itrustrealty Archives - PDX Real Estate

Transitioning Between Houses

November 7, 2015 by jdemarco

Transitioning Between Houses You’ve decided it’s time to buy a new home however, you have a home you need to sell in order to do that, or at the very least want to minimize the carrying costs & uncertainty about locating your next home in the interim…how do you manage transitioning between houses ?

Do you sell your house first, then hopefully find the next one or do you find your next home & hope you can sell your current home quick enough to close simultaneously on your next one ? We’ll discuss everything in between, including the current Portland metro area market & what factors you should consider along the way so, let’s begin…

One of the most important things to understand is that in most cases your probably moving to improve your quality of live to some degree and have envisioned what life will be like in your next home. With that serene picture in mind, there is no need to distort that vision by creating undue stress thus, remember why your doing it and that it’s a choice & most likely not a necessity. Of course, there are situations that life can dictate to us such as failing health, employment changes or a need to create a multi-generational household but, despite the importance of the need to do so, all the information contained herein is equally applicable to your situation.

Once you’ve decided your going to make the move & have weighed the pro’s & con’s, including how it might effect your situation if you didn’t make the move, your next to step should be to develop a level of comfort as to what’s reasonable to expect as far as making your next purchase. In our current market there is just a mere 1.9 months of inventory available as of September 2015’s Market Action published by RMLS. That may bode well for Seller’s however, it creates challenges for buyer’s thus it’s important to start thinking about things as a buyer does. In many areas in and around the Portland metro we are seeing rapid appreciation & multiple offers however, that is slowing just a bit as winter approaches and where you may be looking may paint an entirely different picture. In addition to preparing your finances for that next move via providing your lender with updated information, it’s important to note that even though you may have purchased just a few short years ago that the landscape is ever changing thus you can never start that process too soon. The most pressing concern buyer’s have is ‘what will my new payment look like’ however, that may not even be a consideration if there is nothing to buy. The comfort level an individual requires varies on many fronts, with no two people being exactly alike. Typically, I would suggest that as part of this process of ‘easing’ into this next phase of life scenario that we spend ample time looking at not only new listings (if they are available) but, sale fails & recently sold properties as well. With so little to choose from it’s crucial that you have a realistic view of the overall market, including what & why certain houses sell, as well as for how much. What we don’t want to do is give away everything that you may have just made on the sale of your house (or will potentially make) by proceeding on emotion rather then with as much knowledge of how the market’s been behaving. We want to have a thorough understanding of the market before entering into it, as hesitation based on a lack of preparedness or spending too much based on pure emotion will produce poor results. How long does this process take ? It obviously depends upon the individual but, when taking into consideration the preparation of a home to sell I’m typically seeing clients starting the conversation anywhere from a month to 6 or more months out. It’s never too soon to start your on line search to help develop that comfort level & no better place to start then here.

Once you’ve determined how much your new mortgage payment will be & whether or not what you hope to find does exist, even if only for sporadic periods, then your most likely looking for anyway possible to avoid having dual mortgages in place, assuming you would qualify to do so. Since you are now wearing two hats, one as a Seller & the other as a buyer, you should be able to better understand where a buyer who is purchasing your house or Seller you are purchasing from are coming from. Again, with just 1.9 months of inventory we are in a Seller’s market, assuming the property is priced correctly and has been prepared for market so as to appeal to buyer’s. The likelihood that you would consider an offer on the sale of your house that is contingent upon a buyer’s home selling i.e., a Contingency Offer, is pretty slim, unless of course you had no other offers but, that would also mean you have an issue that has made your property something other than what could be defined as being a “Seller’s Market Property”. If, as a future buyer, your first choice is to make offers contingent upon the sale of your property you should consider that first, it’s highly likely to not get accepted if the house has any sort of activity on it. Second, most Seller’s, or at least their Broker’s if they are providing good counsel to their Seller’s, would expect a Contingency offer buyer to pay a price premium for coming off the market for the uncertainty of a transaction that may never close. After all, Contingencies are things which may or may not happen, just like in everyday life. Again, as mentioned previously the goal should be to not give away what you may make via the sale of your house. Last, although not always the case you should consider that in a market where most homes are selling fairly rapidly that if a Seller is willing to entertain a Contingency offer you should be diligent in your efforts to understand why and that’s where your Broker can be most helpful in possibly attaining information you might otherwise not be able to gather on your own. There are obviously unlimited terms & conditions that could be added to any offer that could ‘sweeten’ the pot, including those made in concert with a Contingency offer however, that too is most likely subject to your Buyer’s Broker uncovering some pertinent fact and/or being able to articulate a certain need that a Seller appears to have based upon communications with a listing Broker. It’s not a given that a Contingency offer can ever be entirely ruled out as it depends on the individual circumstances surrounding each & every transaction & there are no two that are exactly the same.

The likelihood of a Seller accepting your Contingency offer is fairly slim so, how about negotiating a lease back on your current house while you search or wait for the 2nd house to close ? Just as was the case with individual circumstances surrounding each & every transaction not being exactly the same, as mentioned in regards to Contingency’s, it all depends on being able to understand your current situation well enough so as to not give anything away for the convenience of being able to stay over. Depending upon the amount of activity you may have on the sale of your current home your Broker (and ideally it’s the same Broker who will represent you in the purchase of your next property) may be able to gauge just how far you can push potential buyers in a multiple offer scenario so as to suggest that in addition to price, their getting accepted may hinge upon a limited lease back of the property to the Seller. Unless that buyer is paying cash (actually about 35% of sales are currently all cash) or via a non-owner occupied investors loan that buyer may be limited to do such a rent back for no more than 30 days based upon conditions of their loan. In addition to the aforementioned limitations, specifically those of buyer’s with owner occupied financing (the majority), a Buyer’s Broker who is providing thorough counsel to their buyer clients may convey that a Seller stay over has some potential liability that the buyer should consider thus, it may eliminate some or all of those potential buyers. The current Oregon Sales agreement (O.R.E.F. 054) does address in much greater detail then we would venture into here the terms & conditions under which each party is responsible for certain acts & costs etc., however, despite it’s best intentions over (4) pages there will always remain issues that will require additional deliberation, either by a Court or perhaps an insurance carrier. Point being, any attempt to stay over as a seller in order to easily transition into a purchased property may eliminate potential buyer’s who might bring the best offers thus, another scenario wherein your Broker can advise you.

What about those who would gladly carry (2) mortgages for a brief time but, aren’t able to qualify to do so ? Bridge loans have existed for a long time however, even in the boom market in the late 90’s and into the early 2000’s it was no secret that the costs were prohibitively expensive. With rates in general being lower then in the past the Bridge loan looks less attractive by today’s standards.

Although not practical for everybody hoping to transition from being a seller to a buyer, having a stopping point in between i.e., a rental property, allows for optimal strength on both sides of buying & selling. As a seller you have the flexibility in moving quickly from your property which some times can be looked upon favorably by a buyer who may pay a premium in price for the convenience. In addition, it allows you as a Seller the opportunity to slowly & methodically remove personal possessions from your home to better stage it for sale. From the buyer’s side of the equation you have the flexibility a seller might be looking for when deciding which offer to accept, moving quickly on a vacant house or perhaps a longer escrow where needed. Having your offer accepted is not entirely about price and having some flexibility and a verified down payment waiting makes your offer more attractive to a seller.

With home ownership being at it’s lowest level since 2004 it’s created a very competitive rental market thus, it’s not just homes for sale that are in short supply. The vacancy rate in the Portland, OR metro area is 2.5% at this time thus, you might disregard much of what I mentioned in the last paragraph about the possibility of renting in between. Typically, the initial response from clients might be one of dismay at the idea as they see the same difficulties in finding a short term rental as they do in finding their next house. In most cases this because they are looking at traditional rentals wherein the landlords are looking for long term tenants with terms & deposits etc. that are not geared towards shorter stays. With all the rentals that should be available due to record low home ownership why would vacancy rates be as low as they are ? In many cases those investors have ventured into shorter term rentals where regulations allow and have been able to get premium returns as a result. Programs such as VRBO, AirBnB & FlipKey have opened up short term housing in local areas throughout the Nation & Worldwide. There are numerous spin off websites in our area with similar rental opportunities that are priced competitively with local long term rentals, yet without the large deposits & other conditions we would hope to avoid that are common to traditional long term rentals. I sold several properties this year alone that will be used for short term rentals.

As is the case with every Real Estate transaction being different in their own way, the answers to your particular needs & requirements may require a combination of some or all of the ideas put forth in this blog.

Best Regards,

Bob Zawaski P.C., G.R.I., C.R.S., S.R.S., A.B.R., S.F.R., e-Pro

Oregon Licensed Principal Broker / Owner

Investors Trust Realty

Bob@iTrustRealty.com

www.iTrustRealty.com

Multifamily Conversion

February 10, 2015 by jdemarco

When one thinks of the term conversion as it’s used in Real Estate, one of the first thoughts that may come to mind is that of converting multifamily apartments to condos. As prices continued to appreciate during the years prior to 2007, there were numerous conversions that yielded far better returns ‘by the piece’ then as a ‘whole part’. When values soon thereafter began their rapid downward descent many of those property owners were faced with making mortgage payments on a property whose value was far less than what they now owed and/or paying monthly Homeowners Association dues. The combination of weakened buyers coupled with fractured Associations is just one of several components that have contributed to home ownership being at it’s lowest level since 1995. As a result of decreased home ownership (64.8% in 2014) the rental market has seen increased rents throughout most of it’s segments. In the Portland, OR metro area rents have increased by 5% in the last 6 months with Downtown rents typically going for $1.82 per sq. ft. & NW Portland rents spiking to $1.61 per sq. ft..

The overall market is certainly stable & it appears that we’ve been out of that downward spiral long enough that we can now look to the future with some degree of confidence. In most areas, we’ve made it back from the ‘bottom of the market’ but, depending upon location the gain may be very slight. It would be easy to simply suggest that location has most everything to do with the recovery or lack there of…after all Real Estate is all about location. Some of the causes & fixes to those issues still linger and can either hinder or help investors in the current market. It’s some of the residual effects of that down market that we can reflect on to examine strategy going forward & incorporate some ideas that may have been ‘shelved’ along the way.

Although not a new concept by any means the conversion of a Condo Association back to rental apartments & potentially being marketed as such has never went entirely off the landscape. Frankly, in addition to such conversions being done for a very long time it wasn’t until I had the opportunity to weigh the needs of two entirely different clients that I decided to investigate not only why certain market factors effected values but, how & when it might be appropriate to think slightly contrary to what the market is doing. The client who initially inquired about values within his small condo complex being somewhat lower than similar neighboring complexes understood that having lost FHA certification when the ‘do over’ button was hit and everyone had to re-apply & subsequently not being able to qualify again was a factor, as was a self imposed limitation placed on selling to investors. With values still slightly below 2007 levels this client has purchased a 2nd unit with an eye towards slow & steady appreciation, as well as the possibility of gaining enough control in the Association with future purchases that might allow changes that will make the units more marketable, such as allowing a limited number of rentals. Certainly a long term outlook at what appears to be the ‘bottom’ of the market for this complex seems to be a good strategy. In the event this clients goals are met in regards to owning a majority of units and making positive changes I wondered how that picture might look if this particular complex were converted to a Multifamily rental property under his ownership. Of course, by the time he might own enough units the market could have an entirely different landscape then it has now but, I couldn’t help wondering how my Multifamily buyers, who are experiencing a severe shortage of inventory, might view this property today & how that use compares to it’s present use.

At their current market values owners are typically seeing sale prices around $70,000 throughout this 11-unit complex thus, an aggregate total of $770,000. Based on current market rents @ $895 each this property would gross $118,140. With a 5% vacancy factor (our area at present is ranging from 2.2% to 3.4%) plus 40% in expenses ($44,893 Proforma) we would have a net operating income of $67,340. At present, the Portland, OR metro area is seeing CAP rates of 6.7 for properties in this category thus, it would be marketed at $1,000,000.

Obviously it’s not a simple task to dissolve an Association nor should it be done without the guidance of an Attorney & C.P.A., both with HOA experience. Having an understanding of By-Laws and how to navigate the process smoothly, especially dealing with remaining owners, is something that should be taken into consideration long before the situation presents itself…again something your Attorney can guide you with. Disbursal of Reserve funds and all the detailed accounting, including compliance with I.R.S. regulations are issues best left to your C.P.A. Like most other financial ventures you should be long on both education & the execution of those ideas, it’s my goal to act as a resource for my clients and give them a foundation upon which to carry forward their own investment strategy. As I mentioned previously, it’s difficult to tell what the market may look like several years from now but, there has always been room for successful investments in up or down markets.

Having the resources of seasoned professionals at the ready, in addition to over 20 years assisting investors exceed their financial goals are just a few reasons to contact me today !

Jim DeMarco P.C.

Real Estate Investors Pitfalls

November 12, 2014 by jdemarco

Avoid the journey down Investment Properties Pitfall Street

As my Seller and I near the long awaited closing of his 11-unit apartment complex in the NE section of Portland, OR it was not without a few major obstacles along the way. Despite 20 + years of assisting buyer’s & seller’s with similar commercial transactions no two have been exactly the same thus, this was no different in that respect. Many of the commonplace issues were still there i.e., inspections & appraisals etc. however, changes to our market, while exciting for the future, are not without a few pitfalls that Real Estate Investors should take into account.

Find the strategy first then the property, not the other way around. Sounds simple enough but a sizable percentage of potential buyer’s who inquired about this property were working backwards in that they liked the potential that existed but, weren’t certain about a strategy that would help them reach whatever their goals might be. Unlike purchasing a home in which to live in with your Family where your emotions may set the stage for a transaction, an investment property requires an investment strategy…all together different from viewing it simply as a transaction.

Understand the process first, don’t let the process control you. Education is the key as it’s human nature for many who have been successful in their professional lives to believe that what worked in the past will translate into successfully purchasing & owning investment property. Although there are exceptions to every rule, allowing yourself to ‘skip’ a few steps up front and playing catch up later on can result in an irreversible set back. One of our potential buyer’s, although well qualified from an asset & income standpoint, didn’t grasp the concept that their being ‘first time investors’ would not be looked upon favorably as it would in the residential world. Again, simply carrying over what they knew of residential transactions didn’t bode well where an investment strategy was required.

Exercising due diligence, not ducking it. The most obvious are issues that are easiest to see such as deferred maintenance. Needless to say, the lender is concerned about a buyer potentially draining their personal savings due to extensive repairs thus, funds in reserve are a critical component to obtaining financing & can vary widely based upon the buyer and condition of the property. What things to consider knowing about as a part of the due diligence before & during a purchase may come from a checklist your trusted Broker uses however, nobody knows your financial situation as well as you do. A visit to your C.P.A., lender & perhaps someone who is an experienced investment property owner will serve you well in creating a list of issues important to you. Again, this falls back on educating yourself in advance. It’s always a good idea to ‘bring something to the table’ before meeting with any professional assisting you as it’s unlikely they will be able to lay out every scenario that may present itself in the process.

Even the Lone Ranger had Tonto. Amazingly enough, many potential buyer’s I spoke with over the term of this listing were not simply unrepresented in regards to having a buyer’s Broker working on their behalf but, had little or no ancillary support to fall back on in the way of contractors, inspectors or other legal specialists. Just as in the case of conducting thorough due diligence, it’s always wise to have all the pieces in place before you actually need them.

Get rich quick, misjudging cash flow. Although the multiple listing sheet available to the the public & Broker’s allows for a considerable amount of information to be shared, it’s never meant to cover all the pertinent information that will be essential to a buyer of investment property. Amazingly enough, the lack of due diligence in asking for information up front was not limited to just buyer’s calling on their own but, seasoned Broker’s as well. There were several instances of offers written without any information gathering prior to simply sending an offer along, only to find out that a simple up front question would have avoided the extra effort. If simply left to whatever financial information can be squeezed onto a multiple listing sheet or anyplace you choose to look on the web, chances are you would still be a far cry from being able to make an informed decision. Taking only some financial information without the remaining pieces to the puzzle is short sighted to say the least and a recipe for those looking to get rich quick to become cash flow poor in a hurry.

Bob Zawaski P.C.

Oregon Licensed Principal Broker / Owner

Investors Trust Realty

The Voices Behind You

October 16, 2014 by jdemarco

Be it the Seller who lingers just long enough for a ‘meet & greet’ with your clients or the disgruntled tenant who needs to air a laundry list of perceived code violations your going to run into someone willing to voice an opinion just when you thought you were alone i.e., the voices behind you. Being aware of your surroundings should always be a priority for safety sake thus, being prepared to respond to a friendly “excuse me” or an empty beer can coming your way should come naturally…I’ve dealt with both. How you deal with an impromptu situation may be your clients first opportunity to see first hand how you treat a total stranger or whether your ability to ‘think on your feet’ might translate well into negotiating them a good deal. It’s an opportunity to practice both good citizenship & let your clients know who you are.

Today’s encounter was not unexpected thus, I knew the well meaning property manager on my multifamily listing was going to open more than just a few doors for the commercial appraisers and I. Again, unlike the disgruntled tenant, she had no real intention of sabotaging a listing that now spans over 15 months and is just a few weeks from closing…if only these two seasoned appraisers don’t take issue with something said today. Of course, once the interior inspections were completed and a Q & A was about to commence they suggested that the property manager stick around as well, just in case she had some ‘additional insight’. Of course, in order to get myself in the right frame of mind the voice in my head said “That’s a great idea”.

It didn’t take long for a few questions regarding some deferred maintenance issues to go off the rails a bit with that ‘additional insight’ they were originally looking for when they asked the manager to stay. I’m pretty certain that both appraisers knew exactly what they were getting themselves in for by inviting the property manager in for the Q & A session. What better opportunity to quickly decipher what conditions might exist then to have the property manager serve up an outlandish tale to explain a hole in the wall and gauge my response to it. I will admit that the prolonged laughter the property manager exhibited when she described squirrels running circles inside one the units almost reached an ‘uncomfortable moment’ however, it also allowed me the opportunity to answer a few questions that were waiting for answers, as well as posing one to the manager about landlord/squirrel law.

Having worked for years in the Health Care industry prior to my 20 + years in Real Estate I found that recognizing & allowing someone an opportunity to take center stage, however brief that moment may be, may be more important to them then you’ll ever know. As I answered the appraisers questions about financials & condition issues, I made a point to address everyone in the room equally. I could sense by her silence that some of this ‘financial stuff’ was either getting by her a bit or perhaps she was just taking it all in, either way it seemed to have slowed the additional voices in the room.

As the appraisers and I parted ways one of them couldn’t help mentioning that “It appeared you had some help today ?”. I knew from their eye contact with one another that they not only planned for such a scenario but, were entertained as well so, hopefully we’ll come in at value with no conditions being required. I got a follow up e-mail from the appraisers later that day simply stating they enjoyed their visit, not something that happens very often. I may not know ‘Jack’ but, those voices do come up with some great ideas from time to time.

Broker Referrals

August 17, 2014 by jdemarco

What Buyer’s should know about Broker referrals…

Ask any Broker about referring Lenders, Home Inspectors or Contractors to their buyer clients and you’ll get a wide range of answers from referring several for each trade, referring just their most trusted individual to not referring anyone at all. The one common thread among those three points of view is the Broker’s concern for his/her liability. Of course, the buyer simply wants to hire someone with expertise to help them obtain a loan, inspect a house or make repairs so, should the Broker’s issues with liability be a concern for the buyer ? Unfortunately, the answer is yes but, how your Broker deals with walking the fine line between being a resource for all your needs and protecting his/her liability will determine whether you’ll have a good working relationship and be able to accomplish your goals. This is certainly a question you can pose to any Broker you may be considering to work as your Buyer’s Agent before hiring them.

Why should a Buyer be concerned with the Broker’s potential liability…the short answer is because in an Agency relationship your Broker’s liability could become your liability. You’ve hired someone to represent you thus, what they say and do in that capacity may have unintended consequences for you. Regardless of which point of view a Broker takes in regards to providing referrals or not, if they’ve made that decision with the intent to protect all involved from the harm of potential liability then they have served their clients well. Of course, there still is that fine line between potential liability and providing a buyer with high quality service.

In 20 + years I’ve observed Broker’s not only practice one of the three above referenced points of view in regards to referrals but, some pretty unique defenses of those positions as well. It’s common place to hear Broker’s say they always refer “3” of every trade but, all too often it’s followed with some sort of disclaimer that they’ve now cleansed themselves of any liability by doing so. There is also a saying that goes “your only as good as the last name on that list” thus, the client still got the names from the Broker so, if one goes bad then who is to blame, the buyer for making a bad selection or the Broker for providing the names ? In many cases the buyer’s are glad to have three names from which to choose and things go just fine however, there are buyer’s who require more pinpoint direction and that means being guided to the sole individual expert who’ll solve their issue. To this type of buyer, 3 names may be looked upon like handing them the yellow pages and wishing them good luck & that leads us to Broker’s who proudly state their “no referrals” policy. I try to put myself in my clients shoes whenever possible and I can’t imagine how stressful it would be to be left on your own to trust a total stranger to take you thru a crucial point in a transaction. Needless to say, I’m not in the camp with either of those Broker’s who would provide multiple names or leave you on your own. I just closed a transaction wherein my buyer’s & I encountered a seller who had just went thru a sale fail that included making repairs to his roof which were improperly done…it factored in that deal terminating, as well as being an issue when our inspector called out the improper repairs a second time. This was a situation wherein the seller simply searched on his own to locate a roofer & unfortunately, it didn’t fare well. Having had the rare opportunity to meet the seller in person, I was taken back by his obvious embarrassment for what had happened previously. It’s a situation such as this that confirms my belief that I will continue to provide only the most trusted individual lenders, inspectors & contractors to my clients. Brokers are only permitted to share referral fees with other Brokers, not lenders, Home inspectors or contractors thus there are no financial incentives, other than providing a valuable resource to the client. I constantly review records & information on all trade referrals to ensure that anyone I refer to a client would be the same individual I would trust in my own home.

Although most Real Estate Broker’s are not experts on home inspections or construction we do have an obligation to our clients to have sufficient knowledge to address issues related to buying & selling property, including providing information that may require more advanced expertise from Attorneys, CPA’s or Contractors etc. It would be very difficult, if not impossible, to understand when those ‘next steps’ are required if a Broker essentially removes him/herself from a transaction by not taking part in all the issues that effect a client, such as when & who to hire in addition to the Broker.

What you should know about the Rental market…

Whether you own rental property or not it’s current State of the Union may effect your personal financial situation and if not now, perhaps down the road so, keeping abreast of the rental market is as important as watching your 401-K. If you own rental property your probably glad you do as rents have increased 6.5% so far in 2014. 78% of leases in 2013-14 were renewed and 75% of those saw increases. If your one of the 25% of renters who renewed without an increase, good for you ! There certainly isn’t anything wrong with renting or more importantly living within your means…after all, living above ones means started this mess in the first place. Home ownership is currently at it’s lowest level (64.8%) since 1995, the same year that the Community Reinvestment Act made regulatory changes that required lending institutions to make loans that might otherwise not have been made thus, by 2004 home ownership was at it’s peak.

With home ownership declining the rental market has seen record increases, in fact Portland is #5 Nationwide with a 2.2% vacancy rate thus, it’s no wonder that 60% of the Foreclosed homes State wide became rentals in 2013. Unlike just a few short years ago, it may be possible for those who are having difficulties meeting their note payments to rent out their homes and stay above water. For those of you who may be considering rental property as a part of your overall portfolio I would be glad to answer any questions you may have. The market for multifamily properties, particularly commercial (5 units +) is fierce so, it does take some patience. Regardless of whether the Real Estate market is on an upward spiral or decline there is typically something that can help you either increase your position or maintain what you have if you have the right information & guidance along the way.