REAL ESTATE FAQ
There’s a lot to know when starting out in the real estate market. We’ve put together some of the frequently asked questions people have when buying or selling a house, or when thinking about getting started in real estate inventing.
Buying a House
What should I consider when looking at a house?
When you’re buying a house you should be thinking not just about the present but also the future. What will your needs look like in 5 years? Will the house need a lot of upkeep? Ask questions about the roof, the furnace, the plumbing. Find out what has been recently replaced and what hasn’t. It’s also a good idea to have a list of your minimum requirements. The number of bedrooms, the floor plan, the size of the yard. Try to picture yourself living in the home and how it would feel to be there daily.
Do I buy a move-in ready home or fixer-upper?
Both a move-in ready and a fixer-upper have advantages and disadvantages. A fixer-upper will cost much less, but will need time, resources, skills and the desire to put work into the property to make it worth the lower price. We have a great article in our blog that can help you choose which is right for you.
How do I know if it’s worth the price?
There are many factors that go into determining the price of a house. The condition of the house, renovations or improvements that have been made as well as the neighborhood all are factors. But the only person who can determine whether a house is worth the price is you. Gather the best information you can about the house and the community, look at the value of homes in the neighborhood, check out online home value estimators and then decide whether or not the house is worth the price to you.
How much of a down payment do I need?
Of course, the larger the down payment, the less your loan amount will be, but don’t be scared away from home buying if you can’t make a 20% down payment. The national average is 11% down, but if you’re a first time buyer, you may qualify for loans with down payments as low as 3.5%. If you’re wondering what you should put down, or what you can afford to pay for a house in general, it’s a good idea to start your home buying process by getting pre-approved by a lender. If you’re interested in a lower down payment, we have an article on our blog that goes over some of your options.
How do I find out tax information about a house?
You can find the previous year’s property tax in the house’s listing information. This information is also usually available on the official websites of tax agencies (such as city or county). Tax rates change regularly though, so keep in mind these are just estimates.
What are home inspections?
A home inspection is a review of the physical and mechanical structure of a house. It will cover foundation, walls, insulation, roof, as well as the heating, cooling, plumbing and electrical systems. It is a good idea to include an inspection clause in your offer. This gives you the opportunity the withdraw or renegotiate the offer should something serious show up during inspection. This article from our blog goes into more detail with what you can expect from a home inspection.
How do I get the best loan?
There are multiple loan programs available, and depending on your situation some will be better than others for you. An ARM, or adjustable-rate mortgage, will start with an initial low fixed interest rate that will then adjust to changing interest rates. A fixed rate mortgage will have payments that remain the same throughout the loan period. Choosing between loan programs will require looking at your current finances and estimating future income to evaluate which you will be best for you.
What goes on during closing and what are the costs?
Closing is the final step of purchasing a home, and the part of the process where the title is officially transferred from seller to buyer. As a buyer, you will present proof of your homeowners insurance policy. The seller will provide proof of any inspections. The closing agent will list what is owed by each party and all the documentation will be signed.
There are many fees associated with buying a home, as there are many pieces and people who work to complete the process. The fees also vary with between states and cities. Closing fees include appraisal fee, inspection fee, loan origination fee, taxes, credit report, document preparation fee, title fee, attorney and escrow fees and insurance costs. This is not a full list, however, as each sale will have a unique set of circumstances. In general, it is best to prepare for closing costs of about 2-5% of the home price.
Selling a House
What is my home worth?
As we discussed in question 3, the value of a home is subjective in many ways. But there are certain methods you can take to determine what you should sell your property for. One of the first, and easiest, methods is to use online home value estimators. These exist all around the internet, but Zillow and Redfin have popular versions. The next step is to talk with a realtor and get a broker price opinion or competitive market analysis. These are similar home value assessments, though a CMA focuses more on the recent sale values of similar homes in your community. For a more detailed look at your specific property, you may want to have an appraisal done.
What improvements should I make before selling?
Depending on the overall condition of your home, it might be best to make some big improvements before putting your house on the market. If your property needs a lot of work throughout the home to make it livable, you can think about skipping the costly renovations and selling as-is. However, something like a new roof could be taking more off the price of your house than it would cost to replace it. (In this blog post, we discuss just why a new roof might be a good move.)
Little improvements are important as well, as they help show your home in its best light to buyers and are generally lost cost. Give your house a thorough cleaning (windows, vents, tiles and floors), fresh coats of paint, repair the small things like leaky faucets, declutter and remove any tattered furniture, add air fresheners and remove items that might represent views potential buyers might not hold. Remember that selling requires home staging. You want your potential buyers to be able to easily see themselves living in your property.
What is home staging?
Home staging is process of showcasing your home to buyers. You want to design and style your home in a way that will welcome buyers to envision themselves living in your property. Neutral walls and furniture are often used, with pops of decor to reflect seasons and evoke strong positive emotions from buyers. There are home staging professionals you can hire, as well as many resources online for those who are interested in staging their own homes for sale. Your real estate agent can also be a resource. Home staging can be incredibly powerful when done well and shouldn’t be overlooked. Here are some helpful home staging tips.
When is the best time to put my house on the market?
In general, spring is usually the best time to put your house on the market. This makes sense as spring is a time of change and transition. School years are ending, tax returns have been made, the weather is warming and the days are getting longer. In particular, the first 2 weeks of May are shown to offer the shortest time on market. This does vary by region, and climate, so if you’re flexible on when to sell your house, look for the best times in your specific location. And remember, putting your home on the market doesn’t happen overnight. So if you want your house listed during that perfect window, start the process a few weeks before.
Do I need a realtor?
It is the job of a professional realtor to navigate the complex real estate business. Hiring a realtor can be a huge source of information, as well as a relief from many of the onerous tasks of selling a house. A realtor will help you determine a fair asking price, complete and file necessary documents. They will be able to list your home on multiple sites. They will create and pay for marketing and advertising to get your home in front of potential buyers. They will put on open houses and individual showings. And their experience will help them determine who is most likely to buy, who are qualified buyers and negotiate prices. They can help you navigate legal aspects, appraisal and inspections. There is a lot that goes into selling a house, and a professional realtor can be a valuable resource. If you’re selling, take a look at this article on choosing the right listing agent.
How do I know if a buyer’s qualified?
There are a few different ways to determine if a buyer is qualified to make an offer on your house. Looking at their credit history, current income or employment, whether they have been pre-qualified or pre-approved for a loan and the length of time they need before closing are all factors you should be looking at in potential buyers.
Do I need a lawyer?
Selling a house (and buying one) is a legal transaction. And with all legal transactions, the specifics might get a little complicated. In some states, it’s mandatory that a real estate attorney be present at a closing. Even if that’s not the case where you live, there are some circumstances where hiring an attorney might be beneficial. If the sale is not cut and dry, if you live out of town, or the property has major issues, you may want to consider hiring a real estate attorney.
How will selling my house affect my tax return?
Selling a large investment like a house can have major impact on your taxes, both federal and state, and there are many factors that will determine exactly how your taxes will be affected. Whether you purchased the home or inherited it, whether it’s used for business, if you’ve done any major improvements to it or whether you’re using the sale to purchase other property are all factors. This article from our blog discusses the capital gains tax and the rules for applying it. Of course, a tax consultant will be able to help you on the specifics of your property sale.
Investing in Real Estate
What do I want to look for in an investment property?
First and foremost, you’ll want to search for an enticing location. Location really is key to getting a great return on your investment, and it is also something that will attract quality renters. You’ll want to ensure the neighborhood has access to a multitude of amenities such as good schools, a thriving job market and local attractions. Take into consideration the age demographic of the area that you are investing in, too. As an investor, you’ll also want to ensure that your new acquisition will require low maintenance on your part. Properties in low-quality areas tend to require more work on your part, and will likely have a high turnover rate. Ultimately, you’ll want to be smart with your investment. You want a steady, low-risk investment.
Which is going to be more beneficial for me? Multi-unit v. single family?
Unless you own a multitude of single-family homes, your income will automatically be higher for multi-unit homes, as you will have multiple rent payments for the property. Even if one unit is to become vacant, you’ll continue to have a steady flow of income from the occupied units to continue to cover any costs associated with maintaining the investment property. However, multi-family homes can be significantly less affordable to finance that single-family homes. This is dependent on the size of the property, of course. An investment property with 4 units or less will qualify for the same financing options as a single-unit home, versus a property with 5+ units, which requires a commercial real estate loan. With that being said, it is easier to grow your investment portfolio with strictly single-family units, as they are typically the more affordable option. Some things to take into consideration are: the amount of rental income anticipated each month, what you can afford in terms of a down payment and if you are looking to buy and hold the property or if you are looking to sell the property sooner than later.
What is ARV?
ARV stands for After Repair Value and it is used to calculate the future value of a distressed property after a rehab. It’s important to evaluate about a property’s ARV before making a purchase, as it will determine whether an investment is worthwhile. To determine an ARV you should take the cost of the property and the cost of repairs and estimate its to likely selling value. An ARV should be at least 10% higher than the combined cost of the property and repairs. Take a look at our blog post, How to Estimate the Real Cost of a Property Rehab, to help determine whether to follow through on an investment opportunity.
What are the potential tax benefits?
Real estate investment offers many tax benefits. But owning rental properties is one of the strategies with the greatest potential. Come tax time, there are a number of deductions to be made. Expenses incurred while managing and maintaining your investment can all usually be deducted. This includes but is not limited to: depreciation, utilities, property taxes, repairs, and travel costs associated while conducting business.
What is an exit strategy?
Real estate investment is a business. And like any business, sometimes changes need to be made. If you’ve decided you no longer want to hold on to an investment property there are several exit strategies you can use. The first option is traditional for sale listing where you sign a listing agreement with a real estate agent and the property is put up for sale on the market. Another strategy is seller financing. In this option, the seller takes on the role of the bank, with a buyer making monthly mortgage payments directly to the seller. This option means the seller can receive monthly income while the buyer has sole responsibility for (and ownership of) the property. A third exit strategy is a lease option, or lease purchase. A rental lease, like any other standard lease, is signed, and then an option to purchase is drawn up. The tenant is given the sole-option to purchase at a predetermined price during a predetermined time frame. Each of these exit strategies has its advantages and disadvantages, and which one you chose will be decided by the specific factors of each investment.