Many of us, who are involved, on a daily basis, with the many nuances of real estate, get so involved with buying, selling, marketing, and promoting homes, and making/ giving listing presentation, we often ignore, the many economic factors and other conditions, which impact the real estate market. Some of these factors are local, in nature, while others may be national or international/ global. Some are actual, while others are perceived (for example, belief in their job security, negative possibilities because of some action taken by government, etc). With that in mind, this article will attempt to briefly consider, examine, review, and discuss, how the overall economy impacts the real estate/ housing markets.
1. Mortgage/ interest rates: When the Federal Reserve announces they are raising, planning to, or considering raising rates, in most instances, mortgage rates follow. About 2 years ago, we witnessed historically low mortgage rates, and today, while, from an historic perspective, they are still relatively low, they are about one percent higher, than they were, at the low. When mortgage rates are low, many buyers qualify for a higher price, and thus, we often witness a rice in home prices. As they rise, generally, prices, and, especially, the rate of increase, slows.
2. Taxes: When local real estate taxes are comparatively low, the effect on monthly carrying charges, is a positive, for the housing market. When they rise, they cause homeowners, to have to pay more monthly. Some houses, neighborhoods, regions, counties, etc, have lower taxes than others, so when one region abruptly raises rates, that local market is hurt, and certain surrounding areas benefit. In addition, in higher tax areas, such as New York, New Jersey, Connecticut. Massachusetts, Illinois, California, last year’s tax legislation, may have potential longer – term ramifications, on the housing market. That inclusion, known as State and Local Taxes, or SALT, limited/ capped the federal tax deduction, permitted, for state and local taxes, to a total of $10,000. Since many houses in these regions, have much higher taxes, and, several of these areas, also have state and/ or regional taxes, these caps, have the potential, to harm the real estate market, especially, if, they increase, any more.
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3. Jobs: Do people perceive, they have job security? Is the job market, strong, or relatively weak? Are incomes increasing? The more confident, and comfortable, qualified potential buyers, are, the stronger the market.
4. Overall economy, and world news: For example, if the present, partial government shutdown, continues, for a substantial period, many workers, industries, and small businesses, especially, will be negatively impacted! There seems to be lots of fears, doubts, and insecurities, about safety, etc. The more confident, the public is, the better off, usually, is the real estate market.
Everyone has heard about that lifestyle that seems to be fairytale-like. People were born in a certain town, they got married, purchased a house close to their parents, or even move in the house where they grew up in after their parents passed away. There was no rush, especially since people would already know where they would spend and work for the rest of their lives. Without Internet and without a well-developed real estate market, people didn’t feel the need to sell or advertise their houses the way they do it today.
Nowadays, things have changed, and few people remain satisfied with this kind of life. Everything is changing so fast that it’s hard to keep up. Many people lose their jobs or have to relocate because of their work. Kids and parents no longer live together, let alone in the same neighborhood. Many couples know that, due to a military transfer or a change in one’s job, they can be forced sell their property fast and move away.
A recommended manner to ease the way in which these things can be done is by preparing for this in advance. You should learn the best way to encounter a buyer when the urge to sell your property holds no delay. You have to be familiarized with your choices and the ways in which you can get a good price and an efficient selling. There are lots of sites that display information of this type, and which can be of assistance in preparing you for what might come next.
It would be a great thing to have the time to investigate and check all the offers for your house, but this is not always doable. Most of the time there are only a few buyers, especially if the economy is rough. If you move due to the relocation of the factory, you can expect more families to go through the same experience. This means more offers and less buyers. Those who will manage to move fast will be the ones that have done their research and have alternatives for multiple situations. They will be in control and they won’t have to fear the unknown or the unexpected.
Brokers seem like a good choice especially since it is their job to sell or buy houses, but believe it or not, they don’t have that many resources all the time. It is always more comfortable to them to work with people who’ve they met before. This can easily be done when you are doing research. Ask questions and listen carefully to the answers. Explore the benefits or the downsides to all the options that you come across. This will help you move very fast when you have to sell a property because you will have done already most of the work, and the sale will finish in a fast and rapid manner. You will end your selling easy, fast and without any troubles. Everyone will want to do business with you!
I previously shared the steps for creating a professional plan for a real estate project; the importance of obtaining third-party validation; advice in how to find the right financing sources; and suggestions on presenting the project professionally, then closing the deal. This approach will enable you to obtain financing term sheets, letters of intent and/or financing commitment letters from lenders if your project is financially feasible and falls within the lending parameters of the financing institutions that you approach. Nevertheless, financing always requires a cash contribution, as 100% financing is not realistic in today’s market.
Lender requirements for cash equity contributions, deposits or down payments, typically fall between 15% and 40% of the total project cost (85% to 60% Loan-To-Value ratio). A portion or all of the equity value in the property can sometimes help reduce the cash deposit requirement, but it is very unlikely for a conventional lender to completely eliminate the cash contribution requirement because lenders want to ensure that the principal(s) are vested in the project, or have “skin in the game”. The cash deposit is necessary to close the loan and obtain financing.
So, where does the cash deposit come from? There are several potential sources:
Your partner’s pocket (if you have one)
Equity from another property you may own (if any)
There are many advantages to infusing the cash equity requirement yourself, including the fact that you retain all profit and full control of the project at all times. This can often be the most advantageous funding structure because it maximizes your profit and control. However, there are also advantages to securing equity participation from investors, including:
· Less cash out of pocket enables you to be more liquid, retain more cash reserves and/or diversify your investments to earn profits from other projects or endeavors simultaneously
· Reduces your risk and exposure in the project
· Enhances your financing capabilities
There are 3 basic steps for securing equity capital for your real estate project:
Prepare an investment proposition
Source like-minded investors and private investment organizations
Investment negotiations and agreement
1) Investment Proposition
There are many ways to formulate an investment proposition. I’ve seen an investment proposal written on the back of a napkin… and the deal was funded! (This was a developer seeking an investment from his grandmother). I’ve seen verbal agreements get funded by family members. I’ve also seen very intricate, elaborate and lengthy investment proposals not get funded. How you document your investment proposal is extremely important. The first two examples were appropriately prepared for their intended audiences; the third was not. If your project is financially feasible and can demonstrate reasonable gain for investors, securing investment capital becomes a function of proper documentation, sourcing, presentation and negotiation.
Regardless of whether an investment proposal is intended for a family member or a sophisticated investment organization, proper documentation always enhances your ability to secure funding. Your proposal should be professional, clear and concise. Following are some basic suggestions for documenting your investment proposal:
1. Provide a brief executive summary describing the project and the investment proposition. Within the executive summary, outline the investment amount required, return on investment, time-frame of the investment, and discuss the security, collateral and/or equity value that can help protect the investor.
2. Provide a financial summary of the uses of funds, sources of funds, operating projections and cash flow of the project.
3. Discuss the funding structure and capitalization plan.
4. Attach term sheets, letters of intent, financing proposals, and/or commitment letters from prospective lenders.
5. Attach the project plan.
Source Like-Minded Investors and Investment Organizations
Where do you find investors that would be interested in participating in your project? If your project is financially feasible and you’ve prepared a professional plan and a concise investment proposition, then you’re only steps away from finding your equity investor(s). It takes time and determination, but it can be a worthwhile effort that can last beyond a single project. Here are some suggestions for obtaining sources:
Contact local and regional mortgage brokers, real estate brokers, title companies, real estate attorneys, and other real estate professionals. Offer a finder’s fee.
Place ads online and in local and regional newspapers.
Prepare a project web page where prospective investors can find the project and review/download pertinent documents, including your investment proposition.
Hire a consultant or financing broker that specializes in securing equity participation.
Review your own contacts and business cards – You’d be surprised at how fruitful this effort may be.
Attend networking events and or conferences for private investors in your area and/or region, then collect business cards and make follow up calls and meetings.
Dedicate time to making calls, setting up appointments and engaging in meetings to present your project to prospective investors. Become an expert at presenting your project. Prepare a multimedia presentation to help them focus on the points you want to stress. Don’t stop until you get it done. If your project is feasible and profitable, it can get funded with proper determination and effort.
Investment Negotiations and Agreement
How much should you offer an investor? Depending on the nature of a project, perceived risk, profitability, location, your experience, competition, demand, supply and numerous other factors, I’ve seen investors require from 5% to 95% of the project and/or profit. Most investors want to see that you have “skin in the game”, generally 10% to 50% of the amount you ask them to invest in the project. Demonstrating that you have invested in the project or that you will invest into the project is adds value to the deal. You should document this clearly and provide evidence of the time and money you have invested in your project.
Other items that are open to negotiation include the percentage of control in the project, roles of the parties, reporting procedures for the investors, etc. You should provide benefit and value to the investors, but at the same time you don’t want to lose all control or receive minimal gain for your efforts. Finding the right balance is extremely importance. This is accomplished through open dialogue and effective communication between the parties.
There is no global formula for this, so it’s impossible for me to provide accurate advice on what to propose investors for your specific project. I would strongly recommend getting advice from a savvy attorney who can assist in preparing the investment agreement and structuring the investment terms. Meet with your attorney first so that you have an original structure for the deal; then use your attorney when negotiating any modifications with prospective investors.
When it’s time to make a big change, life may offer a subtle sign, like a spouse’s note on your pillow that reads, “I never want to see you again”. But how do you know when to nail that “For Sale” sign in the front yard of your real estate?
As life-changing decisions go, selling your home is right up there. Whether it’s to take a promotion, care for aging parents or something more personal, only you can say if it’s the right move for you. But if the choice to sell real estate has been made and the only thing left to decide is the timing, a few pointed questions should tell you if that time is now.
Can We Afford it?
It sounds like an obvious question. Yet given that household total credit-market debt – mortgages, consumer credit and non-mortgage loans – rose to 162.6 per cent of disposable income last year (how is that even possible?), it’s not. Maybe you got in over your head with your first home, but now that you’re slightly older and much wiser, take a close look at your finances before making a move with real estate:
• Is all of your non-mortgage debt paid off?
• Do you have an emergency fund with 3-6 months of expenses put aside?
• Has your home recovered enough value to give you at least 20% equity for your purchase? This will enable you to make a 20% down payment on your next home, saving you thousands of dollars in mortgage insurance costs. If you don’t know the answer, ask an experienced realtor for a free comparative market analysis that will indicate the approximate market value of your real estate.
If you answered “yes” to all three, you may be ready to take the plunge in selling real estate. If you’re not sure what an emergency fund is, you still have work to do.
Are We Still Emotionally Attached to our Current Home?
Do you tear up when you see the notches in the wall where you measured your child’s growth, or do you just think “they must have an app for that now”?
On the other hand, you may have recently experienced a divorce or other loss that necessitates a fresh start.
Usually the reality is somewhere between those two extremes. Whereas the question about finance was directed at the head, this one is clearly for the heart. If you’re quiet for a moment, it will tell you what to do. You just have to listen.
Remember, an expert realtor can offer a wealth of advice on the sale of your real estate. If you’re not ready to take it, however, you’re not ready to sell.
Does our Home Still Fit our Lifestyle?
In most cases, moving out of real estate is more than just moving over. It’s moving up or down. If you have a new addition or one on the way, it might be time for another bedroom or two to keep the “happy” in “one big happy family”. Conversely, when the kids (finally) leave the nest, downsizing can mean less upkeep and more time to enjoy the peace and quiet. After all, you’ve earned it.
With so much at stake and so many factors to weigh, the decision to sell your real estate is rarely a simple one. Nevertheless, taking stock of your finances, emotions and lifestyle can go a long way to giving you clarity. And if you should get that nasty note on your pillow, look on the bright side. Your moving decision just got a whole lot easier.
Moving in winter poses special challenges, whether you’re moving between two high rise condos in the same city or crossing the country. Although the weather is far less conducive to the hard work of moving, it can be cheaper to hire a moving company at this time of year. Whether you’re using a professional outfit or relying on the kindness of friends, following are a few pointers for making the first day in your new home as smooth as possible.
Be sure the new house is ready for the move before you head over with all your belongings. Check that lights and plumbing are working and if the weather’s nippy, consider having the heat on for a few days so it’s warm for the move-in.
Clear the Snow
Slipping on snow and ice can turn a simple move into a disaster. Before you even start, make sure all walkways at both old and new homes are clear; ice or sand if necessary. Keep shovels, salt and sand on-hand.
Whether you’re using a moving company or getting help from a gang of friends, be sure there’s adequate parking for the moving truck at both locations. Parking at urban condos can be particularly, and this could mean a bit of negotiating with new neighbors or the landlord if space is tight.
Protect Your Floors
Winter’s snow, ice and salt are notorious for dirtying up or even scratching some kinds of flooring. Protect floors and carpets with big pieces of cardboard or plastic sheeting for the big day. You can use duct tape if the floors can withstand it, and small tacks work well on carpeted areas.
Have a Plan B
With the constant threat of winter storms, there’s always a chance that your move will have to be rescheduled. If you’re using a moving company, call and see what their storm policy is, as some may want to reschedule the move, meaning you can’t move out and new tenants or owners can’t move in. Check with your landlord or real estate agent to see if it would be alright to stay a few more days. If you can’t, you may have to arrange a few days of temporary housing.
Keep an Eye on Mother Nature
If you’re moving a distance, keep an eye on the weather along your travel route, checking with local authorities by phone or on-line if the forecast is ominous. Scout out overnight accommodations in case you need to make an unexpected stop.
Prep Your Car
Be sure your car is serviced and winterized, with brakes and tires checked and fluids topped. If you have chains, be sure you know how to use them, doing a trial run on installation in the garage before you go. Carry salt or kitty litter in case you get stuck, pop a snow shovel and blanket in the car and be sure you have a gas can and roadside assistance membership.
Keep a List
Your winter move emergency contact list should include roadside assistance, highway control and a number for road conditions. Be sure someone who’s not on the moving trip knows the route your taking and schedule a call-in with them to be sure all is fine.
Not only do you want to stay warm and dry during the move, you’ll want to be sure your helpers are comfortable. Bring along a bag of gloves, hats, sweaters and socks in case of changing weather or wet clothing.
Feed the Gang
Keep your moving pals warm and well fed by keeping hot drinks and easy cold weather eats like chili and instant soup mixes on hand along with morning donuts and lunchtime sandwiches. Try to have a warm space in the house for enjoying a tea break, and be sure to have mugs and spoons along with paper cups and plates.
Cast your minds back to the start of 2014. There we were, twiddling our thumbs, wondering if the real estate market would ever recover from the GFC and return to those golden years of growth in the early 2000s. None of us could have anticipated the growth we experienced in our capital cities in 2014. But where does this leave us for the rest of 2015 and into 2016?
Let’s begin with Sydney. After a stellar year in 2014 that saw the real estate market rise by 13.9%, Sydney is expected to rise again by another 8% this year.
It’s forecasted that Hobart and Canberra are set for more growth over the next year, with Hobart expected to rise from 2.1% to 4%, and Canberra to scale from 0.9% to 2%.
After seeing great rises in 2014, Melbourne and Brisbane are expected to plateau over the next year at 4% and 6% respectively.
The real surprise
The surprise package that has everyone excited is the upsurge of Darwin. After experiencing a loss in growth in 2014, Darwin went from -2.5% to being expected to grow by as much as 2%. After a really good decade of growth, Darwin has dropped off the top of the list in the past 2 years, and against what some experts had predicted, has re-established itself as one of Australia’s best places to invest in housing.
Real estate market auction clearance rates
Last month, we witnessed an ‘auction frenzy’, as one weekend saw an unbelievable 79% of auctioned properties sold nationally. That is the second highest level in data going back almost seven years. Buyers are seeing no end to these price rises, with the median price for a Sydney house now in excess of $900,000, with Melbourne approaching a median house price of $700,000.
What does all this mean for you?
2014 capped off a year that saw capital city homeowners add an average of 7.9% in value to their properties, and experts are again forecasting more growth.
Prices in our capital cities have more or less doubled in the last 10-12 years, and in particular parts of those metropolitan areas it has gone through the roof. What we all need to figure out for ourselves is not ‘when should I buy or sell’, but rather ‘where’.
Some say that, if you’ve considered selling, there’s never been a better time. And with the national real estate market set for more growth in the up-coming years, cities such as Hobart, Canberra and Darwin have emerged with great opportunities for buyers and sellers alike.
Some of the important features of communications in the Real Estate industry are enumerated below:
Communication of Trust: Buying or renting a property is one of the more significant decisions in our life. And therefore, it also becomes a crucial one. No one makes a decision on this aspect without being able to trust the other party or the offerings available. Therefore in the real estate space, sellers & agents ought to be able to communicate trust to their consumers. Inability to communicate trust or breach of trust in the middle of a transaction can lead to serious implications for both the buyer and the seller.
Communication of Availability: All consumers would like to have an assurance that the seller is available post-sale for any contingency. Often, in case of real estate agents, they are working on multiple leads and might find it difficult to tend to each one of them at the same time. Going incommunicado only heightens consumer anxiety while the agent might be genuinely tied up. Communication technology now allows for remote handling of calls, or auto call forward options which can keep your consumer at peace.
Communication of Transparency: A real estate agent is often misconstrued to be only interested in his own commission even at the cost of endangering a consumer’s interest. However, often it is overlooked that the agent himself might be in the dark on certain issues. Documents and land records are easily fabricated in the physical realm, with the agent completely being unware. Therefore, the emergence of digital records and ownership records means that all the stakeholders involved can swear by improved transparency.
Communication of Consumer Interest: The consumers today are far more knowledgeable, informed and keen-eyed than those from yesteryears. There is a greater availability of information and improved means to cross-verify everything spelt out by agents and sellers. Thus, it is increasingly important for real estate players to embrace the virtue of consumer interest. If an agent or agency fails to communicate the fact that they remain squarely committed to the interest of the consumer, they are unlikely to build any form of viable consumer connect.
In the real estate space relationships count for much – both the real-world and virtual. The relationship forms the basis for trust consumers place in agents. And the fundamental building block of these relationships is to be able to communicate with the consumers. Communications is not limited to spelling out the property details. It is about impressing upon the consumer that the real estate business is trustworthy, available, and transparent and has consumer interests on top of their mind at all times.
Apartment is defined as, a set of rooms which have all the facilities like a house. The major types of apartment are studio apartment, bedroom apartment, duplex, lofts, garden apartment. If I was asked where I would I prefer to live in a traditional house or in a modern apartment building, I think, I would hesitate to answer. This question, from my point of view, is a controversial one. In the following paragraphs I will analyze both these options and present my view.
It’s everyone’s dream to have a comfortable place to live. As the majority of people say, I want to get an attractive house someday, but unluckily it is not so easy to get because it is very costly. But there are several differences between owning a house and renting an apartment. The first difference is the noise. If you are renting an apartment and you are a noisy person, it is very painful for the rest of the people who live with you. For example if you are always playing melodic instruments, listening to loud music and cleaning the house with noisy machines you are really troubling the other people and I’m sure that you wouldn’t want to be in their place. But also, in a lot of cases the noise depends on if the owner permits it or not. In contrast, owning a house is more comfortable if you are a noisy person because you are the owner and responsible for all the things of your house and you don’t have to care of disturbing someone. For example, if you are the owner of the house you are free to even have a noisy party or whatever you want because it is your house. The second and most important difference for me is about the policy. When you live in an apartment, you have to comply with the owner’s policy. For example, you have to ask for him or her if you are free to have visitors, pets, parties, etc. On the other hand, when you rent an apartment, you are not as free as you are when you are the owner of a house to do whatever you want. In contrast, owning a house permits you to be free without caring that someone is dissatisfied with your ideas and decisions about your house. In this case you can paint your house, buy a big tape recorder or do all the things that you want. In conclusion, I prefer owning a house that is better than renting an apartment because I can be free to do whatever I want, without policy and it gives me more sovereignty and relieve.
From the one side, living in a modern apartment building brings many paybacks. First of all, it is cheaper than living in a traditional house and paying different kinds of fees I am not familiar with. For instance, my buddy, who recently bought a new house for his family, told me that it is much easier to live in an apartment and I tend to believe him when I see his bills. So, living in an apartment will definitely help me to save some money. Second of all, since I live alone, I do not need a big house with many rooms. I just need a bedroom and a living room where I can take my guests and have my work place. Another important benefit of living in an apartment is that I will not have to buy much weighty furniture in order to furnish all rooms.
When people usually think of real estate value they think of two forces; supply and demand. Yes, this is correct; however supply and demand only fall under the one of the four main categories that drive/depress real estate value. Supply and demand fall under the economic category of influences in real estate value. The other three include; social impact, government subjection and environmental forces.
When looking at social impact, there are a few things one would want to consider determining the effect it will have on real estate value. Most of all the value would fluctuate accordingly with population characteristics. This tie into the potential for demand in the economic section of value; the more demand, the more value a property can derive. Population however should be looked at in more depth by breaking down the sample by age and gender, rate of household formation and partition, as well as analysis of the social values such as education, law and order, and lifestyle preferences. Careful consideration of these factors will help establish trends in what would be reflected in real estate values.
Next is the government subjection, accounting for a large aspect of real estate value. This includes political and legal activities on several levels of government. These government influences have the power to overwhelm natural market forces such that you would find in the economic category. Government has their hand in providing facilities and services that affect values as well as a one of the main contributors to patterns of land use (zoning, by-laws, etc). The following are some things to look out for when assessing the government subjection of a market; fire and police services, garbage collection, transportation arrangement, utilities, zoning, building codes, health codes, and fiscal policies. Also the legislation that is set forth by the governmental factor must be accounted for, this would include; rent control laws, rights to farm, rights for managing forest, rights to agricultural land, restriction on ownership, new development laws, control of hazardous and toxic materials, and laws affecting investment power, loan terms, and mortgage lending institutions. All in all this is quite the category and its understanding will provide for a great idea of where values are currently and where they are headed.
In addition to the social impact, as well as government subjection, the environmental forces also play a part in real estate values. These can be natural or man-made and are analyzed by observing several aspects. Climatic conditions (snowfall, rainfall, temperature, humidity) would be an obvious one that would affect the values of building somewhere as well as maintenance and carrying costs, as well as the quality and type of build. Topography, soil and consideration of any toxic contaminants would also be of great importance as well as natural barriers, such as rivers, mountains, lakes, etc.
Just to get out of the 4 factors of real estate value; it is important to mention that there are some overlying factors that would be part of 2 or more of the categories. Once such factor is location, this is the link of a property in time/distance to any given origin or destination of a resident/user of the property. Location could fall under for environmental and economic, if not all categories. Due to the area and property type, properties access to public transport, schools, hospitals, stores, employment, suppliers, recreational and cultural facilities, parks, and places of worship would of importance.
This would also lead us back to the economic factor of influence on real estate value. The fundamental aspects to look for here include: employment, price levels, wage levels, industrial and commercial expansion, mortgage credit availability and cost, stock of vacant property, stock of improved property, occupancy rates, construction costs and rental/price trajectories of existing properties.
And there you have it, the 4 major pillars of real estate value; social, governmental, environmental, and economic. Taking a deep look at each of these sections one would assemble the entire spectrum of current real estate values and more importantly future real estate values.
There are no yardsticks to measure the value of a freehold property. This is because evaluating a freehold is not an accurate science. However, you can follow certain guidelines on what you need to take into consideration when valuing a freehold, which is produced by the advisory services that give free advice to leaseholders. You must also take these three factors into consideration:
1. The current value of the property
2. The annual ground rent
3. The number of years currently left on the lease
Also, evaluate the expected percentage increase in property value that results from extending the leases of different lengths, along with forecasted long term interest rates and inflation rates.
Take help from an expert valuer rather than trying to work out a figure all by yourself, to present before the freeholder. An expert valuer will be able to give you the best advice, which will enable you to make a practical offer.
You will find expert valuers online. They will help you with the entire process of negotiation and buying the freehold.
For the benefit of the freehold, most surveyors add a little extra to a property’s value. This is done after comparing it with similar property with the same number of years on the lease but no freehold.
First, approach your freeholder informally, before you serve him with a first notice. This document should include your preliminary offer for the freehold, which starts off the legal process of buying it.
A word of caution. Never produce an initial notice without obtaining an expert valuation. If you make the wrong evaluation in the initial notice you won’t be able to take back the offer. After the initial notice, wait for the freeholder to reply to it with a counter notice by a date that you have given. The freeholder must be sanctioned at least two months from the date the initial notice is served.
If the freeholder is not sending his counter notice within this period, the leaseholders can take matters into their hands. They can apply for a vesting order at a court. It is now up to the court to move the freehold to the leaseholders. So freeholder’s should respond on time to the initial notice for their own benefit.