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real estate

Real estate investing has various benefits and challenges not associated with other investment vehicles.  There are specific tax codes made just for those investing in real estate, whether they are commercial or residential.

Family With Baby Meeting Financial Advisor At Home
real estate

Prepping To Sell A House While Buying One

by Evan

Planning to sell your home and move to a new one? If so, you must be well-prepared for these two challenging tasks to make your work easier as well as get the best value for your property.

Today, it is easier to sell a home even without getting help from a realtor. However, things are quite challenging when buying a house. In fact, if you are not careful, you can plunge into a large financial mess in your quest to buy a house.

The last thing you want is to get stuck with two mortgages; for your current home and the new home. Read on for some tips you can follow to make the house selling and buying process easier.

Can You Buy and Sell a House on the Same Day?

By working with a professional realtor, you may be able to close a house sale and buy a new one on the same day. However, this will require the timelines of all the parties that will be involved in the transaction – you, the buyer, and the seller – to be aligned. So, in essence, selling and buying a house on the same day all boils down to luck.

In most cases, closing a house sale takes longer than expected. For example, the home inspector may identify things that need to be repaired for your home to sell quickly. On the same note, the prospective buyer may have difficulty getting approved for a mortgage to buy your house.

Therefore, you shouldn’t really bank on selling your house and buying a new one immediately. Rather, you’d want to have a plan B to make the time between the closings as short as possible.

When you are selling your home, you have various options that can make your move easier. For example, you can draw a rent-back agreement with the buyer, which will allow you to remain in the house for two to three months after closing the sale. In return, you can offer the buyer a lower selling price for the house.

A rent-back agreement can reduce the pressure of moving to a new house, and leave you with more time for house hunting.

Prepping Your House Before Selling It

Here are some steps you can take to prep your home before purchasing a new one:

Plan Your Schedule

Selling and buying a new house almost immediately is a challenging task. However, you can hire a professional to make your work easier.

Start by asking an experienced real estate agent that understands the intrigues of buying and selling a house in your area. The agent can explain the real estate trends in your areas, which can indicate how long your home will stay on the market and the amount it is likely to fetch.

When you understand the real estate trends of your local market, you’ll know the timeline to expect, how much you can afford to pay for a new house, and whether you’ll be able to move at once.

Prep Your Home for Sale

The next step is preparing your home for the market. Follow the tips below:

i) Find a Professional Realtor

Interview different real estate agents that can help you with both selling your home and finding a new one to buy. You need an experienced agent that you can trust. The agent should have a proven success record in handling the size of the transaction that you would be involved in.

Ideally, you should hire a local real estate agent rather than one from out-of-town. Local agents are in touch with the happenings of the local industry and may have access to house gems that out-of-town agents wouldn’t know about.

ii) Get Your Home Inspected

Get a reputable home inspector to evaluate your home and fix anything that can help to improve its value when listed. You can also inspect the home on your own to save on the inspection time as well as money.

Get the House Ready for Sale

At this stage, you should no longer be attached to your home. You’ve already decided to put it up on the market for sale. Get the house professionally staged to create an inviting atmosphere. Staging the home can make or break a deal when prospective buyers come for a house visit.

Also, get the house smelling nice and clean. You may want to hire professional move-out cleaners to get the house sparkling.

Finally, don’t forget to improve the curb appeal. Your home should look nice on the outside for it to generate interest when listed on online real estate portals.

Price the House Right

The current real estate trends should help you know how much prospective buyers would be willing to offer for your home. If you price the house too high, most prospective buyers will pass it without taking a second look.

You may be emotionally attached to your home, without knowing, and the price is too high. However, if you really want the house to sell fast, you have to price it right. Consult a real estate agent to research and find out how many homes that are similar in size and design to yours are selling in the area.

With a little help from a professional real estate agent, patience, and some grit, you will sell your home in no time. Follow the guide above to prep your house for selling while planning to buy a new one.

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real estate

My Rental Real Estate Plan

by Evan

There are two huge benefits of this blog (actually the two reasons that keep me coming back and I haven’t sold the site for good).  The first is that I can think through an issue while I write it out.  Sometimes that just leads to a garbled mess and other times it allows for clarity to present itself.  The second is that I get to read my mindset years and years later.  For example, it is always funny to me when I look back and review my first thoughts on starting an investment club (which is still active by the way), and then all the subsequent updates.

Well this feels like one of those pivotal moments in my financial life that could change the trajectory of my finances so I might as well sit down and right down some thoughts!!  I have been talking about owning rental property for years (and years).  For a variety of reasons nothing ever came to fruition, until last month!

Why I Want to Own Rental Real Estate

As part of my main job, I have looked at a lot of balance sheets and have run a lot of retirement runs over the past 12 years, and real estate does something pretty amazing to both of those reports.  Almost every high net worth balance sheet that I have seen has one or two (if not both) line items – Real Estate and a Business.  Trading your time for money is a very slow way to retirement nevertheless building intergenerational wealth.  Since there is no larger than average business in my future real estate is where it is at!

I have always wanted to build multiple streams of uncorrelated income, and rental income seems to be a fantastic addition.  One day I’ll be able to turn on that income which is likely uncorrelated (or a very low correlation) to whether I have a job, or whether the market takes a 2008 like hit.  Similarly, I look at my dividend stream of income as uncorrelated to whether the rental market in my area undergoes a correction.

How I Came to Own my Current Rental Property

When we decided to move, The Wife and I had a very specific semi-lateral move in mind that would keep my housing costs in check.  Keeping our housing costs near what we had was important to both of us as neither of us wanted to be “house poor.”  We enjoy the flexibility in our discretionary spending.  FIRE is not, nor has it ever been, a goal of mine (or more specifically the RE part).

Well as the saying goes, “Men Plan and God Laughs.”  I did not get the number I wanted for my home, but while we were realizing that fact The Wife fell in love with the new house.  As such, my “waiting it out” period became significantly shorter.  Knowing that I always wanted to own rental property, The Wife came up with the idea of leveraging the new house in favor of keeping the old house up and running as a rental.  Whenever rental properties came up she was a little apprehensive, so for her to push it was exciting to me.  Deep down I think she pushed it so I wouldn’t completely freak out on her about the move, rather than her actually loving the idea.  Regardless, I was all in!

How I am Going to Run OUR Rental Real Estate Property

First thing I did was put the idea out to about 8 buddies.  I gave all the facts:

  • Monthly nut was about $3,100 – $3,200 (Mortgage, Taxes, HELOC and Insurance);
  • I already found a renter (newly/nasty divorcee that wanted to keep herself in the school district);
  • Since I was 6.5 years into the mortgage every time a mortgage payment was made there is about $800 or so in equity build up;
  • Roof may go inside the next few years;
  • I am not negotiating on price; and
  • I was willing to sell up to 49%.

These particular buddies showed an interest in investing in real estate and are local.  While I plan on being the face of the operation there may be times where I need someone to lean on.

There were two in particular (JT&Jx2 – put here for my purposes) that I thought would jump at the opportunity, they did not for their own reasons. JT, wanted a bigger project/better cap rate.  In my opinion he is more of a high risk high reward, hit the home run kind of guy rather than slow and steady.  Jx2 is going to have a liquidity need (new, bigger main residence purchase) in the next 4 to 6 years and I obviously couldn’t guarantee a buy out before that.  The two that jumped in were one of my siblings and a life long friend.  I put these two on the deed, so they are true owners (10% each).  We had a joint venture agreement drafted and executed so common speed bumps that may occur have predefined outcomes prior to said speed bump (i.e. a minority partner passes, someone wants out, I want to sell, expense occurs, etc.).

Since I have 2 partners it becomes very important to keep good records.  When discussing how to run the operation for the foreseeable future this is what we came up with is using all current positive cash flow to pay down the HELOC.  This provides two benefits.  The HELOC is going to serve as our “emergency fund” it has a cap that we are near.  The quicker we pay that down the quicker we build that cushion should anything go wrong.  Second, the quicker we pay it down the faster we are growing our equity (with less money going towards interest).

I am not exactly sure where this whole adventure leads us but I am excited to find out!

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real estate

Another Housing Update – I am Now a Landlord!

by Evan

Things have taken a very interesting turn in my world with regards to my home sale.  However, prior to getting into all the numbers, I think it may be prudent to go over what has occurred in the past year or two with regard to my primary residence and then my search for the perfect rental home.

The Wife and I saw some very interesting things happening in our tiny real estate market on Long Island back in the beginning of 2018. Our first inclination was to put it on Zillow’s “Make me Move.”  We didn’t get the traction or responses we thought.  Side note: I don’t think the market is there yet, but realtors hear me now, this service and others like it are your future.  Being a real estate agent in 2028 years is going to be the equivalent of a taxi driver in 2018, but I digress.  The Wife and I decided at that point to put the hold on the sale side until we found something we loved.

It took a lot, and I mean a lot, of open houses and even a few failed negotiations to end up with a house we finally wanted to move forward with, and even after finding said house the negotiations thereof didn’t exactly go as planned (like they ever do).

Sometime between that first and second post we decided to move forward with the sale of our home.  Despite having 3 different brokers tell me that the sale price of my home wasn’t going to be a problem, it was a problem.  The Wife and I reduced it $20,000 before both partners at my firm said something to me, independent of each other, that really resonated with me:

  • Partner No. 1 – “At some point your broker becomes worthless.  If you believe you can sell your home for $X without her, then save the 4%.”
  • Partner No. 2 – “Just put it out to the world that you’d rent the home, and make the rent a big enough cash flow positive gap versus cost that you are covering at least some of your new home’s increased cost.”

Both were absolutely correct.

To the first partner’s point, I was going to pay the broker 4% which would be somewhere in the neighborhood of $24,000 (4% of $600k).  That is a shit ton of money anyway you slice it and after being on the market for 45+ days she honestly just did not do her job.  Maybe it was a case of over-promising and under delivering, but it left me with very angry feelings.  At some point I could sell my house for $585k instead of $600k and still net more without her ridiculous fee.

To the second partner’s point, I have talked about owning rental real estate, both on this blog and in real life conversations for a long, long, long, long time.  Maybe this could be my chance if the numbers work (and they obviously do given the title of the post).

Finding a Tenant for my Long Island Home

Just to test the water I put the home on a few sites including apartment.com and Craig’s list, the emails started to flood in!  Some were not a right fit at all including a mother/daughter duo that came to see the home and in broken English actually asked me, “how many people can fit in the home?”  My response was “1 family, how many people are in your family?” The Wife immediately shut that down as she wasn’t comfortable doing that to our neighbors and community.

Our luck changed once we put it out to the community.  We were immediately contacted by a woman that The Wife has had a few interactions with.  She shared with us that she is getting divorced and needs out of her house.  She has 3 kids and wants to keep them in the school district.  I told her the price (numbers discussed below) and insisted on first month’s rent, last month’s rent and security thinking it may dissuade her.  It did not.  We gave our broker one more weekend to figure her shit out.  She did not. I then had to “break up” with my broker and she was not happy, but it is what it is.

Running the Numbers on Renting my Old Primary Residence

Between mortgage, insurance, taxes and a HELOC payment I am looking at about $3,100/mo of operating costs. I am currently charging $3,500/mo providing me a little bit of a cushion which will help with the new home costs since I will still have a large part of my net worth still locked up in the walls so it can’t be put down.

In addition, and as important, I am 6.5 years into a 30 year fixed mortgage.  This means every month more and more of my payment is going to principal rather than interest.  Last month for example of the $2,800 I sent to my primary insurance mortgagee about $800 went to principal.

In addition, I came up with this plan that I have since offered a few of my buddies that I have talked about getting into real estate.  I offered them an opportunity to buy into the equity of the home.  There are a few major pros and cons with doing so that I explained in full as to avoid any confusion later.  To date, I have not solidified any deals, so we’ll see if this goes anywhere.  Whether it does or does not this plan has way too much steam behind it for anything to change at this point (nor do I really want it to).

Running the Numbers on the New Home

Originally, I shared my plan,

  • $485,000 home with an original $385,000 mortgage at 3.375% for 30 years (fixed);
  • Taxes of about $12,500
  • HELOC has about $100 of interest owed monthly

All in I am looking at about $3,100 a month for housing.  The way I figured it is if I found a home for about $700,000 and I sold my house for $600,000 (net of broker’s fees) my life wouldn’t change all that much!

  • Current house, verbal accepted offer is at $685,000
  • I currently have $240,000 of equity in my home ($600,000 minus $330,000 left on the mortgage and $30,000 for my HELOC).
  • If I put $200,000 as a down payment and I get a 4% 30 yr fixed I am looking at a payment of $2,400/mo (assuming $40,000 went to waste, taxes, attorney’s fees, and some upgrades).
  • My Taxes are about $15,000 (up from $12,500)
  • So my monthly nut changes from $3,100 (P&I and Taxes + HELOC interest) a month to $3,650

Well, as the saying goes, man plans and God laughs.  As I sit here today, I have put 5% down from my HELOC on the new home, and I can’t come up with anywhere near $200,000 down as the equity is still tied up in the rental.  Right now I am getting approved for only 10% down which is obviously way less than the 30%+ I had planned.  Notwithstanding, I think it may be premature to share the home numbers because I am not exactly sure what, if anything, I am going to liquidate to bring up my down payment beyond 10%.  When I get my final numbers I’ll share them, but for purposes of an example:

  • $685,000 house with 10% down gets us to about a $615,000 mortgage
  • I have been approved at 3.875% which gives me a P&I cost of about $2,800
  • Add in taxes of $15k/12 ($1,260) – and I am at about $4k!
  • Now we add in PMI, Homeowner’s Insurance, and I am looking at about $4,400
  • Minus the $400 or so I’ll receive on the other property and I am at $4,000 (vs $3,650 originally estimated).

Not terrible, since I’d be building equity paid by someone else.  Again, this could all change by the end of the month depending if I plan on putting more down to get me closer to my original estimates.

Phew! To say it has been a stressful past 30 days or so would be an understatement! 

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House Made of Money
real estate

Selling Your Home? Avoid these 5 Common Mistakes (or Else)

by Evan

Arthur Miller, the patron saint of geeky playwrights who end up marrying unbelievably hot women, once sagely observed that in life “maybe all that one can do is hope to end up with the right regrets.” Well, one assumes that Miller ended his days thrilled with regrets about hooking up with Marilyn Monroe. Even though their tumultuous marriage only lasted for five years, we’re talking about Marilyn Monroe here. What more needs to be said?

However, one also hopes that Miller didn’t experience the all-too-common regrets — which are 100% miserable and never edifying — associated with selling a home. Here is a look at the 5 biggest laments:

  1. Pricing it too high.

Sorry to be a dream squasher here, but nobody cares how much you love your home, or how much sentimental value it holds for you. You need to price your home based on legitimate comps; not fantasy or hypothetical comps. Otherwise, it’s going to sit on the market, and not all of the advertising in the world — websites, social media, car wraps, billboards, skywriting, you name it — is going to move the needle.

  1. Getting insulted by what you perceive as a lowball offer.

Don’t get offended by what you perceive as a lowball offer. You aren’t paying to get the offer. It’s free. Take it, leave it, or counter-propose something else. As is highlighted here, at the end of the day this is a business transaction. Treat it that way and you’ll be fine. Fail to treat it that way, and you’ll probably need therapy to deal with the emotional wounds.

  1. Your Realtor sucks.

In every profession — medicine, law, teaching, and alas, real estate — there are people who have an abundance of skill and talent, and folks who just plain suck. Good Realtors are responsive, attentive, detail-oriented, focused, and realistic. Simply put, they add significant value to your experience and earn their commission. As for Realtors who suck, well, what’s there to say? They suck! They don’t return calls and emails in a timely manner, and they expect other Realtors to sell your home instead of them. If you find yourself saddled with a Realtor who sucks, then exit the agreement at the earliest possible opportunity.

  1. Spending too much on home improvements.

Yes, all else being equal if your home “shows better” than a comp, then it should sell faster and for a higher amount. However, this doesn’t mean that you should spend hundreds of thousands of dollars on a new kitchen, new bathrooms, and finishing the basement. Expert renovators say that you should expect to get about 50 percent of your costs back on selling (and that’s in a good market). What’s more, some home buyers have their own vision of what a perfect kitchen or basement looks like, and it doesn’t align with yours. The moral to this story? Work with your (great) Realtor to identify high-impact renovations and improvements, like replacing or painting the front door, or giving some rooms a long overdue paint job.

  1. You’re holding on to clutter.

The other — and usually more accurate — word for clutter is “crap.” Like those jet skis that you bought 10 years ago and won’t throw away, because “you never know when you’ll go jet skiing,” or that Ronco VegOMatic that is still in the box (damn those persuasive infomercials!). If you can’t bear to permanently part with these beloved items, then at least haul them to a self-storage facility. The last thing you want is for prospective buyers to get immediately turned off because they feel they’ve wandered into a museum of stuff that time (and everyone else for that matter) has forgotten.

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House Made of Money
real estate

I May Be Moving Again!

by Evan

I get reminded about it every 6 to 9 months, but one of my favorite things of running a blog for the past 10+ years is the ability to rummage through my archives and put myself back in that situation.  Prior to writing this post it was kind of cool to take a look at some of my older posts about moving from my first home to our current home and all the things that went into it – selling my first home and the emotions thereof, and then subsequently buying our current home (along 5 or so updates during that time when I was blogging a lot more).

Our Current Home and Why We Are Selling

The Wife and I, love our current home, the area we found and the relationships built there.  Tonight, I got home about 6pm since I am only about 40mins from the office in Long Island rush hour traffic.   Sat with everyone for dinner, then had a 25 minute indoor lacrosse catch with my son as it was raining (future Evan may laugh but this weekend we made up a game called DaChrist with very specific rules which only seem to be getting more complicated and it has only been 4 days).  Then got back to our kitchen table for a game of Uno with both kids.  After a quick episode of “Billions” I am writing this post with a glass of scotch.

The home provides us ample space to host a large BBQ  in the backyard or NYE parties inside with probably close to 50 or so people in either situation without being tight.  All while being very affordable with regard to my income and ridiculous Long Island housing costs.  Even if I lost my job tomorrow, I am pretty sure keeping the house wouldn’t even really be an issue.  So why are we even thinking about leaving?  Back in February of 2018 The Wife couldn’t ignore what was happening in the local real estate market, and it started to make us really think about what we don’t love.  There are three reasons as to why we even have given any thought to leaving the home:

  1. Our street is busy – we moved from about 15 miles away which for Long Island might as well be 50 in some parts of the country.  As such, we did not know our street was a cut through street connecting two semi-busy roads.  This leads to some annoyance in having to worry about the kids in the front.  I get there are a portion of people reading this shaking their head.  No, I don’t live in the middle of Manhattan, my kids aren’t playing next to 2nd avenue, and yes, there are kids that survive that – The Wife and I just don’t want to worry about it as they get older.
  2. Property – Currently our home sits on a quarter-acre, and I get that the property may seem HUGE or TINY depending on your experiences.  For us, it seemed massive when we moved here, but when we started to look into adding a pool things got tight.
  3. Upgrading our home didn’t seem worth it – Given one and two on this list, The Wife and I chose to upgrade some things while leaving others alone.  We kept justifying, it wasn’t “worth” doing X because this wasn’t our forever home given number 1 and 2.

So weighing out our love for the home and the above negatives about it and given that early last year The Wife and I noticed a ridiculous upswing in the real estate market where we live it inspired us to take a hard look.  I put my home up on “make me move” but nothing really came of it, however, The Wife and I kept looking.  The problem where we live is there are just not a lot of home within the school district (which was a non-negotiable for either of us much to my father’s chagrin). Since February of 2018 I can’t even venture a guess as to how many homes we saw, but it had to be at least 60 to 70 seen in person (not just shared links with one another).

We put in offers, got counter offers, walked from some and were rejected on others.  One story in particular I have to tell on here, if for no other reason to memorialize it so I can remember it at a future time (like the red ball game):

  • The Wife and I see a house on Gina Drive (I will need this later when I google to see what happened to it lol).
  • The asking is $700,000.  There are a TON of trees on this particular property so I have a tree guy stop by and tell me it is going to be upwards of $40k to get the trees removed.  So I offer $650,000. I then have this interaction with the broker:

  • So we assume that this was dead – I wrote a post about being insulted about a real estate offer and kind of moved on.
  • About 2 or 3 weeks later, we get an automatic notice that they dropped the asking from $700k to $630k! LESS THAN WE ORIGINALLY OFFERED.
  • We contacted them again and offered them asking, $630k.  They turned it down and then took an offer a month or two later at $575k! As I wrote this post, I have no clue whether the broker was just terrible at her job, or if the homeowners were bat shit crazy.

Nonetheless to say this has been a process would be an understatement.

The New Possible Purchase

First and foremost, I say possible because of the date of this post we just have a verbal commitment.  I have my attorney talking with their attorney, and only have a voicemail into my engineer/home inspector.  I haven’t even started the pain in the ass that is applying for a mortgage.  There are probably 10 or 15 things that could go terribly wrong between now and me writing a post about “my new home.”

First the bad.  The home is not an upgrade in terms of actual size and structure. Actually, I would say it is almost the exact same home, maybe even a little smaller! The good, I am fixing all three of my “cons” above without changing much in my life.

  1. The home is on a quieter street.  It is not a dead end cul de sac, but nor is it something I have today.  For you to want to use the road you have to live close by, as it isn’t convenient for anyone else.
  2. I am getting a much larger property.  The lot is one-half acre, which means I am getting about 75% more backyard (assuming the structure and front yard takes up 25% of the total property).  Most of the neighbors have a pool without losing all of their grass.
  3. With the other two things fixed, The Wife and I are more likely to fix things up (and have already started talking about doing things to the home).

My Boss, who is like a friend and mentor to me, said it best – I am getting all the steak but very little sizzle and that should be okay! I am fixing major problems but the home wont’ have that “wow” factor.

The Finances of the New Home

As we started and lived through the process the most important thing to The Wife and I was that our financial life didn’t change too drastically.  We like our life.  Last year we went out multiple ski trips, traveled with the kids to Mexico and even took a trip to Ireland ourselves for our 10 year anniversary.  We just don’t want to feel like I had to take a different job or be house poor.

This house meets that main objective.

While I have never shared my net worth on this site, I have been very open as to my housing costs.  Our current situation is as follows:

  • $485,000 home with an original $385,000 mortgage at 3.375% for 30 years (fixed);
  • Taxes of about $12,500
  • HELOC has about $100 of interest owed monthly

All in I am looking at about $3,100 a month for housing.  The way I figured it is if I found a home for about $700,000 and I sold my house for $600,000 (net of broker’s fees) my life wouldn’t change all that much!

  • Current house, verbal accepted offer is at $685,000
  • I currently have $240,000 of equity in my home ($600,000 minus $330,000 left on the mortgage and $30,000 for my HELOC).
  • If I put $200,000 as a down payment and I get a 4% 30 yr fixed I am looking at a payment of $2,400/mo (assuming $40,000 went to waste, taxes, attorney’s fees, and some upgrades).
  • My Taxes are about $15,000 (up from $12,500)
  • So my monthly nut changes from $3,100 (P&I and Taxes + HELOC interest) a month to $3,650

$550 is completely doable and this doesn’t even take into account that my daughter enters kindergarten next year which clears up $475 a month!

Change is Scary

Any kind of big move like this is such a high risk, high reward type of decision.  I do not like those types of decisions, but we are going to give this one a go! I’ll update accordingly.

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