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.

Counseling, Advising and Real Estate

Over the past few weeks I’ve noticed a trend of clients not wanting to “bother” their Realtor and it caused me to pause for a moment.

I absolutely love what I do, to the point that I will talk to anyone, anytime, about their real estate journey. Have a question? I’m happy to hear it, whether it’s 9pm on a Friday night or 6am on a Tuesday morning. I can’t guarantee an instant response of course (I’m only human), but I don’t view it as a bother for someone to reach out to me. Honestly, I prefer the social interaction and the excuse to hear about how you’re doing.

Real estate isn’t a job, it’s a lifestyle and my clients, friends, family, all cross paths regardless of what day or time it may be. If you really enjoy something, I can tell you that it doesn’t feel like work. I’m thrilled to hear from you. I’m excited to answer your questions. I’m 1,000% happy to help you find your next home, help with design ideas, call vendors and to be the person you lean on through the stressful moments and the happy ones.

A physical move is an emotional transition and it can be difficult, and stressful, and yet joyful all at the same time. There are a full range of emotions that you will go through, and all of them are normal. All of us need someone in our corner to celebrate with, vent to, cry to and yes, occasionally mediate tough conversations with.

Growth can hurt, so don’t hurt alone. And remember: you are never a bother. Ever.

Home Design Purgatory – Part II

What if you bought a home and now that all of the seller’s items have been removed, you’re feeling a little “blah” about the home itself? It happens more often than you might think and can sometimes feel like buyer’s remorse.

First, don’t panic. If you stuck to your guns and selected your house based on your needs and didn’t get derailed, then everything else can be tweaked.

Here are a few relatively inexpensive things to think about when settling into your new space:

Paint is everyone’s first go-to change, whether it’s to adjust the feel of a space or simply to make everything look cleaner, paint can breathe new life into any room. Painting a room is relatively quick and inexpensive while also packing a big punch. And if you decide you don’t like your choice, it can also be easy to simply repaint it. Though yes, it might not be the most ideal use of a weekend, try to have some fun with it!

Lighting, whether natural or man-made can make a huge difference in how you’re feeling about a space. There’s no need to call the electrician this minute to overhaul all the electrical (unless you into that sort of thing) so go buy a few floor lamps and expand the usable ambiance lighting throughout your home. I found myself wandering around my living room wishing I could simply turn up the light, and fixed the entire problem with a 14.99 IKEA lamp that stays on day and evening to give me a more consistent brightness between the brighter bursts of task lighting (aka directional floor lamps and table lamps).

To go along with lighting, check your source of natural light by rethinking your window coverings. Plantation shutters can be gorgeous, but if you’re struggling with a space feeling a bit gloomy, think about swapping heavy shades or blinds for light-filtering options such as cellular shades or sheer curtains.

Décor items or a small DIY project can increase the personalization of your home, so move in and get settled. If you’re feeling overwhelmed (and who isn’t feeling that way during a move?) then focus only on one room, maybe even one corner of one room. When I moved into my home I had basically no furniture what-so-ever, so I focused on making one cozy corner. This was the corner of what is now my office and includes a reading lamp, a comfy chair, a cute meditation bolster (yes, pay extra for the cute one, you won’t regret it) and a small cabinet. This “first space” is now my version of a reading nook and a calm, cozy place to land, complete with multiple throw blankets for maximum coziness.

Clients are always surprised when I tell them how big a small change can feel when I tell them to switch out cabinet hardware in the kitchen or bathroom, but it’s true! It can change the entire feeling with a few turns of a knob (pun totally intended), from builder-grade mass production hardware to any look that you may be going for, including: glam, industrial, modern, etc. Skip the hardware store and shop online for the best selection.

And remember that it will all be ok. Whether you pull your house together in a week, a month or a lifetime it’s important for you to feel comfortable. Heck, I’ve lived in my house for almost 3 years and I still haven’t had the housewarming party.

… Is it socially acceptable to have a housewarming party when you’re ready and not when you first move in? It should be. Consider my housewarming party date TBA.