Flipping 101

So, you want to flip houses? You’ve watched hours upon endless hours of Flip or Flop, Fixer Upper, and Property Brothers, and you’re ready to get your hands dirty. Does spending every waking hour and the occasional all nighter working on the house to have it ready for listing by a certain date sound enticing to you? If so, continue readying. If not, turn back now! I promise this business is not for everyone!

As a seasoned Realtor and part-time house flipper, here is my advice for those looking at a possible plunge into the flipping department:

ENLIST A TRUSTWORTHY REAL ESTATE AGENT

Employing the right real estate professional is the best place to start. An experienced and knowledgeable agent in your corner can make or break your success. Your Realtor should be an expert on the local market, how to spot investment potential, and ultimately how to market the property once you’re done. Since your agent will likely be doing both your purchase and sale, they may be open to taking a reduced commission, which will help maximize profits.

GET QUALIFIED

Unless you’re paying cash, you need to apply and be approved for a loan. Since this purchase is not a primary residence or rental property, most mortgage institutions will not fund flips with traditional loans. Private and hard money lenders issue one year interest only loans and usually require a larger down payment and higher interest rate, but this may be your only option. Your real estate agent should be able to provide you these contacts.

IDENTIFY YOUR TARGET PROPERTY

Once you’ve obtained financing, you’ll need to narrow down the criteria for the type of house you want to buy. Things to consider are price, location, neighborhood, style, age, level, bedrooms, and square footage just for starters. It’s best to keep it simple with a three-bedroom, two-bathroom minimum, single-family home in a hot or up and coming location. Stay clear from things that could affect resale value like being on a busy street or having only one bathroom as these kinds of oddities could have you spending longer time on the market upon resale. Also keep in mind, the older the house, the more likely it is to present costly complicated issues such as structural, electrical, plumbing, and title.

DIAL IN ON YOUR TARGET PROPERTY

If you’re in a similar market to ours in the Boise metro area, you’ll need to find places that have been on the market for some time, unless you are willing to pay full price or over asking price for your investment. But part of being a smart investor is finding properties BELOW market value to compensate for unexpected costs that could arise during the flip. To maximize profits and select the right house, try and spot easy ways you can add value like updating the kitchen, primary bathroom, painting, flooring, and big-ticket items such as roof, major appliances, and landscaping. It’s quite common for good investors to add hundreds of thousands of dollars in value with only minimal updates.

PLAN YOUR REHAB AND DO THE MATH

Take inventory of the items which will need to be completed during the flip. Make sure to include labor and materials. Then, add these rehab costs to the initial investment to purchase, and any other costs such as real estate fees, closing costs, and monthly mortgage payments if you’ll have any. Is your anticipated overall total investment well below your target final sales price and does it leave enough room for the profit you desire? If you’re having trouble with this equation, ask your Realtor to estimate the home’s value upon resale. If the math pencils, move on to the next step. If at all questionable, reevaluate and look for a different property.

MAKE THE OFFER

Once you’re comfortable with the math, have your agent submit the offer and work with the listing agent to secure the home and close. Most private lenders can close quickly and sometimes without ordering an appraisal, which will make your modest offer appear more favorably to the seller, especially if they have spent some time on the market and are eager to make a deal.

KNOW WHAT SELLS

Hopefully you’ve already enlisted the help of a trusted, experienced, and available contractor to help tackle the rehab project. Your value will mostly come from your understanding of how and where to add value. Today’s home buyers prefer completely move-in ready homes. The most bang for your buck will be items such as hard surface countertops, cabinets, kitchen sink, backsplashes, glass/tile showers, flooring, paint, roof, HVAC, and landscaping and curb appeal. If you did your homework before you purchased, you’ll have already developed a list of items you’re planning to do.

LEAVE PERSONAL TASTES UP TO THE BUYERS

While detailed side-projects can sometimes add value, they can also detract from the overall presentation and require time and money that could be much better used elsewhere. It’s also best to stay away from eclectic designs, unless you are an expert on what is popular and trendy. But even then, styles could change during the duration you own the home. The best approach is to appeal to the lowest common denominator, that is, what most home buyers will find appealing. For example, while some people may prefer green cabinets, most others do not. Do not push away large segments of potential home buyers. Provide a clean slate and let the buyer make personal changes once they’ve purchased the home.

TIME IS MONEY

A smooth flip should take anywhere from 2-4 months if done efficiently and correctly. The longer you hold onto the property the more costs will surely be adding up. However, in our market, since prices seem to always be increasing, it’s likely the strong seller’s market will help offset any delays in getting to market. Remember though, smart flippers don’t make money owning property, but rather selling it.

THIS IS NOT A HOBBY!

I once heard Scott Yancey from the hit reality TV show Flipping Vegas exclaim, “I’m not in this business to have fun, I’m in this business to make money.” Nothing could be truer. Contrary to the glamour portrayed in shows such as these, there is nothing glamourous about flipping houses. It is a risk that requires downright hard work and high initial costs. However, buying a house in poor condition and selling it for more money after renovations is a proven money-making strategy. The process can be grueling, but the end result can be very rewarding and profitable. 

STAGE THE HOME AND GET IT ON THE MARKET!

Perfection is the enemy of progress. However, even minor issues can lead potential buyers to wonder what else could be wrong. Put enough care into your flip to make sure the new owners will be happy with the decision they made to purchase. Reevaluate a final sales price based on the polished product and any market shifts that have occurred while you’ve owned it. Stage the home professionally and let the bidding war begin!

Still want to flip houses after reading this?! Call me @ 208-629-9236 or email me @ doug@platinumidaho.com today atand let’s devise a plan to get started! Happy Flipping Everyone!

HOW TO MAXIMIZE OFFER STRENGTH IN AN ULTRA COMPETITIVE SELLER’S MARKET

Today’s buyers in the Boise, Idaho area housing market will inevitably discover a stark reality when setting out to purchase a home. There are simply not enough available listings when compared to the number of buyers looking. This phenomenon is even more amplified for first time homebuyers, who are often still learning about the real estate purchase and sale process.

I work regularly with first time buyers and seasoned buyers alike, and I know it is tempting for either group to lose faith and withdraw from the process after one or two failed attempts at securing a new home. But whether a first-time buyer or a seasoned vet, giving up means foregoing a more desired living situation and good equity potential over the next several years, when considering Boise’s continued growth.

I recently earned the nickname “The Buyer’s Whisperer” from one of my close colleagues because, in those instances where my clients have felt like a new home is out of reach, I more often than not manage to convince a listing agent of my buyer’s preparedness and qualifications in order to have their offer accepted.

Nonetheless, I can declare with complete certainty that there it is no perfect science when it comes to submitting an offer in this crazy seller’s market. Cracking the precise code for any given listing requires an analysis of buyer/seller circumstances, emotional attractions and attachments, and overall financial strength of offers.

So, what can you do to enhance your chances of cracking the code? Here are my tips – “The Buyer’s Whisperer’s Essential Guide of Do’s and Don’ts” when submitting an offer on a home:

DO:

• Enlist an Experienced Agent – The Number 1 best thing you can do to help you buy your dream home is to employ a good, seasoned Realtor®. Buyers often make the mistake of trying to go it alone to sidestep agent commissions, thinking doing so will provide a more attractive financial outcome for the Seller. This is a fallacy! In most cases, Sellers are already well prepared to price the home with Realtors® in mind to maximize their net proceeds. The Seller/Listing Agent agreement sets the total commissions without input from the buyer. Get an agent. Not doing so would be like showing up to court without a lawyer.
• Increase Your Earnest Money – In my opinion, a buyer’s standard of qualification is first and foremost determined by the amount of earnest money offered and overall down payment. It’s one of the first things an experienced listing agent will look for in an offer. A strong earnest money deposit usually means greater buyer ability, while a small amount of earnest money can signal issues with a buyer’s available cash.
• Get an Early Start on the Inspection – Schedule your home inspection prior to hearing back on your offer. Your Realtor® will have a list of home inspection companies on hand. The inspection contingency is often the most contentious piece of the transaction. Showing that you’re eager to get the inspection completed gives the Seller needed assurance that the transaction will likely close.
• Make it Personal – In Idaho, there is no restriction on including a personal letter and photo with your offer. Multiple times, I’ve seen a seller accept a lower offer because of the buyer’s personal appeal. Tell your story. The time is now.
• Don’t Give Up – Buying a home in our seller’s market is no small task. It takes time, hard work, dedication, and resilience. The saying “If at first you don’t succeed… try, try again,” is a perfect motto for this situation. Persistence is key and with the right Realtor® by your side you WILL eventually find that perfect home you’ve been hoping for.

DON’T:

• Be Overbearing – Make sure you have deployed a cool, calm and collected Realtor® who works well with others and is respected within the industry. Currently in the Boise area market, listing agents are often overwhelmed with multiple offers over asking price. Keep in mind this is an emotional decision for the Sellers as well. The best thing you can do is stay level-headed and understand there can only be one buyer per home.
• Go in Low – This may seem self-explanatory but often needs context. Offering below asking price on a new listing is sure to get you sent straight to the doghouse. Make a strong offer and rest assured knowing that you are protected by the appraisal contingency which allows you an out should the property fail to appraise at the purchase price.
• Go Over Asking Price with Reckless Abandon – On that same note, the last thing you want to do is ignite appraisal concerns with the listing agent. Work with your Realtor® to find that sweet spot between a strong offer and an offer so high that you seem likely to want to renegotiate the price down during the transaction. Also, have your agent find out whether the listing agent prefers escalation clauses. Do not assume they do, as many experienced listing agents would prefer a one-time “highest and best” offer.
• Ask the Seller to Pay Appraisal or Closing Costs – Even if you are strapped on cash, don’t show it. Doing so could mean losing out on equity that could be gained back within months of spending your down payment and closing costs. Asking the seller to pay for your appraisal can set the wrong tone. The listing agent and seller want to know you can close on the property without pinching pennies. Seller-paid closing costs are sometimes necessary to include in the offer but try to limit this practice as much as possible.
• Use an Obscure Lender – BEWARE of national lending institutions. Seasoned listing agents will often want to contact your lender to check on your qualifications. It’s smart to use a local lender who is responsive and will go the extra mile for you including taking the initiative in reaching out to the listing agent to explain why you are the most qualified candidate for the home.

With the help of a good Realtor® you will maximize your chances of securing your dream home even in this bullish seller’s market. If you have any questions or need help submitting an offer on a home, please don’t hesitate to contact The Buyer’s Whisperer right away at 208-629-9236 or doug@platinumidaho.com!

*As of the Census 2019, there are 339 people for every listing, more than 400% more than what it was just over 10 years ago.

SHOULD I BUY OR BUILD A HOME?

With the ever fading existing home inventory in the Boise area, I more and more often find frustrated home searchers turning to building a new home or at least daydreaming about it. But, are you really prepared to go through the process of building a home?

This can be a pain-staking 6-8 month+ process in which there are likely to be added stressors and increased anxiety over building a home. But, it could all be worth it to have a brand new house and have at least a minor say in the finishes and construction.

What kind of factors should go into your decision to buy or build? Let’s consider each.

DOUG HOFMANN’S TOP FIVE REASONS TO BUY

1. You do not know much, and don’t want to learn, about the construction process. If you take no interest in laying foundation, framing, HVAC, insulation, drywall, and trim work, then you may not enjoy building a house.
2. You prefer to limit headaches and minimize stress levels. Time and time again, I hear that building a house was a major stressful process in one’s life. There are likely to be many uncertainties when building a home. Although buying a house can also be stressful, the level of commitment in both time and energy is less than in building. Buying should be a rather pleasurable experience with the right Realtor®.
3. You are not extremely picky when it comes to homes. If “white shaker cabinets” and “herringbone patterned subway tile” are not common words in your vocabulary, perhaps buying a home will suit you just fine. You’ll have time to make your pre-existing home yours over the duration you live in it.
4. You enjoy the charm and character of older or slightly older homes. If you get a warm sense of nostalgia when walking through a Queen Anne complete with a mature oak tree in the backyard, chances are the sterility of a new home with what looks like a twig sticking straight out of your front-yard lawn may not be for you.  
5. You do not know where to start. If the thought of building a home is too much to even wrap your head around, then can you really make it through the entire process of locating a lot, selecting a floorplan, and putting up with the construction process? Trust that you or your Realtor® will eventually find a listing and secure the right home for you.

DOUG HOFMANN’S TOP FIVE REASONS TO BUILD:

1. You need a specific location. You don’t want to displace your teenagers during their high school years, but you’re ready to reap some of the equity you’ve been stockpiling and move into a new home more suited towards your future needs. Maybe there are a couple lots left in the neighborhood a few blocks over large enough to accommodate your “must haves” and that 55” RV garage you’ve always dreamed of.
2. You are not in a hurry. Pretty self-explanatory here, meaning you do not NEED to move, and 6-8 months, if all goes well, suits your timeline.
3. You like to design. Your creative juices are flowing from watching too much HGTV, and you are ready to go all “Chip and Joanna Gaines” on selecting finishes, including everything from carpet and hardwood to the location of electrical outlets and light fixtures in every room. Building a custom home might be for you.
4. You’ve accepted the idea of a homeowner’s association. Right now, in the Boise area, there is not a lot of land to choose from unless you are willing to be a bit further out from the city center or in a subdivision. Building in a subdivision can provide community recreation and increase home value. Just remember those rules about grass height and exterior paint colors apply to you as well as your neighbors.
5. You want the latest technology or have custom needs. You’re willing to build to get a certain floorplan, built in surround-sound, a swimming pool, a three-car garage, or a shop. Sure, many of us might want all that. But, remember, modern is only modern until the next trend comes along. Pop corn ceilings and avocado green appliances were once all the rage…

If YOU are in the market to buy or build, or have any questions, please comment below or contact me at 208-629-9236 or doug@platinumidaho.com. I’d love to hear from you!

BUYING FORECLOSURES AND OTHER DISTRESSED PROPERTIES: OPPORTUNITIES AND CHALLENGES

In today’s booming seller’s market, I am frequently asked by buyers whether distressed properties are a better purchasing opportunity than regularly-listed homes, where sold prices can easily extend above asking prices. It’s a valid question – the idea of finding property for well below-market value is enticing, and seems relatively easy as portrayed on popular home improvement television shows. But, as I will discuss in this post, in the real world, distressed property transactions are dominated by seasoned professionals, not the average consumer.

In 2011, as the real estate market hit rock bottom, nearly 60% of all homes sold were distressed properties (short-sales & foreclosures). By 2016, these properties made up less than 1% of the total units being sold. Although these properties are now rare and difficult to obtain, there are still options. Let’s look at some of the challenges presented when trying to purchase these properties:

PRE-FORECLOSURES

A “Pre-Foreclosure,” one in which the owner has simply received a “Notice of Default,” will often be mislabeled as available for sale on websites such as Zillow and Trulia (a list of these homes can easily be obtained from a title company or government agency). However, there are still several options available to these home owners, including paying off their past due balance, or hiring a REALTOR® to sell their property at market value.

You may have heard the term “wholesaler.” A real estate wholesaler is someone who works for a national company and is trained on how to spot these potential opportunities. Professional wholesalers contact pre-foreclosure owners to inquire about the possibility of purchasing the property with cash at well under market value, which gives the owner a quick out if they are in a severe financial situation. The wholesaler then finds a client for the property, almost always an investor who plans to renovate it, and either sells the investor the property or assigns it to them for a fee. Wholesale purchases are done through private, cash, non-listing service transactions that are generally unavailable to the average buyer.

If you are interested in learning more about becoming a wholesaler, I recommend that you attend a seminar on real estate investing when one becomes available in your area. These seminars and proceeding workshops will cost you a few thousand dollars and several days of your time, but may be worth it for the determined investor.

FORCLOSURES

Attractive foreclosures are most commonly sold at public auctions, where you will need to provide “Proof of Funds” or a “Proof of Funds Letter” at the time of your winning bid. Do not mistake the Proof of Funds Letter for a Pre-Approval Letter. A Proof of Funds Letter is a note from a lender showing that cash is readily available for at least the amount of your winning bid, whereas a Pre-Approval Letter is a note from a lender showing an approved loan amount. Proof of Funds Letters can only be obtained through special private lenders who work only with those who flip properties on a regular basis. Thus, the average buyer is unable to obtain these types of loans.

SHORT SALES

Short sales are available to the average buyer, if you can find and jump on them quick enough. On a short sale, the bank is allowing the owner to sell the property for less than they owe, so offers go through a rigorous bank audit process, and can take months or even years before the transaction closes. In this market, short sales are extremely competitive because they usually sell below market value. They attract multiple offers, and cash offers often win out.

BANK OWNED (B.O.) AND REAL ESTATE OWNED (R.E.O) PROPERTIES

B.O.s and R.E.O.s are properties owned solely by the bank due to the borrower’s financial default. Because banks are not in the business of owning real estate, they are often eager to remove these properties from their liabilities but governmental requirements for banks ensure that certain guidelines are met when buying and selling these properties. Again, I suggest that if you are interested in becoming a flipper, you start by attending a real estate investing seminar where they will teach you how to work with the banks directly.

THE BOTTOM LINE WHEN IT COMES TO BUYING IN TODAY’S MARKET

In our current real estate climate, acquiring a distressed property is less of a casual opportunity and more of a business venture that requires a significant investment of your time and money. Until the next market decline, distressed properties will remain generally out of reach for the average homebuyer. A final word of caution: Waiting too long for that to happen could leave you regretful of a missed opportunity to ride the equity gains many homeowners are currently realizing.

Indeed, with a dedicated REALTOR® to help you negotiate your purchase, you may be able to secure a below-market sales price for a regularly-listed home. I strive to get my buyer clients properties for under market value. In fact, over the past two years, I have managed to secure my buyer clients a final sales price an average of 2.2% below the appraised value (including any seller-paid closing costs). This means for a home that appraises for $200,000, the average net price I negotiate for my buyers is $195,600 – which is relatively unheard of in this heightened seller’s market where the average home in my area is being sold for within 0.3% of the final asking price. With the shortage of inventory and multiple offers often received, sometimes just securing your desired property is the real victory.

GENERATIONAL COMPETITION IN A LOW INVENTORY HOUSING MARKET

I was recently told about a magazine article that suggested there is a new force at play in the national housing market. The article apparently proposed the idea that many of the older “Baby Boomer” generation are currently looking to downsize into smaller and lower maintenance properties, while the younger “Millennial” generation is also seeking these types of properties as first-time home buyers.

I was asked my opinion on the matter, and based on my experience as a REALTOR®, I explained that this phenomenon could in fact be true of what we are seeing in the Treasure Valley, as these demographics are huge segments of our buyer population. Baby Boomers who have been living in the same suburban home for 20+ years are looking to downsize, and many are looking to be closer to the city, shopping and the arts. This is problematic for Millennials, who also covet a more urban location close to the downtown scene and universities. Baby Boomers, who have likely seen a substantial equity gain in their older homes, generally have more purchasing power than someone new to the market.

So, how can you prepare as a Millennial or a Baby Boomer looking to buy a home?

TIPS FOR MILLENIALS COMPETING IN THIS MARKET

In my opinion, one of the main goals of a first-time home buyer should be to build considerable equity in their first home, which will eventually spark the ability to purchase up when the time comes. With the right help in finding a property of good value, you should expect to have gained considerable equity by the time you’re ready to upgrade. Here are some tips for competing for those properties against other buyers who may harness greater purchasing power:

• Stop and take a moment to breathe. Take your emotions out of the equation. I recently helped a young, first-time buyer couple find a home. Even though they had substantial cash to put down, they soon found themselves in a frustrating bidding war that had escalated far beyond asking price. I reminded them to slow down and look at this from an investment standpoint. After careful deliberation, they logically decided to forgo questionable financial tactics and move on. They soon found a home they liked even more which they ended up being able to purchase for far under asking price.
• Look at off-market homes. A good real estate agent should be eager to find you a home you love, whether it is currently for sale or not. Don’t be afraid to ask your REALTOR® to contact the owner of an off-market home. Doing so can decrease the amount of competition involved since you will be the only ones “in the know” about that specific property.
• Reconsider what you need from your location. Do you really need to be walking distance to Downtown? Or can you find comparable amenities in a different location? Allowing yourself to be open to properties away from the city center can minimize buyer competition.
• Realize it is a learning experience. Although many first-time buyers are already highly knowledgeable and educated in the real estate process, there is always a learning curve. Keeping yourself open to the idea that you are receiving an education will help you make even better real estate decisions in the future.

TIPS FOR BABY BOOMERS IN THIS MARKET

In this ultra-competitive market, younger generations are not the only ones losing bidding wars, as they are certainly not age-discriminatory. However, for older buyers the intent to purchase may be a long-term housing plan on which you are willing to spend the extra money. But paying over value for a home is never a good idea. Here are some things you can do to ensure you are not paying too much:

• Set a maximum bid. Decide what your highest price will be and stick to it. Although you may possess the ability to pay well over asking price, it is rarely wise to do so. Offering over asking price will increase the risk of appraisal issues.
• Ask to see comparables. Comparing the home with other similar homes that have sold in the past few months should give you a good indication of what the property is worth. Your REALTOR® should have this information readily available.
• Consider condos and townhomes. There are great condos and townhomes available that have been built specifically for the purpose of downsizing. They are generally less expensive and lower maintenance, and often come with everything you would expect from a single-family home.
• Consider new construction. There is occasionally less competition than in purchasing older homes. The added benefit of new construction is stress free living, as they present minimal structural issues and usually come already under warranty.

KEEP CALM AND SEARCH ON, THE RIGHT HOME IS OUT THERE

Let’s face it, there’s no doubt we are currently experiencing a significant lack of inventory, and this cross-generational phenomenon is only adding fuel to the fire.

However, whether you have bought and sold numerous properties in the past, or are just starting out in the real estate world, with the right agent advising you, you can minimize the issues associated with a highly competitive real estate market.

As a REALTOR®, nothing satisfies me more than to help an older couple downsize into a more manageable property they will be happy with for years to come. Alternatively, it is none more invigorating to help first time home buyers realize their dreams of homeownership.

Finding “The One” is a process of patience and persistence that I can assure you will eventually pay off.

If you are in the market to buy or sell a home, please contact me at 208-629-9236 or doug@platinumidaho.com.

 

HOW A BUYER’S LOAN PROCESS AFFECTS THE SALE OF A HOME

 

I was recently contacted by an attorney with a real estate related question. Apparently, the attorney had been contacted by potential clients about legal recourse after the sale of their home fell through during the final stages of the buyer’s loan underwriting process. The sellers were left holding the bag of months of continued house payments and a loss of marketing ability.

Sadly, the attorney’s potential clients are not the first to face this situation, as I see this all too often. I will cover in this blog post the basics of the underwriting process and provide tips to sellers in an effort to help them avoid a deal spinning out of control due to lack of buyer qualification.

WHAT IS UNDERWRITING?

If you have ever bought or sold a home and dealt with financing, you are most likely familiar with the term. However, many don’t fully understand what goes into the concept, and it is important to know. You have probably bought a car before and applied for financing. Your car salesman, prior to the inevitable tough finagling and tiring negotiations, will have you fill out a car loan application and submit it to the dealership’s underwriters for review to determine your purchasing power. These “underwriters” are usually tucked behind a one-way mirror and cast out seemingly arbitrary numbers on what you can afford.

In the world of home loans, the process is strikingly similar. During the final weeks of a home loan acceptance process all of your documents are sent to an underwriter for final acceptance. The mortgage underwriter is responsible for determining an applicant’s credit-worthiness by assessing their financial situation and possible risk of default. The underwriters are there to ensure that you will be able to afford payments on your purchase, in accordance with government guidelines. Mortgage underwriters may work from inside the mortgage company’s office, elsewhere in town or perhaps even out of state.

WHAT DO UNDERWRITERS LOOK FOR?

These underwriters possess the detailed legal guidelines that a customer must meet in order to secure the loan, and ensure for the mortgage company that the loan will be marketable to the likes of private banks or Fannie Mae and Freddie Mac. The most important thing that mortgage underwriters determine is:

Debt to Income Ratio – The amount of debt you owe compared to your actual income. That means that all your debt liabilities: car payments, credit card debts, student loan debts, child support payments, etc., and your new monthly mortgage payment, must be no more than about 45% of your total actual income.

If the loan officer has built and fostered a good relationship with their underwriter(s), they may be more likely to be able to pull some strings when it comes to accepting an applicant for a loan, especially during the crucial final days leading up to closing.

WHAT HAPPENS WHEN A BUYER DOES NOT SECURE THE ANTICIPATED LOAN?

Typically, a buyer should forfeit the earnest money to the seller for reneging on the contract after the all the contingencies had been met. Earnest Money is a deposit from the buyer(s) in the form of a personal check for about 1% of the total purchase price of the home, and it is meant as a deposit towards the down payment of the home. After the inspection contingency and the appraisal contingency have been satisfied, the direction of earnest money depends upon closing the transaction. If at any time, buyers decide to walk from the transaction without good reason and default on the contract, including by not securing the loan, the earnest money should go to the seller, as a reimbursement for the loss of ability to market the property during the time the house was under contract. In the event of a successful closing on a property, the buyer’s earnest money goes towards the overall purchase price of the property.

TIPS FOR SELLERS TO AVOID LOSING A DEAL DURING UNDERWRITING

If you’re selling your home, particularly to a first time buyer, look for signs of a strong offer to minimize the risk of losing the deal. Some of these signs may be indicated by a:

• Larger percentage of earnest money – Earnest money is typically 1% of the total purchase price, but can be more. More earnest money indicates cash readily available.
• Larger down payment – Buyers who can afford to put down a larger amount are often more likely to qualify for the loan during underwriting.
• Cash offer – Cash offers are sometimes too good to be true, so be careful. However, a successful cash deal can have your money in your pocket in a matter of days or weeks.
• Reputable lender – An experienced loan officer/mortgage consultant working with the buyer is always a plus. Have your agent contact them directly to discuss the buyer’s qualifications.

Work closely with your agent to determine the strongest presented offer. Not every deal can be a cash deal, and you will likely want to accept the first strong offer, cash or not. The largest percentage of good offers come within the first couple weeks of listing. The longer your property stays on the market, the less desirable it becomes.

A seasoned real estate agent can help you, as a buyer or a seller, reduce the risk of losing your deal during the final stages of underwriting, or if not, at least make sure you are compensated for your loss of time. If you have any questions regarding the financing process on a home loan, please contact me at 208-629-9236 or doug@platinumidaho.com to learn more!

Purchasing a Wedding Venue Property

 

Rustic wedding venues are in vogue. So in vogue that I have been fielding streams of questions recently from people regarding the profitability of such properties. Most of these people want to know:

1. Can I do it? And…
2. If I do it, what is my risk?

It’s easy to get caught up in the charm and enchantment of a rustic wedding venue with country-side views. With wedding costs today at an all-time high, and no shortage of couples looking to get hitched, it’s easy to see why investors are flocking towards land use properties to begin turning a profit from those ready to tie the knot.

RUSTIC WEDDING VENUES HAVE INCOME POTENTIAL

I recently attended a wedding on a multi-acre ranch about an hour north of Boise. It was a beautiful setting complete with guest house, barn with sleeping quarters, a beautiful meadow for the ceremony, and plenty of R.V. parking and campsites.

It wasn’t long into the festivities before wedding discussions turned to business income potential. Initial brainstorming estimates were about $5,000 per week, which we figured was viable for 6 months of the year. That equates to $120,000 per year just in wedding business alone, certainly enough to cover mortgage payments and then some. Add in other bookings such as family reunions, guided hunting tours, company retreats, and recreational outings, and you start to build a nice passive income with considerably low up-keep and effort.

CHALLENGES OF RUSTIC WEDDING VENUES

Coincidentally, the day after I returned from the wedding, I began helping a client who was seeking such a venue for purchase. Then, a few days later, I received another phone call on the topic from a wedding guest who had attended the same wedding, asking me to look at some listings for her father-in-law, who lives out of state and is looking to purchase an investment property in Idaho to rent out for weddings and other functions.

Zoning and land use issues immediately became my focus for both clients. There were so many variables to determine. What were the restrictions for commercial business on agricultural land? Not to mention the push-back one could receive from neighbors complaining of noise, dust, and natural resource degradation. Was it even worth the risk to purchase a property that would likely have to be pushed through hours of multiple planning and zoning committees, and land owner meetings? What about liability issues with things such as alcohol, fire, and safety? And what kind of permits would be needed?

ZONING CLASSIFICATIONS FOR RUSTIC WEDDING VENUE INVESTMENT PROPERTIES

My first step was to research our subject property, as a model, to see what kind of land characteristics the county categorized it. I contacted the Planning and Zoning Department and learned that everything outside of city boundaries, in that county, is categorized as “Multi-Use.” The land size of this particular property is 636 acres, and divided into five State Category Codes for a total assessed value of $329,362. Potential buyers looking to invest in rustic outdoor wedding venues should be familiar with these common rural land classifications, of which your property may or may not already belong:

• Dry Grazing land. This land must be capable of supporting grasses and not normally capable of supporting crops on regular rotation and may be located inside or outside the boundaries of a subdivision without restrictions on such use or the boundaries of an incorporated city.
• Waste. Public Rights-of-Way includes roads, ditches, and canals.
• Homesite land. Rural non-subdivided land being utilized for homesites. Note: This land is always land with improvements located on it.
• Secondary Category 31 (Main House/Cabin) – Improvements used for residential purposes.
• Secondary Category 32 (Barns) – Improvements other than residential.

There are three main parcels to our subject property, the Dry Grazing land, which is the vast majority of the total acreage, the Homesite land, and the Waste land. The Dry Grazing land and the Homesite land on this property are valued by the County Assessor as if the land were vacant. Together the Dry Grazing land, the Homesite land, and the Waste land encompass the total acreage of the property. The Main House and the Barn are considered improvements on land. The value of the property’s structures makes up the majority of the county’s estimated value.

CONCLUSION

For my first wedding venue client, who is looking to identify a property for purchase, where should one start? Commercial lots, building lots, residential, acreage, agricultural? We have decided to include all categories. We have pulled up some stunning properties, many of which we believe will work brilliantly for a wedding venue, keeping in mind that permitting and zoning may pose a challenge.

For my second wedding venue client, who has already identified some listings, I decided to contact the counties where the properties were located to learn how they were zoned. Because some of the properties are so large – hundreds of acres and divided into multiple parcels – not all of the parcels for sale are zoned the same. My client needs to consider during the initial stages of the buying process, how the property’s current zoning classification could control its future use.

There are many factors to consider if you are looking to make a passive income from a wedding venue, most important of which is zoning and permitting regulations. Work with your Realtor and the county to develop the best strategy for purchase. Be prepared to sway decision makers as to why you will make a good neighbor and how you will bring business with you into the area. Unfortunately, there is no magic calculator to predetermine if these properties will yield a profitable return on investment. However, with the right real estate agent and team behind you, there lies tremendous opportunity.

Contact me today at 208-629-9238!