Many people have been reading that the Orange County Housing market is current a balanced market. What exactly is a balanced market? Simply put, a balanced market is a healthy market with a 4-6 month’s supply of inventory. Neither the buyer nor the seller is considered to have an advantage over another in a balanced market. Is this the same as selling and buying in the sellers market we recently experienced? No it is not. To those ends, we wanted to share some tips and things to consider when selling your home in a balanced market.

A balanced market is an interesting thing for home sellers. Most of the time, those that are selling their home can afford to buy a new home before they sell their old home. This presents problems to you as the home seller, as you may be able to find a home that you like before you are able to sell your home. A balanced market often causes homes to sit on the market for a bit longer, so you should be sure that you can afford to have the home sit on the market for a few months before it sells, or make arrangements in your selling agreement to provide for a longer contingency period or rent back (where the buyer allows you to effectively rent the home back from them for a given period of time). When the market is balanced you also cannot count on selling your home for your exact list price (or over list). So buying a new home before you sell can leave you in a bad place if you don't have savings to fall back on.

It’s important not to count on a specific list price in a balanced market. Because homes sometimes take a bit longer to sell, it's important to be somewhat flexible on the list price if you want it to sell. Flexibility on your list price may allow you to sell your home more quickly, should you encounter picky buyers. Buying a new home, before you sell your existing home can be tricky if you absolutely must sell your first home for a specific price. For this reason, it is often best to put off buying a new home until you sell your current home.

One other option for homeowners that are looking at selling and looking to buy at the same time is to write your purchase agreement in a way that makes the purchase contingent on your current home selling. Sellers won’t always accept contingent offers, but if your offer is good, and they have a reasonable expectation your home will sell, they most likely will accept. This will allow you some time to attempt to sell your current home before you officially get in over your head with a new home.

What Does All This Mean?

The bottom line is that in a balanced market it a little more risky to buy before you sell. A good tactic that many people use in a balanced market is to sell your current home first. This will give you plenty of time to decide what sort of home you want, so that you aren't rushing through the home selection process. By the time your home sells you will know exactly what you want and you can go for it. If it happens that your home sells really quickly in the balanced market, that's okay!

Selling first just makes the most sense. Because you don't know how long your home will take to sell in a balanced market and you cannot determine how much it will sell for. If you are a risk taker, you don't have to go this route, but most people find that the sell first philosophy works better in the balanced market.

 The Squeeze on Affordability: the reason it is a great time to buy now is because of the building upward pressure on interest rates. 

Now that the Federal Reserve has ended its “tapering” and no longer is funding the secondary market, they are now looking on the horizon to increase the Federal Fund Rate. As that rate increases, long term interest rates eventually rise. Long term rates are what consumers use to purchase homes. 

For now, the Fed is not going to touch the Federal Fund Rate. They are looking for specific signs in the overall economy: inflation and unemployment. Inflation has been flat and comfortably below their 2% target. Unemployment, on the other hand, has been steadily and surprisingly dropping and is inching closer to their target. As employment improves, the economy could overheat and the threat of inflation increases. 2014 is looking like the biggest gain in employment in 15 years. If the trend 

continues, we could see an increase in the Federal Fund Rate sometime next year. It is currently at just about ZERO, so there is only one direction it can go, UP. 

The bottom line remains, as the economy improves, interest rates will rise. Eventually, that will occur and locking in on today’s historically low interest rates is an incredibly smart decision for today’s buyer. In five years from now when today’s buyers look back at their purchase in 2014 and 2015, they will see their decision to buy a home as a genius move. Rates will definitely be a lot higher then. 

There is a wonderful way to illustrate why purchasing today at the current ultra-low rates is a “genius” move. As interest rates rise, affordability diminishes. The higher the increase, the more it impacts how much a buyer can afford. For example, if a buyer is looking for their mortgage payment to be around $2,000, based upon today’s 4.125% rate, a buyer can afford a $516,000 home with 20% down. At 4.5%, close to where rates were back in January, a buyer would only be able to afford a $494,000 home, or $22,000 less than today. At 5%, it would be $50,000 less. Prior to the downturn, interest rates were at 6.5%, which would be $112,000 less, or a $396,000 home. 

The difference is even more staggering in the higher ranges. Buyers looking at a $3,000 per month payment can afford a $774,000 home today versus a $719,000 home if rates increase to only 4.75%. And, buyers looking at a $4,000 month payment can afford a $1,032,000 home today compared to $959,000 with an increase to 4.75%. 

Historically speaking, today’s interest rates are astonishingly low. They were at 6.5% prior to the downturn, 8% back in 2000, 10% back in 1990, and a staggering 18% in 1981. These levels are not mentioned to scare buyers into purchasing today, because rates are not about to skyrocket overnight. Instead, buyers should look at the incredible opportunity that is available today. The smart bet is to pull the trigger now while buyers can afford to purchase more of a home. Buyers who wait until sometime down the road are looking at a highly likely scenario of higher interest rates and a much smaller purchase price.

If you are faced with wanting to sell your home during the holidays, you are faced with an issue. First off, you of course want to sell your home. Most importantly though, you want to celebrate the holidays with your family and decorate with all the festive fervor you have been building all year.

Holiday happiness is amazing, but there is a fine line for what you should and shouldn’t do to your home, to make sure it’s attractive to would-be buyers, and looks it’s best, while on the market.

Today we’d like to share with you some tips to illustrate how to find that right balance, making sure your home looks literally ready to move in to, yet allowing you to have the festive time of the year with your family that you so richly deserve.

Don’t Over Do It

You want buyers to see your house, not all the stuff you've piled on in celebration of the holidays. But that doesn't mean you have to go bare.

The less-is-more mantra of home staging may tempt you to forgo holiday decorations. But a few subtle touches like a pinecone centerpiece, an evergreen wreath or a pot of cider simmering on the stove can create a warm and festive feeling in your home.

Be Realistic

You definitely don’t want to make your home look sterile like a hospital or a museum, BUT if you're selling you house you want to be extra careful to be sensitive to anything that may be deemed controversial for your particular marketplace (e.g. Merry Christmas versus Happy Holidays).

Be Sensitive

Again, focusing on what is the greatest common good, for the greatest number of buyers in your marketplace, avoid overtly religious decorations, which may be off-putting to some potential buyers that may be touring your home.

Remember Your Liabilities

Sidewalks lined with special candy canes or holiday lights can be attractive. But if they're not tucked away, they could be a danger to visitors. The last thing you need is a lawsuit while you're trying to sell your home, or trying to enjoy the holidays with your family.

It’s Not All Bad

While selling your home over the holidays does require a certain level of thought and conservative discipline, it in no way means that you can’t enjoy the holidays with your family and loved ones. Being careful to ride this balance will not only ensure you and your family get to feel the holiday cheer, but also ensure that you attract the highest number of potential buyers to your home, over the holiday season.

Selling your home is most likely one of the largest financial transactions you will ever encounter. With something this important, choosing the right Realtor® to help you is critical.

First off, you need an agent with experience. An agent you feel that will best represent your needs and get you the most money possible for your home. Most importantly, an agent that you trust.

How do you find someone with all the qualities? How can you be sure that you aren’t just falling for “the hype” and not actually seeing what the truth is? Today, to help you out, we want to share a few tips to consider when interviewing Realtors® to represent you.

1. It’s all about the testimonials

Anytime you are interviewing a potential Realtor®, ask them to provide you not only a list of properties they have sold in the past, but also a list of past clients that you can call as well.

 When you call these clients, it’s important to find out how they felt when working with this Realtor®. It’s also important to find out how the transaction went. Did it go according to plan? How long was their property on the market? What was the final sale price, in relation to the list price? Would they hire this Realtor® again, and why?

 Agents can talk about themselves all day long, but when someone else is speaking honestly about them, it gives a whole new level of clarity to the situation.

2. Are They In Good Standing?

Every state has a governing body that licenses and disciplines Real Estate agents. Many of these governing bodies (California for sure) also have websites that will allow you to check and find out if a Realtor® you are interviewing has an active license, is in good standing with the governing body and has no complaints or disciplinary actions against them (past or present).

Again, remember, this is probably the largest transaction you will ever experience. You do not want to leave anything to risk when interviewing Realtors®. If they have lots of problems showing up on their record in the past, it is most likely indicative of how the transaction would unfold, were you to hire them as your agent.

3. Look for successes

Top producing Real Estate Agents got that way by doing on thing: Successfully representing their clients. When you interview agents, look for the agent that has a track record of successes that line up with what you hope to achieve with the sale of your home.

For instance, if you need to sell quickly, look for agents that have a track record of quickly preparing a home for sale and getting it sold quickly. If selling over asking price is most important, look for agents that have had successes in selling homes over the asking price.

Success means different things to different people, based on their needs. Finding someone that is successful in the aspect that are most important to you though will ensure that you have a good working relationship with your Real Estate Agent and increase the chances that the transaction will turn out exactly as you were hoping it would.

While downsizing your home can be considered the next great chapter in your life, it is understandable if you have some hesitation about going ahead with it. Many of you that are downsizing have raised your children and they have now left home to start the next chapter in their lives. You undoubtedly have wonderful memories of holidays, events and all the great things that have happened in your home over the years. Even more, you are comfortable and familiar with the house you have now. Habit and familiarity are much more comfortable than the unknown of what your new, smaller home will be like.

While the huge financial benefits of downsizing your home can be very enticing, there are some things you should consider before you make your decision to downsize your home to a smaller one.

How is the real estate market?

If you are considering putting your home on the market and downsizing, timing the market is very important. The Real Estate market can be complicated. On the one hand, you want to try to sell your home for as much money as possible. You have to consider where your next move is going to be as well.

For instance, if you are going to move into a smaller townhome or condo, but the market is hot and there are not many available, in the end you will pay more for it, which may cut into the savings you will see from downsizing.

Taking all these things into consideration is a very important first step if you are considering downsizing.

Will you be able to keep your furniture?

When downsizing to a smaller home, you may realize that your current furniture is unlikely to fit into a smaller house. That means you will have to sell your current furniture and then buy all new items for your new home. If this might be the case, do your research. Odds are it’s been quite a while since you’ve purchased furniture and the increased prices may surprise you.

How far away from your family are you going to live?

Chances are, one highlight of downsizing your home is the fact that you can move out of the suburbs and into a city or downtown area with easy access to culture and restaurants. While this is great, the move may end up meaning that you spend less time visiting your children and grandchildren. Before downsizing, consider if you’re willing to move further away from your family. If not, you likely can still find a smaller home in a neighborhood close to your current home and any nearby family members.

If you’ve been thinking about jumping into Real Estate investing, I’m sure you’ve been actively researching and learning, reading the books, magazines and reports. Yet when push comes to shove, many people get stopped, midway through the process.

It’s not surprising. The process can seem overwhelming. Many would be investors quit before they ever actually get started. But it doesn’t have to a difficult one. The truth is, Real Estate investing is relatively straightforward.

Today, to help you get on your way, we want to share with you some things to consider, as you begin your journey.

1. Check your finances

Take inventory of all your assets, including incomes and work out your expenses. This will give you an idea how much cash you have available to invest. Don’t immediately assume that you can’t afford to invest. Having a stable, reasonably good paying job with solid employment history, and relatively low debt should give you some pretty good financing options.

2. Get a pre-approval

Contact a mortgage broker you trust and get pre-approved BEFORE you get too far down the road. Going through a broker before applying for a pre-approval can be beneficial if you’re not sure you’re financially ready to invest. This will allow you to put into perspective exactly the type of investment property you can afford.

3. Set your goals

What do you envision when you think of yourself in terms of a Real Estate investor? For instance, many Real Estate investors invest in property to secure their financial future or to be free to do what they want, when they want it.

In order for you to achieve your goals, you must first articulate what your goals are. More importantly, you need to set a deadline as to when you want to achieve these. Then you can work backwards, allowing you to set realistic milestones in logical stages.

4. Understand your attitude to risk

Understanding what you are willing to risk is a key element to Real Estate Investment strategy. If you find you have zero threshold for risk, then investing may not be right for you at this stage. On the other hand, if you can tolerate risk, you may have a larger pool of potential investments to consider.

There is no right answer to this question. The key is gaining an understanding of your own attitude to risk will help you create a strategy that reflects this.

5. Start budgeting

Budgeting is the only way to ensure you’re able to balance your income and expenses. It allows you to see where you’ve been spending your money and helps you to plan for bigger expenses down the line.

Budgeting is a facet of Real Estate investing that is never going to go away. Make sure to set this up even before you start looking for a property. If you are not interested in budgeting, Real Estate investing probably is not right for you.

6. Stay focused

Make sure you stay focused. Investing in property is a business decision, not an emotional reaction. 

It’s easy to get overwhelmed when you’re starting something new and as massive as property investing. 

But don’t give up. Just imagine in 10 years, if you buy the right properties this year, you could be sitting back, feeling happy, secure and even proud that you bought properties that made great gains.

If you own a rental property, there is going to come a time when it is vacant and you will have to fill that vacancy. Finding a good tenant for your rental property isn’t as easy as it sounds. It is a process.

During this process, you are going to have to set a clear set of criteria for who your ideal renter is and more importantly, who they are not. These criteria will ensure that you make the right choice and put the perfect tenant in your property.

Here are a few things to consider when getting ready to rent your income property.

1) Before you advertise your rental, be sure you have your criteria set

Before you even start to advertise, you need to have rental criteria that will be the minimal acceptable standard for your renter in terms of income, credit score, criminal history and rental history. It is ok to modify the criteria along this process, but you need to have a solid baseline in terms of the credit score and income levels that you want to require an applicant to have.

When creating criteria, you have to have a vision from your property. In a multifamily property, you can reposition your property to a different grade of renter. Increasing the quality of renter will increase the value and profitability of your property. You need to know about building classifications and what your returns must be to make yourself profitable.

2) Be realistic

When renting your investment property, you need to be realistic about the quality of your tenant. For instance, if you are renting a single family home in a modest neighborhood where the average annual income per family is $85,000 per year, you are most likely not going to be able to find a tenant that makes $150,000 per year.

If it is critical you get that $150,000 per year tenant, so you can charge higher rent to make your property cash flow positive, perhaps you need to re-evaluate your investment. If you have no choice though, it’s not impossible attract a tenant with this level of income. But given that the choices available to a tenant of that income are much greater, it is going to take longer to rent your property.

3) You’ve set your criteria. Now stick with it!

What if you get tired of going through all the emails and offers to rent that you are getting from your for rent ads? Or what if you find someone that technically, according to your rental criteria is not a match, BUT they seem like good people? Or even worse, what if you come upon a renter that gives you some sort of sob story and is pleading for the chance to rent your property?

In every case, no matter what, you need to stick with the plan. You took the time to write up your rental criteria for a reason. You do not want to have a bad experience. You want this to be positive for you, your renter, and everyone in the neighborhood where your property is located.

There is a reason you set your criteria the way you did and therefore a reason why these people aren’t right for your rental property.

Need Help? We’re Here!

Renting a property doesn’t have to be a difficult process. If you need advice about your rental property, are curious about what options are available to sell your rental property, or are curious about the tax advantages of things like 1031 exchanges, we are here to help you in any way we can.

With the holidays approaching, many sellers want to know if they should keep their properties on the market or take them off. Even more, if they haven’t listed their homes yet, should they wait until after the first of the year? Maybe hold off until spring?

It used to be that Realtors® would tell you it was never a good idea to sell your home over the holidays. The idea behind this was that any would-be buyers out there were too busy with family planning for the holidays, Holiday parties, or even going on one last vacation for the end of the year. With only so many hours in the day, something has to give and the thought was that buyers looking for homes was exactly what was going to give.

In today’s “connected” age, information is always at our fingertips. We are never a thought or two away from “real life”, even if we are enjoying a vacation or time with family and friends. To those ends, the idea of not putting your home on the market in the winter has changed. The home buying season is not a year round event.

Today we want to share with you a few ideas as to why you should consider putting your home on the market (or keeping it on the market) during the holidays, rather than waiting until the beginning of the year.

Serious buyers never stop looking online

Remember that “connected” thing we just mentioned? It’s true. Today’s serious buyers never stop looking. They’re looking online, looking on agent or MLS websites and always ready to jump, should the right property make it’s way onto their device’s screen.

Inventory is lower which means less competition for you getting a buyer

Despite buyers always being one step away from their devices when looking for homes, home sellers still have the misconception that serious buyers aren’t out there in droves during the holidays.

Due to this, you have a much better chance of getting qualified offers for your home, as there aren’t as many homes on the market. And of course, fewer homes and more offers means a higher potential sale price.

“Serious Buyers” – The hidden gem of selling your home over the holidays

There is also another hidden advantage of selling over the holidays. The offers you are going to get are very, very serious offers. It takes a motivated seller to want to uproot their family over the holidays and move into a new home. Because of this, the offers you get aren’t going to be from buyers that are going to get cold feet. They are from buyers that want YOUR home and are willing to do what it takes to make it happen.

It’s not for everyone, but it could be very good for you

Selling your home over the holidays clearly isn’t for everyone. As you can see though, there are certainly some serious advantages that are worth at least considering, before you resign yourself to waiting until January to list your home.

If you are thinking of selling, but weren’t sure if now is the right time, contact us anytime. We are happy to explore your options and help you come up with the solution that is right for you.

A 1031 Exchange is a common, fairly straightforward strategy that gives you significant tax advantages as a commercial property owner. Also known as a tax-deferred exchange, real estate investors may sell or relinquish certain qualified property, reinvest proceeds from that property and acquire a replacement property, pursuant to certain time limitations and other regulations. Simply stated, at time of sale, sales of real property are taxable in the year in which you sell the property, but employing a 1031 Exchange defers the taxable event.

So 1031 Exchanges sound great right? While they are great, much like everything in the world, they are not for everyone. To those ends, today we wanted to share a few benefits and drawbacks of engaging in a 1031 Exchange.

ADVANTAGES
1. A 1031 exchange involves a deferral of taxes

This is the obvious one. A 1031 Exchange allows you to sell your investment property and reinvest in a replacement property in order to defer ordinary income, depreciation recapture and/or capital gain taxes.

2. Exchanges allow you to leverage an increased cash flow for reinvestment

By deferring taxes, you will have more money currently available for investment. This increased purchasing power gives you the extra leverage to acquire, for example, a property or several properties with significantly higher investment benefits than if you sold the original property, paid all the taxes associated with the sale and purchased a new property.

 3. Exchanges give you relief from management

If you own a property or several properties burdened with extensive maintenance costs and requiring intensive management, you may exchange and replace property for others with less responsibility (e.g., having an on-site manager).

DISADVANTAGES
1. There are multiple procedures, rules and regulations to follow.

The IRS has established regulations in a 1031 Exchange in accordance with the competing interests of collecting taxes and rewarding taxpayers for investing back into the economy. If these regulations are fully complied with, no income will be recognized at time of the commercial property exchange transaction. Not strictly adhering to these regulations, however, could doom your tax status and in fact you could incur certain penalties. (The work around on this of course is working with a firm like ours that can guide you through the process, effortlessly).

2. You may have difficulty in meeting the IRS rules and regulations. 

Not surprisingly, investors frequently hit roadblocks when trying to comply with 1031 Exchange regulations. A common problem is finding a replacement property within the first 45 days after the sale of your relinquished property. To make matters worse, the IRS generally does not allow extensions of this time. That is why it is so important to meet with a real estate advisory, many of which specialize in identifying and structuring 1031 exchange opportunities, to assure your 1031 is a success.

3. The taxes are only tax deferred, not tax-free. 

Remember, this is a tax-deferred transaction, not tax-free. When you decide to sell, your tax liability will be fully recognized.

NO MATTER WHAT

Executing a 1031 Exchange should be completed under the guidance of a seasoned professional. You can get tripped up on the many complex rules and regulations that the IRS sets forth.

Our firm is well established, expertly knowledgeable and can provide critical assistance in assisting you in assessing your tax liabilities of a sale versus an exchange, whether an exchange suits your investment goals and overall plan and finding a suitable replacement property.