The New Era of Real Estate

Posted on January 12, 2011 by Tim McCollum

The New Year started a new era in residential real estate in North Carolina with the introduction of a new purchase contract that fundamentally changes the nature of real estate transactions. Gone are the contracts filled with contingencies and multiple loopholes built on ambiguous terms, which make the real estate process contentious. The new contract is far from perfect, but it fundamentally changes the nature of transactions.

Out with the Old

The prior real estate contract, which evolved over many years, attempted to state the duties and responsibilities of each party in the contract. The great weakness of the prior contract was the subjective nature of the contingencies, which were based on phrases like “functioning as intended and not in need of immediate repair”. Getting a homebuyer and seller to agree on what the meaning of phrases like this was, perhaps, the hardest part of many real estate agents’ job. The real estate contract was fundamentally flawed due to the complexity of transactions throughout the state and the need to make one contract cover every situation through expressed terms.

In with the New

The new contract serves the purpose of creating an expressed agreement between two parties but has removed the ambiguity that was inherent to the prior contract and replaced it with what is essentially an options contract. In many ways, the new contract is less comprehensive than the old contract and contains more uncertainty than the old contract at the time of contracting.

Options Contract Made Simple

An options contract is an agreement between two parties where the buyer pays the seller for the right to purchase an item. The new purchase agreement is structured so that the buyer pays the seller to have the exclusive right to the time necessary to examine a property and arrange financing. The non-refundable payment for the time to examine the property is called “option fee” and is paid to the seller. The money paid directly to the seller is separate and different from an earnest money deposit, which is held in escrow and is refundable if the buyer terminates the contract within the examination period. The option fee is the seller’s to keep regardless of whether the buyer decides to exercise his right to purchase.

Home Inspections & Repairs

During the buyer’s examination period, the buyer will likely conduction various inspections on the property. Handling issues that come up during the inspections is less explicit than the old contract. The new contract leaves the subject of which items should be addressed completely up to the buyer and the seller to negotiate while under contract. The days of arguing the contractual obligations of a party are over. The new contract leaves any and all items up for negotiation. In many ways, this is a good thing because it creates room for reasonable people to negotiate terms that are acceptable to both parties.

Buyer & Seller Benefits and Drawbacks

For both parties in the contract, there are definite strengths and weaknesses in the new paperwork. For a home seller, a larger option fee will result in a more serious transaction that will provide some restitution for any time wasted by unreasonable buyers. Unfortunately, there’s no way to know exactly what the buyer will say has to be changed about the property in order for them to be willing to purchase. For buyers, the contract will not limit your ability to ask for repairs that are concerns for you and will create more flexibility for you should your motivation change for purchasing, such as a sudden loss of employment be experienced during examination period. In order to contract a home, it will likely require that you put both a reasonable earnest money deposit and a substantial option fee in addition to all the other cost of examining a property.

Everything’s Negotiable

Everything in the new contract is negotiable, thus the exact nature of every transaction will be unique to the motivations and willingness of each party to make a transaction occur. The amount of option fee is negotiable and will likely change depending on the nature of the market and the motivations of the seller. The amount of time for examination is also negotiable and will vary for each transaction. One of the most apparent changes is the requirement for real estate agents to be active and involved through the transaction. If the contract is going to improve the purchasing process, it will require real estate agents to be knowledgeable and able to negotiate, advise, and manage the process to ensure timely execution. In other words, it will require real estate agents to be professionals in every sense of their job.

Written by Tim McCollum 704-965-2535

Posted in Real Estate Investments, Selling Your Home | Tagged , , , | 3 Comments

Real Estate Market Fundamentals

Posted on January 5, 2011 by Tim McCollum

Everyone wants to know what 2011 is going to look like. As far as real estate is concerned, there are some basic drivers of the economy to consider as we build an outlook on the year ahead. The most basic drivers of the economy are supply and demand for homes. The following takes a look at supply and demand in Charlotte real estate markets.

Market Demand

According to the MLS, there were 6,491single family homes and 2,656 condo units sold in Charlotte in all of 2010. Most of the news throughout the year compared the prior years monthly totals and the seasonally adjusted averages, but that information is far less useful when preparing an outlook for the year. The primary factor that we need to look at when looking at supply and demand is absorption.

Supply of Houses

Single-family homes have a supply of 8.6 months of houses currently on the market in Charlotte as a whole. The supply of homes is based on last year’s sales velocity, which was down from the previous year. In markets where property values are generally rising, the supply of real estate will usually cover somewhere in the ballpark of 6 months of demand. If the volume of sales is similar to last year, it is unlikely that single-family homes in Charlotte will experience much rise in value during the coming year.

Supply of Condos

The downturn in the economy and the tightening of lending standards has been the hardest on condominiums. True townhomes aren’t much different than a single-family house when it comes to getting a loan. However, the requirements around purchasing into a condominium are much more challenging. The result has been a dramatic slow down in condo sales. At last year’s sales velocity, there is a supply of roughly 13 months for all of Charlotte. Until the lending requirements begin to loosen, demand for condos is likely to hold it’s current level.

Shadow Inventory

The biggest threat to the economy is shadow inventory. The presence of the unknown thwarts the economy and keeps buyers on the sidelines. The exact size of the shadow inventory is a mystery. There are all kinds of speculation around the amount of inventory that banks own but aren’t trying to sell as well as homes that the bank has a right to foreclose on but has elected not to do so. The major consideration that most analysts miss is that many banks are electing to rent out condos when they foreclose on homes rather than waging price wars to sell homes—a trend which is likely to continue and continue to mitigate the impact of the mysterious shadow.

When all other factors of the market are stripped away, the most basic factor of the economy are the people in it. It is impossible to predict if 2011 will be a great year or another year that people look back on and proclaim wishes for things to be different than the last. What we have, though, is an opportunity as individuals to make sound decisions, to invest wisely, and live within our means. When we do this, the answers of the market and economy will present themselves– yet look different than we thought because they carry far less significance than ever before.

Written by Tim McCollum 704-965-2535

Posted in Real Estate Investments | Tagged , , | Leave a comment

Going…Going…Gone…to a Real Estate Auction

Posted on December 23, 2010 by Tim McCollum

The increase in foreclosures over the last years has created stockpiles of properties on banks’ books. In order to help liquidate these properties, some lenders have resorted to an old fashioned methodology to sell these homes. Selling real estate via auction is a methodology that has typically been reserved for estate sales and during sellers’ market when high demand can create bidding wars. In today’s economy, banks and their auctioneers attempt to create artificial demand to get top dollar for their homes. If you are thinking that a real estate auction is a good way to pick up a cheap property, there are some things you need to be aware of.

Absolute Auction vs. Reserve Auction. The most important factor to be aware of in an auction is the type of auction you are attending. An absolute auction is an auction where the property sells for the highest bid. A reserve auction is an auction where the winning bid is subject to bank approval. The result is an auction that is inconclusive at the end. Absolute auctions are the best auctions to attend but are the least common. The most common auction for real estate is reserve auctions because most lenders or auctioneers aren’t willing to start the bidding at the reserve price because the higher the starting bid the fewer the number of bidders. If you attend a reserve auction, you need to be aware that a winning bid does NOT guarantee you will be purchasing the property.

Buyers Premium.  If you are the winning bidder, the price you pay to purchase the property is typically 5% above the winning bid. The premium that is paid to the auction company is to help pay for the auctioneer who calls the auction and his assistant who typically gets the crowd stirring by using a pseudo-cattle call. If you’ve never been to an auction, it’s cheap entertainment unless you win the bid. In that case, the entertainment cost an extra 5%.

As-Is. Real estate auctions are almost always auctions for as-is properties. An as-is sale means that the seller will not complete repairs and that the property is transferred in the current condition. In a typical foreclosure sale, the lender in as-is transaction will complete repairs if the buyer’s lender requires repairs as a condition of the loan. In an auction, the property is sold in the same condition as on the day of the auction.

Just like any transaction, it’s important to do due diligence before purchasing a home at an auction. A good real estate agent will be able to help you look at a home and all the factors that influence the quality of the asset. A real estate auction can be a good way to get a great deal on a home but you want to make sure that you do all your homework with a real estate professional’s help. For more information about purchasing homes at auction, contact Tim McCollum or call 704-965-2535

Posted in Real Estate Investments | Tagged , , | 2 Comments

A Real Estate Investment Case Study

Posted on December 17, 2010 by Tim McCollum

Joseph Cooper was faced with the challenge of preparing for his financial future. His experience to owning real estate was limited to his own home. After study, research, and planning he decided that he would build a balanced portfolio with high growth properties as well as cash flow investments across multiple neighborhoods. Over the course of 4 years he built his portfolio of investment properties through the guidance of his real estate advisor. Currently, his portfolio realizes free cash flows of $6,300 per year.

Here’s how he did it.

His first investment was in a rehab of his own home that increased the value of his home more than the cost of improvement through sweat equity. The equity of his primary residence was then utilized to make a down payment on a 2br/1ba home for $45k located next to a bus line cash flows $2,300 per year.

After saving for several months, he purchased a 3br/1.5ba house for $90k located in a developing neighborhood located a mile outside the Uptown with huge growth potential. Two years after the purchase the home appraised for $145k. A refinance provided the equity to purchase two other properties. Consequently, the cash flow of this investment was negative $100/mo.

The third purchase was an adjoining property to the first investment and the 3br/2ba house with garage was purchased for $65k and provides $2,700 cash flow annually. The fourth purchase’s down payment was financed through equity of the second home. The investment was a brick 3br/1.5ba ranch in northeast Charlotte that was purchased for $95k and cash flows $2,400 annually.

The fifth investment was the purchase of a new primary residence which turned the original home into an investment home that cash flows over $3,200 annually.

The last investment home was a 3br/2ba ranch located .5mi outside the Uptown next to the new NC Music Factory. The home was purchased for $125k and was cash flow neutral in a neighborhood with huge growth potential.

After all the investments were made, the annual cash flow on the properties exceeds $6k while the mortgages are being amortized and the equity is being built. The time horizon for this investor was 15-20 years and the goal was cash flow and debt retirement. With the extra cash flow, the investor will be able to retire the 30 year loans in approximately 18 years. Even though the real estate market has declined, the cash flow the investor is retiring debt and creating residual income for his future.

Ultimately the properties will provide residual income in excess of $68k per year at today’s rental rates.

For more information about starting your own investment portfolio, contact Tim McCollum at 704-965-2535

Posted in Real Estate Investments | Tagged , , , | 5 Comments

Real Estate Renovation Essentials

Posted on December 1, 2010 by Tim McCollum

TV has popularized the renovation concept to a degree which is truly mind blowing. If you have ever renovated a property, you understand the difficulties which you often face aren’t nearly as exciting as TV. For an investor with know-how and savvy the renovation and resale prospects are still alive, but it takes more nerve and skill than ever before to pull it off. The following are some guidelines for home renovations for the aspiring house flippers.

Floor Plans Matter. The layout of a home matters more than ever. Although bargain shoppers might take anything they can get, a buyer of a renovated home is looking for a home that has the layout and finish that they want. There are two ways to do a renovation that works, you can either create a desirable floor plan or you and take a floor plan and update it. If you want to change a floor plan, then you better be getting a great deal on the property to make the investment work. Otherwise, find a good floor plan and focus on the updates.

Don’t Cut Corners. There is a fine line between spending wisely on a renovation and cutting corners. The return that you are trying to get on a home will determine the types of finishes you decide to put into a renovation. If you are trying to get top dollar in the market, then you better put the top finishes and have the home immaculate. If you are purchasing a house then all the structural issues should be resolved before you ever put it back on the market. Buyers recognize quality work and are usually ready to pay for first-class finishes, but they will turn their nose up at cheap work. Doors that stick, uneven drywall, and trim that doesn’t line up are key indicators that corners have been cut.

The Magic Three. There are three key finishes in a quality home which distinguish a nice house from an OK property. The first and most overlooked indicator of quality is the door of the home. Most production builders don’t put solid core doors in a home because hollow core doors cost less money and do the same job, but a quality home will have a solid core door which provides better sound dampening and feel more sturdy. The second indicator of a home is the trims around the windows, floor, and doors. The general rule is that the more expensive the house the heavier the trim. A $300k home might have 2-piece crown molding but a $900k might have 4-piece crown molding. A good renovation will provide more trim than a consumer would expect at a given price point. Lastly, the floors of a home are a dead give-away to the quality. Finished in place hardwoods is the nicest flooring option available and is worth the expense when you’re doing a renovation. If you are going to put carpet in a home, put a quality pad and a nice carpet if you want to get top dollar.

When you are selecting the finishes of a home, focus on providing a higher quality product that the consumer expects to find in a home at your target price. That’s called value and consumers love a great value.

For help in determining how to find a potential renovation, contact Tim McCollum or call 704-965-2535

Posted in Real Estate Investments | Tagged , , , | 7 Comments

Real Estate Investment Strategies

Posted on November 20, 2010 by Tim McCollum

Real estate investments can be broken down into four different categories which have divergent amounts of monthly cash flow and projected future value. Typically, you expect to see a trade-off in real estate between the amount of money you can make monthly and an increase in future value. The type of investment you seek out should match your investment goals. If you are putting together your investment strategy, the following should help you define what you want your investments to do.

  High Great
Harvest		 Pillow
Investment		  
Terminal
Value		  
Low Homestead
Investment		 Cash Machine  
   
    Low High  
    Cash Flow   

Great Harvest: An investment into real estate where the rents provide an annual return less than the amount that would be needed to cover a typical mortgage. Properties in this category are typically found in quality neighborhoods that are in high demand due to school district, proximity to shopping, or employment centers. Temporary losses can be tolerated due to the anticipated high future value of the property. Example: An investment into a condo in a thriving part of the city that is appreciating at 10% a year but requires a $500 investment each month to cover the mortgage.

Homestead Investment: An investment into real estate with marginal rent and a poor potential for future value. Time frame for investment in this type of property would be much longer than an investor might prefer. The value of a homestead investment is realized once the mortgage is paid off and the cash flow provides steady income. Investors like these investments when the goal is residual income in the future. Example: An investment in a rural property or a duplex in a stagnant neighborhood that covers the mortgage but isn’t going up or down in value.

Cash Machine: An investment into property that provides adequate cash flow but is seeing a flat to falling value. These investments can typically be found in areas that have not experienced much growth but have demand for housing. Rents can provide 20%+ annual return but require frequent turnover in tenants. Typically, the investments provide desirable cash flow but can also require investment into the property for repairs. Example: An investment in a $40,000 house that rents for $800/mo but requires new tenants on average every 10 months.

Pillow Investment: An investment into real estate that provides strong cash flows with huge potential for future value. Although rare, these investments are available. In many cases, assets must undergo a repositioning to convert them to high cash flow with high future value. Typically, the repositioning process is costly and requires professional knowledge and skill to maximize returns.

Defining what type of investor you want to be is based largely on the goals you set for the future. If can define your goals, the search of properties will be much easier and you are more likely to be satisfied and successful with your venture. For assistance in defining your investment goals, contact Tim McCollum or call 704-965-2535

Posted in Real Estate Investments | Tagged , , , | 3 Comments

Investment Property Tips

Posted on November 17, 2010 by Tim McCollum

If you own real estate that you hold as an investment property, then you are probably familiar with the challenges of maintenance and the expenses that can arise when a tenant moves out. The reality is that tenant preparation expenses can wipe out profitability if you aren’t careful. The following are three tips to help keep your expenses in check when preparing for a new tenant.

Durable Paint. One of the first steps you might want to take when preparing a home for a tenant is to paint the home with durable paint. The brand of paint you select will impact the wear as well as the appearance of dirt in a home. Generally, you get what you pay for with paint. Unless you are doing the paint yourself, then the majority of the painting expense is labor so purchase quality paint. Unless you plan on painting after every tenant, then you’ll probably want to paint with a Satin, Eggshell, or even a semi-gloss paint.

Re-keying System. If you have to evict tenants or have turnover through a property, then you might want to consider setting up a re-keyable door system like Kwikset’s SmartKey system. The Kwikset system allows locks to be re-keyed instantly without replacing the locks. It is advisable to replace the locks after each tenant leaves for liability and security reasons and this system creates an easy and inexpensive way to get that done.

Strategic Flooring. The most heavily wear on a home is typically the flooring. Carpets get stained and laminates tear easily. You should be strategic in the your selection of flooring in a home. Tenants aren’t going to treat your property as well as you would like which is why you need to plan for heavy wear on your flooring. If you are going to select carpet for a home, purchase a durable carpet in a color that won’t show dirt much. It might be worth exploring modular floor coverings like FLOR or Interface. The benefit of modular flooring is the ability to replace small sections of flooring without changing a whole room. If you’re willing to make the investment, purchase wood flooring for the heavy traffic areas and put tile in the kitchen and bathrooms. Not only will you be improving the value of your property, you will reduce the amount of cleaning and expenses between tenants—a real win-win.

For more information or assistance with rental properties, contact Tim McCollum or call him @ 704-965-2535

Posted in Real Estate Investments | Tagged , , | Leave a comment

Real Estate Trends

Posted on November 12, 2010 by Tim McCollum

A lot of people have been turned off to in real estate over the last two-three years.  There is no doubt that the financial damage of the real estate meltdown and the rampant unemployment that is the result of it all are bad for society. However, there are four major of trends that are happening in the economy which are positive signs for investors in real estate.

Realty Check. The cold hard reality is that the prosperity of real estate attracted people to the industry that were un/under-qualified. Many people purchased homes then were qualified to be owners. There were attorney, mortgage companies, and real estate agents who came to real estate for the low hanging fruit in the economy. Most of those companies and people are gone. Over the last two years, 317 banks have closed or were purchased to avoid going out of business. Since 2006, the National Association of Realtors reports a decline in membership of approximately 245,000. According to historic data the surge in real estate agents has declined back to the level of the pre-boom era. If the number of real estate agents is any indication of a return to sanity in the market, then the days of recovery are near.

Reducing Debt. The first trend in society is the decline in the amount of consumer debt which Americans are holding. In 2008, the total consumer debt reached an all-time peak at over $12.5 trillion. The most recent numbers show that Americans have shaved about $922 billion off the total debt and have reduced the number of open credit cards by 24%. There’s no doubt that people were spending more money than they made. The return to rational fiscal responsibility is a positive sign for the economic future of the country.

Shadow Inventory. The real estate market currently suffers the effects of a phenomenon called “Shadow Inventory”. Shadow inventory are the homes that are not currently on the market but are expected to come on the market via foreclosure or short sale. Today, the biggest challenge to the real estate economy is foreclosures that have not been executed. The effects of today’s shadow are far different from the previous shadows seen before. In normal times, it can be expected to see a small inventory of bank owned homes on the market and to have some shadow market lurking to the side. One of the major problems is that the velocity of home sales has slowed to near record lows resulting in a much higher supply in relation to the actual sales. It is estimated at current velocity that there is close to 40 months of shadow inventory in the US. The inventory problem is a challenge to the market and an opportunity for investors.

International Investment. The rewards in the market are to the prudent buyers. Since so many people have been burned in the US, there has been a surge of international investment in the US real estate. Investors who focus on the fundamentals of the investment see the opportunity in the economy to realize cash flows with potential for increasing value. Even if values were to decline, the monthly cash flows make the investments appealing. Over the last year, stocks have been struggling to maintain growth and the cost of bonds has been rising driving the yields down.  As true investors get a stomach for real estate again, the returns available will attract American investors back in the market again.

For more information about investing in real estate, contact Tim McCollum or call him at 704-965-2535

Posted in Real Estate Investments | Tagged , , , | 38 Comments

Living in Charlotte North Carolina’s Historic Dilworth Neighborhood

Posted on November 6, 2010 by TJ

Just Southwest of Uptown Charlotte the Dilworth Neighborhood was developed by Edward Dilworth Latta in the 1890’s. Dilworth was Charlotte’s first street car suburb. The beautiful tree lined neighborhood has a true historic feel while it is nestled adjacent to the thriving uptown business district. The drop in real estate prices has and distressed sales combined with historic low mortgage interest rates have made Dilworth (a neighborhood that was once out of reach for many buyers) into an area with affordable homes for more and more buyers. In a tour with WCNC I have explored 3 purchase opportunities that you may find surprisingly affordable for one of Charlotte’s most prized neighborhoods.

Myrtle Square Condominiums – At approximately 700 square feet this Dilworth Condominium is surprisingly priced at $115,000. Located near the intersection of Morehead and Mytle Avenue this pre World War II development is one of Charlotte’s few Art Deco style complexes. If you are interested in Art Deco architecture you may also want to visit the condominiums at The Grove in Elizabeth.
Dilworth Heights Townhomes – Located near the East Blvd corridor Dilworth Heights is conveniently located with access to shopping, restaurants and local business. The Townhomes at Dilworth Heights were created by local developer The Boulevard Company and designed by architect David Furman. These townhomes offer affordability and function with 2 and 3 bedroom homes priced between from the low $200’s to low $300’s.

Kenilworth Single Family Home – Dilworth has many examples of varied architecture however it is known for its historic bungalows. In an effort to blend with the community many homes that have been renovated and added on have been improved in keeping with the bungalow style. If you are looking for a historic feel with all of the modern comforts a renovated bungalow may be right for you. Prices range from the $200’s to well over $1,000,000 for Dilworth Single family homes. The home shown in the video below is priced in the $400’s.

With so many choices Dilworth is a great consideration for those looking for a great neighborhood with tons of future appreciation.  For many the current economic climate might be the best opportunity to take advantage of all Dilworth has to offer.  When searching for real estate in charlotte we are hear to help.   Our Charlotte Real Estate Agents are highly trained and know the market. 

Written By:  T.J. Larsen   704-927-4431 -   tj@mytownhome.com

Charlotte NC Real Estate Dilworth Living TJ Larsen My Townhome

Posted in Dilworth Real Estate | 74 Comments

Credit Score Basics

Posted on November 6, 2010 by Tim McCollum

There is no denying that lenders have put the squeeze on buyers looking for loans. The days of no income, no assets, no credit…no problem are over. The largest and most influential factor a person’s ability to get a loan is their credit or FICO (Fair Isaac Corporation) score. For investors, your credit can be the difference between getting a loan and getting rejected. The following are four steps to improving your credit score.

Your FICO score is the grade assigned to you by the credit unions (Equifax, TransUnion, and Experian) to determine your credit risk. Your FICO score is comprised of:
35% Payment History
30% Amounts Owed
15% Length of Credit History
10% New Credit
10% Types of Credit Used

Opt-Out. One of the most surprising steps to improve your credit score is to opt out of receiving solicitations from credit card companies and insurance companies for business. This can be accomplished by visiting http://www.optoutprescreen.com. One mortgage broker reported that her credit score improved by nearly 40 points in the course of several months by taking this small step.

Keep Balances Low. Having credit cards or revolving lines of credit that are 75%-100% of their limit negatively impacts your credit and lowers your credit score. You can improve your credit by either paying down the credit line or increasing your credit limit. Warning to big spenders: if you increase your credit line, be prudent to not max out your limit and increase the amount of debt you carry. Calling your credit card company and asking for an increase in a credit limit can positively impact your credit score and improve your credit worthiness. While you’re at it, it might be worth asking your credit card companies to reduce your interest rate too.

Keep Credit Lines Open and Pay On Time. Frequently opening and closing credit lines can temporarily hurt your credit score, it is important to have lines of credit that have been open for a long period of time and have a good history of on-time payments. Credit lines show lenders that a person can and will be good for payments. If you have a credit line that has been inactive for a long time, the best thing to do may be to close the credit line depending on the number of lines open.

Check Your Credit. In these days of frequent and common identity theft, it is important to check your credit on a regular basis. Inquiring directly from the reporting agencies or an organization that provides a credit report to consumers does not negatively affect your credit score in the way that other inquiries may. A good service to utilize for checking and improving your credit score is http://www.myfico.com. You can visit the sites of the credit reporting agencies as well at http://www.equifax.com, http://www.transunion.com, or www.experian.com

Posted in Real Estate Investments | Tagged , , | 53 Comments