Category: Buying & Selling Homes


House-Choosing Checklist

Ready to buy a home? There’s a lot to consider before selecting the right one. This home-buying checklist will help you decide.

Photo: Flickr

Buying a new home can be exciting, and it’s tempting to grab the first house you fall in love with. But exercising a little patience will go a long way toward turning your purchase into a haven instead of a headache. 

Renovation Potential
Don’t overestimate your abilities. Determine if the house you like needs work. Then assess whether you’re really capable of doing it, advises Jeff Beneke, veteran home renovator and author of The Fence Bible. Also consider whether the home has an extra room if you’re planning to redo several parts of it. “That way you can close off one room at a time, do what you have to do in that, move somebody into there, then close off another room,” he says.

Don’t overestimate the potential. Figure out whether the renovations are worth the time and expense. “Make sure that if you can’t do the work, you get estimates before you buy the house so you know what you’re getting into,” Beneke says. If the cost of the house plus the renovations will put the home’s value significantly above others in the neighborhood, it’s probably not the best investment — or you may need to scale back the renovations.

Think twice if the kitchen needs renovating. Unlike most other rooms in a house, you won’t have a spare kitchen to use while yours is under construction, says Beneke, who notes that remodeling can put a huge strain on marriages. If the kitchen only needs new countertops, that’s fine. But if you’re planning to move in and tackle a major kitchen renovation while living there, you might want to reconsider. Is your family really going to be okay with closing it off and eating takeout for a couple of months? Can you renovate in stages so the kitchen isn’t entirely out of commission?

Delve beyond the obvious. “Buyers tend to be romanced by pretty and clean, but you’re not buying pretty and clean,” says Alison Rogers, a real estate agent at DG Neary Realty in New York City and the author of Diary of a Real Estate Rookie. If you’ll need more phone and cable jacks or updated wiring for your home office, know that they can add hundreds of dollars to your move-in costs. “If you buy a house that’s very pretty but has entirely old windows,” Rogers says, “you may have to replace 30 windows at $200 a window or more.”

Those little things add up. So, don’t only imagine your sofa in front of the fireplace but also walk the house with an eye toward how you’ll use it. Is there a wall big enough for your large-screen, wall-mounted TV? If the previous owner used the fireplace decoratively, it could be because it needs a new flue or has other problems. If the bathroom or bedroom doors don’t have locks, you may need to budget another $100 or more to satisfy a privacy-oriented teenager (or parents).

Pretend you’re living there. Try out everything in the house: flush the toilets, turn on the lights, climb the attic stairs, check water flow in sinks and showers, imagine the steps you’d take (and counter space you’d use) when cooking a meal, and try to fit your cars in the garage. These little things that buyers tend to skip are the ones that will irk you on a daily basis.

Hire an inspector. “A lot of buyers sort of blow it off,” Beneke says. “It’s just one of those expenses they have to have to satisfy their lender. But in reality, a good inspection can uncover reasons you absolutely should not buy that house,” such as structural problems with the foundation. “Secondarily, a good inspection can tell you what the major problems are behind the walls. Most home buyers look at what they can see. An inspector’s job is to look at what they can’t see — condition of the roof, if there’s insulation, etc.”  Clarify that your contract to buy the house is contingent on a satisfactory inspection, then view the inspector’s report as an opportunity to go back and renegotiate the price.

Look up. “People tend to look at floors and walls, but it doesn’t occur to buyers very often to look up at the ceiling,” Rogers says. The ceiling can tell you whether the home has had water damage, which isn’t necessarily a deal killer but is another thing for the inspector to check.

Ask the current owners for a year’s worth of utility bills. “That’s the easiest way to check the energy use of the house — how much it costs to heat in the winter and cool in the summer,” Rogers says. “There’s a price for each buyer at which a less energy-efficient house may be worth it, especially if you can do things to make it more energy-efficient.”

Think long-term. “Americans move, on average, every six years but look to stay in the house for 15,” Rogers recommends. “The kids are little now, so you may need a playroom. But where will you put them as they grow up so you won’t hear their stereos? If you’re older, think about stairs and the ways the house can be adapted if you get a little less mobile.”

Size and Storage
Is the house big enough for the unexpected? If you’re a couple with one child, you may think all you need is a two-bedroom house. But you may decide to have another child or discover you need one of those bedrooms for a home office. Buy with the anticipation of growth.

Will your furniture fit? “If the house looks really immaculate, make sure all the furniture is there,” Rogers says. The owners may have put a desk or entertainment center in storage, leaving you to discover when you move in that the home doesn’t have as much room as you thought.

Measure your largest pieces of furniture, including height, for items like entertainment armoires, then bring along a tape measure while house hunting so you can verify that everything will fit. If you love the house but the armoire is too tall, weigh forgoing the home against the possibility of finding a new arrangement for your TV and stereo.

Don’t forget your non-furniture needs. “Running out of storage room is one of the principal reasons people buy new houses,” Beneke says. “They wind up needing more closet space, more garage space.” Yet when buyers are house hunting, they tend to forget all the belongings they’ve crammed in their attics, basements, garages, and sheds. Ask yourself: Where will my golf clubs go? Where will I store the suitcases?

“Take a tape measure and estimate the linear feet of closets you have, and think about how much storage space you need,” Rogers suggests. “Then, see how that maps out with how much the new house offers.”

Remember to look for out-in-the-open storage, too. For instance, if your current house has built-in shelving for your books, DVDs, and CDs and the new house doesn’t, will there be room for the shelving you’ll need to buy or build? If you display lots of collectibles or extra vases on shelves between your window and ceiling, will the new home’s ceiling height allow for that?

Count kitchen cabinets. Today builders are putting pantries back in houses because homeowners have found they really need them. Does the new kitchen match your old one in pantry space and a cabinet-by-cabinet count? If you had a pot rack in your old house, you’ll need to determine if one will work in the new house or if there’s enough space for your pots and pans, china and glasses, and the platter you use on Thanksgiving.

Does the laundry room work for you? Do you mind heading downstairs to the basement for every load? Will a laundry room near the home office create a noise problem? Will you have a place to fold and iron?

Don’t forget the garage. “My house was built in 1956,” Beneke says. “Cars were smaller then. You can’t get today’s Texas-size SUVs into my garage.” Ensure that whatever you want to store in the garage will fit.

Bells and Whistles
Don’t get enticed by granite. High-end countertops in kitchens and baths can make a great impression. “Don’t let them draw your eye at the expense of everything else,” Rogers warns. Attractive features like granite make it easy to overlook less appealing qualities. Be discerning: Is the rest of the room just as attractive? Are the cabinets in good shape? The appliances?

Think about how you use the space. After Rogers’s mother-in-law moved, she found she missed the second refrigerator that she had in her old house because it was so handy for entertaining. For families, the kitchen tends to be a gathering place. Does the one you’re considering offer enough room for more than one person to cook, or for the kids to do homework while you make dinner? Does it overlook the backyard so you can keep an eye on them while they’re playing?

Beware of bathrooms. Don’t let a luxurious toilette steal your heart. “A double sink in the master is very useful, especially if you have two working people getting ready at the same time,” Rogers says. “But I really don’t think anybody needs a rain forest showerhead or the over-the-top Jacuzzi. I’m not sure those are the things you actually end up using.”

Don’t fall in love with the decor. The current owners’ antiques may look right at home in the house, but soon they’ll be looking right at home in their new place. Will your more eclectic furniture fit in just as well?

“If you think a room looks very nice because of the draperies with silk linings, you should be aware that those are not necessarily part of the contract for the home,” Rogers warns. The same with the custom-made blinds in the office and the light fixtures that really make the home spectacular. Determine if you can live without details like these. If you must have them, specify in the contract that you want them.

The Neighborhood
Proximity. If you’re used to talking with neighbors over the fence, walking together for exercise, or meeting at the local coffee shop, see if your new neighborhood will offer the same. “Be sure that dream house on an acre or two isn’t like a desert island where you have to drive to see anyone,” says Bert Sperling, founder of Sperling’s Best Places and author of Best Places To Raise Your Family.

On the other hand, if you’re a more solitary person, ensure that the home has enough space between you and your neighbors for your comfort level.

Is the house close to the places that are most important to you? Scout out the nearest grocery store, gas station, school, and place of worship — not to mention learning how far the house is from your workplace. Will it bother you to drive 15 miles to get to your favorite bookstore?

Surroundings. Study other homes in the neighborhood. If you want your property values to go up, it’s better to buy the worst house in a great neighborhood and improve it than to choose the best house on the block. If the neighborhood has plenty of homes for sale, it could be on the decline.

Do you see signs of renovation? That can indicate that people are committed to the area, which gives a better chance for property values to increase. If you have small kids, do you see pools or bikes or swing sets in lots of other yards? That might mean your kids will have new friends nearby. Do you see cars on blocks in several driveways or yards or old appliances and other junk behind fences at nearby houses? That’s often a sign of homeowners who don’t care about curb appeal, and it could be an indication of a neighborhood that’s losing value, Sperling says.

People. A surprising study by Harvard political scientist Robert Putnam found that the more you have in common with your neighbors, the more likely everyone is to feel a connection to the community. That’s important when neighbors want to rally to oppose a new, nearby big-box store.

It’s wise to discover what’s important to most of your neighbors. “In some neighborhoods, for instance, the church is the main gathering place, and you might feel left out if you’re not part of that,” Sperling says.

Spend some time in the neighborhood to determine if it’s a good fit. “One of the things I always do is go hang out at night, listening for parties, listening for dogs, checking out the traffic flows mornings and nights, getting a feel for things,” Beneke says. “It adds a whole lot of comfort.”

Economy. Sperling insists that the condition of a local economy can make or break your move. “A poor or declining economy is like a cancer and can affect everything from social services to infrastructure to schools,” he says. Typically, cities that are in smaller metro areas or that have colleges or are home to a state government have the best economies. “Good times or bad,” Sperling says, “those people are always going to be employed.”


Home Appraisal Basics

Home appraisals are a vital and important step in financing a purchase, refinancing an existing mortgage, or obtaining a home equity line of credit. Here’s an overview of what you can expect and how appraisers come up with their numbers.

Photo: howstuffworks.com

You know what you paid for your home and how much the house next door costs. You know what you’ve put into renovations. But what you may not know is how much a lender is willing to finance if your house is for sale, if you’re in the market to refinance, or if you’re considering adding a home equity line of credit (HELOC). That’s where an appraisal comes in. Appraisals can also be used to divide property during a divorce or estate settlement, determine a home’s value in order to remove mortgage insurance, or set a value for tax purposes.

In real estate transactions, appraisers determine a property’s fair market value, which is the most likely price for which it would sell in a free market. The lender then uses this information to determine how much to lend against the property, whether it’s an outright sale, a refinance, or a home equity. If you aren’t familiar with the appraisal process, it helps to see how professionals arrive at the numbers that help lenders arrive at a figure. Here’s a look at how they work.

The Basics
Since the government controls how appraisals are conducted, they’re awash in regulations. As a general rule in selling a home, the appraiser is hired by the lender and the lender passes the cost along to the buyer, usually in the application fee. In a refinancing or when obtaining a home equity, the homeowner pays for the appraisal.

An appraiser compares the sale price of a home with that of similar homes that have recently sold in the same area. These are called comparables. Although there is no set rule, when a lender agrees to finance a mortgage, he wants to see a minimum of three comparables. Appraisers try to make an apple-to-apple comparison. For example, an appraiser would not contrast a 1,700-square-foot ranch with a two-story Cape Cod that’s twice the size.

The cost of an appraisal varies by region, but a buyer should reasonably expect it to add $300 to $500 to closing costs. A homeowner who refinances or adds a second mortgage may be asked to pay the fee up front.

Appraisals Estimate Value
John Bredemeyer of Realcorp, an Omaha appraisal firm, says the appraisal is not an analysis of the agreed-upon sales price but an opinion of the property’s value. “The price is the part that the buyer and seller agree on, and it can be the same as, higher than, or lower than the market value,” he says. The appraisal, on the other hand, is an estimate of the most likely price the property would fetch under normal market conditions and it is used to determine how much money the owner can borrow with the house as collateral.

A real estate appraiser inspects the property, but this step isn’t the same as a home inspection commissioned by a buyer. An appraiser estimates a home’s value while an inspector looks at its physical condition. Both an appraiser and inspector check out the inside of the home, but an appraiser is there to verify the number and types of rooms, floor plan, square footage, age, general condition, and listed amenities. An appraiser may measure the rooms and lot, noting the location as well as obvious defects. Inspectors report on both large and small problems. For example, while an appraiser would not check electrical outlets to make certain they are working, an inspector would.

The Appraisal’s Too Low—Now What?
What if the property appraises for less than the amount you’re hoping for? Bredemeyer says you can challenge the appraisal by presenting additional information. Consider having your real estate agent put together a package of comparables that weigh in your favor or point out amenities that might have been overlooked. There’s no guarantee you’ll receive an adjustment on the appraisal, but it’s worth trying.

Head Off Potential Problems
Rather than being hit with a low appraisal, avoid the kinds of problems that derail sales. For example, if you failed to obtain proper permits when you remodeled or put an addition on your home, you might have an issue.

In many cases, unpermitted work can stop a home’s sale faster than a hammer drives a nail. How can you tell if an addition is properly permitted if you didn’t add it? Take a look at the sketches on file at your county or city property tax office. Chances are good that if the addition doesn’t show up, the project didn’t have a permit.

Although lack of a permit won’t necessarily stop a home sale from going through, it could affect the evaluation. If permits are found lacking, Bredemeyer suggests talking to local officials and securing one after the fact. It may cost you a penalty, he says, but in most places there won’t be a problem if there’s no conflict with setback lines or zoning.

Another surefire way to lower your future appraisal value is to overbuild for the neighborhood. If the streets of your subdivision are lined with modest three-bedroom homes and you double the investment on your place, you’re going to have a hard, if not impossible,  time finding comparables. Owning the biggest and fanciest house on the block can be a deal killer when the appraisal comes through. Bredemeyer recommends checking with an appraiser before you proceed with big projects. “Engage an appraiser on the front end,” he says. “Don’t wait until you’ve got a dog in that fight.”

Advice from an Appraiser
John Brenan, director of research and technical issues for the Appraisal Foundation in Washington, D.C., says each state has its own licensing requirements. His agency makes sure appraisers stick to the rules. Both the buyer and seller “are caught up in the emotion of the transaction,” Brenan says. “The bank needs to know what it’s worth from an independent, impartial analysis.”

Brenan advises homeowners to make sure improvements match the area and understand that your investment won’t always yield a dollar-for-dollar return on appraisal. “Cost does not necessarily equal value,” Brenan says.

But it’s also worth remembering that those improvements may very well be what sells your home.

If you need a qualified appraiser, check out the organizations listed on the Appraisal Foundation website.


Flipping: Remodeling for Resale

If you’re in the market to buy a house to rehabilitate for profit — also known as “flipping” — you’ll need to play it smart. Here are some common errors as well as the best approach.

Photo: unitedhomeinvestments.com

With a glut of distressed properties on the market now, people are eager to make deals. But there’s little room for error. You have to be smart about the houses you buy and the repairs you make. You also have to be prepared to hold your property for the long-term, or you could wind up with a house you can’t sell and a mortgage payment you can’t afford. But if you’re going to try to flip houses, here are some things you have to know.

Finding the Right House
Real estate investors live and die by the numbers. You have to fall in love with the deal, not the house. And great deals aren’t going to jump out at you. Experienced investors spend time every day looking for distressed property and have a network of people scouting deals for them.

Some investors make a point of taking a different route home from work to look for possible deals. Others, like Sid Davis, a real estate investor and the author of Home Makeovers that Sell: Quick and Easy Ways to Get the Highest Possible Price, recommend picking out a particular neighborhood and driving through it regularly. “Look for the best deal in the best neighborhood,” Davis says. “Even in the best areas, there are always people who need to sell quick. Pick a target area you want and make up flyers that say, ‘I can close in a week’ or ‘Cash up front.’ There are a lot of people in trouble. ”

Look for is a house that’s priced far below market value, experts say. That’s the only way to make money in today’s market.

Finding Financing
Even when mortgage underwriting was loose, bankers were tougher on investors than on owner occupants, requiring more money down and charging higher interest rates and fees. Today lenders are tighter than ever when it comes to lending money for real estate investment.

For rehabbers who own a home, it may be easier to get a home equity line of credit and use that money for the required down payment. But understand what you’re doing: You’re putting your own home at risk if you can’t sell the property and fall behind on the payments.

Thinking Long-Term
Many professional real estate investors view flipping as a shortsighted approach to the business. Virtually the only advantage, Jones-Cox says, is a quick profit, but the capital gains taxes eat a big chunk of that — and the current market conditions aren’t conducive to a speedy sale. Plus, rehab projects are notorious for taking longer and costing more money than anticipated. It’s far better to hold the house and enjoy the long-term benefits.

Davis, who has flipped seven houses in one year, agrees, saying, “I made $10,000 to $12,000 per house and thought I was pretty hot stuff. It was the dumbest thing I ever did. If I’d kept them as rentals, I’d have $1.5 million in equity by now.”

Perhaps the smartest way to approach flipping right now, especially for the new investor, is to buy a house as an owner occupant, live in it for two or three years while fixing it up, and then sell it for a profit. You’ll get a better interest rate on the financing, eliminate the larger down payments required of investors and the hefty capital gains tax that flippers pay on the houses that they buy and sell quickly, and give the house time to appreciate. “That’s a pretty spectacular strategy to make $50,000 or $100,000 and not pay taxes on it,” says Vena Jones-Cox, a Cincinnati -based real estate investor and past president of the National Real Estate Investors Association.

Making the Right Renovations
Once you find the house, you need to make a renovation and repair budget. The first step is establishing an approximate sale price. That’s accomplished by running a comparative market analysis of houses similar to the one you’re selling in location, age, square footage, bedroom and bathroom count, age, and features. Look at the prices of the houses that are selling — as well as those that have been sitting for months, recommends Dean Graziosi, a Tempe, AZ-based real estate investor and the author of The Real Estate Millionaire. That will give you a good idea of what to include in your rehab.

Then deduct how much you paid for the house, your other expenses (such as a real estate agent’s commission), and the profit you’d like to make. “That will tell you how much you can spend,” he says. The repair rules for rehabs are quite similar to those recommended to home buyers getting their own house ready to sell: First impressions are critical, so pay close attention to the front yard, the exterior of the house, and the entryway; kitchens and master baths sell the house; don’t impose your decorating style on the buyers; and keep colors in a neutral palette so buyers can make it their own.

The biggest mistake Jones-Cox sees investors make in their rehabs is spending money on upgrades that don’t add value and aren’t appropriate for the neighborhood. “They get into these properties, fall in love with them, and think it would be great to put a hot tub in the bathroom of a $125,000 house,” she says. “They’re not reasonable about what should be done, go way overboard, and never get their investment back.”

Diane Saatchi, a senior vice president of the Corcoran Group who is based in East Hampton, NY, sees the same thing in multimillion-dollar rehabs. “Sometimes people overspend in ways that are not that important,” Saatchi says. “Someone will put in an expensive generator and not have enough closet space or storage space for the size of the house. Or they’ll do something that doesn’t suit a neighborhood. If it’s a neighborhood where all the houses have garages and you turn the garage into an exercise room, that’s stupid.”

If you think like a successful real estate investor and consider flipping or rehabbing as a longer-term investment, you’re more likely to succeed.

There are dozens of ways to botch a remodeling job done for resale. At the top of the list are:

  • Not doing your homework. There are so many houses on the market for sale today, the competition for buyers is fierce. Check out the competition before you start knocking out walls. The easiest way to do that is to visit open houses in the same price range.
  • Going overboard. You want your house to stand out but not like a sore thumb. Make yours a little better than the competition but maintain consistency with the neighborhood.
  • Ignoring the yard. Some rehabbers spend all their time on the interior and forget about the exterior. The lawn needs to be in the best possible shape.
  • Cutting corners. There’s a big difference between doing things as inexpensively as possible and turning a blind eye to major problems to save a buck. Don’t just clean and paint when something should be repaired or replaced.
  • Hiring unlicensed contractors. Problems with the structural integrity of the house or its major systems — heating and cooling, plumbing, and electricity — need to be repaired by licensed, insured professionals.
  • Trying to do it all yourself. If you haven’t done some of the trickier home improvement jobs that you have lined up for your house — such as electrical or plumbing work — now is probably not the time to attempt it. You’ll get frustrated and perhaps even injured. Hire a professional and ensure that you allocate that cost in your repair budget.
  • Underestimating the time frame. You should probably pad the time allotment for completing the job — especially if you can’t pay an extra month or two on the mortgage. If you’re holding two mortgages, establishing a realistic time line is critical.

Can’t Sell It? Rent It Out

Becoming a landlord may be your best option.

Photo: Flickr

It was an unsuccessful attempt to downsize for a smaller house payment that led Joseph Cortez, a realtor in Corpus Christi, TX, to become a landlord.

“My wife and I started building a house because we were pregnant with our first child,” he explains. “In an attempt to downgrade our payment, we built a house 300-square-feet smaller than our current one. But in the process, we had several weather delays, and construction took longer than expected. My wife became more pregnant and she and the house were due around the same time.”

When the Cortezes thought of moving with a newborn, they were overwhelmed, so they put their new house on the market. But it wasn’t as easy to sell as they had hoped. After a good deal of interest but no offers, the couple was asked if they would allow someone to rent for a year, then buy the home. “We took it,” he says. “We make approximately $15 a month in profit.”

The circumstances may be different, but the story is the same for homeowners across the nation. As the market continues to sputter, some who had hoped to sell are now finding themselves turning into reluctant landlords.

Deciding to Rent Out Your Home
The decision to rent your home out can be a tough one, both emotionally and financially.

Decide if the loss you would take by selling the home for less than you owe now is more than any loss you’d sustain while renting it out, says Bret Holmes, president of Advanced Management Group , a property management company based in Las Vegas. “You have to calculate if you were going to sell today, what kind of loss you’d take,” he says. “Then consider how much you’re going to lose in the gap between how much rent you’re bringing in and how long you want to rent it out.” For example, if you have a $100 negative cash flow each month you rent out your house and you think you’ll rent it for two years, you’ll lose $2,400 on the house over that period of time. If that’s more than you’ll lose by selling it at a loss, it’s probably best to just get it over with, Holmes explains. Otherwise, he says, renting it makes sense.

Emotionally, of course, there’s an entirely other set of issues. “It creates emotional ties and makes it hard to see someone not take as great care of the property as the owner once did,” Cortez says. You have to step back and look at it objectively to be a better landlord.

Know Your Local Laws
The first thing you should do if you decide to rent is research your local laws. For some areas, you may have to have a business license if you want to rent your home.

“We had to get a business license from the Washington, D.C., government when we leased our property,” explains Bronagh Hanley, who became a landlord when she moved from D.C. to the West Coast with her husband and the couple decided they didn’t want to sell their home they’d worked on so hard for so long. But Hanley didn’t anticipate the difficulties with getting the document. “It took forever,” she said. “They had random repairs they wanted us to make, there was a substantial fee, and they had to schedule an inspector to come to the house.” The whole process took about a month, and Hanley says this is something potential homeowner/landlords need to keep in mind because not only can it disrupt your timetable, it is also emotionally exhausting.

Potential landlords also need to educate themselves about equal housing opportunity laws says Braun Mincher, president and managing broker of Aggie Real Estate LLC and Aggie Commercial LLC   in Fort Collins, CO. “If you do something like charge a larger deposit because a family has a pet, that’s fairly standard practice and wouldn’t be considered discrimination,” he explains. “But you obviously can’t change your practices based on race, sex, creed, culture, religion, or anything else like that. It has to be based on your actual risk.”

Finding the Right Rent Price
Deciding what to charge on rent can be tricky, Mincher says, because often the amount you could rent a property for isn’t really connected to what you should be able to sell the property for.

“That’s hard for a lot of people to understand because they want to make up that mortgage payment,” Holmes says.

And while how much you’re paying the bank will figure in somewhat to what you charge, it’s key to do your research on what similar houses are renting for, much like you’d look at comparative properties when figuring out an asking price for sales.

“Of course you want to take a realistic look at your PITI [principal, interest, taxes and insurance payment costs] if you have a payment on the home, which most people do,” he says. “But you also have to consider what the market will bear in terms of rent.” Mincher says that if you bought a townhouse at the height of the market, you’re probably not going to make up a $1,200 payment if all the other similar houses are renting for $900 a month.

Another factor to consider is insurance. You will pay more for insurance on a home you’re renting out, despite the fact that you’re not insuring the contents, only the structure. Call your homeowners’ insurance company and talk to them about any rate increases that will result from changing your residence status on the house so you can figure that into the price you’ll charge a renter.

And for homeowners who paid a premium for granite countertops, gorgeous hardwoods, or full-stainless-steel kitchen, there’s more bad news. These extra features don’t necessarily translate into higher rent prices. “You may have less vacancy because of these things, but you’re talking to renters, not buyers,” Mincher explains. “They don’t care as much about your beautiful landscaping. So, figuring out what to charge is a challenge.”

How should the average homeowner who’s thinking about renting confront the challenge? “You really just have to check newspapers and online ads and get a feel for what a home in your price range within about a three-mile radius is going for,” Holmes says. Other good sources of information include a trusted broker or realtor; if you have a good relationship with someone in real estate, he or she may be able to offer you useful advice.

Finding the Right Tenants
Once you’ve priced your house and you have interest from a potential renter, it’s critical to perform due diligence in checking out the person or people you’ll be entrusting your home to.

“On their own, people can verify employment by contacting a current employer,” Holmes says. “Get paycheck stubs to make sure they’re making what they say they’re making. Also do a rental history check. Call previous landlords and see what kind of information you can get.”

Also, consider outsourcing some of the rental screening process. “If a person wants to do a full screening, the process is pretty intensive because you basically become a credit reporting agency,” Holmes says. For that reason, homeowners should consider looking at companies that complete the tenant screening process for you, he says. They’ll do credit checks, eviction checks, criminal background checks, and other similar screenings.

A tenant screening company is how Hanley found her first renters. “We hired a rental management company to find the tenants since they had the skills and resources to do the credit and background checks,” she says. “We paid them a percentage of the first month’s rent for their services. It was well worth the money, since we ended up with an accountant couple from Wisconsin who were the best tenants!”

Are You Ready to Be a Landlord?
Once your tenants are in place, your main duty as landlord is to maintain the property. But if you’re living in a different city, state, or even country, how do you handle it when a pipe breaks or the air conditioning dies mid-August?

“I advise people to get a home warranty program in place,” says Holmes. “Things are going to go wrong — they always do. A home warranty program prevents a huge out-of-pocket expense when it happens.”

Most home warranty programs have a premium you pay once a year. Then, whenever something goes wrong that your homeowner’s insurance won’t cover ­— like a dishwasher that leaks or a refrigerator that won’t cool — you call the home warranty company. You’ll pay a “co-pay,” usually $50 to $60, and the home warranty company picks up the rest of the repair tab.

If you don’t want to pay the initial premium of the home warranty, however, employ a handyman. “Going outside your comfort zone can cost more money than repairmen,” Cortez says. “It’s many times worth it to hire an expert. Find a good all-around handyman that is trustworthy.”

Photo: bizmology.hoovers.com

Money Management
While the process of getting a property rented and managing it can be all-encompassing for novice landlords, dealing with the dollars and cents is a critically important factor.

Insurance: Talk to your insurance company about renting out your property, Mincher says. “You’re going to transfer your coverage from a homeowner’s policy to an investment property policy, which will cover the actual structure but not the contents,” he says, adding that it is critical that landlords make it clear to their renters that their coverage does not protect the renter’s possessions or liability. “Renters’ policies are so cheap,” he says. “We pretty much make our tenants get them. We practically walk them down to the insurance office.”

Taxes: This can be complicated for owner/landlords. If you plan on selling the property in the next few years, you probably just want to deduct your property taxes as you normally would. But if you’re transferring it to a true investment property and don’t plan to sell for a while, there can be other tax benefits. You can depreciate rental property, says Mincher, which is a real tax benefit because home prices actually should appreciate. “If a property is held for investment purposes and you generate rental income, you can depreciate the property,” he explains. While it’s best to consult an accountant, he explains that residential properties are depreciable for 27-1/2 years. “So, if I owned 50 rental properties, I can depreciate an average of $10,000 a year for each one; that’s $500,000 a year in tax deductions I get that I never had to write a check for.”

Collecting deposits and rent: Take your renter’s security deposit and open a separate bank account for it, Mincher says. “Note on the account that it is a ‘trust’ account, which signifies that it’s someone else’s money you’re holding,” he says, explaining that since it’s a deposit and the renter should get all or most of it back if they uphold their agreement, it’s really their money, not yours. Mincher says setting up another account for rent is also a good idea. “I used to have 20 tenants at my door the first of every month waiting to pay their rent,” he says. “But I came up with a system where I send them an invoice and a deposit slip now, and they can just deposit their rent at any branch of my bank each month instead of trying to come to my house to do it.” He also suggests setting up automatic draft so tenants can elect to just have their rent drafted out of their account each month. “Almost any bank can set that up,” he says.

Returning deposits: You can’t just collect a $2,000 deposit and then only decide to return $1,500 of it when the renter moves out, Mincher says. “You have to send them a detailed itemization,” he says. Once your tenant moves out, make sure to call all the utility companies your tenant had service with to see if there are any outstanding bills. If so, deduct that from the deposit, says Mincher, along with a detailed, itemized list of any repairs you’ll have to make.

Legal Matters: Protecting Your Interests
No matter how much you may trust your renter, never do business based on a handshake and a spoken agreement.

“Getting a good lease is very, very important for both novice and experienced landlords,” says Mincher, who recommends making an appointment with a real estate lawyer to go over your documents before you have anyone sign. It may cost a little more, but it’s a price worth paying when you consider the consequences of a lease gone bad. A local real estate lawyer should know the rental laws, which can vary from municipality to municipality. You can also check with property management companies, your area housing department or your local board of realtors for less formal advice.

“This way you can find out if there are any forms or attachments that need to be part of a lease, because if you don’t know about these, there can be some pretty dire consequences,” Mincher says, adding that in the college town of Fort Collins where he lives and rents property, landlords also have to have an occupancy disclosure form. “This came from people cramming multiple college kids into one house,” he says. “Now tenants have to sign a form that acknowledges the city has a rule that no more than three unrelated people can live in one house.” If this form is missing, says Mincher, the landlord can be fined $1,000 a day .

Besides hefty fines, Mincher says there are some forms that are required to actually make a lease valid. “For example, if a house has a building permit from before 1979, you have to have one of the EPA lead-based paint disclosures as part of the lease, or it’s totally void ,” he explains.

And while you hope for the best with your tenants, Holmes says it’s wise to prepare for the worst. “Make sure all state laws are addressed, so that if you do have to evict somebody, you have the law on your side,” he says, adding that a consultation with a real estate lawyer is the best way to handle this. “If you don’t and you go to an eviction proceeding and there’s a loophole you missed in the lease, someone could end up living in your house rent-free.

Property Management
Hiring a property management company can take a lot of the headaches out of renting your home if you choose the right one. Management companies will usually take a portion of each month’s rent in exchange for handling the screening, rent collection, repairs and other day-to-day landlord management aspects.

Property managers will likely either take a percentage of the monthly rent — anywhere from 10 to 15 percent is common — or they’ll take charges upfront, sometimes as much as the first month’s rent. “As your novice owners go, that 10 percent of their monthly rent is probably a big part of that nut,” Mincher says. “Say their payment [PITI] is $950.00 a month and they’re renting [the home] for $1,000.00. If they manage it themselves they can probably make those numbers work, but if they put a property manager in the mix, they are now only getting $900 in rent.”

Management companies will handle tenant screening, credit reports, and other checks before the tenant moves in. But you have to choose the right company or person. “Pick someone who is more geared toward management than sales,” Holmes says. “Especially if you’re just looking to recoup as much money as you can until the market comes back around. If you don’t have someone who has experience getting a house rented, it could sit on the rental market longer than it should.”


How To: Stage a Home

Staging your home sets the scene for potential buyers. A well-staged home can help it sell faster and for more money. Here are some basics for prepping your house.

Ho To Stage a Home

Photo: stimulrealty.com

Much like detailing a used car prior to sale, staging a home allows it to put on its best face. Not to be confused with decorating, staging is about presentation, cleanliness, and drawing positive attention to the space inside. According to StagedHomes.com, the Web site for a unique program that provides certification and training to become an Accredited Staging Professional (ASP), 93% of homes staged by an ASP sell in less than 31 days. Home sellers can choose to do the staging themselves, take guidance from a qualified realtor, or hire an accredited professional.

Letting Go
The first step when staging a home to sell is to cut emotional ties, which means temporarily living without your most precious belongings surrounding you. When the house is put on the market, it should be thought of as a product, not a home. Although you might still be living in it while it’s for sale, it should not look that way to potential buyers. “The way that you live in your home and the way that you market it and sell it are two different things,” says Barb Schwarz, author of Home Staging: The Winning Way to Sell Your House for More Money and recognized as one of the founders of the home staging industry. “Once your home becomes a house, it can become a product, and people want to buy the product that has the best wrapper.” One way for the seller to be able to look at his home objectively is to take tours of homes for sale. “A walk through the neighbor’s house can help the home seller to see things from the homebuyer’s point of view,” says Craig Schilling, founder of Real Estaging, a home staging company in Chicago.

Selling the Space
Part of letting go means packing up all unnecessary “junk.” Anything that can be lived without should be packed up and either tucked away or put into storage. Put away knickknacks, memorabilia, superfluous furniture, lamps, or anything else that adds to the home’s clutter and distracts from what is really important: the space. “You’re supposed to be selling the space, not the stuff,” says Schwarz. “The value of the house is in the space.” When potential buyers walk through an unstaged home, they tend to focus on everything but the space, particular in an overly cluttered home. A sparse, staged home is open, allowing the size of the rooms to be the main attraction.

Packing alone isn’t enough, however. The staged home must sparkle, and to do that will take some elbow grease and attention to detail. “A staged home needs to be Q-tip-clean,” adds Schwarz. For the exterior of the home, cleaning can mean power-washing the siding, scrubbing and staining the deck, and taking down unsightly cobwebs. Inside the house, any dust, stains, and scratches must go. Every corner of every room—from the windows to the baseboards—should be made to look new.

Setting the Stage
With clutter packed away and all the surfaces shining, homeowners should go through each room arranging furniture and configuration to best present the space. Also, each room should clearly look like what it’s designed to be. “Make each room what it is,” suggests Schwarz. “If it’s a dining room, make it a dining room.” Consider the focal points of each room, and arrange those focal points to accentuate space and function. In bedrooms, for example, the bed is the focal point. When a potential buyer stands in the doorway to look inside a bedroom, the bed should not block the view of the room or make the room look small. If certain rooms lack the necessary furniture to make them what they are, the homeowner might consider borrowing or renting furniture for staging purposes.

Another investment worth making is in paint. Neutral and light colors will make a room look big, while dark walls shrink the size of a room. Furthermore, off-kilter colors and color combinations can make for a bad first impression of a home. The small investment in time and money to paint the walls can make the difference when it comes to time on the market and selling price.

Hiring a Professional
The home staging business is a fast-growing industry, and there are many people who call themselves professional home stagers. Accredited staging professionals are typically members of the International Association of Home Staging Professionals and can be found by searching by ZIP code on both organizations’ Web sites. When hiring a professional home stager, homeowners should ensure that the professional is certified as well as protected and insured. “Homeowners should call and meet two or three professionals,” says Schwarz. “Home staging is about commitment, and homeowners should know that everyone involved is committed to the job.” Home stagers can be hired to perform a range of staging services, from simple consultationto a complete “enhancement,” where the stager might bring in his/her own props, furniture, and artwork as part of the staging process.

Additionally, more and more realtors are becoming staged-home-savvy. Many are choosing the ASP certification, while others are educating themselves on the ins and outs of the practice. When choosing a realtor to help sell the home, homeowners should inquire into staging experience and ask about rates. Although the cost to have a home professionally staged will vary by market, homeowners should expect to pay anywhere from $1,000 to $3,000. “Homeowners need to remember that they are not just paying for the props or the advice; they are paying for the actual time it takes to stage the home,” says Schiller.

Whether you hire a professional home stager or use the funds toward a DIY staging job, home staging is a worthwhile investment that will almost certainly sell your home more quickly and increase your return on investment.

Maximize Appeal
The exterior of the home is the first thing a potential buyer sees, so make sure to tend to landscaping needs, make small repairs, and clean dirty siding. Here are some other quick essentials for the interior:

Pack before you move. Put everything that you can do without until your move into boxes and then put the boxes in storage or somewhere completely out of sight.

Clean. Go room to room and clean every surface until it sparkles. No cutting corners! Don’t forget the windows.

Create space. Arrange the furniture in each room to accentuate the space. Remove as much furniture as possible without making the room appear vacant. Make every room seem bigger than it is.

Paint. Freshen up your walls and make colorful ones neutral. Dark rooms are smaller in appearance, and off-kilter color combinations are distracting.

Eliminate odors. It’s not just what is seen that matters. Unsavory smells will turn the buyer off. Clean carpets, get rid of pet and food odors, light some candles, and put out some potpourri.

Lighten up. Open blinds, pull up shades, and turn on lighting.


How To: Find Affordable Housing

Start by looking into government programs.

Photo: chicagoagentmagazine.com

In most areas of the U.S., housing costs are rising faster than wages. To meet the federal government’s definition of housing affordability, costs should not exceed 30 percent of household income or 60 percent of the area’s median income. Looked at it this way, the issue of affordability becomes very personal. What may be affordable for some will not necessarily be affordable for all.

Financing a Home
Virtually all people purchasing homes are doing so with money borrowed from a bank or mortgage company. A mortgage is a legal agreement between buyer and lender that uses the house being purchased as collateral or security for the loan. Before lenders loan money for a house, they make sure that the buyer has enough monthly income to cover the costs of principal, interest, property taxes, and insurance (PITI). Most mortgage programs require that those payments not exceed 30 percent of the borrower’s monthly income. To keep the monthly payment affordable, a buyer might have to raise $25,000 or $30,000 for a down payment. For many first-time buyers, this kind of cash is out of reach.

Help Is Available
If you cannot find a home in your community that you can afford using traditional mortgage formulas, look into special programs to assist first-time homebuyers. A variety of programs have been spawned to help people get into home ownership. Some of the programs are federally sponsored, some are state-sponsored, and most rely on a mix of federal, state, and private funding subsidies to make them work.

Much of this assistance is tailored to people at or below the area median income (AMI). Some of the programs offer low-interest financing, down-payment assistance, or both. There are also programs designed to keep housing affordable by offering limited or shared equity clauses that restrict the future resale price of the home. Generally speaking, the more assistance one accepts, the more restrictions there will be on the terms of ownership or resale.

Get Prepared
Buying a first home takes a lot of work. Begin by getting the lay of the land, your own and that of the community where you wish to live. Start a first-home file for basic information, your financial records, and employment information. Learn as much as you can about the housing market in your area — read real estate ads, talk with real estate agents, and study the real estate transactions section of your local newspaper. Learn the terms and numbers. Know what homes cost in your target area, what your monthly income is, what your monthly financial obligations are, and how much you think you can afford. Start to reduce your monthly debt and open a savings account that is dedicated to your first home. Even if you only save a few dollars a month, you will be moving in the right direction.

Locate Your Resources
Not everyone can buy a home, but there are programs and services like the Section 8 federal housing subsidy program that assist low- and very-low-income people with housing costs. Section 8 vouchers have traditionally been used for rental housing, but can now be used to purchase a home. This Section 8 program is usually run through local or state housing authorities. Every region of the country and most states have programs to help first-time homebuyers. State housing finance agencies or a NeighborWorks office ( see below ) are good resources. If you are a veteran of the military, contact the Veterans Administration for the latest information on homeownership assistance.

Community land trusts (CLTs) put together packages of funding to help offset the cost of housing for low- and moderate-income families and individuals. These organizations develop perpetually affordable housing by limiting the resale price of the home if and when the homeowners decide to sell. These limited- or shared-equity clauses keep the house affordable for the next eligible buyer and preserve the original homeownership subsidy for the life of the home.

Know the Limitations
Most home-buying assistance programs have income limitations and are often reserved for people earning 80 percent or less of the area median income. Most programs also require enough income to make the monthly mortgage payments. Program staff can help you verify and maintain your eligibility for homeownership subsidies until a match can be made.

It is important to understand under what circumstances you might be required to pay back the subsidy. Employer-assisted housing programs, for example, may have a residency or employment requirement — to get housing help you may need to stay in the home and work for the company. With CLTs, the selling price of the home will be limited should you decide to move. The price limitation may be a predetermined fixed price, but is usually determined by a formula. Have any restrictions and formulas explained to you and get them in writing before you commit.

Resources: NeighborWorks
Chances are NeighborWorks supports a housing agency or neighborhood program in your community. This nonprofit agency was established by Congress in 1978 to build partnerships that result in affordable housing and homeownership for low-income community members.

NeighborWorks’ goal is to revitalize communities through homeownership, housing rehabilitation, housing vouchers, equity protection, minority homeownership, ongoing education about homeownership and care, community economic development, and aging-in-place solutions. The NeighborWorks network has more than 240 community-based programs and operates in all 50 U.S. states to create stable, sustainable communities.


One Warranty for Everything

Explore insurance plans that take over when the old coverage runs out.

Home Warranties

Photo: thesafetyreport.com

If your furnace dies on a blustery winter morning, you’ll need a few hundred dollars to get it fixed or, worse yet, a few thousand dollars to have it replaced. The same could be said for the refrigerator, oven, plumbing system, water heater, air conditioner, electrical system, washing machine, clothes dryer, or garbage disposal. Unless, of course, it’s under warranty or covered by a home service plan or home warranty.

When Things Go Wrong
The complexity of modern homes, and the cost to keep them running smoothly, is one reason more homeowners than ever before are turning to home warranties. The other reasons are the aging of the American housing stock, and the desire homeowners have for, as home warranty companies invariably put it, “peace of mind.”

Home warranties, also known as home service plans, are not new—they have been around since at least 1971. According to the Better Business Bureau, home warranties and service plans overall are increasing in popularity.

The appeal of home warranties is obvious. For an annual flat fee of about $400 or less, most warranties will pay for repair or replacement of your home’s appliances and systems that fail because of normal wear and tear. Policies are typically issued without a home inspection, take effect 30 days after payment is received, and cover appliances and systems that were in good working order when the policy was ordered.

With just one toll-free call, a good home warranty can make life simpler no matter what goes wrong. There is typically a deductible to pay when a service technician comes out. Deductibles range from $35 to $100, but the policy pays for covered repairs beyond that.

Who Needs a Home Warranty?
If you just bought a new home, your builder likely handed you a stack of warranty and maintenance documents for various elements in your home. Virtually all new appliances and systems are already covered by a manufacturer’s warranty. A home warranty will not kick in until those warranties have expired.

The National Institute for Consumer Education at Eastern Michigan University states that most defects in appliances show up while the item is still under the manufacturer’s original warranty, or after a store-bought extended warranty has expired. So, while you may be encouraged to buy third-party extended warranties for individual appliances at the time of purchase, the consumer Web site believes, “The only ones getting a good deal are the sellers, who find these programs very profitable.”

Dollar for dollar, it’s far better to purchase a home service plan or home warranty that takes all systems and appliances into account, no matter the age or place of purchase. Indeed, home warranties make great sense when the house and its appliances and systems start to wear, perhaps after 10 years.

Help Your Home Sales
Most home warranties or service plans are transferable, so a warranty brings a level of security to a home’s sale, especially as it moves through escrow. According to some real estate experts, a home with a warranty in place sells faster than one without. And new homeowners, who might have overextended themselves financially to buy the house, may not have a cushion for unexpected repairs. Just make sure that your plan can be transferred with the house before making any promises.

Granted, there will always be handy people who prefer to make their own repairs. These people may be better off banking or investing the $400 policy cost, and using it when needed. Likewise, people who want the freedom to hire the repair company of their choice might not be happy with contractors approved by the warranty company. Read the home service plan carefully and see if your needs are met by their coverage.

Choosing a Home Warranty
All policies and companies were not created equal, and the key to choosing the right home warranty is research. You need to know what’s covered and what isn’t.

Policies vary radically, making it impossible to list all the variables here, and only your study of the fine print will help you to manage your expectations. Most policies cover these home elements: air conditioning units, central heating units, ductwork, electrical systems, paddle fans, plumbing systems, water softeners, water heaters, refrigerators, built-in dishwashers, built-in microwaves, ovens/ranges, garbage disposals, built-in trash compactors, central vacuums, and washers and dryers. If it’s the security system you’re looking to cover, or a pool or spa, you may wish to look further.

A good first step would be to list the issues with your home that concern you the most, and read individual policies to determine the level of coverage. If you live in Tucson, AZ, for instance, you’re probably more concerned with the air conditioning system coverage than if you live in Bangor, ME. In the North, furnace coverage is much more of a priority.

Understanding What Is Covered
Don’t just glance over the contract or you’re likely to be disappointed later on. One policy may say it covers invasions of pests, a definite plus, but the fine print excludes termites, carpenter ants, rats, and wood-boring beetles. Again, policies might list the “plumbing system,” but exclude damage done to pipes by tree roots. This may or may not be a problem for you. Take the time to read the contract before you decide.

Once you find a policy that covers your “hot-button” issues, either with a basic plan or with added options that cost more, ask yourself who will make the repairs. Most companies have agreements with outside contractors to do the work. If you bring in your own favorite plumber who is not approved, the repair will not be covered.

Definitions of how plans can be sold vary from state to state. In some areas they are considered warranties; in others, they might be sold as insurance or as a service plan or contract. Also, many states have their own laws and restrictions for warranty programs. In Nevada, for instance, the breakdown of heating or air conditioning renders the residence uninhabitable. As a result, service must commence within 24 hours.

The peace of mind you seek in a home warranty will only come if you buy the right policy, from a reputable company. Time spent researching the policy and company now will pay off later when you’re most likely to need it.

How Long Things Last
Life estimate in years:
• Dishwashers: 5-12.
• Disposals: 5-12.
• Washers and dryings: 8-12.
• Water heaters: 8-12.
• Refrigerators: 15-20.
• Stoves: 15-20.
Gutters and downspouts (galvanized): 15-20.
• Gutters and downspouts (copper): Life of home if well maintained.
• Warm air furnace: 8-12.
• Heat pumps: 8-12.
• Air conditioning compressors: 8-15.
• Gas-powered air condition: 8-15.
• Hot water boilers: 30-15.

Source: Freddie Mac


Creating Affordable Housing

Together, developers and municipalities can overcome the challenges.

Affordable Housing

Photo: chicagoagentmagazine.com

Since World War II, the federal government has had its hand in promoting and supporting affordable housing through GI Bills and low-interest financing. These policies and subsidies were very effective in helping returning GIs and other first-time homebuyers get into their first homes. But with rapid economic growth and the Baby Boom, traditional federal subsidies alone have not been able to keep up with the growing affordability gap. Families need safe and decent places to live. Communities need an adequate supply of housing, at all price levels, and businesses need housing that is affordable for their workforce.

Affordable to Buy
The federal government defines housing affordability as housing costs that do not exceed 30 percent of household income. Housing costs are defined as rent or principle, interest, taxes and insurance combined (PITI). If we assume you’re making the 2002 median income of $43,318 (U.S. Census), you would be spending no more than $1,083 per month on housing costs. Now, if we also assume that you are purchasing a home at the 2002 median price of $158,300 (National Association of Realtors), you would need to come up with a down payment of $28,890 to purchase that home and still meet the definition of “affordable.” Of course, there are other factors that influence this deal including mortgage rate, term (length) of the loan, points, and closing costs. Change any of these factors and your down payment or monthly payments could go up or down. And when you factor in points and closing costs, your total cash outlay at closing would be over $33,000! By the government definition, this home may be affordable to own, but with this much cash required up front, would it be affordable for you to purchase?

Affordable to Build
One major factor in affordability is the cost to produce housing. Builder groups often claim — and government statistics support these claims — that home building traditionally leads the nation out of recession. It’s no wonder when you consider that home building benefits not only the trades but also manufacturing, professional services, and even transportation. But the demand for new housing can cause shortages in labor and materials. Delays due to weather or permit issues also add to costs and these costs get passed on to the buyer. Builders of new homes typically operate on fairly narrow net profit margins of 5 percent to 10 percent, so even a small spike in costs can cut drastically into a builder’s profit and increase housing costs to buyers.

An experienced builder can help the homebuyer keeps costs down through careful design and material selection. This process is called “value-engineering” and, as a buyer, it is in your best interest to find a builder who thoroughly understands it. But while the building industry certainly benefits from innovations in materials and methods, the independent builder is generally not able to have much of an impact on overall housing affordability. Think of it this way: A $750,000 mansion, at its core, is built with essentially the same materials as a $125,000, three-bedroom ranch. It’s not just the finishes that make for the inflated price tag.

Bringing Housing Costs Down
One of the key ways to achieve affordability is to increase housing density. Land use regulations at the federal, state, and local levels can have a tremendous impact on housing affordability. Wetlands regulations, for example, take large tracts of land out of the housing market, reducing supply. Local zoning rules that require five-acre plots for each single-family home also add pressure to land supply. There are certain fixed costs to developing any parcel of land, including site planning and permits, roads, power, sewer, and water. All of these costs have to be included in the selling price of the housing that is built on the parcel. If zoning or other regulations limit the parcel to the construction of one house, all of those development costs will have to be borne by that single home, making the price go higher. If zoning regulations allow a higher density of housing—more houses per parcel—the builder can spread the land development costs over all of the housing units, so the same house would actually cost less to build and buy.

Housing Policy for Affordability
Local governments usually jump in when a shortage of affordable housing starts to harm the vitality of the community. In many areas of the country, essential workers such as police, firefighters, medical workers, and teachers cannot afford to live in the communities where they work. Some municipalities are now offering subsidies and other incentives to close the affordability gap and lure workers closer to their jobs. Other measures employed by local and state governments include housing affordability mandates and inclusionary zoning ordinances.

In Massachusetts, for example, Act 40B is a state statute that requires every municipality in the state to have a housing policy with the goal of having at least 10 percent of its housing stock affordable to people earning 80 percent or less of the area median income (AMI). Such measures may require that developers increase housing density to more efficiently use available land. Some rules require developers to make a certain percentage of the homes they build affordable. Act 40B was one of the first such statutes in the country and has been partially responsible for the creation of approximately 18,000 units of housing that meet this level of affordability. Maine followed suit with a similar law. Today there is a growing list of states, in every area of the country, with existing or pending legislation that promotes and/or mandates housing affordability.

There are also a number of nonprofit organizations and programs that specifically address housing affordability. Community land trusts (CLTs), for example, are usually private, nonprofit entities that secure grants and donations to purchase land and housing for long-term affordability. Most CLTs sell the houses but hold the land “in trust” through long-term land leases to the house owner. Most CLT leases require some sort of equity limitation so that when the house is sold, it will remain affordable to the next buyer. Other organizations include Habitat for Humanity, NeighborWorks, state housing finance agencies, and local housing authorities. One relatively new federal program, administered through local housing authorities, allows eligible renters to use their Section 8 housing vouchers to purchase a home. Local banks and mortgage lenders often have the latest information on loan programs for first-time buyers.

Case Study: Community Land Trusts Save Housing
The city of Burlington, a town of about 40,000, is Vermont’s largest city. Despite its stable economy and small-town charm, Burlington has its share of big-city problems: high rents, absentee landlords, aging housing stock, and wages that lag behind rising housing costs. In 1984 city leaders and housing advocates established the Burlington Community Land Trust (BCLT), the first municipally funded CLT. Today it is the largest CLT in the U.S. with over 2,500 members.

A CLT is a democratically controlled community organization that acquires land and buildings and holds the land in trust for the good of the greater community. In terms of affordable housing, this model removes the cost of the land from the housing-cost equation, thereby making the house much more affordable. Additionally, the land trust provides a long-term (usually 99 years), renewable lease to the homeowner. In exchange, homebuyers agree to limit the price of the home if and when they decide to sell it. In many cases, the CLT gets the first option to buy back the house at a formula-determined price. The homeowners get less equity out of the sale, but this limitation ensures that the house will be affordable for the next buyer.

On average a first-time BCLT home is affordable to people at 62 percent of the area median income. On resale, the average BCLT home is affordable to people earning 57 percent of AMI, but the sale brings owners a net equity gain of over $6,000.

Limiting equity may have been a radical idea 20 years ago, but the model has gone mainstream. When the Burlington Community Land Trust was established in 1984 there were only a handful of CLTs. Today there are over 160 in 34 states and others in Canada and the U.K.


Historic Home Buying 101

The pros, cons, and everything you need to know about buying a registered, historic home.

Perhaps you have been searching for several months or even years, and now you have found the perfect home. Your dream comes with elaborately detailed scrollwork, a hand-carved newel post, or stately white columns. It is also listed as a contributing resource to a historic district on the National Register of Historic Places. What does that mean? What things should you consider before determining that this house is for you?

Part of Something Larger
Pacific Union senior sales agent Tom Zannelli of San Francisco indicates that a listing on the National Register is a particular, upscale amenity that attracts a specific group of homebuyers. Others may fall into this possibility during a house hunt. Tom and Lynn Wood, architects and principals of Timeline Architecture, consciously chose to live in their neighborhood of redeveloped military housing at Fort Ethan Allen in Essex, VT. Both the surroundings and the house encouraged residential re-use, while the space offered uncommon design, craftsmanship, and materials. “It was a chance to be part of something larger and unique,” said Lynn.

Return on the Investment
A National Register citation confirms a home’s historic significance, but the real worth may be realized in the stability and strength of the property’s value. A 2000 study of South Carolina home sales showed that homes in Columbia’s historic districts sold 26 percent faster than the overall market; while historic Beauport owners saw a whopping 21 percent greater sale price. In Rome, GA, properties in designated historic neighborhoods increased in value 10 percent more than similar properties without historic designation between 1980 and 1996. Studies in Texas, New York, and Pennsylvania corroborate the positive effect an historic district designation has on property values, with overall increases between 5 percent and 20 percent. The stability of property value appears to extend to owner tenure as well: There is a reportedly lower owner turnover within historic districts than in neighborhoods lacking that distinction.

Playing By the Code
National Register inclusion is an acknowledgment of a property’s importance to its community, state, or the nation. Some homebuyers may be anxious about this designation from the National Park Service, fearing infringement of their property rights. These concerns are unfounded, as long as the work receives no federal money, and requires no federal license or permit. Owners are under no obligation to restore their property, or to open their doors to the public.

Many municipalities, however, have designated design control districts in areas that have been identified as having particular historic, architectural, scenic, cultural, or visual significance. Buildings in these areas may be subject to review for any proposed alteration, addition, or demolition. A prospective homebuyer of a property within an established historic district would be well advised to visit the local planning and zoning office to determine what guidelines may apply to them. Preservation ordinances help homeowners protect their investment by preserving the historic character of their neighborhoods. Review of any project may run the gamut from a cursory evaluation by a zoning administrator to review by a secondary commission that advises specifically on questions of historic sensitivity and architectural compatibility.

For certain types of work, homeowners may need to secure a permit called a Certificate of Appropriateness (COA), or Permit for Minor Work from their planning office or historic review board. Communities that rely on heritage tourism frequently have more stringent review procedures: Historic Savannah requires review for alterations as minor as changing awnings. In New York City’s Row House District, a COA is necessary before changing exterior shutters. Review only applies to the exterior of any structure in a historic district, and does not affect any interior changes.

Some historic district commissions may require replacement of damaged materials in kind, that is, with material or design features original to the building. While the alteration of an historic home may require specific or expensive materials or craftsmanship, it will be balanced with the likelihood that the investment will hold. Additionally, your neighbor’s protected property is also less likely to be altered in a manner that might reduce your property value.

Preservation Resources
In some instances buildings listed as contributing resources on the National Register may be eligible for limited financial aid through grants, loans, or tax incentives. Georgia has provided an eight-year freeze on property-tax assessments on designated historic properties. The federal government currently limits tax credit opportunities to structures that are income-producing (rather than strictly residential). Preservation organizations are another resource for modest financial assistance. Preservation easements may also be arranged through local governments or private organizations like Historic New England (formerly the Society for the Preservation of New England Antiquities). These arrangements can lessen the property-tax burden while providing for the preservation, protection, and maintenance of your historic property. Programs differ from one state to another, so check with your State Historic Preservation Office (SHPO), local planning agency, or community historical society.

Thousands of historic districts have been listed by the federal government on the National Register, ranging from the landmark homes of Newport to modest mill housing of New England. Owning property within a historic district offers you the unique opportunity to interpret and share the history of your home, as steward of a recognized contributor to our nation’s past.

For further information, contact the National Register of Historic Places or your local State Historic Preservation Office.


Consider a Condo for Your Second Home

Vacation condominiums offer amenities and less maintenance, but more restrictions.

Condominiums

Photo: keyinspectionservices.com

Bob Vila’s Home Again opened its fifteenth season with a bay-front condo remodel along the Venetian Island stretch of Miami Beach. This vacation getaway was a remodeling challenge from the start. Gina Kirkpatrick, a realtor with Beach Front Realty, was given a modest purchasing budget to work with and the directive to find something dated. “You know, shag carpet, awful wallpaper, that sort of thing,” she recalls.

She found a one-bedroom, 950-square-foot unit with an open floor plan in the Island Terrace complex, with views of the bay and the luxury homes along Venetian Island. The complex is situated right on the Venetian Causeway, a stone’s throw from the beach and an easy jaunt to the Miami mainland or to trendy Lincoln Road. What’s more, the unit fell well within Bob’s purchase range — proof that you don’t need to be a millionaire to live like one.

This condo was a bargain because the owner was willing to buy into an older building, Kirkpatrick explains. Older units are often roomier with more closets, which means more space. For Bob, taking out closets meant opening up more space. Bob’s unit was in need of TLC, but so was the rest of the building. The timing was good, however, as the current owners had just been hit with a one-time assessment earmarked for a major property overhaul, making this condo an ideal second-home investment.

Condo Conscious
In Miami, second-home owners tend to purchase condominiums over single-family homes. Condominiums provide a host of amenities and low maintenance. “Owners like having a doorman downstairs — the doors are locked, there’s less vandalism,” Kirkpatrick says. And the market has responded to that demand by significantly adding to its inventory. Property values have been known to double in just five years, making a condominium purchase a wise choice for those looking to resell down the road.

In Miami, views are a priority, causing developers to build upward instead of outward. so even mainland properties tend to offer views of Biscayne Bay. The Miami mainland can be a buyers’ paradise, with one- and two-bedroom luxury condominiums with square footage ranging from 850 to 1,500 square feet. In Miami, swimming pools are standard fare, but developers tend to attract new buyers with luxury spas, community rooms, and high-end services. ’

Beware of the Bylaws
Condominium living has advantages, but they come with a price tag. Prospective buyers should inquire about the complex’s association fee, which can run anywhere from $300 a month for a one-bedroom to $600 for a two-bedroom condo in Miami. The higher the square footage, the higher the association fee. Fees cover things like routine exterior maintenance, pool upkeep, building insurance, and front-door security. Plan for the occasional assessment, particularly for older buildings where exterior updates and structural upgrades are more likely.

Condo associations also have bylaws and regulations that dictate what you can do to your unit and how it will be done. Cosmetic changes are typically okay as long as any required city permits have been acquired. Condo associations don’t concern themselves with a wall-color or carpet change. But interior reconstruction is another story, particularly if it compromises a load-bearing wall. Beware of noise restrictions and the hours during which construction can take place. Also inquire about delivery and storage of construction materials, as well as disposal of construction waste and debris. All of this will factor into the cost of your remodeling project.

Second-home owners aren’t year-round occupants, so it’s important to check association bylaws if you plan to rent out your unit. Some places require that owners establish residency for a couple of years, while others may limit the number of months or the number of times per year that the unit can be rented. And some don’t allow rentals at all. Pet ownership is yet another consideration, so do your homework before you buy.