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Buying a house site unseen. Would you?

July 31, 2017

Yes, I’ve helped folks buy ‘site unseen’. This article is condensed but has some of the basics.



Online photos aren’t enough!
Here’s my ‘must do’ list:

  1. Use a local buyer agent that is on retainer/ agreement with you, not just the seller side.
    • I’d advise using a broker that will give you a referral from a client that used said broker more than once!
  2. Go ‘live’ on your walk thru. Interactive, voice/ video, tour in real time with your agent (broker) ‘on the ground’.
  3. Have an inspector give you feedback. Again, best if your broker/agent is live.
  4. Get your trades person that may do upgrades after purchase to give you pre-offer insights in the same way.
  5. Solicit immediate and local area videos – real time again is great. Good to do this during a busy weekend evening.
  6. View map from above. LOOK for train tracks, land fills, factories, freeways, etc etc…. look look look.
  7. Call: local utility for ‘estimate of usage’ for an idea of how weather tight the home is.


Value: Assessed, Market, ‘Zillow’, Taxable

July 25, 2017

Market Value = house specific, current, based mainly on aesthetic appeal (new kitchen, Anibal-Affiliates-Realty_NetWorth_3134birchrow-eastlansing-mi-1982-bwonderful yard, location, etc.)

Assessed Value = neighborhood average, historical (old), based mainly on exterior mechanics (size/ age).


Now that we have that established, lets proceed.

Whether helping a seller set a price or helping a buyer write an offer, they want to know my opinion. “So how much it the place ‘worth’?”

  • A seller always picks a number that is highest – e.g.: ‘Well such n such says my house is worth $bla bla bla’.
  • A buyer always picks the lowest number (surprise) – e.g. ‘Well this says its only worth $yada yada.’

Opinion? Not so much, I prefer to provide information. With me & numbers I’ll give you various methods I use & crunch the numbers on YourSpace – YOU choose the value. My accounting & finance degree and nurture of broker fathers background with an economics masters has dictated this style as my preferred approach.


Back to definitions:

  1. Assessed =
    • neighborhood average,
    • historical (old),
    • based mainly on exterior mechanics (size/ age).
    • The assessor used a complicated ‘multiple regression analysis’ to take all properties with in the ‘taxing unit’ and give approximate values to the ‘components’ of homes.
      • i.e.: bathroom #1 is worth $2000, bath #2 an extra $600, #3…$250, etc.
      • 1000 s/f = $XX per s/f, 1001-1500 is worth $X per s/f
      • New roof = $XX less $X for each year its been there
  2. Market =
    • house specific,
    • current,
    • based mainly on aesthetic appeal (new kitchen, wonderful yard, location, etc.)
    • This
  3. , ‘Zillow’ = a computer model spits out this often ‘train wreck’ of a combination of #1 &2.
    • I’ve seen Zillow ‘values’ of $165000 for a home listed at $80k. I’ve seen the opposite, which can confuse a buyer obviously.
    • After all, ‘Zillow’ never walked the neighboor hood, or smelled the basement, or saw the standing water in the spring time.
  4. Taxable = as it says. Forget using this number as a value. Your only concern here is if its too high, then you need to protest it.
  5. Bigger Picture RealtyNetWorth Value ? = Have you every booked a flight online? IntegrationCapNotice it says ‘save money by being flexible with travel dates’, yes? If your timing, tax situation, stage of life, & non-financial intangibles aren’t being considered, you may well need a better qualified ‘resource(s)’.

So whats a wise person to do?

The model I use for buyers and sellers is a spreadsheet approach that uses input from both the assessment – which considers the interaction of house basics, and current market sell prices from ‘as close as possible like-kind’ homes. To use one aspect without the other is a huge absence of a critical treasure of data.



When to hold a rental, when to flip a house.

July 20, 2017

You invest in property. You’re approaching it as either a residence, retreat, rehab, or Anibal-Affiliates-RealtyNetWorth-LakeShannon-why-I-sell-lakefront-young-couple-at-sunsetrental. But which came first, the property or the label? And more importantly, why did you choose one over another?

With such a substantial investment, I hope you have an idea of how you are evaluating on the way in based on your plan for use/ resale/ or rental afterward. So many clients start out with the “well this happened along our path one day so we just…” approach. Maybe o.k. for a garage sale find. But this randomized thinking potentially leaves dollars on the table and years of your life wasted.

Example:

  1. Customer wanted to sell a unit. “Why did you buy it?” I asked. “Well, it was a great deal so we bought it. then we rented it out”. ( A great deal for what ?)
  2. Customer wanted to have a unit inspected. “Why are you interested in this house?” I asked. “Well, I heard rental property is a good idea.” I asked, “Why?” …. he said “I don’t know.”
  3. Customer had a rental. “Why did you buy it?” I asked. “My friend called me and asked if I wanted to buy it.” So I asked, “do you have other rentals and why do you want this one”. He said, “no, first one, we want others”.

None of these folks had a strategy. They stumbled into their situation. In each case, I sat with them, started ‘at the top’, looked for customer strengths/ weaknesses/ and ideal goals.

  1. For customer #1, I said “so you want rentals?” Actually, it had never been profitable as a rental. They sold it for a profit, but the title choice drove up their tax burden. Further, had they made some specific improvements, the profit would have been better. They sold to a hustler by owner, but fortunately we took a better strategy going forward.
  2. For the 2nd scenario client, I tried to not completely make fun of the poor choice of home he wanted to – and almost did had he not called me – buy. Instead, I showed him only 1 more property. We spent an extra 60 minutes of his time, got a house in a better location, less money, newer, better heat/electric + 2 car garage, 2 decks and shed. That property more than doubled in value in a matter of months, and has had only 1 tenant in the 4 yrs. he’s owned it, bringing a good profit from rent and appreciation. The other property – still a mess and not worth much at all.
  3. In situation #3, we sat down and looked at how there is no profit from holding. Further, because of his skills, he’s better suited to rehab than to hold a loosing investment. All profit available on his held house will come from moving it, not holding it. Timing the sale will be the extra expertise I offer.

So the basic questions will still be, what do you have:

  • More or less skills.
  • More or less time.
  • More or less funds.
  • More need for current income (you are in a lower tax bracket), or more need for future (retirement) income, (you are probably in a higher tax bracket).

Based on these answers, there are very specific properties, areas, price ranges, and portfolio management styles (e.g.: you/ us) you’d be better suited for.  Decision time

I meet w/ clients a minimum of 1x/ year. This is a great time for a no-cost initial meeting to chat about what your real estate ideas are. Contact me via the feedback form to set a time & day !


In the meantime, I’m inserting text from an earlier post of mine:


In the early 80’s I picked up a very honest yet motivational ‘how to’ book on real estate investment. In my senior year of college I was set to invest. I actually drove to NJ, looked up as many of these homes as I could, took pictures, and tried to take notes in my then ignorance. After reading the book I bought a shack for $17500, w/ $1000 down, gutted the kitchen and bath, and placed into service what was one of my most successful investments to date.

I’ve used these & other techniques I gleaned from my broker/investor dad, and have shared them with clients for 3 decades.

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It comes down to humble work, patience, time value of money, and good mentors – I had my dad ! I keep a few copies of the book for clients I work with. Let me know if you’d like one.



Real estate bubbles, strategies, and the current market

June 24, 2017

Are we in a bubble market ? Just read from one of my favorite bloggers who boasts: “15 Anibal-Affiliates-RealtyNetWorth-LakeShannon-why-I-sell-lakefront-young-couple-at-sunsetflips currently in progress. 126 flips completed. 15 rentals properties. Follow me to see how I make money in any market cycle.” So here’s the excerpt & my ‘reply’:

  • “…Low-money-down loans have been available for decades, and that is not what caused the housing crash. Really bad loans to people who should not buy houses is what caused the housing crisis. …”
  • reply: I’m presuming this is a ‘cliff notes’ take on the market since we can’t dispense all knowledge in a post. But my quick 2 cents. As a 2nd generation broker/investor/finance degree holder, bad loans where just a part of the problem. We had funds flowing out of other ‘under performing’ investments…e.g: $’s tend to move from CDs to collectables to stocks to real estate, etc. Further, and this makes the topic more of a localized thing, wages must support prices. Las Vegas had speculators running up prices but buyers weren’t all from out of town so prices couldn’t be sustained. Here in NW Detroit suburbs, we are seeing a lot of new industry coming in and hence price strength above what might be healthy in other parts of MI.

The article goes on to say how the market is not at a bubble stage. I think that greatly oversimplifies. So whats the point I’m making? As in Ecclesiastes 3 “To Everything There is a Season.” With-in 30 miles of each other, I have client investments of which 1 area I feel should be liquidated asap as the appreciation has come fast and peaked, the other could be held for a taxpayer that needs deferred income and no cash flow now, but if cash flow is needed move on. In other words:

  • Look at: investor needs (cash, retirement savings, …)
  • Investor tax situation
  • Investor has more time and abilities or more cash to throw at the portfolio mix
  • General economy but also local economic outlook…. very important.

This isn’t like buying a candy bar.



This is not an offer of a guaranteed return. Always do your due diligence before investing.

What kind of ‘Fixer Upper’ ROI is possible when we’re your Portfolio Brokerage Mentor?

March 20, 2017

How much can I make rehabbing homes?Info-graphic-appreciating-wealth-build

There are many different approaches. Are you in a high tax bracket and want appreciation, taxed and withdrawn at a future date (like retirement) and wish to accumulate rentals? Or, are you in a low tax bracket/ want maximum returns now/ hence ‘Flips’ make more sense? Looking at our charts, you’ll see cheaper homes are better suited for rentals, but all properties are usually better suited for ‘flipping’.

‘Flipping’ homes is not for the faint of heart, nor for a novice. The TV shows are for entertainment – turn them off. I’ve never watched even 1 episode and I’ve ‘flipped’ houses since 1981. Yes, I’ll be glad to share my entire portfolio results to date with you.

The vast majority of folks loose money on rehabs, making lots of cash for ‘wholesalers’. So how do I know when to use a professional ‘Portfolio Broker’ Mentor? (that would be us). Perhaps when said mentor has a track record going back to 1980 and will say “NO” more often then “MAYBE” OR “YES”.

Prefer ‘hands off’ approach? We ‘joint venture’ with clients – you bring $’s, I bring expertise, your principle comes out first, we split the balance at closing. (there is a formal agreement letter but that’s the short version).

For every property I recommend, There are about 25 that I tell the investor “NO” and then tell them why. I want this to be educational as well as profitable for you – it helps us both!

Anibals-Realty-Net-Worth_2016_EOY_JV_ROI

If you click thru on the link below this photo, you can compare with last year EOY results. There has been some year over year appreciation.

  • In this market, this will plateau and makes these ripe for selling to reinvest a better part of proceeds.

Anibals-Realty-Net-Worth_2016_EOY_RENTALS_ROI

VIEW IN PDF:  Rental and Flips ROI Calculations – EOY16

Rental and Flips ROI Calculations – EOY15

Active client of ours? Request a copy of the below spreadsheet to compare your investments year to year & within your portfolio. This can assist in planning ‘which to keep’ vs ‘which to cut loose’.

  • Non-clients: ‘Remote in’ installation & setup available, or stop in – you don’t even need to bring your laptop.


This is not an offer of a guaranteed return. Always do your due diligence before investing.

Passing Your Home to Your Children.

February 24, 2017

When/ How/ If: I Should Deed My House to the Kids

There can be some benefits, but also drawbacks to both the gift giver and recipient(s).anibal-affiliates-realtynetworth_deeding-property-to-children-2-woman-with-tablet-relaxing-b

Some will:

  1. Add the child’s name onto the existing deed.
  2. Make an outright gifting over
  3. Deed over but reserve a life estate
  4. Will the property, i.e: a “transfer on death”.

#1, Possibly Tax Disaster.

  • Set up an office visit. There are good reasons, but often more bad reasons to use this strategy.

#2, Outright Gift.

  • Irrevocable, the parent loses control and legal right to stay in home. Perhaps the parents will rent back.
  • Ends the parent’s right to claim any preferences on property tax bills, e.g.: the homestead exemption, being blind or over 65, hardship/ low income exemptions.
  • This can dramatically increase property taxes.
  • If real estate transferred to a child is worth more than what was paid to purchase and improve it, then the child pays capital gain tax on the sale of the property. (The $250k/ $500k MFJ primary residence exemption is not applicable unless you own and live in the property).
  • Children’s (ex)spouse and creditors may have the ability to seize the property.
  • vs. Will at death.
    • If a parent’s Last Will and Testament leaves real estate to a child, parent can change their mind w/ a new will.
  • Additional Parent Considerations.
    • To remove the asset for Medicaid qualification, remember that a transfer of your real estate can make the parent ineligible for benefits for nursing home expenses, depending on when you enter the home. The length of time ineligible depends on the value of the real estate, whether it was transferred outright or retained as a life estate. Generally, its a five years look back.

A transfer of real estate is a “gift” and will no doubt require filing Tax Form 709 with the IRS.

#3, Gift with Retained Life Estate.

  • During life, the parent has the right to live in the property, and at death the life estate ends. Property transfer effectively at that time.
  • Some want to avoid probate after death, and possibly to avoid any court administration of their estate.
  • If the recipient child dies first, the child’s share in the real estate could pass to the deceased child’s spouse, rather than to the grandchildren.
    • vs a parent’s Last Will and Testament may provide that an inheritance would go to grandchildren if a child died before the parent.
  • The parent still loses a significant degree of control. If the parent sells the property, the proceeds belong to the parent and the child (remaindermen), split according to the percentage of ownership determined by IRS life-expectancy tables.
    • Capital gain tax would be owed by the child on his or her gains.
  • If the parent retains a life estate and the property is not sold before the parent dies, then under current law there would be no capital gain at the time of death because its cost basis is “stepped up” to the property’s market value on the date of death. This is a good thing for the recipient !
  • For Medicaid, the parent is deemed to own the entire interest in the real estate for five years after a deed execution retaining a life estate. They will also be the owner of the life estate interest thereafter, the value of which is calculated at the time of application for Medicaid.
  • RE: inheritance tax, the date-of-death value is taxable to the child – not lovely. But, the child gets a step-up in cost basis (easier if inherited at death in my opinion).

#4, Will the property.

  • Call the lawyer. Ok, now, plan for the child to do back flips on how much taxes you just saved him/her/them.

Bottom line.anibal-affiliates-realtynetworth_deeding-property-to-children-b

  • The when/ how to transfer should involve your accountant, lawyer, insurance agent, banker/lender at a minimum.

As I’ve told clients for decades: “You’re not dealing with a candy bar.”


Tax Strategies for Real Estate

February 6, 2017

If you expect real estate should involve ROI, then there’s some basics to the outline.

  1. Acquisitions – some we have control, others not – e.g.: inheritance.
  2. Holding – short/ long/ entity/ self held/ purchase for child/ etc
  3. Approach: add value/ flip/ wholesale/ rent/ vacation/ family lease to/ residence with business inside

Most properties will be held for cash income OR appreciation. If you can get both, then neither will probably be optimal.

Regardless, upfront considerations must include:mackinac-bridege-under-constructions-allovermichigan-b

  1. What you need from the property: income now or later (cash flow vs appreciation)
    • I look at these like ‘a job’ or
    • ‘retirement investment’
  2. I will invest more:
    • cash or
    • time & talent

So there will be many vehicles and considerations. SD IRAs, set up LLC, Corporation, etc. One of my favorite realizations is that PROFIT is usually made on the way into an investment in THE BUY. Further when you SELL, what can you/will you do with the funds ? Make sure you have another opportunity lined up if you liquidate a great rental. Make sense ?

‘Later’ is not the preferred time to plan.


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