ROI on home improvements?

How much do you recoup from home improvements?

When home improvements offer the most bang for your buck.
Source: CNBC

Remodeling is at its highest level since the spring of 2004, according to the National Association of Home Builders' Remodeling Market Index. One of the reasons is that it has been so difficult to move up or move down: once you sell your property, you are not sure you will be able to buy a replacement very soon.  As a consequence, people remodel their house instead.  How much will you get back from these expenses, when you sell?

In general, home sellers cannot expect to recoup all their remodeling costs when they sell their house. From the upgrades, one can expect the average portion of costs being recouped at 66.1%

This is a question that clients ask me all the time, and one of the best sources of information on the subject is the web site showing the “Cost Vs. Value” report study.  It shows, depending on the area in the US, how much each project statistically gives back at the time of sale.

Those projects that pay off the most are, according to the article from Kelli B. Grant of CNBC:

-       Entry door replacement (steel):  96.6% recouped

-       Minor kitchen remodel:  82.7%  recouped.

-       Window replacement (wood):  79.3%

Why would contractors who “flip” houses make money then, you might ask?  I believe it is because they start from a house that does not show well, and therefore is going to sell at a discount, and they have the cost-efficient means to improve on the house, emphasizing those projects that show off the most for the best value.  Examples of such improvements would be, as I indicate to my clients when preparing for a sale:

-       Light fixtures,

-       Painting,

-       Retiling a shower enclosure,

-       Changing counter tops (but not necessarily all the cabinets, where there is a lot more involved),

-       Floor refinishing,

-       Deep cleaning,

-       Staging.

All these projects have a fairly small, finite cost, while improving immensely the look of the property to be sold.

Moreover, I believe that there are some areas like the Bay Area where buyers are willing to pay top dollars for a remodel that has been done already.  Is it because people here are too busy to undergo or direct a home remodel? Or they do not have the patience?  In any case, it has been my experience that remodeling jobs in this area of the San Francisco Bay returns more money than shown on the statistics of the cost vs value report.

Do you have an input on the subject?  Please let me know.!

Thanks for reading.

Francis

Silicon Valley real estate

Trends: Local prices and graphs.
A noteworthy local non-profit event:  Coalition on Homelessness, SF

Investing in real estate.

Investing in real estate -

I recently read an article from NewsGeni.us that I found quite interesting, dealing with real estate investing.

Without repeating the whole article here I thought I would comment on some of their points:

Their advice is:

Focus on promising areas - the clientele in the SF Bay Area has been well served by believing in the local area in the past 30 and 40 years. 5 years ago though a lot of people got scared and some sold, or did not buy when they could have.  For those who bought when no one believed in it, I say “bravo”!  However the Bay Area is just one choice, mostly based on price appreciation, not return.  Indeed until very recently, the return on investment was not great - purchase price very high, rental fairly low. 

I personally chose another route: an area with very little appreciation, but with traditionally good return .  With the help of an investor mentor (thank you Louis!), my family invested in real estate in Texas.  There, the gross return was more like 10 to 11% per year, as opposed to ~3% in the Bay Area at the time.  The area was promising because of the job market, which had been very consistent, and strong.  Since it continued to be strong, the rental market stayed strong.

Never spend more than you can afford - unless you buy cash, mortgages start to add up when you purchase rental properties.  You have to count on a few set-backs, like damage due to weather, vacancies, repairs tied to finding new tenants, etc…  if you do not have reserves, it can start becoming a stretch.  Plan on a certain amount of unknowns, and I would say, plan generally on costs being higher than they should be.  (like insurance costs….).

All of the advice is well taken in this article called “When is the right time for investing in property?” .   I would add another item: choose a good management company (if you are going to invest away from where you live, or if you do not plan on managing yourself).  This is essential to staying out of trouble, so-to-speak.  That company should be used to missed payments and how to deal with them, and they should be well organized and standardized in their procedures.  Getting referrals or testimonials is very important in my opinion.

If you are thinking about investing in real estate, share your thoughts with me - I’d love to help you out with what I learned so far on the matter.

Thanks for reading,

Francis

Silicon Valley real estate

Trends: Local prices and graphs.
A noteworthy local non-profit event:  Coalition on Homelessness, SF

Emergency savings - Affordability challenges

One in Three adult Americans has no emergency savings.

According to this April 2014 article from HousingWire by Trey Garrison the housing industry will likely be impacted by the results of a new survey from NeighborWorks America, which serve as a stark reminder of affordability challenges. The survey found that almost 70 million working age Americans – about one-third – have no emergency savings. This highlights a primary problem facing potential homebuyers, as one in three homes are deemed unaffordable to the average buyer, and mortgage originations are reportedly at a 14-year low.

• Only 25 percent of American have enough saved to cover 30 days of living expenses.
• About one in five have enough savings to cover three months – about the average time of unemployment for many Americans – while 28 percent expect their emergency funds to cover a year.
• Approximately 29 percent of adult Americans have no emergency savings in place—whether to pay for the repair of a car that’s required to get to work, or fix a major household necessity such as a roof or furnace.
• Retirement and buying a home are the top savings goals at 28 percent and 13 percent, respectively.
• Just 5 percent of consumers say that they are currently saving to create a buffer in case of a financial emergency.
• 52 percent of people earning less than $40,000 said that they had no reserve.
  
  

Even though this is a nationwide study, California is not immune to the phenomenon obviously, and affordability concerns are certainly increased in areas of high prices like the Bay Area. I believe it is important to reflect on it.

 

Thank you for reading,

Francis

 

Silicon Valley real estate

Trends: Local prices and graphs.
A noteworthy local non-profit event:  Coalition on Homelessness, SF

Home sellers - Multiple offers.

Wondering how home sellers handled multiple offers in California, in 2013?

I thought this was a good piece of information:

Thank you for reading,
Francis

Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates

Moving in with parents - more common for the middle-aged.

Due to the effects of the sluggish economy, older people are quietly moving in with their parents at twice the rate of their younger counterparts. The number of Californians aged 50 to 64 who live in their parents' homes swelled 67.6 percent to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.
Readthe article from the LA times   From Walter Hamilton (April 2014).

Thanks for reading - Do you like my blogs? Share them!
Francis

Silicon Valley real estate
Smart local statistics

All cash buyers... some perspective

It is quite well known that a lot of residential purchases in the US are now made without a loan, all cash.
But what is the real story, in fact? 

Overall, all-cash purchases accounted for 42.1 percent of all U.S. residential sales in December, according to a new report from RealtyTrac, a company that collects and analyzes housing data.   Several factors are at play here, including the fact that institutional investors, more numerous, have bought up many homes with cash, and that many average buyers have remained constrained by unusually tight lending standards.

A few facts, from the January article of “PlanetMoney” (shared in a blog from NPR):

• All-cash purchases accounted for 42.1 percent of all U.S. residential sales in December, up from a revised 38.1 percent in November, and up from 18.0 percent in December 2012.
• States where all-cash sales accounted for more than 50 percent of all residential sales in December included Florida (62.5 percent), Wisconsin (59.8 percent), Alabama (55.7 percent), South Carolina (51.3 percent), and Georgia (51.3 percent).  - so, it's not only California... 
• For all of 2013, 29.1 percent of U.S. residential sales were all-cash purchases, but the percentage
  
  trended substantially higher in the second half of the year. The 29.1 percent in 2013 was up from 19.4 percent in 2012 and 20.6 percent in 2011.
• Institutional investor purchases accounted for 7.9 percent of all U.S. residential sales in December, up from 7.2 percent the previous month and up from 7.8 percent in December 2012.
• For all of 2013, institutional investor purchases accounted for 7.3 percent of all U.S. residential property purchases, up from 5.8 percent in 2012 and 5.1 percent in 2011.

Thanks for reading!

Francis
Silicon Valley real estate
Local market: Smart graphs

Local real estate - some perspective.

Here is a simple summary of what real estate did lately, and in the past few years, in the Counties of the Bay Area of San Francisco.  Coming directly from the MLS (Multiple Listing Service):

Francis Rolland

Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates
A place worth noting: Our Brother's Home in MountainView

Five advantages to owning a home...

To piggy-back on my last blog, I thought this blog post from Redfin  from April 21, 2014 was interesting.  It says it very well.

Five advantages to owning a home:

Your home is your castle, but there are also many financial advantages of owning a home. Here are five ways that owning can be better than renting.

1. As a Hedge Against Inflation
Your rent will go up on a regular basis, while your payment on a 30-year fixed mortgage will always remain the same.

Let’s say your monthly rent is $1,800. Assuming inflation (your rent increase) is 3 percent, in five years your monthly rent will be $2,026. By then, you will have paid about $115,000 of your landlord’s mortgage.

2. To Build Your Personal Wealth
Stop paying your landlord’s mortgage. When you own your home, your mortgage amount is going down and your property value is going up.

No other investment, asset or debt is as misunderstood as a home. A home can be a wonderful and lucrative investment, but like any investment, it needs to be regularly reviewed, maintained and, when appropriate, sold. Even if your home is paid off, you still pay costs for repairs and upkeep, taxes and insurance. But like any investment, if you own it long term, take care of it and sell when the market is right, you stand to make a great gain.

3. Tax Savings (Federal and State)
Under Section 163 of the IRS code, interest on loans used to acquire, construct or improve real estate is deductible on up to a $1,000,000 mortgage.

Interest on loans tied to real estate for any reason is deductible on up to a $100,000 mortgage. For example, interest on the first $100,000 of a home equity line of credit (HELOC) is tax deductible.

Let’s say you make $100,000 per year and rent a home for $1,800 per month. You would have to pay taxes on your entire income of $100,000 when you are renting that home. If you purchase a home with a monthly payment of $1,800, you only have to pay taxes on $78,400 of your annual income because the interest you paid on your mortgage can be used as a tax deduction.

4. Asset Diversification
Unlike with a 401(k) or IRA, when you invest in a home you can live in it while the investment grows.

Owning a home over an extended period of time is usually more lucrative than renting. With good planning and execution, you can learn to minimize the cost of homeownership and maximize the ability to create real wealth. Many small business owners have a home office and can use the home office as a tax deduction while they are earning income. Other homeowners will rent out a bedroom and use the rent to pay down their mortgage and gain equity faster.

5. Forced Savings
Monthly mortgage payments lower your mortgage, essentially creating a forced savings account.

In five years with a $1,800 monthly mortgage payment, you will have paid $29,331 of the principal on your mortgage. That would be money in your pocket if you choose to sell. For this example we use a $345,000 mortgage loan amount at a 4.75 percent interest rate, 4.881 percent APR and use a standard amortization table to come up with the principal pay down.

To: view the original article.  

Thank you for reading!  Francis

Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates
A place worth noting: Our Brother's Home in MountainView