Zillow says your home is worth $535,000. The assessor says $405,000. You think your house is worth $750,000. What is your house worth? Whatever a buyer is willing to pay for it. Market conditions drive pricing. In the current climate where there are thousands of homes on the market, buyers have the edge. Buyers have more houses to choose from so a seller needs price their house competitively or ensure that the house has added features over and above other similar houses. 

If there are twenty homes in a neighborhood for sale that are equal in pricing and size, buyers will look at other things. Does the house back to a park or a busy street? Is the kitchen upgraded or does it need work? Is the upgrade worth the increase in price or is the buyer better off staying in the lower price range.

If everything else is equal, the buyer will purchase the home that has the lower price.

How do you set your price?

1. Get a good comparative market analysis. What has sold in your neighborhood in the last three to six months? Your Realtor can provide that information. You will also want monthly updates once your house is on the market to determine if you need to make additional price adjustments.

2. Look at your competition. If the house next door is of similar size and in the same condition, don’t price your house $20,000 higher. On the other hand, if the inside is painted black, you may be in good shape. This is a good time to visit all the open houses in the neighborhood.

3. Determine how long you are willing to wait. The higher the price in comparison to your competition, the longer the house will sit on the market. If you are looking for a quick sale, price it fairly or even a little below market.

The most activity on a home is usually when it first goes on the market. The more buyer visits you have, the more likely that someone will find your house to be a good fit. If it’s time to make your move, take the necessary steps to price it right.

Share This

They buy ugly houses. Call a 1–800 number and they will take a house off a seller’s hands for a hefty discount. Then, contractors fix up the house, sell it for market rates and make a great profit.

Have you ever considered buying the ugly house, doing or managing the work yourself and ending up with good home equity?

Many of these houses only require cosmetic changes.

Can you paint? Can your local home improvement store install carpet and kitchen cabinets? Can you have a granite company complete the countertops?

Steps to Using Your Elbow Grease to Build Equity:

1. Look at the bones of the property, not the design features.

Most people want a house that is move in ready and will pay market rates for that benefit. If you are looking to build equity, you will have to look past the wild paint colors and stained carpet to see the possibilities. Look at the “bones” of the house. Is the building in good shape or will it require significant structural work?

2. Get an inspection.

A good inspector will provide you with a list of things that need to be corrected, but also recommend what specialized inspections should be completed. Complete the specialized inspections that are recommended if those areas would require a large capital outlay to correct problems.

3. Know your limits.

While knocking down walls and moving plumbing may be beyond your skills, hiring professionals to handle complex construction may not. Make sure you include the additional costs in your repair/replacement budget.

4. Take into consideration your situation.

If you work eighty hours a week, is it realistic for you to have the time to dedicate to remodeling a kitchen? You may have a general contractor who can oversee the work and get it done for you. Do you have small children who would be jeopardized by living in a construction zone? You may be able to rent a place or stay in your current home while construction is completed to ensure the safety and convenience of your family.

5. You make your money when you buy.

Don’t overpay for a home that requires extensive work. Your Realtor can assist you by providing information on what the house will be worth once the work is completed. You will need to determine the cost for repairs. Have your Realtor add a section into the contract that allow access to the property for your contractors to give you estimates for work that needs to be completed. You’ll want these estimates completed before the inspection deadline has passed.

6. Don’t overimprove your property.

It is easy to go overboard with granite, marble and very expensive fixtures. Be realistic. What features do nice houses in your area have that will help you sell your property in the future? Don’t put a $50,000 kitchen in a $100,000 house. You’ll never get the money back.

7. Work with reputable contractors and get your agreements in writing.

Many people have lost lots of money on shady contractors. Do your homework. It may be worth it to pay more to an established company with a great track record than to someone who won’t do the job right. Make sure to get it all in writing. If it is not documented, it didn’t happen. The Denver Better Business Bureau has tips for hiring the right contractors.

There are many houses available in this market that are getting passed over by buyers looking for a move-in ready house. One of those may be a house that will help you build your equity and your future with just a little elbow grease and a good imagination.  

Share This

Part of curb appeal includes having landscaping that includes beautiful trees. The Denver Digs Trees Program allows residents of Denver to receive trees for $20.00 each to add to the section of their yard that is in the public right of way. If you are unable to afford the $20.00 fee, you may be eligible to receive a free tree through the “Treeship” program.

 The Park People sponsor the program. The organization is a private non-profit group who works to preserve, enhance and advocate for Denver’s parks, recreation resources, open space and urban forest.

 There are three steps to get a “street tree”.

 1. Measure Your Property

 To be eligible for a new tree, the location where you will be planting must meet these space requirements: 

There must be at least 30 feet between trees (except for existing dead, failing or over-mature trees that will be removed within three years

The tree must be planted more than 10 feet away from driveways, alleys and fire hydrants

At an intersection, trees must be planted more than 30 feet away from the corner

Trees must be planted at least 20 feet away from street lights and stop signs

A distance of 5 feet must be maintained from buried utility lines 

2. Complete and Submit a Street Tree Request Form

 Applications must be turned in by March 9th, 2007. In early April, you’ll receive a confirmation letter to let you know if you’ve been approved and where to pick up your tree.

 3. Pick up Your Tree(s) on Saturday, April 21st between 8:00am-10:30am.

 The tree(s) must be planted right away.

 This is an annual program. If you miss your opportunity this year, plan to participate in 2008. For further information, you can contact The Park People at 303-722-6262, or visit their web site: www.theparkpeople.org.

Share This

Life is on an even keel, the children are doing great at school and you are really enjoying your work. Then you receive a letter from the mortgage company stating that your payment is increasing by $400.00 a month. What was a little tight before has become a potential crisis.

Months later you and your family have had several unexpected expenses. Before you know it, you are a couple of months behind on your house payments and you are not really sure how to dig yourself out.

Help may be on the way in the form of a new Colorado Foreclosure Hotline:

1-877-601-HOPE

It is important to know what to expect. You can get that information by calling the Hotline. The Hotline will connect you to a professional housing counselor. These professionals will help you and your family navigate the foreclosure process and act as a facilitator between you and your mortgage company. Having support and good advice during this difficult time can make a huge difference.

The Hotline was established by both public and private sector support. The partnership includes JP Morgan CHASE, the Colorado Division of Housing, The Colorado Division of Real Estate, the Colorado Association of Realtors, the Colorado Attorney General’s Office, The Colorado Housing Counseling Coalition and a variety of other public and private groups concerned about the effects of multiple foreclosures on the community.

Help may be on the way. Make a phone call and ask the right people.

Share This

As of February 2007, there were 24,838 residential properties on the market in the Denver metro area.

It is easy to get overwhelmed by the numbers. By narrowing your home search, you can truly focus on the properties that meet your needs.

Remember, the first home or two that you buy will ultimately help you in the journey to your dream home purchase. For now, identify the property needs, or those things that you can’t live without. Wants are features that are nice to have, but may not be critical in early home purchases. How does a buyer narrow the search?  Here are seven questions that will help you define your needs.

1. How many people are in your family and how many bedrooms and bathrooms are required to give you the necessary space to live? Not everyone may need their own room, but it may be difficult to share one bathroom with more than a few family members.

2. Are schools important?  If so, you may want to consult School Accountability Reports to identify a school that will meet the needs of your children.

3. Does your daily commute require that you live close to work or to transportation routes? The expansion of RTD Routes and Light Rail is already increasing development along Denver metro transportation corridors.

4.  What can you afford? Before you begin your home search, meet with your mortgage professional to narrow down your financial parameters. Keep in mind, there is a difference in some cases between what you can qualify for and what is a reasonable amount to pay that still leaves you with money for other priorities. It may be best to begin conservatively.

5.  What do you like to do in your spare time? If you are a student, enjoy outdoor activities, love to attend plays or other social activities, it may be important to be close to these events or locations. Do you love to travel? Being within an hour of Denver International Airport may be more convenient than if you are hours away.

6.  What do you love to do in your home? If cooking is your passion, a kitchen with counter space may be a necessity. If you love to entertain while you cook, the kitchen may need to be open to the family room or dining room. Since visitors tend to congregate in the kitchen, the rule is the bigger the better. If you love to tinker in the garage, you may want to increase the garage size from two car to three. Define your hobbies and interests and determine what additional rooms may be needed to support those regular activities.

7.  What style of home do you prefer? If you’d rather not walk up and down stairs on a daily basis, you may want a main floor master bedroom and a main floor laundry. A condominium or townhome may better fit your needs if you are not interested in taking care of a yard. You can still have a wonderful container garden without having to mow the lawn every week.

Use these questions and make note of your responses. After you make your all inclusive list, narrow those needs to the five most critical and understand that there is no 100% perfect house. As you view homes with your Realtor, focus on the five critical needs to confirm that you are looking at the right houses. While your dream home may still be a way down the road, you will at least choose a house that is a good fit for the next few years. Happy house hunting!

Share This

When the time comes to sign on the dotted line to buy and/or sell your house, you will be working with contracts developed and approved by the Colorado Division of Real Estate, although there may be a few exceptions. The division’s mission is “to promote a balanced and sensible approach to regulation that protects the public interest and supports economic growth.” As part of this mission, they review contracts annually and make any needed modification based on input from the public and a variety of other sources. Are there sections that are confusing or are complaints being made in certain areas where more clarification can help?

Here are some of the contracts that will most likely be used during your real estate journey. In some cases, you may use all three.

Share This

Now is a great time to invest in real estate.

There are great deals on the market that range from fixers and foreclosures to brand new construction and nice homes with owners needing to move.

Many of those considering their first journey into real estate as an investment look strictly at cash flow when they evaluate a property and overlook the other areas that make real estate so attractive. There are four primary areas to focus on when looking to real estate as part of an investment portfolio. Cash flow is only one of those areas. 

 1. Cash Flow

We may end up with a positive cash flow on a new investment property. However, it may not be the case in many transactions unless we put more money down. As a matter of fact, you may find yourself in a negative cash flow situation. However, if the rate of return is good based on the other three areas, the investment may still be a good move. It all depends upon what you are trying to accomplish with this purchase.

 Example:

 I’m looking at a property that fits my initial investment criteria as far as location, size and price range.

 The house costs $100,000 and after a 20% down payment, let’s say rents just cover our operating expenses and mortgage payments and that the property does not generate a cash flow for us at this time. So our rate of return essentially on cash flow is zero for the first year. As rents increase in value, I should begin earning a cash flow in future years. 

Our cash flow with this example gives us a 0% rate of return on the $20,000 initial cash investment.

2. Property Appreciation

While properties may not be appreciating by double digits these days, the majority of homes are still experiencing a moderate increase in value. So, why would we invest in property when it only appreciates 2% and I can get 3% earnings on my money in a money market account? It is called Leverage.

 Example:

 So, I’ve put $20,000 down on my $100,000 property and my house appreciates by 2% the first year I own it ($2,000). The house is now worth $102,000. The cash that I have in the property is not $100,000, but only the $20,000 I put down. I earned $2,000 on a $20,000 investment. That is a 10% rate of return. If I put $20,000 in a money market earning 3% (simple interest) I would only have earned $600 instead of $2000. That is the power of leverage or using borrowed money to make my purchase.   

Our first year property appreciation at 2% gives us a 10% rate of return on our $20,000 initial cash investment.  

 3. Tax Savings

The federal government, surprisingly enough, encourages investing in real estate, so they sweeten the pot by allowing us to depreciate the improvement value of the property. (The IRS limits the use of the depreciation tax benefit for people with an adjusted gross income over $100,000 and you may have to pay these deferred taxes when you sell the property unless you qualify for a 1031 exchange which defers your taxes. See your tax professional.)

What does that mean? The IRS anticipates that the property (house) will slowly deteriorate over time and that the life span of a house is 27.5 years. You may be able to deduct 1/27.5th of your improvement value each year off your taxes.

 Example:

 My $100,000 investment property includes $20,000 of land value. (The assessor tells us what our land values are when they assess our taxes.) The improvement value, or the house (land does not deteriorate) is $80,000. I can depreciate this amount based on a 27.5 year cycle, or $80,000 divided by 27.5 years = $2,909.09. I may get to deduct $2,909.09 off my taxes every year for 27.5 years. If I am in a 30% tax bracket, that saves me about $872.00 in taxes.

Our first year tax savings of $872.00 and gives us a 4.36% rate of return based on our $20,000 initial cash investment.

 4. Loan Reduction

If you have a loan where a portion of principal is paid each month, the rents you receive will help pay down your loan balance.

 Example:

I have borrowed $80,000 to purchase the investment property. If I have a 30 year fixed loan at 7.5%, in the first 12 months my loan will be reduced by $921. Each year, the amount of principal paid will increase and my returns will be higher. Now I have an additional $921 in equity that I did not have when I made my purchase.

Our first year loan reduction in my loan balance of $921 gives us a 4.6% rate of return based on our $20,000 initial cash investment.

SUMMARY

Cash Flow–     $0 = 0% Rate of return on cash flow

Appreciation–     $2000 = 10% Rate of return on appreciation

Tax Savings–     $872 = 4.36% Rate of return on tax savings

Loan Reduction–     $921 = 4.6% Rate of return on loan reduction

Total Rate of Return on Investment      $3793 = 18.96% Overall First Year Rate of Return

My total first year return on the example investment property that is not generating a positive cash flow is 18.96%.

While this is a bit of a simplistic example, we would want to include closing and other initial property improvement costs in our calculations, you get the idea. This example also does not take into consideration purchasing the property for less than market value.

Determine what you want to accomplish when purchasing real estate as part of your portfolio. Do you need immediate cash flow to supplement your income or are you looking for a long term investment?

Take into consideration all of the areas where you may benefit as you evaluate whether or not an investment property is worth purchasing. Don’t leave a great property on the table if it is going to make a considerable contribution to your investment plan.

 There are many valuable sources for information when you are looking to educate yourself on investing in real estate. Two of the many books that are in my reference library are The Guide to Making Millions Through Real Estate by Lisa A. Vander and Rich Dad Poor Dad by Robert Kiyosaki.

 Always remember to consult with your tax, legal and real estate professionals when you evaluate a property to determine if it helps you accomplish your investment goals.

Share This

Visiting older Denver neighborhoods takes you into another world. Towering trees with bark patterns that beg a touch and homes that were built when horses were the normal mode of transportation are common place. We are lucky to live among daily reminders of the amazing history of Denver and its surrounding communities. Many Denver neighborhoods are designated historical districts that will require some additional approvals before a homeowner can make modifications to the exterior of their home.

The Denver Landmark Preservation Commission was established to designate, preserve, enhance, and perpetuate structures or districts or architectural, historical, or geographical significance within the city of Denver. If your home is in a designated historical district, you will be required to apply to the commission to make changes to the outside of your home. The design guidelines can be found on the Denver Landmark web site.  You may also be eligible for tax credits on the restoration of historically designated homes.

We purchased a home in the 400 block of Franklin Street in early 2006 (Lessons Learned on Renovating a Historic Home for Resale) that we planned to renovate. Our experience with Landmark was challenging, but good overall. Our builder worked closely with them to ensure that we could make the changes we wanted, while still staying within the boundaries of the guidelines.

Steps for a Successful Renovation

1. Down load a copy of the design guidelines before you hire an architect so that there is a very clear understanding of the requirements.

2. Hire an architect and/or builder that has experience working in historic districts.

3. Add several months to your project planning to include the additional time it will take you to work through the process.

4. Be willing to make some modifications to your design as recommended by Landmark staff members

5. Be patient. It took much longer to get our plans approved than we expected. We began the process in January and did not get our final permits until the middle of May.

 Despite the hurdles and the delays that occurred, we would definitely do it again. As I drive through historic neighborhoods that are experiencing this renovation, most of them still have the feel of old Denver. We talked to a number of the neighbors who have renovated their homes and had mixed reviews of the required procedures. If you don’t want to learn and live through the Landmark process, you can always purchase a beautiful historical home that that someone else has renovated. There are some fabulous homes out there.

 You can find more information on Denver neighborhoods and Colorado history at the Denver Public Library Western History/Geneology Department and the Colorado History Museum.

Share This

Drip…Drip…Drip…

The stream of water was making its way down my back and it was cold. I was standing on a covered porch at 424 Franklin Street and still getting dripped on. This small Denver bungalow needed some tender loving care to bring it back to life. A few months and three offers later, the house was ours. So began the journey of renovating for resale.

The ultimate goals in Renovating a Historic Home for resale include making a profit and creating a beautiful and livable home.

 In order to make our profit, we expanded the square footage from 2600 (including the basement) to 3900 finished square feet with the addition of a second story and an extended first floor. The house needed to complement the surrounding neighborhood and the construction plans required approval from the Denver Landmark Preservation District since this house was in a designated historic district. Finally, the finishes and layout needed to reflect what a million dollar buyer would expect.

 What we did right:

We selected the right people for the project team. Since this was our first project of this magnitude, we built our team primarily from referrals made by friends and business partners. Our team members are responsive, professional and have keep their promises.

The neighbors were part of the team. The neighbors were kept informed of progress at every stage and have supported the project from the beginning. Buyers may be referred by neighbors. In addition, we have let them know we are looking for another home to renovate. They may lead us to our next project.

The builder and designer have completed numerous successful renovations for resale. They know what sells and have played a key role in the renovation and design selections that have resulted in a beautiful house.

The property is in the right neighborhood. We did our research before we bought. This area just north of Denver Country Club is one of active renovation and restoration. Houses are still appreciating and selling despite a tough market. Our $1.2M house is down the street from others selling for double and triple what we are asking.

We bought at the right price. We were patient and only paid $5,000 more than our initial offer. There were other offers, but we kept firm and paid the price we felt was necessary to maximize our profits.

Taxes on our profits will be limited because we have held the property long enough to qualify for lower taxes. Our original intent was to quickly complete the home and get it sold. Our accountant was adament that we hold for over a year to qualify for long term capitol gains taxes. Landmark Denver requirements and minor construction delays contributed to meeting the timeframe.

We are going to make money. How much is yet to be determined, however, it is clear that we will meet our goal on what has been our first renovation.

 Lessons learned:

Keep within budget on design items. It is easy to get carried away. Our lighting and some of our other selections were well above budget. It looks incredible and was probably worth it, but we need to be more realistic about expenses. (The buyers will be thrilled.)

Our builder committed to a price that included construction and all design elements including appliances. Even the designer’s time was included in the price. We didn’t get nickled and dimed on the small stuff. While we spent more than we anticipated, it was under the 10% overage we expected. Those changes were made at our request with full knowledge, in most cases, of what the additional cost would be.

Write everything down. There was some confusion over the carpet color. We went into the house one day and the carpet company was installing a mysterious color of carpet. Mysterious, because it was a mystery on how we could have selected a carpet that contrasted in a terrible way with the rest of the colors in the house. The contact person at this unnamed company insisted that they were installing what we selected. It was an expensive mistake. It is our job to keep records. 

Design your plan with the sale in mind. The house is now on the market in January. The landscaping has been started, but is not yet complete because of the weather. If we can purchase at a different time of year and/or budget in extra holding costs to permit photos and listing during prime time, we can prevent trying to sell at the coldest time of year. It is easier to establish curb appeal when plants haven’t died back and are now in stick form. And…most folks aren’t interested in moving in the middle of winter although there is definitely less competition at this time of year.

Plan for a more realistic time frame. The house is located in the Driving Park Historic District in Denver. The Denver Landmark Preservation District (See Steps for Successful Historical Renovation) is required to review and approve plans for every house with exterior changes. There are only a handful of employees and piles of renovation requests. We were expecting six to eight weeks for project approval and ended up waiting almost four months. Also, construction took longer than expected and we are about sixty days beyond our original deadline. The good new is that we will save money on taxes.

 Looking for a great home in historic Denver? I have just the one.

 The house will soon have new owners who will make it home with furnishings and grand memories. It’s hard not to picture myself inside, but I know the house will be well loved and is a welcome addition to a wonderful neighborhood. Maybe next time… 

Share This