Assessed Values vs Actual Market Value

Assessing the value of a home when putting it on the market is affected by a number of factors. There are two numbers to consider when selling: assessed value versus market value.  

In some cases, assessed value and market value may be similar. But in general, the assessed value will be lower than the market value. Each of these two numbers will be used in different ways throughout the course of the selling process. Knowing the difference can help you get a great deal. 

Assessed Value 

Understanding assessed value starts with understanding who is assessing the property and why. Counties (similar to councils here in Australia) employ assessors to place a value on a home in order to levy property taxes on it. The assessor looks at what similar properties in the area are selling for. They also assess the value of any recent improvements, any income you may be making from the property (such as renting out rooms), and the replacement cost of the property if it were to burn down in a fire. An assessor is usually a real estate professional, so they are fully aware of the many aspects that go into the sale of a home.  

Once the assessor comes up with a number, they will multiply that number by an “assessment rate” – a certain percentage in that tax jurisdiction. The percentage is usually 80% to 90%. So for example, if the assessor determines the market value of your home at $500,000 and your local assessment rate is 90%, then the assessed value of your home will be $450,000. 

That sum will then be used by your local government to calculate your property taxes. The higher your home’s assessed value, the more you’ll pay in taxes (again, same as our council rates here in AU) 

Market Value 

The market value of a home is based on market conditions – that is, what buyers are willing to pay for a home, and what a seller is willing to accept. Websites like Trulia and Zillow will help give you an idea of how your home compares to others that have been sold recently, but you need to be very careful with these “estimates”.  Often these estimates are SOLELY based on recent sales and do not take into account condition of the homes, which in the US can vary greatly.  

Other factors will also go into determining market value. The main one is location. How desirable is the area? Are there lots of schools and amenities in the area? 

In terms of the house itself, factors will include the exterior condition of the home, style, availability of public utilities and so on. It will also include the number of rooms and their sizes, appliances, heating systems, energy efficiency and so on. 

Supply and demand will also drive up market value. If there is a seller’s market, anyone seeing your house as their dream home might be willing to offer more. Or alternatively if the property is an excellent investment, you can demand a higher price. 

Its also this market value that you can use to your advantage.  If selling on land contract (or vendor terms as here in Australia) you can ask higher than market value possibly.  If wanting a quick sale, under-cutting the market value can work in your favour. 

Linz’s Friday Musings – September 13th 2019

G’day all 

Happy Friday once again! Apart from a nice cold blast mother nature decided to hit us with last weekend in Melbourne, it is nice to see the weather starting to warm up. 

Speaking of warming up, Helen attended a brilliant weekend event last weekend in Melbourne for Grace Lever. Grace is a business coach for many entrepreneurial women (including Helen), and to see the calibre of some of the attendees, some already making 6 and 7 figure incomes through their business is mind blowing! If you haven’t heard of Grace, check her out, amazing stuff!  https://www.gracelever.com/

The things these amazing women are able to achieve (Helen included while still working full time) is more than incredible – huge shout out to all of them, including Helen. 

Speaking of time, I was reading a blog from another mentor of mine, Jon Giaan, whom I have been following for years, taking about where the heck is all our leisure time!  If you go back 50 years, everyone was saying that technology would advance so much and make everything easier, it would give us so much more time… err, but what happened?  This is so true.   

We now have phone watches (I guess we skipped the shoe-phone, sorry 99) and the internet has brought any information we require to our fingertips, but everyone is working hard (and longer) than ever… seems an oxymoron really. 

John’s point though, of the article, is that the Beastie Boys were right – we have to fight for our right to party!  We need to work harder, smarter, more efficiently for our right to enjoy ourselves, take time out and live life. 

If we are not working so hard for our lifestyle, why are we fighting?  It’s the lifestyle we want that makes all the hard work that we, and those hundreds of entrepreneurial ladies in Grace’s event last weekend work so hard.  The balance to ensure we have profitability AND lifestyle is certainly the fight worth fighting, so who is in your corner?  

Have a great weekend all, fight hard and Happy Investing!! 

Cheers, 

Lindsay 

 

Investing in US apartments…Good Strategy or Not

In my opinion, investing in Apartments in the US has always been a good strategy for cashflow. I would like to preface though, by stating what I mean here as a strategy is buying Apartment Buildings…not single units or Condos (condominiums).  Condos often have very high Home Owner Association fees (HOA’s) equivalent to Body Corporate fees here in Australia.  These fees will often eat into your rental returns SIGNIFICANTLY and can often be a disaster for your portfolio 

Apartments are almost a hybrid of residential and commercial real estate. In the US, anything over 4 apartments in a building is classified as a commercial investment, but still driven by residential trends and demographics. Growth or appreciation of apartment buildings can be more linked to the Net Operating Income (NOI) of the building, more like the CAP rate of a commercial property. As much as capital growth in residential, particularly in a large number of US markets is not something you bank on, in apartment buildings, it can be something you have more control over. 

For instance, if the rental returns in an area are rising or if you are able to rehab/renovate some units to increase the rental return, then the overall value of the apartment building will also increase, regardless of whether residential property is softening in the market or not. It’s kind of having the best of both worlds in one investment. If the market in a region is booming and more and more people are buying homes, then house prices appreciate, and often apartments can “rise with the flow”. If markets are softening, becoming more of a buyers market than a sellers market, people get nervous, start selling and renting for a while. Rents can often increase as the demand for rentals rise, which can then increase the NOI of the building and hence, its value. Win – Win! 

Now, there are factors though, you need to take into account when looking at apartment buildings as an investment:  

1. Management 

There is more management involved. Apartment buildings are not for the “passive” investors, or those that want to sit, and forget their portfolios and let them be. With the higher number of tenants involved in one building there is always a lot more management needed, even if you have a property manager in place. 

2. Vacancy 

You always need to factor in a vacancy rate for your portfolio, apartments particularly. One of the major advantages of apartments over houses, is that if you own 1 house and the tenant leaves, you now have a 100% vacancy rate on your portfolio until you are able to tenant the property again. If you have a one 7-apartment building for instance and one tenant leaves, that’s only a 14% vacancy rate. But understand, there is a good chance, particularly if you have a couple of apartment blocks that there will always be a couple of units vacant at any one time. 

3. Affordability 

Apartments can be much more expensive to purchase upfront, and costs such as property management, maintenance, insurance etc can also be higher as these are often treated as commercial investments if 4+ units. Need to ensure you factor in these costs when determining your returns and cash flow. Which brings me to the last point… 

4. Returns 

Returns on apartments can often be higher than single family or multi-family homes. Given the higher management and increased costs, the returns though can be better. If a particular area is giving 7-8% ROI in Single Family Residences (SFR’s) you may find apartment buildings can be 12%+, sometimes even higher! 

If you are looking at a passive rental portfolio, and not afraid of the increase management and costs/affordability of apartment buildings, they can make an excellent addition to a portfolio. We have clients realising returns of over 17% on some apartment buildings and have seen EBIT’s (earnings before Interest and Tax) of over 25% possible – making sure to factor in increases in costs, maintenance and a vacancy rate. 

If this is something you are interested in adding to your portfolio, book a call with us today! 

Linz’s Friday Musings – September 6th 2019

G’day all 

Happy Friday and good luck to <insert your footy team here>! 

Footy finals, warmer weather, sunshine, what’s not to like about Spring! 

I know there are certain parts of the US that have been under siege from hurricane Dorian, particularly Florida, Virginia, South Carolina etc, and by reports, appears to be a real monster.  I often do get asked how natural disasters and storms etc can affect markets, and the truth is, then can in some circumstances. 

Depending on the amount of damage caused, costs etc, economists would be looking to predict the damage to the GDP of the US economy.  In particular areas, if hit hard, the homes damaged/lost will also have a real impact on property prices in that area for a period of time afterwards. 

There would be extensive work going on afterwards to renovate, rebuild homes damaged, clear destroyed homes and rebuild and this can force pricing up for contractors and construction with so much workload.  Further, there can often be a large number of homes go on the market, damaged where the owners had no insurance, no funding to fix, and have to sell and walk away.  This can often put a glut of properties onto the market and keep housing prices low. 

Truth is though, this is all relatively localised where areas were effected and doesn’t really affect the market as a whole.  As I was discussing last week, we are never really looking for signs to be all perfect, no “storms on the horizon” before investing.  Within every adversity can be a real opportunity if we look for it 

When you change how you see things, the things you see change… 

In the meantime, we pray for the residents on the east coast of the US and the Bahamas to stay safe and hope that Dorian heads back off shore. 

Have a great weekend all, and happy investing!! 

Cheers, 

Lindsay 

4 Common Real Estate Mistakes that can cost you Money

On the surface, real estate investing seems so easy. Passive income, property appreciation, tax benefits and more. What’s not to like?

But the reality of life as a landlord isn’t so rosy. It’s hard work. It takes time, research and careful study to understand the business. It’s far easier to lose money on rental property than to make money.

In fact, anyone can do it! All it takes is some short-sighted business moves, inexperience, and greed, and you, too, can lose thousands on an investment property. Of course, no one sets out to lose money. But having some guideposts about what you’re doing helps. So here are some of the most common mistakes to avoid when getting into the rental property business:

1. Looking for a home instead of an investment property

Shopping for property as a real estate investor is different than going out and choosing a home to live in. Finding the greatest, most beautiful house on the market or the most gorgeous vacant lot isn’t the aim. You aren’t looking for a house you would live in, you’re looking for something that the average family would rent.

This works on the flipside as well. Something like a distressed house might seem perfect to fix up as a rental but remember, structures like that can turn into money pits. They often need lots of time, investment and permits to go through the remodelling process. Good for a buy, fix and hold strategy, where you are not after instant cashflow. But for a buy and hold strategy, investment properties need to be able to rent as soon as possible.

2. Betting too much on long-term value appreciation

One of the advantages of real estate investing, in general, is that landlords can profit in many ways. First, in the form of monthly rent payments, but again later in the appreciation of the underlying asset.

But it’s a mistake to put too much weight on the latter. Yes, appreciation is a nice bonus when a property sells, but investment properties should be paying for themselves from day one. If it can’t, then it’s not an investment property. I love the quote from Robert Kiyosaki – “an investment is something that puts money INTO your pocket…a liability is something that takes money OUT of your pocket”

In fact, high-priced homes and high-end condos often don’t pay for themselves because it’s difficult to find tenants who are willing to pay that much rent. Instead, smart investors should look for the average home in an average neighbourhood because it will have the most demand, rent the fastest and pay for itself right away. Condo’s in the US particular can be bad investments as you must take into account ALL costs. Very high Home Owner Association fees (HOA’s – read body corporate fees) can make these very bad investments, regardless of how good the view is…

3. Constantly raising the rent

A lot of landlords think that by continuously raising their rents they’ll be able to make more money, even if it means more tenant turnover. But, in fact, the opposite is true. Think about the costs that go into vacancies, from fix-up repairs to updates, to marketing and more. These costs can outweigh any small gains in higher rent. All that raising the rent on a current tenant does is force them to consider what else might be out there and make them more demanding.

Keeping rent the same gives the tenant an incentive to stay and keeps them happy.

The longer they stay, the lower maintenance they are, because they’ll be less likely to call you to fix something for fear that you’ll raise the rent. As long as you start off at a fair, market rate you shouldn’t need to increase it constantly to make money.

4. Only renting to people you like

In my experience, emotion has no place in the rental business, or investments at all for that matter. It’s important to always think about the worst-case scenario: having to evict a tenant. Things happen, and sometimes a landlord has to take action. But can you?

Many people buy an investment property with their first tenant in mind being a friend or their brother. But things happen to everyone and even the best of friends can fall on hard times. Suddenly, what started as an investment property has turned into a messy situation. By renting to people you don’t have that kind of emotional attachment to, it’s much easier to take action when necessary. Now, given that we are investing half way across the world, this can often not be as much an issue, but even for here in Australia, we need to be mindful of this.

All that said, real estate investing isn’t rocket science. By going in eyes-open and avoiding some of the more common pitfalls of novice investors, your chances of success will increase exponentially.

Linz’s Friday Musings – August 16th 2019

G’day all
Happy Friday! It’s your friendly neighbourhood Aussie here with another blog on US Property and all that’s (not particularly) relevant to investing! (that reminds me, I must go and see Spiderman… when I get time…)

Actually on that note, what are you trying to “get around” to? What is it that you want to do but something is holding you back? Not enough time? Not enough funds? Not enough information? The time isn’t “right” yet?

When do you think it will be right? Next week; next month; this time next year? When you finally quit that job you hate, or get that job you love?

The real issue is that we are all often waiting for the “right time” to do something we know we need to do, but somewhere, somehow, we always manage to find a reason not to do it NOW…

When you really break it down, is this just an excuse, a reason our mind is making up, because we know the thing we need to do is hard…and we don’t want to step out of that comfort zone. “The couch is comfortable, Lindsay, I don’t need to move just yet…”

So then if not yet…when? We all know nothing grows in the comfort zone. It is the challenges we face “out there” that make us stronger, faster, better than before. Its tackling the obstacles that will allow us to move forward and make steps towards the goals we know we need to get.

I am reminded by a fabulous quote from Denzel Washington, and I am sure he nabbed it from a 1st century Jewish scholar – “If not now…when? If not you…who?”

And for 8 small words, this is profound. If not now, then when are we going to take control of our future? MAKE stuff happen, rather than LET stuff happen? And if not YOU, then who is going to make that change in our lives that we need to make?

No one else will do it for us, that’s for sure. We are all on the couch thinking…not now, later…

So I ask you…if not now, then when? If not you, then who?

Happy Investing all! And have a great weekend!!

Cheers

Lindsay

Scoping a Rehab / Renovation

One of the most common mistakes we make as Aussie investors in the US market is not correctly scoping a renovation project.

Essentially the scoping is probably one of the most important steps, as everything from here, including your success or profit at the end is hinged on this. Scope too much, and you will find that you will not be able to sell the property for enough to get a return after spending too much on the rehab. Scope too little and you will find the property extremely hard to sell

So Lindsay, what’s the magic formula?…

Well, good question you ask. Unfortunately, the truth is, there is no magic bullet here. But, there is a way to help determine this number! It’s your strategy… The strategy you have for the home will guide you in determining the correct scope for the investment. If for instance you want to tenant the property and keep as a rental or sell down the track as an investment, then this will guide your scope. If, on the other hand, you wish to sell the property (flip so to speak) to an owner occupier, then this will again, give you good indication is what you need to scope.

Make sure to tie everything back to your strategy. For instance, for a rental, ask yourself – will this <insert reno item here> help me to get more $$ in rent or reduce my maintenance costs? If yes, scope it, if no, leave it out. If flipping, think about if the update will make a difference to the sell price or saleability – if yes, do it, if no, skip it. Sounds simple but at the end of the day, it is quite straight forward. We must always keep the end in mind when we are looking at the process and none more so that the scoping process.
Let me give you some examples:

Rental Properties

For rentals you want to look two things: 1) what is going to get me the most rent; or 2) will this addition reduce my maintenance for time to come. If either of these is a yes, then ensure to scope that in. For instance, two-tone paint colours, while they look great, are they going to get you additional rent? No. Is that going to reduce your maintenance? No? So skip, just do single colour, this will save you over $1000 on an average 1000-1200 sq ft home. Now there are exceptions to every rule, and some high end suburbs will need high end finishes to get tenants, but just make sure to refer back to your strategy each time

Owner Occupier Flips

In these cases you want to see what will make the property either a) more saleable; or b) sell for a higher price. Another example here would be granite or stone bench tops in kitchen or bathrooms, tile floors rather than laminate etc. These items are surely going to add value and increase saleability so I would ensure to scope these in.

We also need to be wary though of our original budget for the renovations and be sure to stay within this. Even if this means, formica bench tops in the flip property, you do not want to be in a position where you have spent too much and cannot get this back on the sale price. Always refer back to your strategy and feasibility to ensure each item of the scope fits and is budgeted for!

For more details, book a call with us to discuss renovations, happy to chat!

Linz’s Friday Musings – August 8th 2019

G’day all

Wow, what a blistering wintery Friday we have here in Melbourne, and I believe this “arctic blast” (media’s term not mine LOL) is due to hit or hitting most of the south east region of the country as I write this! It’s days like this that you really want to stoke the fire, open the curtains (love seeing the rain outside) and sit with a good book and a red. These days can give us a good reason to stop and ponder, reflect on where we are, where we have come and where we are going.

I was doing a coaching call last night with one of my business coaches and we were discussing Universal Laws. Deep I know, but very valuable as everything relates back to universal laws. Di Vinci and Einstein were certainly big advocates of this.

One of the things that really resonated with me was the principle of 7. Without going into deep detail here, we can relate everything in life back to the principle of 7. This comes from music and light, the latter being what everything is essentially made of. For instance, if you shine a beam of white light through a prism, it breaks into is 7 components (red, orange, yellow, green, blue, indigo, violet). Likewise, in music, an octave is made up of 7 notes…etc

Now this can be applied to business and life as well…for instance, we can break our life up into 7 segments – health, family, social, finance, career, intellect & intimacy. But even with the principle of 7 there is always an 8th segment. For instance, with light you have the white light first that breaks into 7; with sound if you hit all 7 notes in an octave you get an 8th; so what is the 8th segment in life?

Why…

The 8th segment of life is Why. The Why is what enables us to drive the other 7 segments and strive to achieve in all these. And this really got me thinking. Are we always framing everything we do back to our 8th and highest segment? Do we always ask why are we doing something before we go ahead? We should.

I will also admit, I think I have let this one slip in the past few months as well. We get so busy making a living we forget to make a life and look at why? I am certainly going to go back to the why. Why do I do this business? To help other Aussies learn and experience the US market and profit from it. To help Investors avoid the scams, and pitfalls that seem rife in this industry. The Why is everything.

What’s your why?

Happy Investing all! And have a great weekend!!

Cheers

Lindsay

4 Reasons International Investment is Critical in a Successful Portfolio

There’s no doubt that investing in real estate is a big commitment. Every investor wants to carefully weigh their options, investigate the properties that they purchase, and be assured in the security, trustworthiness, and success of their assets.

For some reason, many real estate investors have an inherent fear of out-of-state investing never mind international. They stick to their local markets for fear of being scammed, for being unable to reach their property in crisis, for being uninformed, or not knowing the market adequately.

Truth be told, thousands of real estate investors invest interstate. In fact, thousands are also investing in international markets. This is certainly true of sophisticated investors, the vast majority of whom are not local to the markets in which they invest and some are even overseas and this can be some of the most successful investing.

If you’ve found yourself feeling apprehensive about international real estate investing, you aren’t alone. However, those fears are worth putting to rest for the sake of your financial future.

1.Market diversity creates security
Diversification is key in any investment portfolio. In order to hedge against risk, you buy different stocks, or, in the case of real estate, you invest in multiple properties across multiple markets. The reason is this: should a market go through economic troubles, the success and performance of your portfolio is not contingent on a single market.

If you were to invest in your local market, you would depend solely on its economic status, real estate market, and rental demand—no matter what that looked like. Diversification in other markets means that you can invest in markets with key indicators for long-term strength, like a diverse local economy, population growth, and business-friendly local legislation.

2.Market access increases options

Beyond investing internationally as a means for portfolio diversification, investing long distance opens up your options. If we’re honest, we don’t all have a local market that is conducive to buy-and-hold investing. There may not be a strong rental demand or population growth to make it a successful endeavour where you are. At the same time, even if rental demand is strong, home prices may be so high that the debt-to-income ratio would be unfavourable in your local market as it is in many parts of Australia.

Because not every market is suitable for investing, looking beyond the local market is necessary. When you go beyond your local market and expand your options into other markets, a whole new world of opportunities opens up!

3.It creates reliance and relationship

International investing demands a different model that the hands-on investing that comes with sticking to one’s local market. Investing in international markets such as the US, forces you to find good companies or providers you can rely on to assist you with your investing.

For the investor, this creates a meaningful bond of trust with their provider. They know your markets. They know your properties. You put your portfolio, the management, the day-to-day success, and your long-term vision in their hands. Ultimately, this benefits you because you are not relying on your own knowledge, skillset, or self to get the job done.

Instead, you can rest in the security that a whole team of experts well-versed in the markets you want to be in is handling your portfolio down to the last detail.

4.It forces you to be a passive investor

Lastly, investing in distant markets forces you not to be so hands-on. There is a certain comfort in the drivability of your investment properties. When you sacrifice drivability, however, you also sacrifice tenants calling you at two in the morning. You sacrifice being the point of contact for repairs and problems. You sacrifice the headache of property management.

The question of real estate investing is always about your time. What is your time worth? What do you want to do with your time? To be honest, most of us don’t want to spend it managing our properties, especially as our portfolios grow bigger and better.

Being an international investor takes the “hands on” option off the table. You can’t worry about it. You can’t feel guilty about not doing it. It isn’t your job. Your job is to think about the big picture and plan for your best financial future.

You can only leave your properties in the hands of the people who know best.