Tag Archives: remodel

Flip, Rent, or Hold: What’s the Best Path to Real Estate Riches?

Maybe you’re addicted to those home-flipping shows on HGTV where glam couples buy grim shacks, spend 22 minutes smashing down walls and adding funky kitchen backsplashes, and then make tens of thousands selling the refurbished places on the open market. Or perhaps you’re jonesing for a steady stream of extra income and feel certain you’ve got what it takes to be a landlord.

Or just maybe you’re on the prowl for a hands-off way to make serious real estate money with financial investments that don’t require laying down new flooring or screening prospective tenants.

Whichever option floats your boat, you’ve got plenty of company. After the epic boom-and-bust of the speculative home-flipping market in the aughts, everyone again seems to be looking to make a quick buck by becoming a real estate investor. But these days, there are a dizzying variety of different takes on the once-simple idea of property investing—all requiring varying levels of blood, sweat, tears—and risks. Which one might be right for you?

“Over the generations, real estate has proven itself to be a pretty good, time-tested investment,” says Eric Tyson, who co-authored “Real Estate Investing for Dummies.” “Like investing in the stock market, people who follow some basic principles and buy and hold over long periods of time should do fairly well.But, of course, there’s no guarantee.”

And that’s why the thrill-a-minute world of real estate investing isn’t for everyone—especially when life savings are involved.

OK, now that we’ve gotten that out of the way, let’s go shopping.

 

1. Home flipping: Not exactly like reality TV

First half of 2017 gross returns: 48.6%*
2014 gross returns: 45.8%
2012 gross returns: 44.8%

If the Property Brothers or Chip ’n’ Joanna can do it, why can’t you? Real estate reality TV has made the “fixer-upper” flipping market seem fun, very sexy—and mostly foolproof. But becoming a successful home flipper is a lot harder than it looks on television. And it isn’t always as wildly profitable as you might think.

The returns appear deceptively high, as they don’t account for hefty renovation costs, closing costs, property taxes and insurance. Flippers should figure that about 20% to 30% of their profits will go straight toward such expenses, say experts. The median returns above only reflect sale price gains—not net profits.

Newbie investors need to make sure they’re thoroughly familiar with a neighborhood before they consider buying a potential flip in it, says Charles Tassell, chief operating officer at the National Real Estate Investors Association, a Cincinnati-based investors group. This means looking at what kinds of homes are located nearby, what sort of shape they’re in, and how much they’ve sold for. Wannabe flippers should pay attention to the quality of local schools, transportation, and the job market—just as they would for their own home. Those are the things that can make or break a sale. And an investment.

A market where homes are still affordable but appreciating rapidly is ideal. Once they’ve settled on an area, flippers need to focus on the basic structure of prospective homes. Special attention should be paid to a home’s heating and cooling systems, foundation, and roof—the things that are most expensive to fix.

Then they need to create a realistic budget. Experts recommend setting aside 10% to 20% to cover any unknowns—like what’s inside the walls. Costly surprises are par for the course.

“The biggest hurdle of flipping is: The costs are never what they seem to be on HGTV,” says flipper and landlord April Crossley, co-owner of Crossley Properties in Reading, PA. She owns the business with her real estate agent husband, and they do 8 to 10 flips a year. “In fact, they’re always way more.”

Flippers are gambling that the housing market stays strong in their target area—at least long enough to resell their investment home.

“You’re constantly anticipating what the market will be doing 6 to 12 months in the future,” says Daren Blomquist, senior vice president at ATTOM. So if you miscalculate, and it drops, you could lose a lot of money.

2. Investment (rental) properties: You, too, could be a landlord

First half of 2017 returns: 13%*
Three-year returns: 9.9%
Five-year returns: 11.67%

Perhaps flipping homes, and all the varied costs and stressors associated with it, isn’t for you. But you’d still like to be a hands-on real estate investor. Why not consider buying investment (rental) properties?

One big advantage is the tax deduction folks get for their rental properties. They can write off their mortgage interest, property taxes, and operating expenses, as well as repairs.

Like home flippers, landlords-to-be should look at growing areas with new jobs moving in, says Steve Hovland, director of research at HomeUnion, an Irvine, CA–based company that helps smaller investors buy and manage properties.

“I’m very bullish on high-growth markets, like Texas, the Southeast, Arizona. You’re always going to have new renter demand,” he says. But coastal cities can be tough for aspiring property owners because they’re just too expensive.

First-time investors may want to target middle-class neighborhoods near top-rated schools, where stability rules and tenants are more likely to hold steady jobs. These homes often require less maintenance—a boon to landlords who don’t live nearby.

Landlords who aren’t local or don’t want to deal with 3 a.m. calls about an overflowing toilet will want to consider hiring a property manager who will find tenants and coordinate (but not perform) maintenance. But that eats into profits, costing about 7% to 12% of the monthly rent.

And the payoff you get, as compared with flipping a home, isn’t in one lump sum, and isn’t always steady. For example, landlord and flipper Crossley rents out multiple single-family homes, duplexes, and apartments in the Reading, PA, area, and once had a couple stop paying their rent for six months after they went through a divorce. She had to eat those losses, as well as attorney fees, while she went through eviction court to get them out.

Landlords also need to have insurance on their properties and set up their rental companies to protect their personal assets, in case they get sued.

And like other investors, owners also run the risk that home prices—along with the rents they were counting on—could plunge. “You have to be prepared for the worst. When something goes wrong in a tenant’s life, you’re the last person to get paid,” Crossley says.

3. U.S. REITs: Buying shares in real estate instead of companies

Year-to-date returns: 2.75%*
Three-year returns: 8.39%
Five-year returns: 9.79%

Those who’d like to own apartment and office buildings like a legit mogul but don’t have the bank balance to do so may want to turn to Real Estate Investment Trusts. Don’t worry if you’ve never heard of REITs. You don’t need a fancy finance degree to understand how they work.

Most REITs are publicly traded corporations that investors buy and sell shares in—just like stocks. Only instead of buying shares in Apple, you’re buying shares in real estate. Shares can range in price from just a few dollars to hundreds of bucks. Investors can buy into them on certain exchanges.

As with stocks, investors can make money by buying shares at a low price and selling them at a higher one, and by collecting quarterly dividends (payouts are made every three months).

There are two main kinds of publicly traded REITS. Equity REITs own rental properties ranging from homes to business space, and make money collecting income on them. Residential and commercial mortgage REITs allow investors to buy mortgage debt where investors profit from the interest.

4. Crowdfunded real estate: Like Kickstarter for property

Year-to-date annualized returns: 8.72%*
Two-year returns: 8.89%

Crowdfunded real estate is like the younger, cooler cousin of REITs. Simply put, it allows ordinary folks to pool their money to invest in things like apartment complexes, office buildings, and shopping centers. It’s like a Kickstarter for buying real estate—instead of funding your college roommate’s feature-length documentary about Furries.

Previously available only to uber-wealthy accredited investors, crowdfunding only became open to the general public in March 2015. That’s when the government enacted new rules opening up the investments to folks without ginormous bank balances. So there isn’t much data available yet on how these investments perform over the long term.

While REITs can hold tens of thousands of properties and be worth billions of dollars, crowdfunding companies are often significantly smaller, holding just one or a handful of properties. And they often require a long-term commitment from investors.

As with REITs, the two main options in crowdfunded real estate investing are equity or debt. Equity, the riskier of the two, involves investing in a fund connected to commercial or residential development. It makes money from the income the property generates and the increase in the value over time. The investment is usually tied up for about five to seven years. Debt is the loan used to get the project off the ground and continue to finance it through the life of the project.

“These are long-term investments, so if you pull your money out early, there’s usually a financial penalty,” Ippolito says. That’s a big difference from REITs, which can be sold at any time. “Retirees who need the money soon probably should look elsewhere.” Debt is a bit safer, but the payouts may not be as high.

5. Home appreciation: The investment you can live in

One-year appreciation: 10%*
Three-year appreciation: 26.7%
Five-year appreciation: 44.8%

Folks don’t need to flip homes or pour money into crowdfunded projects to make money as a real estate investor. Instead, they can search hard for the perfect home, get their finances in order, negotiate smartly, and close the deal for the best possible price.

And then live in it.

Real estate typically appreciates over time. That means that buyers who buy a home in a decent area and keep it in good shape should make money when they decide to sell. Depending on the market and the home, sometimes a lot of money. But they should plan on being in that home for at least five or so years, so they can build up enough equity in the home to net a profit once real estate agent fees and closing costs are accounted for.

“In general, buying a home is a good investment and a way to build wealth and equity over a lifetime,” says Joseph Kirchner, senior economist at realtor.com®. “[But] even if you’re buying it to live in the house for the next 30 years, it is always better to buy when prices are low.”

And as folks build equity in their home, through appreciation and paying down their mortgage debt, they can take out home equity loans or home equity lines of credit against their property.

But of course, just as with the other investments on this list, there are risks. The country could enter into a new recession, or there could be a local housing market crash if a big employer leaves the area. Or homes in your area could simply be overvalued.

However, when home prices fall, they do generally rebound—eventually.

“Good markets aren’t going to last forever,” says real estate investment author Tyson. “Even the best real estate markets go through slow periods.”

Post courtesy of realtor.com

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Pro Tips for Making the Most of Your Kitchen Remodeling Budget

Two experts weigh in on how to put your money where it counts.

A high-end kitchen remodel could easily drain your wallet. The nationwide average for a major kitchen remodel — replacing all appliances, installing a sink and faucet, and repainting walls — is $62,158, according to Remodeling magazine. And in cities like New York, those costs edge even higher.

A modest kitchen remodel, in which the cabinets are left in place, is $20,830 on average, and that’s not even accounting for labor delays or electrical issues from outdated wiring, which is common in kitchens.

Fortunately, there are ways to keep costs down without going batty. Here, two renowned interior designers share their tips for renovating a kitchen.

Consider how long you’ll be in the home

“Do you plan to be there two to three years, which means reselling is very important? Or do you plan to be there five to 10 years?” says Elena Frampton, creative director at Frampton Co in Manhattan. “That makes a difference in terms of design direction.”

If reselling is a factor, focus on basic, clean cabinetry and new appliances. If you’re staying longer, it’s about personalizing the space.

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Evaluate the layout

“Ask yourself if you want your kitchen to be open or closed,” Frampton says. The answer will determine not only the kitchen’s layout, but also how it interacts with adjacent spaces.

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Factor in pantry space

Homeowners forget this frequently used storage space all too often. Frampton recommends including it in your plans.

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Choose cabinets wisely

When remodeling a kitchen, you really need to understand how you live, how you cook, and how you like to organize things. “Know what you prefer and not necessarily what the marketplace is offering as a standard,” Frampton says. After all, the kitchen has to be functional.

If you’re annoyed by setting the toaster on top of the microwave every time you finish using it, you may want an appliance garage to keep gadgets and gizmos more accessible. “Focus on how it works for you,” Frampton adds.

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Forget name-brand appliances

Concentrate instead on getting the right dimensions for the space, and appliances that fit how you live. “Looking at those practical elements is really important if you’re on a budget,” Frampton adds.

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Buy a counter-depth refrigerator

“A space-saving unit that barely protrudes past the edge of your countertop is a worthwhile investment,” says Michael Tower, architect and partner at Studio Tractor in Brooklyn. “I hate fridges that are so deep that they take up a lot of your footprint. You’re always bumping into them.”

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Select the right countertop material

“Countertop trends change year to year, so understand your tolerance for each material’s character,” Frampton advises. “Do you want something that’s aesthetically quiet, something dark, something light with grout lines, or something without grout? Can you live with the patina of natural stone? Or do you need some sort of man-made conglomerate material?”

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Avoid cheap hardware

“You want your cabinets to last a long time,” says Tower. “You open and close them how many thousand times a week?” Splurge on durable materials that look good and will last.

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Save on lighting

While quality lighting is important from a functional perspective, Tower says, “From an investment point of view, it’s not a big deal any longer.”

Most standard cabinets feature some kind of LED underlighting. And when it comes to decorative fixtures, there are plenty of options to choose from at flea markets or resale design sites like Chairish. Just be sure to measure your finds before swiping your credit card.

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Post courtesy of Zillow.com

Save Money When Remodeling

Photo credit: atm2003 / shutterstock.com

Remodeling your home is both an exciting and trying time. Fun as a result of you get to feature your own personal bit to wherever you reside and obtain the items you actually wish. What is frustrating is working out the way to suit everything you wish into your budget. That’s why we have a tendency to needed to supply some cost-saving tips for once it comes time to try and do some renovating.

Drawing up a thorough plan before you begin any kind of home remodeling project is a good idea when thing of how to save money when remodeling. It will save you a lot of hassle in the long run and ensure that your home renovation gets finished on schedule and matches your vision. So grab a pencil and some paper and take a few days to come up with a strategy before you begin remodeling. Here are a few tips to help save money when remodeling.

 

Efficiency over Size

Before you blow out any walls to urge more room for a toilet or room, think about if they’re square measure ways in which to maximize the house already there. You’ll be able to replace shelves that take up plenty of houses with cabinet-height retreat drawers for optimum potency.

 

Shine a light on that

Many people wish to feature a lot of natural light in areas like hallways and bogs, however, cutting a hole in your house is expensive. They’re square measure more cost-effective ways in which of capturing light. One possibility may be a “light tube,” that simply slips between roof rafters and funnels sunshine down for you. It will value concerning simple fraction below to add a replacement window.

 

Recycle Your Materials

Many people don’t understand that what you’re taking out of your home is reused once more in another home. Things like cupboards, doors, and fixtures, square measure in demand for organizations like environment For Humanity. You’re serving to our folks in want, you get a charitable decrease for the donation, and you retain some stuff out of the lowland.

 

Use Your Contractor’s Resources

Many Remodelers don’t understand that you will raise your contractor concerning any leftover stock from different jobs. Things like wooden floors and siding usually leave odds-and-ends that eventually get thrown out. Several subcontractors square measures over willing to chop you a deal if you’re consuming some leftover materials from another job.

 

Sweat Equity

You may not be a professional in the plumbing or craft, however serving to out here and there will save a number of greenbacks. If you’re careful, you’ll be able to handle your own demolition work or lookout of a number of the finishing. Things like sanding, putt up insulation, or painting square measure all easy stuff you will do to avoid labor prices on. Also, improvement up at the top of the work yourself will economize wherever it counts.

How To Add Value To Your Home

Photo credit: Naphat_Jorjee / shutterstock.com

It is common for homeowners to make changes to their houses that increase the comfort level and make their homes look better. These changes may be based on personal taste or they may be to make their home life more convenient. In many cases, these changes add value to the home. This means that when the time comes for the house to be sold, potential buyers will be willing to pay more for the home because of these added improvements. Smart homeowners make their upgrades based on these value-added changes. They prioritize how they are going to improve their homes based on the changes that will make their home worth more. One of the main ways to determine if a change will add value is to consider what room you are improving. Bathroom remodeling adds more value than swapping out bedroom carpet. Improving toilets, showers, tubs, and sinks, or adding new tile to the space attracts buyers to take a second glance at your home. If you are remodeling, these should be some of the first improvements you consider.

The next room you should consider adding upgrades to is the kitchen. Potential buyers know their families are going to be spending a lot of time in their kitchen. This means they are going to want modern appliances, comfortable seating, and plenty of space for cooking and entertaining. Make sure your kitchen is a wide open space that allows you to share family time even when you are cooking or cleaning up.

Another change you can make that will benefit you long before you sell your home is to make energy-efficient upgrades. Trade in old appliances for modern ones that save energy and save you money. If you have drafty old windows, swap them out for ones that seal up the air in your home and block out the sun’s damaging rays. If you are looking to make major investments, consider solar panels for heating.

The outside of your home is one of the major places to add value. There are few places in your home where cosmetic changes make a big difference as they do outside. When buyers pull up to your home or drive by while they are browsing, it is the curb appeal that will catch their eye. Make sure the exterior of your home is in good repair, add some color to the front door and the garden areas, and keep the grass green and trimmed.

Finally, the most important thing you can do to add value to your home is to keep up with the maintenance. As busy homeowners, it is all too easy to let things slide and concentrate on them only when something breaks for is in disrepair. To save yourself a lot of money and ensure your home will retain its value, take care of it. Just as you would change the oils and rotate the tires on a car to extend its life, do the same for your home. Keep up with seasonal maintenance and handle things before they become an expensive problem.