Daily News And Advice
DIY or Property Manager?
It’s not uncommon to find someone who owns not just one or two rental properties but several. Say, 10 or even 20. Or more. Why might you ask? Lending guidelines make it much easier to finance a subsequent rental unit after successfully owning and managing the first rental. Lenders want to make sure the buyer of an initial rental can afford the new monthly payments, be able to cover tenant vacancy periods and overall maintenance issues as they arise.
But more importantly perhaps, lenders won’t count the rental income from the first unit to help qualify. Instead, buyers must be able to afford not only their own primary residence costs but also afford the costs of the expenses arising from their first rental. Once that two year period passes, the rental income can in fact be used to help qualify. Instead of the second unit becoming an expense, on paper anyway, it’s income. This ease of qualifying entices real estate investors to acquire more and more real estate.
Owning rental properties brings up another issue, however. That of managing the rental unit. The first rental would be relatively easy compared to owning several properties. First time landlords must qualify the potential tenants. This means reviewing a rental application. Collecting income information to make sure they can comfortably make the rental payments each and every month. Credit and rental histories need to be reviewed. And what landlords don’t want to hear is a phone call on some Sunday afternoon while out on the golf course that the hot water heater is on the fritz and water is leaking into the garage.
A DIY owner would have to head back to the pro shop, get in the car and drive over to the unit. Then, head to the appliance store and buy a new hot water heater, order installation services and make sure the new hot water heater is installed, pronto. There may even be instances where the landlord agrees to put the tenants up in a hotel room until the hot water is turned back on.
This can add up to more than just a nuisance. Much of such maintenance issues can be addressed initially with a solid home inspection report. The inspector would be able to make note that the hot water heater is nearing its useful life. Upon receiving that information, a request to the sellers of the property could be made to either replace the unit or reduce the price of the home for the amount of installing a new hot water heater. If a home is in good shape and the inspection report comes back clean, then future maintenance issues might be allayed somewhat. You just never know.
If that sounds like a lot of work, think of what managing two or three units might look like. This is where an experienced property manager comes in. The property manager takes over all the management tasks from marketing the unit for rent to vetting the potential tenants to collecting the rent each month and fixing things when they need fixing. For real estate investors who own multiple units, you can bet there’s a property manager involved. Now the landlord can get back on the golf course and let the property manager handle that hot water heater.
How is a Home’s Fair Market Value Determined?
There’s a term in real estate that’s relevant to buyers and sellers alike, which is fair market value. Fair market value lets you know how much a home would theoretically sell for in an ideal world where logic was the determining factor. Basically, the fair market value would be what a seller would get if they were in no hurry and waited for the perfect offer.
We all know there are a number of variables that actually interfere with transactions, and both buyers and sellers negotiate until they can come to a price they agree on.
While negotiation is a big part of buying a home, understanding fair market value is also relevant.
There are a few things fair market value isn’t. It isn’t solely what either party thinks the value of the home is, nor is it just the appraised price. It’s also not the tax value. These factors can be part of the fair market value, though.
Calculating Fair Market Value
There isn’t a specific fair market value formula, and homes are assets that are subject to the ups and downs of the market. Primarily, supply and demand play a role in the value of a home.
Some of the elements that can be considered when calculating fair market value are:
• Current market trends
• A comparative market analysis of other properties that are similar and in the same area
• Having an appraiser assigning a value
• Calculating the fair market value based on a price per square foot
Any one of these things can be used in conjunction with one another to start to come to a fair market value.
Figuring out the fair market value is something real estate agents are experts at, which is one of the reasons people opt to hire them rather than trying to sell their homes independently. It’s important to have knowledge of the facts of the property itself but also what’s happening in the local real estate market and even what’s happening on a larger level in the economy.
How Is Fair Market Value Used?
Typically, once the fair market value is calculated, then that’s used to determine the home’s selling price, but with caveats. For example, if the home’s fair market value is $250,000 based on market trends, but it’s in a very popular neighborhood, the asking price might go up to $300,000.
There are other ways outside of real estate that fair market value might be used, and also other applications related to real estate.
For example, the property tax that you owe to your municipality is probably based on the fair market value of your home. Your FMV tends to go up the longer you’ve owned your home, so your property taxes go up as well.
The value of your home might also affect tax credits, your gift tax, and your estate tax.
If you were to gift your home or make it part of an inheritance, then the person you’re giving it to may have to pay taxes based on the fair market value.
If that person then sells the home and they get more for it than the value it was assessed at when they inherited it, they have to pay capital gains tax on the difference between what they sold it for and the fair market value.
Fair market value is a term used in insurance as well. If your property is damaged, the amount you receive to pay to repair it can be based on fair market value.
If your home is affected by a natural disaster and it’s evaluated below FMV, you might not get as much compensation.
There are a lot of ways fair market value can be used, but again, it’s not an exact formula. It’s often based on several key metrics simultaneously to figure out how much a home might be worth at any given time if it were to go on the market.
The Role of Scent in Selling a Home
When you’re trying to sell your home, there are a lot of psychological factors that matter, but you might overlook their importance. Scent is a big one.
If your home doesn’t smell good, and especially if it has some sort of detectable odor, you’re going to have a much harder time selling it.
There are short and long-term scents that may be affecting would-be buyers when they walk into your home. A short-term odor might be a lingering cooking smell. A long-term odor might come from carpets that have pet urine, for example.
The following are things to know about the role of scent when you’re trying to sell a house.
Why Scent Matters
There are quite a few reasons scent matters. We don’t even necessarily realize how much scent influences us psychologically every day. Even a slight bad odor can make buyers associate your home with being old or dirty. Scent is a powerful way to evoke emotions, both good and bad.
How Do You Know If Your Home Stinks?
It’s important to realize that you might not necessarily know your own home smells bad. You could be so used to whatever the smell is that you don’t notice it. It could be a transient smell or one that’s always underlying when people walk into your house.
Before you put your house on the market and also before you have any showings, try to have someone do a smell test.
If there’s no one to help you, walk outside for a few minutes and then come back in.
Find the Source
If you can, find the source of what might be making your home smell bad.
For example, it could be mold or wetness inside your walls or in your basement. In this case, you need to root out what the source is and fix it rather than trying to mask it.
You might need an expert to help you, but sometimes it’s a quick fix, like unclogging a drain.
General Odor Elimination
If your home doesn’t have any particular odor issue, but you want to make sure it smells good for potential buyers, there are a lot of things you can do.
Focus most of your attention on your kitchen and areas where your pets spend time.
Using vinegar as a cleaning product helps neutralize odors, and you can also leave a bowl of it out on the counter to absorb bad smells.
If you have pets, you may need to do a deep clean of any areas they spend a lot of time, and you should vacuum up any pet hair and dander daily when your house is on the market. Empty litter boxes often, and bathe and groom your pets regularly.
What About Cigarette Smoke?
If anyone has smoked in your house, it can reduce your resale value by as much as 30%. Smoke absorbs into your walls and other fibers, so the odor can stick around even if no one has smoked in the house in years.
The best thing you can do is take everything out of your home and do a deep clean, in addition to having your HVAC system thoroughly cleaned. You will probably also need to operate a HEPA filter with a charcoal pre-filter.
Replace any carpets if there was ever a smoker in your home, and use a primer like Kilz on the walls that neutralizes odors.
Create a Positive Impression
Once your home is clean and you have a neutral odor backdrop, there are certain smells you can introduce that will make possible buyers view it more favorably.
The classic is freshly baked cookies, but instead of that, you might go for something simpler, like just a bit of citrus. That keeps the focus on the home itself, but it’s also pleasant.
Don’t use essential oils, candles, air fresheners, or anything like that because some people are very sensitive to these smells and it may put them off.
Just try to keep things smelling clean and fresh without overdoing it if you want to appeal to the broadest base of possible buyers and make a good impression.
Saving for a Down Payment When You Live Paycheck-to-Paycheck
A down payment is an important component of taking a step toward homeownership. Saving for a down payment is also the biggest obstacle that you probably face when you want to buy a home.
A down payment is the cash you pay upfront when you’re going to make a large purchase. If you were going to buy a $350,000 home with a 10% down payment, you’d need to have $35,000 in cash.
Then, your mortgage lender provides the rest of the money to buy the home, and you pay your lender back over time. There are a few exceptions to lenders requiring a down payment, such as VA loans, but generally, it is required.
It’s recommended that you put at least 20% down if you’re going to buy a house, but that can be a lot of money.
How do you save if you’re living paycheck-to-paycheck? It is possible, but you also might have to make some changes.
Take the First Step
Even though you might feel overwhelmed about the prospect of saving money when you’re barely making ends meet, just take one first step toward your goal. That step may be small or almost symbolic, but it’s the best way to get started.
One good first step is to open a savings account where you’ll deposit money that’s specifically meant to go toward your down payment.
You might want a savings account that pays a bit of interest as well.
Create a Budget
You may be in a cycle of living paycheck-to-paycheck that you don’t necessarily have to be in.
If you can drill down into what’s going out versus what’s coming in, you might find that there are some ways you can save money even on your current income.
Really taking an honest look at your income versus your spending can be challenging and overwhelming because you may not realize how much you’re spending on things that you don’t need to be. Doing it is rewarding and valuable, though.
When you create a budget, include in it money that you’re going to set aside every week or month that will go toward your down payment.
Even small contributions do add up over time if you’re consistent and patient.
If you’re not sure where to start with your budget, a lot of financial professionals recommend following what’s called the 50/30/20 rule. This means that 50% of your income goes toward your essentials, such as your rent. Thirty percent goes toward lifestyle-related expenses, like eating at restaurants. The other 20% should either go toward savings or paying off debt.
Cut Out Subscriptions
One of the best things you can do for your finances is to regularly evaluate what subscription fees you’re paying and cut them out. It sounds simple, but the reality is if you’re like the average American, you might be spending $237 a month on subscriptions. That’s a lot of money that could go elsewhere.
Go Over Every Bill Carefully
When you’re working with a relatively small amount of income compared to your expenses, you should go over every single bill and transaction carefully.
There are a few reasons for this.
First, you want to make sure there aren’t mistakes you’re paying for. You might also find ways to pay less. For example, you could ask for a lower rate on your credit cards if you have a history of on-time payments, or you might be able to talk to your car insurance company about good driver discounts.
There are a lot of opportunities to save money on your bills, if you know where to look at you’re willing to ask.
Finally, once your budget is in order, it’s a good idea to add extra income to your life. There are so many ways to do this. When you’re not working your full-time job, maybe you deliver groceries or work for a rideshare service.
It doesn’t matter what it is, but when you add another stream of income, it puts you that much closer to your down payment.
Everything you earn from your secondary income source should go directly into your down payment savings account, so you aren’t tempted to use it on anything else.
|Mortgage Rates |
Averages as of June 2021:
30 yr. fixed: 2.95%
15 yr. fixed: 2.27%
5/1 yr. adj: 2.59%