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Pros And Cons Of Buying A Flip
Pros of buying a flipped home Flipped homes have a modern design and move-in ready. This means that you don't have to worry about those outdated light fixtures or that old wallpaper. These homes are also vacant allowing you to move in as quickly as you can close the contract. Since the mortgage company helps finance the entire purchase your money goes further quickly. This is compared to buying a run-down home and having to come up with the entire amount of cash for the renovations or to make repairs. Flipped homes are often still cheaper than new homes, they also allow you to move in right away without waiting for months or even a year for a new build to finish construction. Cons of buying a flipped home flipped homes may cover up defects Homes that are flipped are often funded with hard money. Even in today's record-low interest rates, it is common for the rate to be 10% or higher. These loans are used as they can be funded quickly without the normal appraisal and bank record underwriting that usually occurs. However, the quick funding also means that the flippers want to move out of that home as quickly as possible. That means that things are rushed and mistakes may have been missed or covered up. These homes are also completed by investors which means they are looking to get every penny they can out of the sale. This means that you will be paying a premium price for the home compared to the normal listings. What is the 70% rule in house flipping? The 70% rule is that the purchase price of the property shouldn't be more than 70% of the ARV (after repair value) minus the repair costs. For instance, if the flipped home will sell for $150,000 and will have a $50,000 remodel. The flipper wouldn't want to pay more than 70% of $100,000 or in other words $70,000. This leaves the flipper with profit and some room if the remodel goes over budget. Not following this rule can end up meaning that the flipper breaks even or even lose money on the project. How to tell if a house is flipped? The first giveaway that a home is flipped is look at the property history, flippers generally will try to purchase the house, flip it and list it on the market within 2-3 months. If the home has only been with the owner for a short period of time, and the home was previously purchased much cheaper than it is listed it is very likely a flip. Other indicators to look at are, that the home is vacant but staged, has a nice coat of fresh paint and more. What should I look for when buying a flip? When purchasing a flip, it is important to look for defects or outdated systems. Although not sexy, a roof, HVAC, or other systems can cost big money when they eventually wear out. How much money do I need to flip a house? To flip a house depends on the scale of the flip however it can often take $50k-$100k of remodeling costs to remodel the house. This would be on top of the purchase price of the home which may require a down payment depending on your lender. Can you really flip houses with no money? It is possible to flip a house with no money! To do this will often involve using multiple investors. You can often find a hard money lender who will finance 100% of the purchase price of the home. It is important to remember that this money has a high-interest rate of 10% or higher and often involves paying points to fund the deal. From here you can get a second investor who can fund the remodel who will often like to take half of the profit. This means that you now have all the money that you need to start the flip and can still pocket a portion of the profits for your effort in finding the deal, managing the contractors, and ensuring it sells for top dollar! Some hard money lenders will even loan the entire purchase and remodel for 50% of the profits, they will likely however require some type of portfolio to show that you know what you are doing. To achieve this it might be worth finding some flippers and shadowing them or be an assistant for minimal pay. How to find a flipped house? You can find flipped homes by browsing the MLS (multiple listing service) and look for nicely renovated homes that are staged. One example is this flipped home that I completed in the summer of 2021. They also are likely to have a red front door as flippers know that red triggers the mind into making impulse decisions. Just think about your favorite fast food place and it likely has a red sign as well!
Common Lies From Real Estate Agents
Home Price When real estate agents work as a listing agent the asking price that the home is set at is extremely important. If the listing price is too high the home seller might have their home go stale on the market and people will wonder what is wrong with it. Realtors® will sometimes do this to secure the listing and hope that it sells or they can talk the seller down at a future time. On the other hand, the home could be priced too low in order to start a bidding war and reduce the marketing work that the agent needs to do. Although the home will sell quickly, it won't maximize the sale price that it should have obtained. This is because the bidding war will typically bring the home to the buyer's maximum price range but won't show up on the alerts for buyers who could afford the higher price. Pricing is very important and a good real estate agent will provide a comparative market analysis (CMA) for your home. This includes reviewing recently sold homes in your housing market and adjusting your home accordingly. This includes differences in square footage if it has air conditioning and the condition of the home to accurately assess its proper market value. Brokerage Fees Brokerage fees are the commission from the sale paid to the brokerage. If you are a home seller this means the amount that will be paid to the buyer's agent and the listing agent. If you are a home buyer, this is the amount that the buyer's agent will gain from closing the transaction. Many agents will negotiate their fees however it is important not to necessarily go with the cheapest agent. The cheapest agent may not be able to market the home to gain all potential buyers to get you the best price. Lenders Many real estate agents will talk up a lender that they use. It is however very important for you to also shop around. The reason why agents like to use their lender doesn't have to do with a good interest rate, it has to do with the lender being reliable to close the home and favorable referrals. Lenders give agents referrals and real estate agents do that back. Open Houses Many agents will state they will hold open houses to help expose your home to additional prospective buyers. This however can be controversial and actually rarely lead to a home sale. They do provide exposure to potential home buyers but often allow the Realtor® to gain new clients. In the real estate industry, the toughest part for many agents is to gain new clients and this provides them the visibility in a competitive market. Home Repair Costs All homes will have something to fix up. This could be anything from paint to large structural changes. Watch out if a real estate agent tells you that it's not a big deal or that the cost of a repair will be very low. Many agents don't complete rework projects themselves and it would be important to ask the agent if they have completed a similar project themselves. Another option is to have an independent contractor supply a free quote or do a quick cost estimator online. It is always important to have a home inspection and review the report in-depth and ideally be there during it. This piece of due diligence is important to ensure that you aren't left with a major headache after moving in. For Sale By Owner Home sellers pay the commission of the buyer's agent, however many homes that are for sale by their owner will not pay commissions. Many agents will continue the common lie that the for sale by owner could cause issues. This is because they may lose out on their commission or it would be heavily reduced. Many agents should explain this to potential homeowners instead of trying to have their clients lose out on what could be a good deal. Dual Agency Dual agency is when the broker acts with the home buyer and home seller at the same time. Dual agency is illegal in Colorado and a few other states however brokers can act as a transaction broker which is similar. Real estate professionals enjoy acting as a dual agent as they will often get a double commission than working as a single one of these. These transactions can often lead to savings on commissions for both sides of the transaction. However, it is also important that the agent is upfront that they won't be able to negotiate on your side. Since the agent is working both sides of the transaction you now won't have someone watching out for your best interest and would not be recommended for a first-time homebuyer. What is the most common complaint filed against realtors®? The most common lawsuit brought against a Realtor® is when they breach the duty to protect their client. Real estate agents are legally bound to act in the best interest of their client. This applies to both negligence and intentional actions. Real estate agents should document everything to make it very clear everything that has been disclosed. What should you not tell a real estate agent? Real estate agents generally work on a percentage of the sale price, because of this it is important to not share the max price you are willing to go and instead share the budgeted amount you would like to look at. You can always increase the price of homes you are looking at however if you start at a $600,000 home it will be difficult to compare to the more budget friendly $400,000 homes. Second thing to avoid is pressure situations such as an upcoming divorce or end of your lease. It would be important to keep these things to yourself so that you can't be pressured due to this timeline. The last thing to keep to yourself is your financials. A preapproval letter from a lender is all that you need to provide an agent where sharing what you have in the bank or your income could allow the agent to pressure you into a higher priced home. If you are looking for a friendly real estate agent in the Denver Colorado area, please contact me below!
How To Win A Bidding War On A House
Buying a home in a seller's market will inevitably end up in a bidding war against other home buyers. This is especially true in the Colorado hot market we have today where it isn't uncommon to have 5 or even 10 other bidders on the same home! These bidding wars are even more common for homes at the lower price range. This is due to the rapidly raising prices in the housing market making the lower end very competitive. Below are a few great tips to help make your offer the best offer among the crowd and allow you to secure your dream home! Escalation Clause Escalation clauses tell the seller you are willing to outbid other home buyers. It works by stating that you will beat any other offer's price by a set dollar amount. This is hugely beneficial to the home buyer since you will only pay let's say $5000 over the next highest offer. This prevents the home buyer from stating they'll pay $650k for a property that the next highest offer was only $620k. Contingencies There are lots of contingencies that can go into a home purchase contract however the most common ones are home inspection contingency and appraisal contingency. These contingencies don't have to be entirely waived but they can be weakened making a stronger offer to the seller. One example is that the home buyer puts in writing they won't ask for any home repairs that cost more than $2000. Another is that the home buyer will cover the difference if the appraised price comes under the home purchase amount up to $10,000. These contingencies will make your offer stand out especially when there is a competing offer with a similar purchase price. View the home multiple times In a hot housing market, it isn't uncommon for homebuyers to get caught up in the excitement and bidding wars and extend themselves beyond what they actually feel comfortable with. The buying process can be quick and can lead to cold feet. Smart Realtors on the seller's side know this and look for home buyers that have viewed the home multiple times. This means the home buyers have had the time to fully take in the home including the negatives. This will end up with a home buyer who is comfortable with the transaction and will follow it through to the closing table. Personal Letter Homes are a personal item and are an emotional connection. Homeowners generally want to ensure their home goes to a nice family and ensure it isn't going to be scraped. This letter also confirms that the home buyer wants the home and won't get cold feet. Personal letters can make the emotional bond with the home seller to ensure them that their home will bring as many happy memories to a new family that it did to their own. Pre-Approval Preapproval and prequalified are often mixed up. The prequalified offer shows what a home buyer can afford what they have verbally told a lender. A preapproval shows what a home buyer can afford after their documents such as pay stubs, W2's, and more, have been reviewed by the lender. These preapproval letters help strengthen the offer by ensuring the home seller and their real estate agent that you won't have any issues qualifying for a home loan. Down Payment The larger the down payment, the less difficult it will be for a home buyer to close on a house and qualify for a loan. Saving up before purchasing a home can go a long way. This will help your bidding war and also allow your lender to give you a lower interest rate. Highest Bid The most common way to win a bidding war is to submit a higher offer than anybody else. This will often mean going above the asking price for the home. Your real estate agent can help run a comparative analysis on similar home sales in the real estate market. This will help you understand what the home is really worth. Unfortunately, many homes are listed significantly below the price they are worth to lure in as many potential buyers as possible. Cash Offer Cash offers waive any type of financing contingency and there is no concern of a lender not preforming. The cash offer can also allow for a quicker closing date due to not waiting for a lender to underwrite the mortgage. This allows for the home seller to get their money quicker and make less mortgage payments. The saying goes "cash is king" for a reason. Rent Back Agreement Money home sellers will still need to move out from their home. Writing a rent back agreement will give the home sellers time to pick up and leave. This convenience especially if they haven't found a new home yet can be vital. Earnest Money Earnest money is to ensure that the home buyer is serious and protects the seller if the buyer backs out of the deal without just cause. Putting down a higher earnest money deposit can show a home seller that your serious and won't back out of a contract. Using a great lender Lenders are more than just about getting a good mortgage rates, a good lender will help you stand out in a competitive market. This includes the lender calling the listing agent to ensure them that they can close on time. Do sellers ever accept first offer? Sellers often accept the first offer on their home. Many sellers are motivated to sell their home on a quick timeline and also understand that the longer their home sits on the market the more likely that somebody will think there is something wrong with it. Do sellers always pick the highest offer? Sellers do not always pick the highest offer. Although this is ideal for your "normal" home seller, there are lots of motivations somebody has when selling a home. A home buyer can stand out if they write a clean offer with a preapproval letter and minimal contingencies. This will ensure the home seller that the buyer is serious and has a high chance of completing the transaction. There are also many home sellers who are trying to buy and sell their home at the same time and would gladly take a rent back agreement so they can find their new home. How low is a lowball offer? A lowball offer is often something that is 10-15% less than the list price of the home. This however is a guideline and there are many homes that are overpriced on the market and really should sell for this amount. It doesn't cost anything to place an offer on a home and will give you an idea if the home sellers are willing to accept or counter the offer. Utilizing a variety of these tactics can help make your offer gain the upper hand. A great buyers agent can help you craft the proper offer to get your dream home!
When Can You Terminate A Real Estate Contract
When purchasing a home, home buyers and sellers enter into a home purchase contract. This establishes the terms of the contract including price of the sale, any contingencies and dates the parties will meet at the closing table. Sometimes however one of these parties wants to terminate the contract. Below will review when it is acceptable to terminate the contract and what possible repercussions can occur. Home Sellers Termination Home Sellers can almost never terminate a home purchase contract, they have already made the decision to place their house on the market and accepted the purchase price of the home. When you review the notice to terminate contract, it highlights how many additional reasons a home buyer has to terminate, than a home seller does. Home sellers can force the hand of a home buyer since almost all home buyers find things during the inspection phase or appraisal phase. This can often occur when there is a backup offer on the table that is better than the current purchase contract. When the inspection objection arrives, the home seller can refuse to fix the issues or give concessions usually causing the home buyer to implement the termination of the contract. With any real estate transaction, there are a plethora of time frames. The home seller can also refuse to sign any addendums that extend contract dates. These could change the time period for contingencies or even modify the names of the home buyers on the contract. Refusing to do these things can cause the home buyers to be nonperforming and allow the seller to terminate the contract. Can a home seller back out of a purchase agreement without cause? Home sellers can get cold feet due to looking at new homes and finding out that their current home is actually better than the other new homes out on the market for a similar price. They also may learn that the home buyer is looking at making major changes or become afraid that they may not keep the property as nice as they have cared for it. A home seller who attempts to back out of a home purchase agreement without cause is subject to legal liability from not only the home buyer but also their own sellers agent. The sellers agent will want to be compensated for their time and marketing materials. The home buyer could feasibly go to court and could force the sale of the home due to the signed contract. Since the seller failed the specific performance of the contract, the buyer could even place a lien on the home known as a Lis Pendens. Home Sellers can back out of a purchase agreement when: There is only a verbal agreement in place. This is because the sale of land requires a written contract due to the statute of frauds. If the contract is unsigned than the contract isn't enforceable. Real estate contracts generally have a time that the parties must sign by until it expires. If there is a new home contingency. This formally establishes in writing that the home seller has the time to find a new home that meets their needs or else they may legally back out of the contract. If there is a scam that is present such as the purchase price is egregiously low. This doesn't mean a lowball offer, but more like a $40,000 purchase price for a $400,000 home. If the buyer agrees to the termination of the contract Often the outcome of a home seller backing out of a contract is that the home buyer and sellers agent negotiate a fair compensation for their time. This fee has a large range and depends on the circumstances however it wouldn't be uncommon to spend $20,000 in total to the affected parties. This is still an expensive thing to do and why it is important to know for sure that you want to sell your home before signing any contracts. Can a home seller back out of a listing agreement? When there is a home sale, the seller and listing agent will generally enter a listing agreement. Listing agreements establish the sellers brokerage has the exclusive right to sell the home for a set period of time. A home seller can back out of a listing agreement, however there are some caveats. The first thing the home seller should do is attempt to work with their current listing agent and identify where the agent isn't meeting expectations. Working with the agent they may be able to modify their performance. The next step is to identify if you signed an exclusive right to sell agreement. If this is in place understand that contractually the listing agent technically cannot be fired if they have fulfilled their duties until the listing period has expired. There are several options to move forward: Firstly, you can tell the listing agent that you wish to use a different agent. Many agents will understand as long as you have communicated their failures. They will often allow you to leave the contract. Your right to sell agreement is actually with the brokerage, you can contact the brokerage directly and ask for a different agent on the team to be assigned to your listing. The home seller also can ask for the home to be taken off the market and wait for the listing agreement to expire. These agreements generally last for 3 months however there is no set time period and varies with every agreement. Finally, you can contact a real estate attorney and see what they recommend for canceling the specific contract. Each state has different protocols of how to formally process the listing contract cancellation. Home Buyers Termination Home buyers have a variety of contingencies within a purchase contract. These allow them to modify the terms of the contract as they are completing their due diligence including termination. Home Inspection contingencies allow for the home buyer to have a home inspection of the home and identify issues. Home inspections are the most common reason that a contract is terminated. When unsatisfactory conditions are found, home buyers issue a home inspection objection stating what should be corrected. At this point in time, there are four possible outcomes that can arise. The most common outcome is that the home seller issues an inspection resolution. This is worked on by both the buyer and seller to recognize and fix some or all of the issues that were found during the inspection. Concessions can also be made to give the buyer money off of closing costs utilizing the contract to amend/extend contract. The home buyer can sign the termination forms. The home seller can not propose a inspection resolution. If the home buyer doesn't do anything, it will terminate the contract. The home buyer can rescind the inspection objection and continue with the home purchase. The home seller then lays out the home inspection resolution that goes over what will be fixed before closing. It is extremely important that the home buyer and buyers agent ensure that everything is written down. A good real estate agent will know how to write things very specifically so that there is no grey area. These are the terms will be brought forward to ensure that the home sellers are preforming on their contract. If there is an issue with the quality of the timing or workmanship this document will be referenced. This is why it is important to have built up some level of trust between the two parties to ensure these things will be carried out properly. Even if the home seller states everything perfectly, the home buyer can still terminate the contract if they wish and not accept the terms of the inspection resolution. Terminating Without Cause Home buyers can always terminate a contract until the final papers are signed and the contract has closed. If a home buyer terminates the contract without any cause, they will be in breach of contract and lose their earnest money deposit. Earnest money is generally around 1% of the home purchase price but can vary wildly. This can be a good amount of money since 1% of a $600,000 home is $6,000. If you are getting cold feet it is important to notify your agent immediately so they can help work within these contingencies to help save your earnest money. They could also negotiate extending deadlines so you have more time to think or attempt to negotiate part of your money back. If you have passed your contingency dates it may be worth consulting a real estate attorney for legal advice on how to establish a good course of action. Can Home Buyer change mind after closing on the house? Home buyers who have signed the closing documents and when the deed is signed and recorded can not change their mind. They are now the legal owners of the home. If there are serious defects of the home that the home seller did not disclose, than legal action can be taken and possibly reverse the sale. This however is rare and lengthy lawsuit process. If you have cold feel shortly after purchasing your home, talk with your Realtor® who will likely offer a discounted rate to help you sell the home.
What Do Those "We Buy Ugly Houses Fast Cash" Signs Mean?
Ever driven around town and see a sign saying that they buy houses cash? These signs are often bright yellow or "hand written" in sharpie. These signs are often legitimate however you should proceed with caution. Wholesalers or Inventors These signs are put up by wholesalers or investors. A wholesaler is someone who "purchases" your home and than assigns the contract to a list of investors. They do this by purchasing your home at an insanely low price and than sell it to investors at a higher price that is still a deal. Some investors skip the wholesalers and put their own signs up to avoid paying the wholesalers fees. These signs will give you cash for a home however the price is generally significantly lower than what you can get on the market. Many wholesalers will offer 50-70% of the actual value on the home. On a $400,000 home that means the home seller is leaving $120,000 to $200,000 behind! That is a significant decrease on home sale price. Talking with a qualified real estate agent can also sell your home on the open market for a lower cut and can still find a quick cash buyer if needed. Motivated Sellers The individuals who call these signs are often overwhelmed and can be considered motivated sellers. These sellers generally include those who have a hoarder house and ashamed to have others tour the home, divorced couples who are trying to split everything, those who inherited a house and aren't sure of how to approach the selling process or even landlords who have trouble tenants they can't get rid of. All of these home sellers have a motivating factor that may cause them to not to recognize the amount of money they are leaving on the negotiating table. Offer Formula Wholesalers and investors will often use the same formula to calculate their offer. After Repair Value (ARV) – Renovation Costs – Holding Costs – Transaction Fees – Desired Profit = Cash Offer After repair value is the price that the home can sell for after it is fixed up. Usually the investor will run a comparative market analysis (CMA) of similar homes nearby in a fixed up condition and see what they sell for. Renovation costs are the total costs for materials and labor of the projects. Investors usually know estimates offhand such as $10,000 for a bathroom remodel and another $5000 for vinyl plank floors. These are totaled up to estimate the renovation costs. Holding costs are things such as the mortgage or likely a hard money loan. Many flips can take 3-12 months to complete depending on the scope of the project. Insurance on the property will also have to be paid. During that time interest will have to be paid on the borrowed funds. Transaction fees are things such as paying for the closing and real estate agent fees. These can include title insurance, recording fees and more that take place each time a real estate transaction takes place. Desired profit is the amount of money that the investor would be happy receiving for taking on this project. It is a lot of work to complete a flip and it has to be worth the investors time. Many flips are expecting a $40,000-$60,000 profit depending on the scope of the work. This also gives them some buffer encase if something goes wrong.
Common Home Remodeling Mistakes to Avoid
Remodeling your home can be a great way to add your own personal touch and can increase your property value. These projects establish a sense of pride and are a great talking point when you have company over! Not Expecting the Unexpected During any remodel, there will be surprises. When you open up a wall you might find mold, or a leaky pipe. There is also the fact that some things may have to be redone to get them up to code, this common with older homes. These things unfortunately aren't uncommon and you'll need to get them fixed. Plan ahead Do everything you can to establish a set plan ahead of time and stick with it. It isn't uncommon for projects to have scope creep as they start to expand the project as it goes on. One example is working on your kitchen, then realizing that your connected deck would make your kitchen view nicer, then you want to add some new plants. This same thing extends to being indecisive. This is important not to keep changing plans around as they will inevitably extend the timeline and the cost. Forgetting to compliment the current style It's easy to see a super modern design online and fall in love with it. The problem is it might not fit your Spanish 1920's bungalow. It is important to keep the current style of the home throughout it and not have major changes in each room. Taking on too much Make sure to align the project with your experience level. If you have never tiled before it could be useful to tile a backsplash before doing an entire bathroom remodel. If this is your first remodel, it might not be worth looking into changing the floor plan like adding structural beams. Being too cheap Although finding a good deal is important, it is also important to keep in mind the quality of things. Going with the cheapest contractor without asking good interview questions, or buying the cheapest materials that will break soon after installing them. Rushing the job or inexperience If you are doing your own work, it is important to take your time and know what you are doing. A bad tiling job or other issues do catch the eyes of visitors and potential buyers. If it is your first time completing a project it can greatly help to learn by volunteering or taking a class at your local shop. This is in addition to watching lots of videos that you can reference halfway through the project. It is also highly advised to hire a plumber or electrician to double check your work before closing up the walls. This small cost can save you massive headaches later on. Setting An Unrealistic Budget Home renovations done by yourself or contractors are often more than what people expect. It is important to not only get quotes for the work but ask specifically what work is included. Even the best contractors however and your own home projects can go over budget so it is important to add at least an extra 20% to the bill as a safety net. Selecting Appliances Last It is important to know what appliances you will want as your move forward. Refrigerators come in all different sizes so knowing what size to build the cabinets around are important. It also helps to know the newer trends such as microwaves are now often built into the cabinets and look like a small oven instead of the older style that will sit above the range or on the counter. You don't need to purchase them immediately, however it is important to have them chosen to ensure the correct dimensions and more. Measuring Incorrectly The old motto of measure twice and cut once is true not only on small projects but even more important on large remodeling projects. Nothing is worse than having a new counter top moving in and it doesn't line up or not able to fit your refrigerator in the space you designated for it. What renovations will increase home value the most? - Manufactured stone veneer can add significant value to your home. It is recommended that you don't do the entire exterior with the veneer however utilizing it on the corners or on entryways can add nice charm. Garage door replacements add significant value. - Garage doors are large and attract attention to the front of the home. Sprucing up the garage door creates a whole new look for the home. - Increase light throughout the home and update light fixtures. Pot lights are in and can be a large upgrade for fairly cheap. The light will make the space seem a lot more open. - Minor kitchen remodels can increase home value. It is important not to upgrade things too much but adding some backsplashes or having some new countertops installed can go a long way. When remodeling a house what should be done first? Planning and budgeting is the first thing that you should do before completing any remodeling project. This helps prevent you from having to do something twice and ensuring that you have the funds to complete the project so you don't have to stop halfway through. Next up is demolition and completing any major repairs. Opening up walls to help fix foundation issues or a roof is important to get done immediately. These issues will have to be fixed and best to attack this before hitting the cosmetics. This is followed by the plumbing, HVAC and electrical upgrades since the walls are open and easy to install these things. Next is covering back up the drywall and painting things up. From there the floors and new appliances can be installed. What brings down property value? Location and your neighbors are some of the primary things that bring down property value and the worst part about it is that you cannot control it. Things such as poor neighbors who leave broken down cars on the front lawn and such can hurt your value. In addition, if your neighbors are going through foreclosures than it will also bring your value down as a similar home will be sold for cheap. The next thing is a close proximity to noisy things such as a highway, gun range and more. These things are likely not going to go away and effect the quality of life for the residents. The last thing is poor maintenance of the property such as peeling exterior paint or a bad HVAC system.
Why is Colorado Housing so Expensive
Colorado homes have skyrocketed in value especially in highly sought after areas such as Denver, Boulder, and Colorado Springs. These home values have increased due to a variety of factors from the growing population, lower interest rates, and builders focusing on luxury homes. Booming Population Colorado's great outdoors, fantastic beer, and a plethora of other reasons have driven people to move here in droves. The more people who move to the city the more housing is in demand. Classic supply and demand models combined with the fact that there is a finite amount of land and builders can't keep up have caused real estate prices to skyrocket. Denver has had on average over 35 people move into the city every day. California has priced out a lot of the population and has similar sunny skies such as Colorado which causes many to move here. When coming from California where the median home price is $615,090 makes Colorado's median price single family home of $428,364 look small. These Californians move here after their houses have appreciated so rapidly that the Colorado home prices seem cheap and reasonable. This isn't the only migrating state, there are lots of people who come here with oil-rich jobs from Texas or move out from the big metro areas of New York City and Boston. These wealthy individuals also bring with them large amounts of cash and are normalized to high real estate prices. This population creates a housing shortage and drives prices up. This is the unfortunate side effect of Colorado's great success. Great Recession To fully understand the housing boom of Colorado it is important to look back to the great recession. Back in 2008, Colorado wasn't becoming overdeveloped as many other places and therefore didn't have as much housing moving into the recession. After the recession, home builders sought after wealthy homes since they have higher margins and are seen as a safer bet. This has created an excess of luxury homes in the real estate market, with minimal smaller homes suited for millennialfirst timehome buyers or older individuals looking to downsize. Affordable housing has low profit margins only farther increasing the median price. This created tremendous interest in the few smaller homes that do hit the market. Denver is also leading the country in high-income renters, this specifically means households that make over $100,000 per year. These wealthy Coloradans have expanded at an impressive 146% in the past decade. These high-income renters drive up the apartment complex prices throughout the entire housing market and mean that builders move away from the lower market rentals. Job Opportunities Denver has consistently been one of the best places to grow your career. The state offers a wide variety of jobs from oil and gas, technology. manufacturing, tourism, and mining. These industries have grown throughout the front range and beyond. Colorado has found an extremely low unemployment rate, even during the COVID-19 recession. In July 2020 the centennial state (Colorado) has a 7.4% unemployment rate compared to a 10.2% unemployment rate throughout the United States. This can be helped by the fact that the U.S. Census shows almost 50% of Denver residents have a bachelors degree or higher. These low unemployment numbers have lead to a rise in pay but also an increased cost of living. These job opportunities have increased farther as the installation of the light rail has allowed downtown to boom. Interest Rates Interest rates have been found at an all-time low. Since almost everyone needs a mortgage to buy a home, a home's affordability is often based upon its monthly cost. With interest rates plummeting, monthly rates have fallen. The lower interest payment means that buyers are able to afford higher priced homes. It is advised not to spend more than 30% of your income on housing. The median income in Denver is $68,000 per year which means that with the new 3% interest rate and an affordable $1700 per month, the average Denverite can afford a $425,000 home assuming a 20% down payment. This actually comes close to Denver metros' median home value of $465,000. These Denver home prices are still significantly higher than according to Zillow, the national average price of $227,000. Coronavirus The new COVID-19 virus has affected a large proportion of industries. With more individuals living at home, many have wanted to have the space to relax in their own home and backyard. This has lead for many individuals to leave the downtown Denver apartment complex's and move toward the suburban single family homes. This allows for more bedrooms to turn into a new office instead of everything piled into a one bedroom apartment. COVID-19 has also caused many lumber mills to shut down. This decrease in supply has caused skyrocketing lumber prices, yet another high cost making housing costs also more expensive. Will housing prices go down in Colorado? Home prices in Colorado have been rising even throughout the coronavirus crises. Nobody can perfectly predict the future, and anyone claiming they can is very likely after your money. Home prices in the coming months may start to drop as the full effects of the recession start to take effect. This could become apparent if rent eviction memorandums and mortgage forbearance comes to an end. What is a livable salary in Colorado? A livable wage in Denver is around $62k a year assuming that there is one working adult of the couple with two children. Is Denver in a housing bubble? Denver and the greater metro area are likely not a bubble. Nobody can predict the future however the non verified loans that caused the 2008 collapse likely won't happen again in the near future. The prices however could vary with a small drop of up to 10%. Is it cheaper to build or buy a house in Colorado? It is significantly cheaper to purchase a already built house in Colorado. The only exception to this could occur with some luxury homes. For reference to make it plausible for a new build, the land or old house to be scrapped should be no more than 20% of the final home value. Since many lots in Denver are over $200,000 it means that you would have to place a home worth over a million dollars to make it financially worth building. If you're hoping to achieve home-ownership in the Denver housing market look no farther for your friendly Realtor®.
What to Do About Unpermitted Work When Buying or Selling a Home
What happens if you buy a house with unpermitted additions? When buying a home, it is important to inspect the work that has been completed. This includes reviewing all recent work and checking if the proper permits have been pulled. These permits will ensure that a city inspector verified the work before the walls were covered up. This generally occurs during the home inspection process and a good home inspector will include pulling recent permits. City Penalties When purchasing a property, you will also inherit any risks that come with any unpermitted work from the previous owner. This can include if the city comes after you with fines or even having to open up walls for an inspector. Depending on the work that was completed, you may even be required to hire an architect that can get expensive. Remediation is when the permits are pulled after the work has been completed. The city inspector will want to tear down the walls to ensure that the plumbing or electrical is completed to meet building codes. Homeowners Insurance Policies Homeowner's insurance policies may also not insure any unpermitted work. It is reasonable for an insurance company to question any unpermitted electrical work, this work could increase the fire risk of the home. The insurance company has the right to drop your coverage which means that you will either have to remediate the work or find a new company that will offer to increase coverage. It would be worth verifying any questions you have with your insurance company to ensure that you are on the same page Mortgage Note Called Many mortgage contracts have a clause that can allow them to call the mortgage note and demand immediate repayment of the entire cost of the loan if unpermitted work is completed. This could degrade the value of the property that they have a lien against and could risk their investment. This is an unlikely but possible scenario. Neighbors Many neighbors are very aware of everything that is happening in their neighborhood including any home improvements. Especially if you have a large dumpster outside for a few days it wouldn't be uncommon for a nosy neighbor to call the city for them to investigate farther. Buyers How to handle unpermitted work Accepting the offer There are risks to accepting unpermitted construction, however, you can sometimes get a great deal. If you are able to purchase the property ignoring the value of the unpermitted edition you can score a good deal. From there you may contact the city and go through the process to get the retroactive permits that are needed. If there is some additional work it should be minimal since you as the home buyer have already costed that into your purchase price. Seller Fixes The Issue While under contract, you may ask the home seller to solve the problem. This could include them going to the city's building department and ensuring all permits and inspections are complete before the closing. Since many homes sold without permitting are sold "as is" or the seller didn't want to get permits in the first place, it is unlikely they will get the permits during the home sale process. Move On If you don't feel comfortable taking on the unpermitted work or if the seller won't cut you a break on the price it can be worth it to move on from the transaction and find a new home. A good real estate agent should warn you about these hurdles and highlight the pros and cons of a transaction. If your agent is pushing you to go through a sale with a multitude of unpermitted work, it might be worth getting a second opinion or finding a new realtor®. What happens if you do work without a permit? Completing work without a permit can cause city fines and could backfire when you attempt to sell the property. Not only do you have to file a seller's disclosure statement which includes unpermitted work when selling the house, but many potential buyers will also check for them during the due diligence process. This may have you sell the house "as-is" which will need a steep discount for many buyers to take on the additional risk and liability. Can I sell my home with unpermitted work? Homes sold with unpermitted work can be sold however the unpermitted work must be disclosed and will often be sold "as-is". This can cause a major reduction of the price it is sold. Do I need a building permit if I do the work myself? Yes, in many cities you need a permit to complete anything that includes alterations to the existing floor plan, structure changes, new or rerouted ductwork, electrical or plumbing fixtures. Denver has a project remodel site that helps lay out the steps to complete a homeowner's exam and any other questions you may have. Do I need a permit to renovate my basement? Yes, many cities including Denver require a permit to renovate your basement. By doing so you are altering the existing floor plan. If you are doing it yourself (DIY) you can still take out permits and complete the process without hiring a contractor. Denver will have you complete a homeowner's exam and even easily outlines the steps to complete for a basement remodeling. Does finishing a basement increase property taxes? When a basement is finished, it becomes additional livable square footage and can increase its assessed value. Because of an increased assessed value, property taxes will also likely increase. This increase however is generally much less than the discount you'll take when you sell your home with unpermitted work. An unpermitted finished basement also isn't worth the risk of possible safety hazards that a building inspector would notice and stop. Why would work be completed without a permit? Permits may not be taken out for a variety of reasons. It can be common to be seen on flips as they may not use a licensed contractor which will have cheaper labor. The work completed might also have corners cut so that the work is not to code and therefore wouldn't be approved. There have been many flips that ignore the use of an expansion tank on the hot water heater or other code-related items to save that extra $20. These items won't immediately be noticed by the home buyer as the hot water will still work but they do not conform to code and can cause problems down the road. Some flips also have narrow margins and people can try to save money from the permit costs. These permits can cost hundreds per project and those savings could be rolled into profit. Do Building Permits Affect Appraised Value? In general, appraisers do not verify if building permits have been pulled. They will note what they see and use that to assess the value of the home. The exception to this is if the work is clearly not professional. Verifying permits occurs during due diligence from the home buyer, home inspector, and real estate agent to check that everything has been properly installed and permits were pulled. Please contact me below if you are looking for a Denver Realtor®. My goal as a real estate professional is to help make a hassle-free home buying experience!
How To Build Your Wealth Through Real Estate
Massive wealth can be built through real estate investing, however just like anything it isn't always as simple as buying and renting your neighborhood property. There are however lots of tools that can be utilized to help expedite the return of your money. Rental Properties Rental properties are the bread and butter of real estate. These real estate investments involve purchasing a property and renting it out. Typically investors start with a single family home, maybe one that they recently lived in and renting it out to tenants. This can quickly scale to multifamily properties such as apartment building or leasing commercial real estate like a strip mall. The rental income covers the mortgage and other expenses while leaving some left over for profit. This method of investing generally requires minimal effort and can become almost completely passive income if you hire a property manager. Property manager will help fix up the property and also help find new renters when the lease is up. They generally will take approximately 8% of the rental income as compensation for their work. Flipping Homes Flipping homes has become a new favorite ever since HGTV started gaining popularity. Flipping a home involves purchasing a fixer upper property and then fixing it up. The key to this is knowing what improvements will gain more value than the money you put into it, knowing good contractors that can provide a quality product at a reasonable price and/or knowing how to complete a wide variety of construction projects yourself. These properties are generally purchased with hard money which has a high interest rate that is not loaned through a typical bank. Hard money provides the money to purchase and flip these properties however due to their high interest rate means that the home must be flipped quickly. If you sell a home before 12 months means that you will be paying regular income tax and it doesn't qualify for the longer term capital gains tax. Flipping a home requires hard work through managing contractors or completing construction yourself. If you can have a steady stream of Realtors® providing you leads, contractors completing the work and have the proper finances this method of real estate investing can lead to large returns. Leverage Leverage is one of the best ways to build wealth through real estate investing. Leverage works by using a loan on an investment property that is at a lower interest rate than you are gaining from it. For example if you have a $100,000 property with a rental income of $6,000 per year. This means that you are currently gaining 6% of your investment. If you get an $80,000 loan with a 4% interest rate you are paying the bank $3,200 per year interest how ever only $20,000 of your money was invested on the property. This means that your $20,000 is making ($6,000-$3,200=$2,800) $2,800 per year. This equates to a 14% cash on cash return! Using leverage increases your cash flow and return on investment on both residential properties and commercial properties. This same effect works on your property appreciation over time farther leveraging the investment returns. Utilizing loans on these properties also increases your risk if things trend downwards so it is even more important to fully understand what you are doing so that when there is an inevitable crash you can bounce back. This leverage can farther be utilized when interest rates fall you can refinance the mortgage. This will lower your monthly bills even farther and increase your cash on cash return even more! Appreciation Through inflation, your real estate property will generally appreciate and be worth more than you purchased it for. This is the epitome of a passive wealth building tool, in the United States home values generally increase approximately 3% per year. 1031 Exchanges 1031 exchanges are a massive tax benefit used on investment properties throughout the United States. The 1031 exchange allows you to defer the profits from one property and roll them into the next similar property. This means that you defer taxes until the final sale of a property which can allow you to compound building wealth without the hit if capital gains taxes. Depreciation Tax laws allow you to depreciate your real estate investment over a course of 27.5 years for residential rental property and 39 years for commercial property. This means that you can deduct a large portion of your income. This provides just another tax benefit for real estate investors. Wholesalers and Pocket Listings Great real estate deals can be hard to come by which is why wholesalers exist. Wholesalers will work hard to get pocket listings or also called exclusive listings. These listings don't make it onto the MLS (multiple listing service) and aren't exposed to the greaterreal estate market. This is common for listings that occur with we buy ugly houses or we buy houses cash signs that you will see around town. Thesereal estate businessescan generally purchase these properties and then sell them during the inspection period to other investors or choose to flip them themselves. If they sell to other investors they may assign the contract for a higher price which means they never even own the property themselves! Summary Real estate offers a variety of ways to utilize tax advantages, loans and appreciation. Your personal finance choices and investment strategy could utilize multiple of these strategies to compound your return. One example is that you can flip a home and then rent it out for a higher rent. This can even be done with a mortgage to farther leverage your investment. If you property flip a property by establishing more equity than you put in, it is possible to take back out all of your money as a loan which means you can own a property with no money down! This is often referred to as the BRRR method. This stands for Buy, Rehab, Rent, Refinance. Real estate investing can offer great returns that are greater than the stock market and can lead you to financial freedom.
What Is An Appraisal Waiver?
Due to lower interest rates, I recently refinanced my home. In doing so, my mortgage lender stated that Fannie Mae and Freddie Mac was going to grant me an appraisal waiver. This appraisal waiver meant that I could save around $600 by not needing an appraisal on the home. Instead of paying an appraisal fee, the lender is able to establish the homes estimated value using recent sales in the nearby area. These appraisal waivers are gaining traction due to the current pandemic and making refinancing easier and cheaper than ever before. This appraisal waiver is actually becoming encouraged by Fannie Mae and Freddie Mac although lenders can still require them. These appraisal waivers are considered safer to the homeowner and appraiser themselves due to not having to physically enter the homes. It has become common on standardized refinances since they are considered safer since the home owner has already been paying their mortgage and isn't changing their loan balance. If you however are completing a new purchase or a cash out refinance these are considered riskier and won't likely gain an appraisal waiver. Appraisal waivers are a great way to help save money and expedite the lending process. Hopefully, if these loans stay solvent this practice will continue long after the pandemic! What is a home appraisal? When you apply for a mortgage loan, the lender needs to identify the value of the subject property. This is used to calculate how much loan you can qualify for. If the home purchase price exceeds the appraised value, the purchaser will need to come up with cash to exceed that price or go back to the seller and negotiate a lower price. What are appraisal waiver Requirements? In order to qualify for an appraisal waiver you must have a loan to value that doesn't exceed 80%. The property must also only have a single unit. Can you get an appraisal waiver on a cash out refinance? You cannot currently get an appraisal waiver on a cash out refinance. These types of loans are considered riskier and need to have an appraiser to verify the value of the property. Are there cases where you still want to get an appraisal done? Appraisals can be a great idea to get on a purchased property. When purchasing a property it can be important to have an independent professional confirm their estimated value of the property. Doing so can even save you on a negotiation when utilizing an appraisal contingency. If the appraisal comes in under your bid, you can than negotiate a lower price or walk away from the deal.
Questions To Ask When Hiring a Denver Contractor
What are good questions to ask a contractor? When you are hiring a contractor it is important to ask plenty of questions upfront so you can property compare them properly. It is also important to interview multiple contractors to ensure that you are getting the best deal. HOW LONG HAVE YOU BEEN WORKING IN THE INDUSTRY? It is important to have a contractor who has been around the block a few times. Hiring the newest contractor can sometimes be cheaper but they might not be able to handle unexpected surprises or accidentally do something wrong that could cost you more. ARE YOU LICENSED IN COLORADO? General Contractors need to be licensed at the municipal level to complete work. Plumbers and electricians register with the state of Colorado however they generally need to present their license yearly to the municipal area to be able to pull permits in Denver. You want to hear an outstanding yes! DO YOU CARRY WORKMAN'S COMPENSATION FOR YOUR EMPLOYEES? If the contractor does not hold workman's compensation you may be on the hook if someone is injured on the job which could end up costing you tens or even hundreds of thousands of dollars. Some jobs have exceptions for this in Colorado such as those doing less than $2,000 per year or independent contractors with no employees. DO YOU HAVE LIABILITY INSURANCE OR ARE YOU SURETY BONDED? If the company messes up and accidentally breaks something in your home, you want them to have insurance to help cover that cost. The difference between liability insurance and bonded is that an insurance company is paid on a monthly or yearly basis and will pay out if there is an issue. If the company is bonded, they have put aside a set of money with a surety company which is their money that could pay out if there is an issue that would arise. WHAT IS THE BEST WAY TO GET IN TOUCH WITH YOU? Knowing the preferred means of communication can help ensure you get a timely response. It can also help know the legitimacy of the company if it only has a P.O. box. WHAT IS AN ITEMIZED COST ESTIMATE OF THE PROJECT? Having a written estimate can help reduce any future disputes about the price of the project. It can also help you know exactly what you are paying for and if something goes higher than expected you can verify exactly what occurred and was it unreasonable to estimate that in the first place. What is the estimated time for this project to be completed? Knowing the approximate time for the project can help you understand if something seems to be going off. It also holds them accountable if there are multiple projects that are being worked on and if they push yours off. If it is a large project set milestones and understand the time it will take to achieve each one. What should you not say to a contractor? When working with a contractor it is important to keep some knowledge to yourself to ensure a truthful transaction. YOUR THE ONLY ONE BIDDING ON THE JOB When you are hiring a contractor you want to have multiple bids. This will help ensure they are truthful and that everything aligns. A bid that is extremely low or high should be a warning sign. NAMING YOUR BUDGET Naming your budget is an issue since magically the contractor will come in just around this number. They'll find a way to hit that budget if that includes quoting additional labor, some side jobs or excessive materials. I'LL PAY UPFRONT Even if offered a discount, it is extremely risky to pay a contractor entirely upfront. Some contractors will take the funds and complete a good job, however others may take the money and run. Even if they complete the task they may do a sloppy job knowing that if you are unhappy you don't have any leverage left. Are contractors always late? Not all contractors are late, however if you have one that is it might show that it is a bad contractor. Contractors should be processional and keep to the times that they have set. They do juggle multiple jobs and part of construction is unexpected surprises so sometimes it is not their fault. They should always however at least notify you that they are going to be late instead of leaving you hanging. What contractors hate about clients? ARROGANCE Contractors hate arrogant clients. The contractor is the professional in their line of work and a client who comes off as a know it all. When this occurs, a contractor could even pass on the clients job. ANXIETY When a client starts talking only about how bad all contractors are it is likely there is an issue with the client. The client could have unrealistic expectations, not understand how to property scope work or more. Contractors sometimes have to act as a therapist to ensure the client they are in good hands. UNCERTAINTY Uncertain clients can cause lots of change orders throughout a build process and run up costs and time. These changes can eat into other projects that the contractor has promised to other clients. It can also make the contractor look bad at the end when the project is over time, over budget and the client still seems to have wanted something to be a different outcome. EXTREME HAGGLING Contractors at least think that they have reasonable prices and just like clients who work their job want a raise. When a client is constantly haggling over every dollar it can become very time consuming and effect their morale. What should i do if i hire a bad contractor? BUILD EVIDENCE The first step to handling a bad contractor is to document everything. This includes archiving any email or phone calls, take photos of any issues and it might be worth hiring a separate contractor for a second opinion. Also track all of your payments such as credit card details or canceled checks. Since you want your money back, you have to prove it was given to the contractor in the first place! FIRE THEM It is time to let your contractor go and tell them that you do not want them working on the job anymore. This will help stop any additional fees from work that you could incur. This is why it was important to have completed your evidence step first so that there isn't anything that could be covered up. It might also be worth pointing out the termination clause in the contract. VERIFY LICENSURE Verify if the contractor is licensed in Colorado or that state that this job occurred. From there you can file a complaint with the property agency, for Denver you would file with the Colorado Department of Regulatory Agencies. Credit Card Dispute If you paid by credit card contact your card issuer and file a credit card dispute. This dispute has teeth and if it is won they can back charge the contractors bank. This dispute process can take months however you can use this dispute in tandem with other dispute methods. I previously engaged in one of these and won thousands of dollars back! Online Reviews At a minimum it can help to file a poor review on Yelp, Google Reviews and more. Using this technique can put pressure on the contractor to help solve your issue to hopefully come to the negotiation table. Worst case scenario you are helping to warn someone else of the bad contractor. FILE SMALL CLAIMS LAWSUIT Filing a claim in small claims court allows you to sue in Colorado for up to $7,500. Utilizing small claims court you do not need to hire a lawyer and can represent yourself. If things go above this you will likely have to consult an attorney.
Pros and Cons Of Living In Denver
Denver is the mile high city bustling with vibrant energy while allowing for easy access to the great outdoors. With more than 700,000 people calling this place home, it has great opportunists for all! Pros booming economy Denver has a booming economy providing jobs throughout a variety of industries. If you are interested in a plethora of industries from technology, finance, energy, manufacturing, aerospace and more. This robust growth across a plethora of industries has keep the economy strong and constantly growing. The great outdoors Although Denver is near the mountains and not inside of them, it provides only a short trip to access the great outdoors. If you are into fly fishing, rock climbing, hiking, world class skiing or anything involving nature it is here. Only a short day trip away is access to ski resorts, Rocky Mountain National Park, and 14,000 ft mountains to conquer. Professional Sports Denver is home to many professional sports teams from the Denver Broncos, Colorado Avalanche, Denver Nuggets and Colorado Rockies. Not only are these big four on the list, but there are also soccer, lacrosse, rugby and more options available. The ice climbing world cup was even hosted here in Denver in 2019. International Airport Denver International Airport (DIA) offers 28 nonstop international flights to 14 different countries making it easy to get around in and outside of the country. This includes destinations in Europe, Asia and South America. Having easy transit access across the country and internationally makes going on vacation a breeze. Amazing Beer Denver offers a great variety of microbreweries offering a variety of excellent beer that anyone can find as their new favorite. There are plenty of other options such as cideries, distilleries and gluten free beer options. Young City Denver has a low median population of only 37. This means the city is designed to be vibrant filled with bars, activities and art. There seems to always be something to do! 300 Days of sunshine It seems like it is always nice out in Denver with 300 days of sunshine. Even during the winter the low humidity makes it quite mild. The snow even melts quickly except for where it matters up in the ski haven mountains! CONS Housing Costs Due to the flood of newcomers into the denver metro area, the construction cannot keep up and has caused an increase of housing and rental prices. The average home price in Denver is $430,000 and a 1 bedroom rental will cost around $1400 per month. Traffic Denver's growth has overburdened the transit system and created some serious traffic. It also doesn't help that the public transit network isn't far reaching and generally requires individuals to own a vehicle. High Altitude Although most people get used to the high altitude at first it can be difficult to transition to the thin air and low humidity. Hair and skin will dry quickly as well as the sun is harsher. This can work as a positive as well though since there is minimal mold buildup and even on hot days it doesn't feel as bad. Water Activities Denver isn't located close by to the oceans and doesn't offer many options for water sports. Although there are lakes available, the beaches can get crowded. You can also forget about some water activities such as scuba diving. Additional Considerations what are some fun things to do in Denver? Denver offers a variety of great activities from concerts at red rocks amphitheater to shopping at 16th street mall. There are also great in city escapes such as the Denver art museum and the botanical gardens. These are even free about once a month! Where to eat in Denver? Denver offers lots of great places to grab a bit. Linger offers great food with a rooftop overlooking downtown Denver. If you are feeling like a fine steakhouse, The Capital Grill offers a great selection of delicate meats. You can also grab some vegan delights at Watercourse foods! What is a good salary in Denver? The median household income in Denver Colorado is $68,000. This income should be enough to have a modest living. How bad are winters in Denver? Denver winters are not bad and have an average high of 45 degrees. This feels even warmer when you are in the sun and due to the low humidity it doesn't cut through you like if you have previously lived in the northeast. If your one of the lucky ones with their driveway facing south you will very rarely have to shovel! Is moving to Colorado a good idea? Denver is an excellent place to move to, with it's booming economy it provides lots of opportunities to all to help offset it's modest price of living.