Investor Offers

Charlotte is full of people looking for investment properties, whether it’s to rehab and resell, or to rent out and earn monthly income. It’s tough out there, so investors can be aggressive in finding and purchasing properties. Some will knock on doors and offer cash for a home, others will network to find people who are thinking of listing their home for sale.

Cash offers, sight-unseen, no repairs, quick close. There are definitely up-sides to selling your home to an investor. There are still some things that you’re giving up and some areas to be aware of along the way.

Remember: investors do this all the time. You don’t.

Before entertaining an offer from an investor, know what your house is worth, aka know what recent similar sales in the area closed at. Do your research online, call a few Realtors, and get some price opinions. Be upfront that you’ve already received an offer. Many Realtors will do a full presentation on listing your home including comps to try and win the listing if you elect not to go with the investor offer.

A good Realtor will graciously answer a few quick questions knowing that this is a people business, whether you sell with us or not. Keep in mind that real estate transactions can get very complex without warning, so even though you’ve received an offer it’s still a good idea to hire a Realtor to counsel and represent you in negotiations. If you have more than a quick question or two, I really recommend hiring someone. It won’t be free, but it will be worth it if something goes wrong.

Once you have an approximate idea on what you home is worth, you can better assess an offer from an investor. Some investors will tell homeowners that they’ll pay them the tax value for the home. Know that even though Mecklenburg County increased property assessments last year, this value is still below what a home would sell for on the market. Part of that is because the County struggles to move assessments up too quickly for fear of upsetting taxpayers and these assessments were done months or even years ago, so the value is outdated no matter what. Therefore, the tax value is artificially low and likely outdated, which is great for the investor and not great for the seller who would like to receive the best price.

If the investor is offering to purchase using cash that means that they can likely close quickly and they will not need to get approval from a lender. This means no bank appraisal to worry about and oftentimes a much smoother transaction. Because cash is so quick and much easier to close, they will often offer slightly below value. If you’re looking to close quickly without a lot of fuss, this can be well-worth the decrease in price.

Oftentimes, investors want to purchase a home ‘as is’ because they don’t really care what the condition of the home is. They have a team of people who will fix anything that comes up and quite honestly, they don’t want a homeowner making repairs that they could do cheaper and to their own specifications. This means a little more risk to the investor because they aren’t 100% sure what they’re buying, but it means no repairs to do and that the seller preserves their sale price by not having to compensate a traditional buyer in lieu of needed repairs.

At the end of the day, an investor offer is an offer and it’s important to weigh the pros and cons of the decision, and also to compare to other offers that may come through on the market if you were to list a home traditionally. Just because an offer knocked on your door (in this case, quite literally) doesn’t mean it’s the right one for you and your family. So remember to be as objective as you can in your evaluation, and do what’s best for you, your family and your particular circumstances when evaluating a market offer or an investor offer.

Tax Time is Coming!

It can be daunting to figure out what documents you need to give your CPA or tax preparer in regards to your home, mortgage and real estate investment properties, so I’m here to make your preparation a little bit easier by answering some common questions I get.

Q: I own a house that I live in full-time as my primary residence, what are the basic documents you need each year?

If you have a mortgage, you should get a form 1098 from your mortgage lender showing the total interest that you paid during the year in Box 1. If your lender pays your property taxes on your behalf (aka you ‘escrow’ for your taxes) then your real estate taxes for the year should also be on this form (check out Box 10).

If you handle paying your own property taxes then you’ll also want to locate a copy of your tax bill. If you can’t find the original copy that was mailed to you around September, then you can look it up on the county website by your address.

Q: I bought or sold my house in 2020, do you need anything additional?

Yep! We’ll want a copy of the Closing Disclosure (CD) that you signed at the Closing Attorney’s office when you bought and also when you sold. Your costs to close on the home may be deductible on your taxes whether you are the buyer or the seller in the transaction. Also, depending on when during the year you purchased or sold the home there may be some information relating to the proration of property taxes that we’ll need to take into account when preparing your taxes.

If you sold your home we may ask you for a copy of the CD from when you originally purchased it. This can appear tedious, but please know that if we’re asking for this it’s very-very important. We’re calculating how much gain you earned on the sale of your home. If you sold your home for much more than you originally purchased it for, there are exclusions for the gain with the amount of the exclusion being tied to whether or not you’re married for tax purposes. We may also ask you for a listing of improvements you made to the house during the time that you owned it. These expenses can help to minimize how much of the gain you have to pay taxes on.

Q: I refinanced my house, how does this impact my taxes?

The costs you paid to close on the new loan may be deductible for tax purposes, so please provide a copy of the Closing Disclosure (same as above). If you took out a line of credit (also known as a second mortgage) on your home, the costs to set this up and the interest you pay might be deductible for taxes but only if you used the money to expand or substantially improve your home.

Did you take a LOC on your home to pay off credit card debt or something outside of home improvements? Then it’s not deductible on your taxes.

Q: I have a rental property, what do you need to include it on my taxes?

Assuming that you don’t own the rental property within another entity, the income and expenses will be included on your personal tax return. We’ll want a schedule showing all of your rental revenue and all of the related expenses you paid for the property during the year.

If you made any improvements or repairs that cost over approximately $500 and have a useful life greater than one year, (for example: a kitchen remodel, a new furnace, new roof, etc.) we’ll want a listing of those items and amounts paid as well. Instead of claiming the expense deduction all in one year, we will claim the expense ratably over the next few years that you theoretically use the improvement.

Q: I currently rent, does this impact my taxes?

Nope, renting does not give you any tax benefits. There are no writeoffs for renters like there are for people who own their home. This could be a really good reason to look into buying a home instead of dealing with increasing rental prices on a yearly basis.

Q: I have a question about real estate and taxes that you didn’t answer here. What do I do?

Reach out to your tax professional or shoot me an email at erincoffey@kw.com I will try to answer general questions as best I can. Please note that anything I say here is not to be construed as tax advice. If you have a question about your specific tax situation it’s best to reach out to someone who has all of your details, I’m only discussing general ideas and information here.

Can You Flip? Or Will It Flop?

It’s amazing how much financial security that real estate can bring, and the popularity of HGTV show a very rosy and glamorous side of real estate investment. This gives many people dreams of buying homes under value, putting in some sweat equity and selling it a few months later for a nice profit. It’s like the American Dream… or is it?

With the tight market in Charlotte and such a high demand with new people moving here each year, finding a low-priced house in a good neighborhood that needs a little TLC is rare these days. A lot of the flips that garner big returns in a few months have already been flipped and re-marketed, so it’s important to branch out from the 3 bedroom/2 bathroom in a well-known neighborhood where grandma lived for 40 years and didn’t update.

Location

Once upon a time the neighborhoods like Plaza Midwood and NODA were the up-and-coming areas, but now they have clearly “arrived” and the prices of homes reflect this. So it’s time to branch out and look for the next great area. Yes, it is a bit of a gamble, but so was buying in South End circa 1990 which was once an industrial park fraught with environmental issues (curious? Brush up on your South End history here.)

Bottom line: What’s old is now new and what was once an EPA nightmare is now highly-sought after real estate. The next great neighborhood won’t look like much today, but buying in a lesser-known area where you see potential for gentrification could pay off big in the future.

Investment Timeline

While flips are often viewed as short-term projects and investments, there’s something to be said for a buy-and-hold property. Going along with the possibility of area gentrification, having a longer view on the investment and generating rental revenue both before and after the renovation could allow significant growth in the home’s value and a steady stream of income during that time period. Make sure you’re prepared to be a landlord or you find a great property management company to handle all of the ins and outs of tenant relations, maintenance and repairs, collection of rents and navigating the scary world of evictions.

Price Point

Flips don’t only occur in the 100k-250k range, though that’s where most people think of them. There are opportunities at all price ranges, even million dollar homes if you’ve got that kind of investment capital to spare. At higher price points the profit margins may be smaller, but they’re still there for savvy investors that are happy to stick to a budget and always plan for an unknown expense.

To find a home that is a good contender for a flip like this, look for a home priced under the median price for the neighborhood, like a 300,000 home for sale in a neighborhood that usually hovers around 500,000 for a home. The difference can often be one was updated to reflect current tastes and the other is in the same aesthetic it was when it was built, whether it was built in the 1980s or the early 2000s.

Oftentimes when a buyer purchases a home in a new construction community they are doing so because they don’t want to make updates or take on improvement projects. So, when they go to re-sell the home 10 years later there can be a dip in price because it looks and FEELS like a 10 year old home. Older paint, brass bath fixtures, and Formica countertops are all tell-tale signs of a below-market price home.

I believe that there are always opportunities in the real estate market, however, those opportunities may look a bit different from what you see on HGTV. Different markets, different factors, different strategies needed.

Happy flipping!

“To DO” (Due Diligence) List

The process of buying a new home can be jarring because we prepare ourselves to shop for a home, but we forget to prepare ourselves for what happens next. Once the thrill of an accepted offer wears off, the next feeling that sets in is most-likely panic or at least a large dose of anxiety. So, what comes next in the process?

Once you have a fully-executed and valid contract, it kicks off the buyer’s due diligence (DD) period. This is a period of time that is negotiated as part of the contract for the buyer to complete all investigative procedures on the home and to finalize their loan in preparation for closing. The DD period is the time in which the buyer could walk away from purchasing a home with the least amount of negative financial impact.

A.K.A. if you’re not going to go through in purchasing the home that you are under contract on, DD is the period of time that you want to alert the seller. Yes, you will lose money, but if you wait until after the DD period closes, you’ll lose more.

Therefore, the few weeks of due diligence (length depending on the time period negotiated between the buyer and seller during contract) are used by the buyer to investigate every aspect of the home and the transaction to ensure that they would like to move forward in purchasing the home. Mutually agreed upon changes can be made to the contract during this time, though it’s best not to go into a contract expecting this after-the-fact change to occur.

Home Inspection

It’s important for you to understand what it is you’re buying with your hard-earned money, so it’s important to have a licensed home inspector schedule to come in. They will look at everything from top to bottom and will tell you whether or not something is working as intended, requires repair or requires additional investigation by a contractor. Because of the litigious nature of our society, everything will fall into one of these three categories but don’t let that scare you.

The home inspector terminology of “requires repair” does not mean that the seller has to make this repair. Let me repeat: THE SELLER DOES NOT NEED TO MAKE ANY REPAIRS TO THE HOME. North Carolina is an “as is” state and therefore property can be bought and sold regardless of whether or not it is deemed habitable. Scary , huh? If the buyer and seller cannot come to agreement on how to remedy the situation through repairs or compensation, then the buyer can decide not to purchase the home and forfeit their Due Diligence fee paid to the seller at the time of contract.

If the home inspector finds something major that is wrong with the home that would cause the buyer to want to walk away and find a new home to buy instead, then we are in territory where it makes sense to ask for repairs, a decrease in purchase price on the home, or seller paid closing costs to benefit the buyer. Each remedy option has its positives and negatives, so be sure to talk through these options carefully based on your situation.

Major items include the five systems within a home. If the repair is not a large-scale problem in one of these areas, it is likely not worth asking for a remedy. These include:

  • Roofing
  • Plumbing (including well water and septic, if applicable)
  • Electrical
  • Structural
  • Heating and Cooling (HVAC)

If there is something outside of these areas that really bothers the buyer and would make them want to walk away from the purchase of the home, the item is still worth having a conversation about. However, with our current market having very little inventory and lots and lots of buyers, a seller would be more likely to want a buyer to walk away from a deal, keep the due diligence fee for their trouble, and place the home back on the market than to fix something that they deem to be a cosmetic defect. Again, if the problem makes a buyer not want to purchase the home then it’s worth having a conversation about the item. Always.

Specialized Inspections

These inspections are outside the scope of the general home inspection report, but can be very important to a buyer’s overall understanding of the condition of a home. It’s important to understand whether or not these are important to you.

Termite Inspection

This is a specialist that comes out to specifically look for damage due to termite activity. While this may not be important in other areas of the US, it’s important here in the Carolinas. Termites can cause structural damage, so it’s best if damage is caught early and a remediation and maintenance plan can be put into place if needed. Some homes (specifically condos) often have what’s called a termite bond, it’s a yearly contract that the homeowner or HOA holds to ensure that any damage found is covered under an insurance policy. This requires ongoing walkthroughs on the home, usually on a yearly basis, to maintain coverage.

Well Water and Septic Inspections

If the home is on a well water system it’s important to have the water tested for bacteria and contaminants. You and your family will be drinking and bathing in the homes water, so it’s important to know. For homes on a municipal water system, this is purely optional.

Homes that are on well systems are often on septic for waste water as well. A complete inspection can uncover costly (and gross) problems. Also, homeowners rarely remember to have their septics serviced, so this is a nice time to have it pumped as well. Having it pumped also allows for a more-thorough inspection of the working condition of the system.

Radon Inspection

Radon is a naturally occurring gas that comes from certain types of rock. While we each come into contact with radon on a constant basis, the issue is when levels of radon become too high and are trapped in a living space (like your house). The scientific community is a bit mixed up on the severity of radon, but it can be a problem in any type of home. Consistent contact with high levels of radon gas has been linked to issues like lung cancer and more specific information can be found on the EPA website.

Additional areas of concern

There are some additional items that are outside the scope of your general home inspection that may be important for you to take a look at. The most-common areas in my experience are swimming pools and fireplaces, though I would include any other miscellaneous area of concern. Have a tree that is hanging precariously over the garage? Call a tree specialist. Planning to put up a fence or a pool in the future? Have a survey done. Need your new home to have a koi pond? Call your koi specialist.

… No seriously, that’s a thing.

Financing Requirements

If you’ll be securing a mortgage to purchase a new home it’s important to have the loan underwritten within the due diligence period. If something happens and the loan is not approved, a buyer would want to know prior to the close of due diligence. Also included in this process is a bank appraisal, meaning that the lender will send out a 3rd party appraiser to ascertain whether or not the home is “worth” what the bank is being asked to lend on it. If the appraiser reports that the home is valued at less than the contract price then the bank will only fund up to the appraisal price, the buyer will be on the hook to make up the difference in cash or a compromise will need to be reached with the seller to lower the price to appraised value. There are many caveats to this process, so look for a more-detailed post soon.

Have additional questions on the Due Diligence process? Something I missed? Reach out to me directly and I’ll help however I can!

Hardly Simple

It’s been a long time coming… Ok, it’s been almost 4 years to be exact. While I’ve been feeling paralyzed by both fear and planning tasks, I finally have a general plan for how my home renovation is going to go.

I envy those who can immediately renovate their space and call a contractor to do all of the work. While I know the stress that goes into working with renovations and outside contractors, the idea of calling someone for help and not explaining to them that I want them to teach me something sounds downright dreamy.

Meanwhile, I’m over here, googling the simplest thing for months and asking the most frowned upon questions of the construction people around me. It’s been cringe-worthy. The questions have been dumb, and some of the answers have been too. I have to keep reminding myself that everyone has to start somewhere and everyone sucks at the beginning.

It’s still a hard pill to swallow.

So I remind myself again and again of a quote from Sheryl Sandberg, the Chief Operating Officer at Facebook:

What would you do if you weren’t afraid?

Well… I’d renovate a little condo in Charlotte, NC. I’d ask all of the dumb questions and I’d make it through this entire process with all fingers and toes still intact, because that’s always a concern with power tools.