mortgage financing and dabble in mortgage-backed securities (MBS). Both options furnish exposure to real estate, albeit with disparate modes of engagement. Equity REITs confer ownership of tangible real estate assets, while mortgage REITs center their focus on income derived from mortgage financing.
Pros:
- Resemble dividend-paying stocks in essence.
- Predominantly consists of long-term, income-generating leases.
Cons:
- Excludes the leverage typically associated with traditional rental real estate.
5. Online Real Estate Platforms Real estate investment platforms are designed for individuals desiring to participate in larger-scale commercial or residential ventures through collective investment. These investments are facilitated through online real estate platforms, commonly referred to as real estate crowdfunding. Notably, this avenue necessitates an investment of capital, although the requirement is generally less than that needed to purchase properties outright.
Online platforms serve as intermediaries, connecting investors eager to fund real estate projects with property developers. In certain instances, diversification of investments can be achieved with a relatively modest financial commitment.
Pros:
- Permits investment in single projects or diversified portfolios.
- Offers geographic diversification.
Cons:
- Tends to be less liquid, often featuring lockup periods.
- Involves management fees.
Frequently Asked Questions
Why Should I Add Real Estate to My Portfolio? Real estate stands as a distinct asset class widely regarded by experts as an integral component of a well-diversified portfolio. Its value lies in the fact that real estate investments typically exhibit a low correlation with equities, bonds, and commodities. Furthermore, real estate holdings generate income through rent or mortgage payments, in addition to the potential for capital appreciation.
What Is Direct vs. Indirect Real Estate Investing? Direct real estate investments involve the actual ownership and management of properties. Conversely, indirect real estate investments entail participation in pooled vehicles tasked with the ownership and management of properties, such as REITs or real estate crowdfunding projects.
Is Real Estate Crowdfunding Risky? In comparison to other forms of real estate investments, crowdfunding carries a degree of risk. This is primarily attributable to the relative novelty of real estate crowdfunding. Furthermore, certain projects may appear on crowdfunding platforms because they were unable to secure financing through traditional means, raising concerns about their viability. Additionally, many real estate crowdfunding platforms enforce lockup periods, rendering investments illiquid for several years. Nonetheless, top-tier platforms have demonstrated annualized returns ranging from 2% to 20%, as per Investopedia research.
The Bottom Line Whether real estate investors employ their properties to generate rental income or await opportune moments to sell, they can construct a robust investment portfolio by committing a fraction of the total property value upfront. Profits and potential returns within the realm of real estate remain viable, irrespective of the prevailing market conditions.
14 First time home buyer tips you don’t want to miss!
It’s exciting — and a little scary — to think about buying your first home. Even when you know you’re ready to buy a house, you might not be sure where to begin. These tips for first-time home buyers will help you navigate the process from start to finish. Preparing to buy tips:
You can view/download my First time Home Buyers guide here for free!
1. Start saving early
When calculating how much money you need to buy a house, consider one-time expenses as well as new, recurring bills. Here are the main upfront costs to consider when saving for a home: Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit require as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. Use a down payment calculator to decide on a goal, and then set up automatic transfers from checking to savings to get started. Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 6% of the loan amount. Your closing costs on a $300,000 loan could be between $6,000 and $18,000. That’s additional money you’d have to pay, on top of your down payment. In a buyer’s market, you can often ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around. Move-in expenses: Remember to budget for moving costs, which typically run up to $2,500 for most local moves. (Long-distance moves can be much pricier.) You’ll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades, and furnishings.
2. Decide how much home you can afford
Figure out how much you can safely spend on a house before starting to shop. NerdWallet’s home affordability calculator can help with setting a price range based on your income, debt, down payment, credit score, and where you plan to live.
3. Check and polish your credit
Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Having a higher score will generally get you a lower interest rate, so take these steps to polish your credit score to buy a house: Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax, and TransUnion — and dispute any errors that could hurt your score. Pay all your bills on time, and keep credit card balances as low as possible. Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score. Avoid opening new credit accounts while you’re applying for mortgages. Opening new accounts could put a hard inquiry on your credit report and lower the overall average age of your credit accounts, which could hurt your score. Mortgage selection tips
4. Explore mortgage options
A variety of mortgages are available with varying down payment and eligibility requirements. Here are the main categories: Conventional mortgages are the most common type of home loan and are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down. FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%. USDA loans are guaranteed by the U.S. Department of Agriculture. They are for suburban and rural home buyers and usually require no down payment. VA loans are guaranteed by the Department of Veterans Affairs. They are for current military service members and veterans and usually require no down payment. You also have options when it comes to the mortgage term. Most home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger. If you plan to stay in the home for only a few years, you might consider an adjustable-rate mortgage or ARM. ARMs often start with a lower fixed-interest introductory rate, enabling you to buy a more expensive home for the same monthly payment, but they can also increase (or decrease) over time.
5. Research first-time home buyer assistance programs
Many states and some cities and counties offer first-time home buyer programs, which often combine low-interest-rate loans with down payment assistance and closing cost assistance. If you meet low- to moderate-income benchmarks, you could qualify for a grant or forgivable loan that doesn’t need to be paid back. Tax credits, known as mortgage credit certificates, are also available through some first-time home buyer programs.
6. Compare mortgage rates and fees
Plan to shop around for mortgage lenders and compare three to five different quotes. Doing so could save you thousands of dollars in interest over the lifetime of the loan. The Consumer Financial Protection Bureau recommends requesting loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible origination fees. Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate. Buying points can make sense if you have the money and plan to stay in the home for a long time. Use a discount points calculator to decide. In a buyer’s market, some motivated sellers may offer to pay some or all of the buyer’s points to close the deal.
7. Gather your loan paperwork
Before you’re approved for a mortgage, your lender will ask you for financial records to verify your income, assets, and debt, including Proof of income and employment, such as tax returns, W-2s, and 1099s. Statements for bank, retirement, and brokerage accounts. Records of debt payments, such as student loans, auto loans, or any real estate debt. Documentation of other events that impact your finances, such as divorce, bankruptcy, or foreclosure. Pull these documents ahead of time to stay organized throughout the process — you’ll need them for a mortgage preapproval as well as when you apply for the loan.
8. Get a preapproval letter
A mortgage preapproval is a lender’s offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you’re a serious buyer and can give you an edge over home shoppers who haven’t taken this step yet. Apply for preapproval when you’re ready to start home shopping. A lender will pull your credit and review the documents you organized in the previous step. Applying for preapproval from more than one lender to shop rates shouldn’t hurt your credit score as long as you apply for them within a limited time frame, such as 30 days.
9. Narrow down your ideal type of house and neighborhood
Weigh the pros and cons of different types of homes, given your lifestyle and budget. An existing home generally costs less than buying a new construction home. But if local inventory is low and you have the means, a brand-new home offers enticing options to customize. A condominium or townhome may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy. Don’t forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities. A manufactured home, including the type commonly called a mobile home, can be an affordable option if you have a tight budget. You’ll need to title it as real property and affix it to a permanent foundation if you want to finance it with a traditional mortgage. Many manufactured homes are financed through chattel loans, which have higher interest rates than mortgages. Fixer-uppers, or single-family homes in need of updates or repairs, usually sell for less per square foot than move-in-ready homes. However, you may need to budget extra for repairs and remodeling. Renovation mortgages finance both the home price and the cost of improvements in one loan. Think about your long-term needs and whether a starter home or forever home will meet them best. If you plan to start or expand your family, it may make sense to buy a home with extra room to grow. Research potential neighborhoods thoroughly, including property values, property taxes, and safety considerations. Choose one with amenities that are important to you, including schools and entertainment options. If you work away from home, test out the commute during rush hour.
10. Stick to your budget
To avoid financial stress down the road, set a price range based on your budget — and then stick to it. A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer in a bidding war. In a competitive market, consider looking at properties below your price limit to give some wiggle room for bidding. In a buyer’s market, you may be able to view homes a bit above your limit. Your real estate agent can suggest a range for your offering price.
11. Make the most of walk-throughs and open houses
Online 3D home tours have become more popular as technology improves. They don’t supply all the information in-person visits do — like how the carpets smell — but they can help you narrow the list of properties to visit. It’s possible to buy a house sight unseen, but it’s always best to visit in person. Open your senses when walking through a home. Listen for noise, pay attention to any odors, and look at the overall condition of the home inside and out. Ask about the type and age of the electrical and plumbing systems and the roof. Home purchasing tips
12. Don’t skip the home inspections
A home inspection is a thorough assessment of the structure and mechanical systems. Professional inspectors look for potential problems, so you can make an informed decision about buying the property. Here are some things to keep in mind: Standard inspections don’t test for things like radon, mold, or pests. Understand what’s included in the inspection and ask your agent what other inspections you might need. Make sure the inspectors can get to every part of the house, such as the roof and any crawl spaces. The buyer doesn’t have to attend the inspection, but it could be useful to be there. By following the inspectors around you can get a better understanding of the home and ask questions on the spot. If you can’t attend the inspections, review the reports carefully and ask about anything that’s unclear.
13. Negotiate with the seller. ( I will handle this for you )
You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs. But keep in mind that lenders may limit the portion of closing costs the seller can pay. Your negotiating power will depend on the local market. It’s tougher to drive a hard bargain when there are more buyers than homes for sale. Work with me to understand the local market and strategize accordingly.
14. Buy adequate home insurance
Your lender will require you to buy homeowners insurance before closing the deal. Home insurance covers the cost to repair or replace your home and belongings if they’re damaged by an incident covered in the policy. It also provides liability insurance if you’re held responsible for an injury or accident. Buy enough home insurance to cover the cost of rebuilding the home if it’s destroyed. It may be worth buying an umbrella policy if you need to cover your home, cars, and other major assets.
