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

Some advice to home buyers.

Some advice to home buyers:

 
There is plenty of advice around, available to new homebuyers, - no shortage of good words, must-do's, encouragements, explanations and training, etc...  I do not mean to be comprehensive in this blog, but I just wanted to say a few things coming to mind, in light of what is going on out there: the current local market, fast-going environment, competitive to the extreme, sometimes ruthless.


Taking a bit of perspective, I just wanted to throw some ideas out there and remind of some basic main ideas:

• Home buying doesn’t begin with home searching; it begins with a mortgage pre-approval.  Often, first-time home buyers fear getting pre-approved because they’re
  
  afraid the lender may tell them they do not qualify for a mortgage or they qualify for a loan smaller than expected.  However, by getting preapproved, buyers will make a financial decision rather than an emotion one.  Also, knowing that they can qualify for a certain loan (depending on the terms of the loan), they will feel more confident in their endeavor, as they will be sure of what they can really buy (in $), as they are looking at homes.
• Home buyers need to think of a house as a long-term commitment.  If a buyer may have to switch jobs in a year or two and may have to move for the job, they should think twice about buying a house.  Ideally, buyers should picture themselves living in the house for five to seven years.
• Should a buyer have to move after a few years, following the above train of thoughts, they may want to think in terms of an investment for the long term: a "retirement account" - they could rent out the property.  Just saying it is a possibility for people thinking "long term".  (see this article from the LA Times)
• Some first-time buyers make the mistake of spending all of their savings on the down
  
  payment and closing costs, and sometimes borrow on their 401K.  However, it is not good to be left with no savings at all for home repairs and other unexpected expenses.  It could make more sense to get in the market with a smaller property, i.e. a condominium/townhouse, and move up 3 to 5 years later.

 

• Should there be a lot of competition for the chosen house, give it your very best. 1/ there will be no regrets should it not pan out, 2/ chances are that in a year or two, you will not remember exactly the price you paid, 3/ there is a cost in searching for too long a time, both psychological and monetary; or I should say there is "savings" in just getting it done earlier rather than later: interest rates can go up, prices can go up, and moving into your new home is much better than looking for it week after week.

 

As always, thank you so much for reading, and if you like what you read, let your friends know!

 

Francis

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

Offers over asking price in California.

To keep in perspective:

How many houses sell for over their asking price throughout California, over time?  This may answer your questions on this matter:

 

Thanks 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

America's Rental Housing

America's Rental Housing.

It is no secret that finding a place to call home in the Bay Area has become a problem, both as a purchase and as a rental.  Rents have gone up very significantly in the past 3 to 4 years, with a steep acceleration as early as mid 2012.  The front page of the San Jose Mercury News today 4/16/14 talks about it and prints: " Region's average asking rent is now $2,043 after three years of double-digit annual growth".

But this is not limited at all to our area. Nationwide, there is a similar problem, as studied and explained in the Rental Housing Report of the Harvard’s Joint Center for Housing Studies (Dec. of 2013). In many ways, the situation has to give us pause.

• Half of US renters pay more than 30% of their income on rent,
• 19% of  all renters 10 years ago were paying more than ½ their income on rent; they represent 27% now.
• 31 % of Americans were renting in 2004, they are 35% in 2012.
• Between 2000 and 2013, median rents nationally (adjusted for inflation) increased by 6%, while the median income of renters dropped by 13%. 
• The shortfall in the number of units affordable to extremely low-income renters in the U.S. (those earning no more than 30 percent of the area median) more than doubled from 1.9 million in 2001 to 4.9 million in 2011.

Harvard's Joint Center for Housing Studies Article.
If you want a copy of the SJ Merc. article let me know.

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

non-profit organization worth noting: Partners for New Generations.

Privacy trees...

I recently sold a house for which a row of privacy trees was quite important, as a brand new development of apartments is slated to be built on the back side of the lot.

This “privacy screen” turned out to be quite useful in this case, as it will continue to grow and provide a clear separation between the new buyers’ home and the large complex in the back.

What kind of trees can you use to build such a protection, both from sight and from noise?  I thought that this page from the “fast-growing-trees.com” web site was quite informative, as well as their blog.

Do you have any local suggestions for any specific trees that work well here in the Bay Area?

Thanks for reading,

Francis

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

Refinancers to Save More than $21 Billion in Interest

Refinancers to Save More than $21 Billion in Interest
Borrowers who refinanced in 2013 will save on net approximately $21 billion in interest over the next 12 months, according to Freddie Mac’s fourth quarter 2013 quarterly refinance analysis.

Of borrowers who refinanced during the fourth quarter of 2013, 39 percent shortened their loan term, up 2 percent from the previous quarter and the highest since 1992. Borrowers who kept the same term as the loan that they had paid off represented 56 percent, and only 5 percent chose to lengthen their loan term.

The net dollars of home equity converted to cash as part of a refinance remained low compared with historical

volumes. In the fourth quarter, an estimated $6.5 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages. The peak in cash-out refinance volume was $84 billion during the second quarter of 2006. Adjusted for inflation, annual cash-out volumes during 2010 through 2013 have been the smallest since 1997.

The average interest rate reduction in the fourth quarter was about 1.5 percentage points -- a savings of about 25 percent.  More info on this page of the Freddie Mac website.

On another note, about 2 in 5 borrowers shorten their loan terms when they refinanced last year, and over 95% of refinancing borrowers chose a fixed-rate loan.

Thanks for reading; if you like it, let your friends know!
Francis

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

Our next Ewaste and Shredding event will be April 5th, at my office:
161 S. San Antonio Rd
Los Altos

New to the Silicon Valley? This blog's for you!

FUN FACTS

- Silicon Valley has the nation’s second highest concentration of wealthy people, according to the U.S. Census Bureau.
- Money Magazine named Cupertino one of the nation’s best places to live in 2012.
- Forbes ranked San Jose No. 6 on its 2011 list of “America’s Safest Cities”.
- The name “Silicon Valley” originally referred to the region’s large number of silicon chip innovators and manufacturers, but eventually applied to all of the tech companies in the area.
- The “mouse” was invented in Silicon Valley in 1963.

See more at: The CaliforniaHome Blog

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