Investors • December 6, 2021

An Investor Rule to Know!

by Melissa Grillo

What is the 70% Rule when Flipping Houses?

If you’re thinking about flipping houses, you have to know how to bid on a property. Pay too much for a home and you’ll leave yourself with little to no profits when you sell. If you bid too low, though, you could lose the property.

So what’s the right price?

While there isn’t a one-size-fits-all approach, many investors use the 70% rule to come up with the right price. It sounds confusing, but once broken down, it’s easy to understand.

What is the 70% Rule?

The 70% rule is simple, but first, you need a little information. Most important, you need to know the home’s condition and what renovations it needs for you to fix and flip it. Next, you must know the After Repaired Value (ARV), which is why the necessary renovations are so important.

Once you have both numbers, use the following formula:

(After Repaired Value x .70) – $ amount of planned renovations = Bidding Price

The 70% rule gives you room to buy the home, pay for renovations, and have room for selling costs, and still make a profit.

Determining the After Repaired Value

Determining the ARV is where many investors stumble. While you can use online valuation tools or your best guess, consulting with expert real estate agents and/or appraisers is a better option.

You want real numbers, which real estate agents and appraisers can get for you. Starting with the average market value in the area, and using the figures for the renovations you plan, professionals can help you determine an estimated ARV. Nothing is set in stone, but a professional opinion is better than a guess.

Other Factors that Matter

The 70% rule is a great starting point, but you must consider the area’s factors too. You can’t sell a home for much more than the area’s average price because the area doesn’t support it. Banks will focus on the average value of the homes around your home and won’t lend more than what they think is a fair value.

The environment matters too. If the area has a high crime rate or low rated schools, it affects home values no matter how much you fixed it up inside. Evaluating all aspects of the home and neighborhood is important.

Make Competitive Offers

To be a successful real estate investor, you must learn how to make competitive offers. This means not just relying on a 70% rule or any other rule, but using common sense. The 70% rule can be a great starting point, but knowing what else the area offers (or doesn’t) and what buyers and sellers want is important.

If you’re thinking about buying fix and flip homes, it’s important to work with an experienced real estate agent. Not just any agent will do – you need one that works with real estate investments, knows what factors to consider, and can guide you in the right direction.

If you’re thinking about investing in real estate, contact me today. We’ll discuss your goals and ideas and I’ll show you how I can be an asset to your real estate investment team.

Buyers and Sellers Shouldn’t Meet, But Why?

by Melissa Grillo

Why do Realtors not Want Buyers and Sellers to Meet?

If you’ve ever used a real estate agent to buy or sell a home, you’ve likely noticed that the sellers usually aren’t around when buyers walk through the home. Buyers rarely (if ever) talk to the seller either. Everything goes through the real estate agent.

Is there a secret no one knows?

It’s not a secret, but there are several reasons real estate agents don’t want buyers and sellers to meet.

Sellers Could Ruin the Sale

It sounds crazy – sellers want to sell their home, but one wrong statement could cause the buyer to back out. Innocent answers to questions like ‘how long have you lived here’ or ‘how many offers have you received’ could make an interested buyer back out.

For example, if the seller says ‘I’ve been here for 3 years,’ the buyer may wonder ‘why is he leaving so fast, what’s wrong with the home?’ Inferring is never a good thing and it could cost you the sale on your home.

Selling a Home is Emotional

Whether you lived in the home for a year or 20 years, there’s an element of emotion involved when you sell a home. You’re selling a piece of your life. If the buyer is critical about something, it can upset you and cause you to make rash decisions.

A real estate agent acts as the ‘middle man.’ He answers all the questions, fields the criticism, and deflects it from the seller. The real estate agent also handles the negotiations. Hearing a low-ball offer or crazy conditions can insult a seller and force him to make rash decisions. A real estate agent stops that.

Sellers can get in the Way

It’s intimidating to have the sellers in the home when buyers walk through it. They may not feel as comfortable looking in all the areas they want to look. When the sellers aren’t present, buyers feel more comfortable looking around and see everything the home offers.

If sellers are there staring the buyers down or standing in certain rooms, buyers may gloss over what’s there and not get to know the home. This could prevent a sale. If buyers can’t get a good look at the home, they won’t know if they want it or not. If they do make an offer, it usually has many contingencies which makes it worse for the seller.

Real Estate Agents are master negotiators

If you want to sell your home, let a real estate agent handle it for you. There’s less emotion, a higher comfort level for buyers, and a higher likelihood of selling the home for the price you want.

The right real estate agent is skilled and works well between both buyers and sellers when there are questions or even issues. A real estate agent can help you sell your home rather than impede a sale. If you’re thinking about selling your home, let’s talk today!

Home Buying • Real Estate Info • December 6, 2021

What Buyers Need to Know Before Getting Started…

by Melissa Grillo

How to Prepare to Buy Your First Home?

Buying your first home is exciting and overwhelming all at once. Before you get in over your head, use these simple tips to best prepare you for one of the largest investments you’ll make in your lifetime.

Save for a Down Payment

The earlier you can save for a down payment the better. While you don’t need 20% down to buy a home, the more money you invest, the easier it is to get financing. Plus, you’ll keep your mortgage payment down which not only helps you qualify for a loan but helps keep your payment affordable for the next 15 to 30 years.

Check your Credit

Your credit score is one of the most important factors in your application. It’s what lenders look at first and if it’s not high enough, they won’t approve your loan.

Everyone gets free access to their credit report weekly at www.annualcreditreport.com. Check all three credit reports and see what you need to fix. Look for:

Late payments
Credit utilization over 30% of your credit limit
Collections
Errors

Fix any issues you can and maximize your credit score. If you want to see your actual score, check with your credit card companies or bank – they may offer free access to your score too.

Get Pre-Approved

Before you shop for a home, get pre-approved. Even if you think you have ‘great’ credit and good income, find out what a lender thinks first. We recommend getting quotes from at least 3 lenders so you can compare your options side-by-side.

You may find you get approved for more or less than you thought you could afford. A pre-approval letter also helps get your foot in the door with sellers. Many sellers won’t show their homes or entertain offers from buyers without a pre-approval.

Stick to your Budget

It’s tempting to go ‘slightly’ over your budget especially when you see it only makes a difference of a few dollars in your mortgage payment, but it’s a bad idea. Don’t get caught up in a bidding war or get so emotionally attached to a home that you outbid yourself. Stick to your budget and know that the right home will come along.

Exhaust all First-Time Homebuyer Assistance Programs

As a first-time homebuyer, you have many options for assistance. Talk with your lender and me to find out what programs are available to you. From low and no down payment loan programs to down payment grants, there are programs for borrowers of all walks of life.

Bottom Line

First-time homebuyers have plenty of opportunities to secure a home. Even if you don’t have a 20% down payment or perfect credit, there are options available for you. The key is to maximize your qualifying factors as early as possible so you increase your chances of securing your dream home.

I’m always available for questions or help – together we can help you prepare for and buy your first home, making it a stress-free and fun process!

Home Ownership • December 6, 2021

Home Renovation: Get the Biggest Bang for Your Buck!

by Melissa Grillo

Which Home Renovations Generate the Highest ROI?

Did you know that not all home renovations affect your home’s value? In other words, your ROI could be next to nothing on some renovations. Even if you do see a return on your investment, it’s sometimes less than half of what you paid.

Was it worth it?

Fortunately, many home renovations provide an exceptional return on your investment. Knowing what they are and how much of a return you’ll get can help you decide.

Why Home Renovations Affect Your Home Value

Before we get into the list of renovations you should consider, let’s look at why home renovations affect your value.

When you improve your home, you improve its features or its quality, both of which affect the home’s value. Buyers are more likely to pay more for a home that’s recently renovated than one that needs repairs and/or is outdated. But which home renovations should you do?

The Top Home Renovations to Consider

Focus on the areas of your home that need major improvement, especially if safety or stability is an issue. Other than that, consider these renovations to improve your home’s value.

Garage Door

You may not think of the garage door when renovating your home, but it can provide almost a 95% ROI. With an average expense of $3,500, you can improve your home’s value by almost $3,300 with this change. Think of it as improving your home’s curb appeal.

Minor Kitchen Remodel

The kitchen is the heart of the home. Renovating it doesn’t have to mean tearing down walls and reinventing your kitchen. Painting the cabinets, switching out appliances, and updating the faucets or light fixtures may provide an ROI of 77% or more.

New Windows

Windows are another great way to improve your home’s curb appeal, but they also affect the home’s energy efficiency. They can be a hefty investment, but you’ll typically recoup almost 75% of your investment. As a bonus, you’ll likely reduce your energy usage in the home which may further increase the return on your investment.

New Siding

New siding is another exterior project that can increase your home’s value. This is especially true if your siding is damaged or you have vinyl siding and replace it with something more stable.

Most siding investments provide a 75% ROI, plus it increases the curb appeal of your home if you choose a color that’s trending right now.

Final Thoughts

Before you make any home renovations, talk to a professional (like myself) to see how much of an ROI you’ll receive from the renovations.

Some homeowners renovate their home just to make the home look how they want or to give it features they want. But, you should always have your ROI in mind so you get the most out of your investment. You probably won’t be in your home forever, so why not get the most out of it by improving its value with the renovations you choose?

Home Selling • Real Estate Info • December 6, 2021

How to Get a Higher Appraisal

by Melissa Grillo

My Tips for a Higher Home Appraisal

The home appraisal determines how much you’ll get for your home. You could ask for any price you want, but if your buyers need financing, it all depends on the appraised value. While you can’t control the market value (how much other homes sell for), you can maximize your home’s value with these helpful tips.

Increase your Home’s Curb Appeal

Your home’s curb appeal is the first thing appraisers see. It develops their opinion of your home and may increase your home’s value.

To increase your home’s curb appeal, do typical maintenance tasks including cutting the lawn, planting, and caring for flowers/bushes, and clean the windows. You may also need to do some maintenance such as fixing damaged siding or missing shingles. Most homes can use a fresh coat of exterior paint too.

Deep Clean and Declutter your Home

Even though cleaning a home doesn’t affect its value directly, it helps appraisers have a better view of your home and its worth. Get rid of anything that’s in the way and take the time to clean even the nooks and crannies that get overlooked during your normal cleaning.

Make Necessary Repairs

If there is anything obviously wrong with your home, fix it. This includes things like:

Patching holes in drywall
Fixing hand railings
Replacing/repair damaged flooring
Fixing leaking faucets
Repairing damaged walls or ceilings from water damage

Look beyond eye level and make sure all areas of your home look well maintained and kept up.

Provide a List of all Upgrades

You never know which upgrades will affect your home’s value, so provide the appraiser with an all-inclusive list of all upgrades you’ve made.

Include small things like a new dishwasher or minor bathroom upgrades to the large renovations, such as adding a room, remodeling the kitchen, or replacing all floors. Provide the appraiser with receipts or contracts to prove the work.

Update your Kitchen or Bathrooms

If your kitchen or bathrooms are outdated, focus your efforts there. You don’t have to do major renovations. Even small changes can affect your home’s value.

Replace old wallpaper, update old faucets, install new lighting, or add a fresh coat of paint. In the kitchen, consider painting your cabinets, updating the lighting, and changing the hardware on your cabinets.

Provide Comparable Sales

If you know of homes that sold recently for a higher price in the area, share the information with the appraiser. If they don’t have the most updated information or you know of a home that sold rather recently that may not be on the appraiser’s radar, share the information to get the most for your home.

Final Thoughts

Your appraisal is based on the recent sales prices of homes in the area but that doesn’t mean you can’t increase it with some effort.

The cleaner, more updated, and accessible your home is, the better picture the appraiser can get of your home. Provide the appraiser with as much detail as you can about the home, the changes you’ve made, or anything you know about the area too.

Home Buying • Real Estate Info • December 6, 2021

Calculating Debt to Income

by Melissa Grillo

How to Calculate your Debt-to-Income Ratio

If you’re in the market to buy a house, your mortgage lender will look at a couple of main factors to determine if you qualify. Most people know they check your credit score and credit history, but they aren’t aware of the debt-to-income ratio and how it works.

What is a Debt-to-Income Ratio?

Your DTI is a comparison of your monthly debts to your gross monthly income (income before taxes). The higher the percentage is, the higher your risk of default becomes. Lenders like borrowers with a DTI of 43% or less. This leaves plenty of money for living expenses and savings, reducing the risk of default.

What’s Included in your Debt-to-Income Ratio?

The only information you need to calculate your DTI is your total debts and total income.

Debts to Include in your DTI

The debts you include are those on your credit report. A few examples include:

Car payments
Minimum credit card payments
Personal loan payments
Student loans

The DTI also includes the new mortgage you’re applying for which includes the principal, interest, real estate taxes, and homeowner’s insurance. It also includes any HOA dues and mortgage insurance, if applicable.

Income to Include in your DTI

You can include any income the lender will use for qualifying purposes. Obviously, this includes your full-time income. But if you have any other sources of income that have a two-year history and will continue for the foreseeable future, you may include them too.

Common examples include alimony or child support you receive or side gigs you run with income you can prove.

Calculating your DTI

With these two totals, you can calculate your own debt-to-income ratio using this calculation:

Total debts/Total income = Debt-to-income ratio

Here’s an example.

Jan makes $7,000 a month before taxes. Her debts include the following:

Minimum credit card payments $150
Car payment $300
Student loan payment $250
New mortgage payment $1,750

Jan’s debt-to-income ratio is:

$2,450/$7,000 = 35%

How to Lower your Debt-to-Income Ratio

If your debt-to-income ratio is higher than a lender might like, here are a few ways to lower it:

Pay your credit cards down or off – If you have credit card debt, try to pay it off. If you can’t, at least pay them down so your minimum payment drops, and you lower your DTI.

Pay down other debts – If you have other consumer debts you can pay down to have less than 6 payments, lenders may exclude them from your DTI

Increase your income – If your income is too low, take on a part-time job or start a side gig. You’ll need to show receipt of income for a while, so the sooner you start it the better.

Final Thoughts

Your debt-to-income ratio is just as important as your credit score. Take the time to figure out your DTI and where you stand before thinking about buying a house. You can prepare both your credit score and debt ratio early on to increase your chances of loan approval.

An Investor Rule to Know!

Buyers and Sellers Shouldn’t Meet, But Why?

What Buyers Need to Know Before Getting Started…

Home Renovation: Get the Biggest Bang for Your Buck!

How to Get a Higher Appraisal

Calculating Debt to Income

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