Archive for the 'Real Estate Nuts and Bolts' Category

Introducing Our New Real Estate Assistant at Lake of the Pines

said on February 5th, 2013 filed under: Lake of the Pines, Localism, Real Estate Nuts and Bolts

We are pleased to announce that Deanne Gutierrez has joined the Jenkins Group at Century 21 Foothill Realty.   Deanne will be working with us as our Real Estate Assistant. She joins the team with prior experience as a Real Estate Assistant at Lake of the Pines and in the Auburn, Grass Valley, and Nevada City areas.

Deanne says:  “A little about me, I am married to my wonderful husband Simon and I am the mother to 4 fantastic kids. I love living in the Foothills (Lake of the Pines) with all that this beautiful area  has to offer. You can often find my family and me swimming at the lake or in nearby rivers, or boating on the lake with friends. We enjoy outdoor movie nights on our property and BBQ’s. I am also a very crafty person, loving everything about paper crafts as well as up cycling/recycling projects. I also enjoy photography and have blogs for both my crafts and my photography.”

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Buy a Rental: Cash-on-Cash Comparison

said on August 25th, 2012 filed under: Localism, Negotiating, Real Estate Nuts and Bolts

This is the third of three formulas for buying rental property.  In this article I will compare the cash-on-cash returns for the rental purchases described in the previous two articles.

Buying a Rental:  Loan Formula

Buying a Rental:  Cash Formula

The cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage.

 

CASH-ON-CASH RETURN =    ANNUAL BEFORE-TAX CASH FLOW / TOTAL CASH INVESTMENT

 

Example 1:  BUY A RENTAL WITH LOAN FORMULA

Suppose you purchase a $150,000 rental with a $30,000 down payment and $20,000 in closing, finance, holding, and fix-up costs for a total cash investment of $50,000.  You finance the balance of $120,000 for 4% APR on a 30 year fixed rate loan.  Each month, the cash flow from your rental, less expenses, is $427.  Over the course of a year, the before-tax income would be $427 × 12 = $5,124 so the cash-on-cash return would be

$5124

_______   =  .10248  = 10.25%

$50,000

Example 2:  BUY A RENTAL WITH CASH FORMULA

Suppose you purchase a $150,000 rental with a $150,000 cash and $16,000 in closing, holding, and fix-up costs for a total cash investment of $166,000.  Each month, the cash flow from your rental, less expenses, is $1,000. Over the course of a year, the before-tax income would be $1,000 × 12 = $12,000 so the cash-on-cash return would be

$12,000

_______   =  .072289156  = 7.23%

$166,000

 

CONCLUSIONS:

You will get a higher rate of cash-on-cash return (10.25%) by financing 80% of the purchase at 4% APR.

You will get a lower rate of cash-on-cash return (7.23%) by paying cash for the property.

You will get a higher monthly income if you pay cash.

 

*LIMITATIONS TO CASH-ON-CASH CALCULATIONS:

  • Because the calculation is based  on before-tax cash flow relative to the amount of cash invested, it cannot take into account an individual investor’s tax situation, the particulars of which may influence the desirability of the investment.
  • The formula does not take into account any appreciation or depreciation.
  • It does not account for other risks associated with the underlying property.
  • It is essentially a simple interest calculation, and ignores the effect of compounding interest. The implication for investors is that an investment with a lower nominal rate of compound interest may be superior, in the long run, to an investment with a higher cash-on-cash return.

It is possible to perform an after-tax Cash on Cash calculation, but accurate depictions of your adjusted taxable income are needed to correctly address how much tax payment is being saved through depreciation and other losses.  It is always advisable to consult with your CPA or tax preparer before buying real property for investments purposes.

*Most of the text for this “Limitations” section and certain phrases used earlier were adapted from the Wikipedia article titled Cash on Cash Return.

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Buy a Rental: Loan Formula

said on August 24th, 2012 filed under: Market Trends, Negotiating, Real Estate Nuts and Bolts

This is the second of three formulas for buying a rental property.  In this version the rental is purchased with a down payment of 20% and a fixed rate loan of 80%.

Here are the assumptions:

  • You have $50,000 sitting in a non-productive instrument, perhaps a savings account, mutual fund, low-yield bond, or your funds are in a CD that is getting ready to mature, or the cash is buried in a coffee can in the back yard.
  • The tax benefits or liabilities are not computed (see your CPA or tax lawyer).
  • The purchase price and  rent are hypothetical and will vary by location.
  • The property will need some fixing prior to renting.
  • Property taxes are based on the California ad valorum 1% rate plus a bit of miscellaneous supplements.
  • Closing costs are customary for northern California for a loan-financed  purchase and include inspections.

 

Here are the Assumptions

Purchase a Rental with a Loan Formula
Purchase Price 150,000
Loan @80% 120,000
Down payment   @20% 30,000
Loan costs (1 point + $1500) 2,700
Closing costs   (escrow and title) 3,500
Fixup and holding costs 13,800
Total Cost to Purchase 50,000
Rent earned on the property 1,430
Monthly principal and interest @4% 30 year fixed 573
Monthly property taxes 150
Monthly property management 95
Monthly insurance 85
Monthly maintenance 100
Total monthly expenses 1,003
Monthly net 427
Annual Gross 17,160
Annual Net 5,124

 

Summary: If you can buy the property for $50,000, fix it up for $13,800, and get $1430 rent, you will net $427.00 per month.  (Remember, income taxes on the net are not computed in this formula, nor are the mortgage tax deduction and business expense deductions calculated).

 

 

 

 

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Buy a Rental: Cash Formula

said on August 23rd, 2012 filed under: Negotiating, Real Estate Nuts and Bolts

This is the first of three formulas for buying a rental property.  In this version the rental is purchased with cash.

Here are the assumptions:

  • You have $166,000 sitting in a non-productive instrument, perhaps a savings account, mutual fund, low-yield bond, or your funds are in a CD that is getting ready to mature, or the cash is buried in a coffeee can in the back yard.
  • The tax benefits or liabilities are not computed (see your CPA or tax lawyer).
  • The purchase price and  rent are hypothetical and will vary by location.
  • The property will need some fixing prior to renting.
  • Property taxes are based on the California ad valorum 1% rate plus a bit of miscellaneous supplements.
  • Closing costs are customary for northern California for a cash purchase and include inspections.
Cash Purchase Rental Formula
Purchase Price 150,000
Closing costs 3,000
Fixup and holding costs 13,000
Total Cost 166,000
Rent earned on the property 1,430
Monthly property taxes 150
Monthly property management 95
Monthly insurance 85
Monthly maintenance 100
Total monthly expenses 430
Monthly net (rent minus expenses) 1,000
Annual Gross 17,160
Annual Net 12,000

Summary:  If you can buy the property for $155,000, fix it up for $13,000, and get $1430 rent, you will net $1000.00 per month.  (Remember, income taxes on the net are not computed in this formula).

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“There is no such thing as land . . .”

said on August 18th, 2012 filed under: Country Property, Localism, Real Estate Nuts and Bolts

. . . only usable land.”

That was my first real estate lesson about land.  I learned those words from an old-timey country realtor who drove around Nevada County in a beat-up blue Pinto buying and selling land.  He didn’t look the part of a big-shot realtor, but he made a zillion dollars . . . and he knew just about everything there was to know about dealing land . . . usable land.

Just what does that mean . . . usable land?

Typically, “usable” means that the land is flat, or has some flat areas suitable for various purposes, or that the topography is gentle enough that you can do things on it without falling off the side.

But there are two other considerations, beyond flatness, that are even more important:

1.  What activities can be accomplished on the land in a cost-effective manner?

2.  What do you want to accomplish on the land?  That’s right, you.  I’m talking to you. Suppose a big parcel of land is ideal for cattle ranching, but you have no interest, zero, zip, nada in raising cows.  How usable is all that ranch land for you?

PASSIVE USES

What is the point in (a) buying, (b) paying annual holding costs, and (c) maintaining one hundred acres if you are going to use only the quarter of an acre site your house actually sits on?  OK, before you start arguing with me, I concede that there are “passive” uses for big land parcels.

Here are three:

1.  Privacy.  Surround your home or business with a lot of land, and you can create a visual and sonic buffer against the cruel world outside.

2.  Lifestyle.  Some folks embrace the idea of snuggling themselves down in the bosom of Mother Nature, enveloped in the sights, sounds, and smells of trees and birds and running water.

3.  Investment.  A big spread may not be your cup of tea, right now, but good ranch land may appreciate in value so that you can make a killing when you sell it sometime down the line.

ACTIVE USES

But for effectively “using” large land parcels, here are some of the more conventional pursuits:

  • Subdividing the land for residential or commercial development
  • Vineyards
  • Orchards
  • Farming
  • Horses
  • Livestock raised for food or dairy
  • Timber
  • Trails
  • Business
  • Apiaries (bees)
  • Kennels
  • Mining
  • Growing dope

I bet you can think of plenty of un-conventional uses for land:  campsites, seaweed drying flats, swamp tours, zip lines, ferries, toll booths, hot air balloon launching pads, wildlife sanctuaries, trout streams, koi ponds, sacred groves, truffle forests, ATV courses, Druidic dance circles, and, OK, I’ll stop now before I get really silly.

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Susan-isms by the Dozen

said on July 19th, 2012 filed under: Real Estate Nuts and Bolts, Whimsy

 

When we were just getting started, CJ and I served our apprenticeships with Sue Thompson, the owner of HomeTown Realtors in Auburn, California.

Most of the foundational teachings, our Real Estate Commandments, we learned from Sue.  She was our mentor and guru.

Here are a dozen of the best Susan-isms from those rookie days:

1.     Do it NOW (not later today, or tomorrow, or some other time . . . NOW)

2.     Get your ass in the car and go FIX the problem

3.     STOP trying  to be Mr. Professor Expert

4.     Promise less and deliver MORE

5.     Live in the QUESTION (When you don’t know what to say, ask more questions.)

6.     LISTEN

7.     Correcting your boss is a great technique for getting FIRED

8.     BE WITH your clients bellybutton to bellybutton

9.     There is a butt for every seat and a buyer for EVERY HOUSE

10.     The most important thing to know is your INVENTORY

11.     The real job of the realtor is to TRANSFER TITLE from a seller to a buyer

12.     A good Realtor can make money in ANY market.

 

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Inspect the Pond?

said on May 31st, 2012 filed under: Country Property, Localism, Real Estate Nuts and Bolts

Yep.  If you’re gonna buy country property, and there’s a pond on it, you should inspect the pond.  Can you actually find and hire a “pond inspector?”  In our rural neck of the woods, you can.  One of the best-known is Keith Crabtree who has a business called Green Acres 101.  I’ll give you the link to his website at the end of this blog.

Here’s a photo of Keith (white socks and sandals) consulting with my buyer-client, Jim Bradley.

This is a good time for a quiz.  What is the optimum color for pond water?

No, it’s not crystal clear “where you can look all the way down to the bottom and see the little fishes at play.”  If you can see all the way down, sunlight can get all the way down there, too.  Sunlight + dead plant matter + algae + photosynthesis = scum.  The best color is . . . green.  How green?  Green enough that a circle of white, concrete perhaps, disappears after sinking 18″ to 24″.  Bet you didn’t know that.  Neither did I until after Mr. Crabtree’s consultation this afternoon.  Of course, if you scoop up a glass full of the pond water, you want it to look clear in the glass.

This pond, according to Crabtree’s inspection is a “good looking pond.”  Besides being the right color, this pond has very little invasive vegetation.  There’s a bank of cattails on the far side, but they haven’t gotten out of hand yet.  Do you know how to control cattails?  I bet you don’t.  Drown them.  Yep.  Cut them off below the water line, the “dead” brown ones as well as the green ones, and let their hollow stems fill with water and drown.  If they are small and just getting started like these, you can pull them out, but once they establish a big root system, oh baby, you are going to have some work ahead of you.

young cattails

Another important element of a working pond is a spillway or outlet of some kind.  This is a good one.

You can lift out the boards on the water-side and lower the level of the pond.  Why would you want to do that?  One reason is so you can work on your pond, especially along the shoreline.  The other reason is to increase the holding capacity just before the big rains come.  You don’t want your pond overflowing the banks, do you?  No, of course you don’t.

There’s lots, lots more to learn about ponds (maintaining your fish, benign plants, circulation, aeration, leaks-and-how-to-fix-them, optimum slope, appropriate and inappropriate foliage to plan around the pond and so on), but I’ll save that for another blog, or even better, you can take one of Keith Crabtree’s classes by signing up on his greenacres.com website.

Here’s a final look at the pond, and one of the best reasons to have one.  You and your pooch can have so much fun!

 

 

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Lake of the Pines Real Estate. How Are We Doing? Summary

said on May 23rd, 2012 filed under: Lake of the Pines, Localism, Neighborhood Profiles, Real Estate Nuts and Bolts

There are about 2,000 homes at Lake of the Pines.

159 Lake of the Pines homes sold during the past two years (May,2010-May,2012).  That’s about 4% per year.

 

(1) APPLES TO APPLES

Sales of “average” homes during the past two years

About the same number of “average” homes (43 to 46) sold this year as in the previous year, but sold 25 days  faster.

Prices of “average” homes have risen slightly, about 6%, (comparing the median of $224,000 in 2010-2011 with the median of $239,900 in 2011-2012).

Prices of “average” homes have risen slightly, about 3% (comparing the average of $241,992 in 2010-2011 with the average of $248,931 in 2011-2012).

Prices of “average” homes are almost identical (comparing price per square foot  ($130 to $129).

SUMMARY

Prices of “average”  homes sold at Lake of the Pines have been relatively unchanged from the previous year through this year.

 

 (2) THE WHOLE FRUIT BASKET

About the same “total” number of homes sold this year (81)  as in the previous year (78), but sold 24 days  faster (101 days on the market to 125).

Prices have risen slightly, about 3%, (comparing the median of $231,500 in 2010-2011 with the median of $239,500 in 2011-2012).

But . . .

Prices have fallen slightly, about 4% (comparing the average of $303,652 in 2010-2011 with the average of $290,019 in 2011-2012).

Prices have fallen slightly, about 4% (comparing price per square foot  ($145 to $139).

SUMMARY

Sales of larger, more expensive, lakefront homes in 2010/2011 skewed the data, rendering contradictory results

 

(3) APPLES AND ORANGES

Lots of mixed results.

The number of distressed home sales in 2011/2012 (13) was 50% less than it was the previous year in 2010/2011 (26).  What happened to the “flood” of foreclosures?

The number of regular home sales in 2011/2012 (30) was 33% more than it was the previous year in 2010/2011 (20).

In 2010/2011 distressed properties were on the market longer than regular sales; in 2011/2012 distressed properties were on the market for a shorter time than regular sales.

Consistently, across all types of Lake of the Pines Properties, sellers are getting about 95% of their asking price.

Distressed properties sell for less money.  Using “price/square foot sold” as the basis of comparison, distressed homes sold for 21% less than regular sales in 2010/2011 and for 29% less in 2011/2012.

Fewer distressed homes sold this year than distressed homes sold last year, and for 14% less money.

More regular homes sold this year than last year, but for 4%  less money.

 

(4) THE FARMER’S MARKET–HOMES CURRENTLY FOR SALE

48                     total number of homes for sale at Lake of the Pines on May 21, 2012

REGULAR SALES

37                    number of regular homes for sale (no foreclosures)

$1,549,000     highest priced regular home for sale

$160,000        lowest priced regular home for sale

$452,541        average priced regular home for sale

$330,000        median priced regular home for sale

105                  average days on the market (and counting–from 5 DOM to 419 DOM)

$182                average price per square foot (asking price not sold price which will be lower)

DISTRESSED SALES (foreclosures and short sales–does not include back-up shortsales)

11                       number of foreclosures and short sales

$350,000         highest priced distressed home for sale at lake of the Pines

$135,900          lowest priced distressed home for sale at lake of the Pines

$238,780          average priced distressed home for sale at lake of the Pines

$244,000          median priced distressed home for sale at lake of the Pines

125                    average days on the market

$101                  average price per square foot

PENDING SALES

21                     number of pending sales at Lake of the Pines

78                     average days on the market when home went into contract

$272,966         average list price when home went into contract

$137                 average price per square foot  when home went into contract

BACKUP SHORT SALES

(Backup short sales are similar to pending sales, but the offered price has not yet been approved by the lender)

9                       number of current backup short sales

165                   average days on the market when home was submitted for short sale approval

$162,211          average list price when home was submitted for short sale approval

$110                average price per square foot when home was submitted for short sale approval

 

(5)  GOLDEN APPLES?  LAKEFRONTS

The number of lakefront homes sold rose from 9 to 13, or 31% in the past two years.

Based on average sold price, prices declined 19%

Based on median sold price, prices declined 15%.

Based on price per square foot, prices declined 14%

Lakefront home prices are not being dragged down by foreclosures and short sales.

ACTIVE MARKET, LAKEFRONT HOMES FOR SALE RIGHT NOW (May 22,2012)

Number of Lakefront homes for sale                   7

Highest price                                                    $1,549,000

Lowest price                                                        $799,000

Average price                                                    $1,076,142

Median price                                                       $998,000

Average days on market                                         235

Average price per square foot                              $312

Based on price per square foot, the prices lakefront homes sold at Lake of the Pines declined 14-15% during the past two years.

Based on price per square foot, current sellers are asking almost twice as much for their homes.

 

 

 

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Lake of the Pines Real Estate. How Are We Doing? Part 5

said on May 22nd, 2012 filed under: Lake of the Pines, Localism, Market Trends, Neighborhood Profiles, Real Estate Nuts and Bolts

GOLDEN APPLES?

This is the fifth of a five-part analysis of real estate at Lake of the Pines, California.   In this fifth analysis, we’re going  to examine the most expensive group of homes at Lake of the Pines, the “lakefronts.”

We will look first at the lakefronts that sold one year ago (May 23, 2010 through May 22, 2011) as compared to lakefronts that sold during the past 12 months (May 23, 2011 through May 22, 2012).  Then we will look at the lakefronts that are for sale right now, also called the “actives.”

                                                          5/23/10 thru 5/22/11           5/23/11 thru 5/122/12

Number of lakefronts sold                                9                                                   13

Highest price sold                                    $1,095,000                                      $915,000

Lowest price sold                                        $450,000                                      $400,000

Average price sold                                       $736,702                                      $598,576

Median price sold                                        $735,000                                     $625,000

Average  list price                                         $773,944                                    $637,107

%sold price/list price                                       95%                                               94%

Price/square foot listed                                 $258                                              $227

Price/square foot sold                                    $246                                              $212

Average days on market                                  172                                                161

 

ANALYSIS

The number of lakefront homes sold rose from 9 to 13, or 31%.  The sample, however,  is too small for this increase to be especially meaningful.   Better than a poke in the eye, but don’t get too excited, because . . .

Prices fell off a cliff.

Based on average sold price, prices declined 19%

Based on median sold price, prices declined 15%.

Based on price per square foot, prices declined 14%

No way to mince words, spin it in a positive way, squint at it through rose-colored glasses and make it look better.  The lakefront homes at Lake of the Pines are taking a royal beating at the real estate  marketplace.  No, it’s not that lakefront home prices are being dragged down by foreclosures and short sales.  In the first period, 2010/2011, there was only 1 distressed sale out of 9, and that one sold higher than the other 8  in price per square foot ($285  per square foot vs. the group average of $246 per square foot).  In the second period, there was only 1 distressed sale out of 13, and that property was only slightly below the group average ($202 per square foot vs. $212 per square foot).

No, don’t try to blame the decline on foreclosures and short sales.

Were lakefront homes wildly over-valued and still correcting?

Are buyers still too tight to spend on “luxury” homes?

 

ACTIVE MARKET, LAKEFRONT HOMES FOR SALE RIGHT NOW (May 22,2012) 

Number of Lakefront homes for sale                   7

Highest price                                                    $1,549,000

Lowest price                                                        $799,000

Average price                                                    $1,076,142

Median price                                                       $998,000

Average days on market                                         235

Average price per square foot                              $312

ANALYSIS

The price per quare foot of the homes on the market today ($312) is almost exactly twice the price per square foot of homes sold in the past 12 months ($161).  Yes, there is 1 home out of the 7 (the most expensive) that is pulling the price per square foot up a bit, but even taking that one out of the sample, the other 6 current actives are way above the average price per square foot of the sold homes.

SUMMARY

Based on price per square foot, lakefront homes at Lake of the Pines declined 14-15% during the past two years, and yet based on price per square foot, current sellers are asking almost twice as much for their homes.  Does this give you some idea why lakefront homes are a tough sell right now?

 

 

 

 

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Lake of the Pines Real Estate. How Are We Doing? Part 4

said on May 21st, 2012 filed under: Lake of the Pines, Localism, Neighborhood Profiles, Real Estate Nuts and Bolts

THE FARMER’S MARKET

This is the fourth of a five-part analysis of real estate at Lake of the Pines, California.   In this fourth analysis, we’re going  to market and see what is for sale right now (May 21, 2012) at Lake of the Pines.

TOTAL SALES

48                     total number of homes for sale at Lake of the Pines on May 21, 2012 as reported on Paragon MLS

47                     total number of homes for sale at Lake of the Pines on May 21, 2012 as reported on Metrolist MLS

REGULAR SALES

37                    number of regular homes for sale (no foreclosures)

$1,549,000     highest priced regular home for sale

$160,000        lowest priced regular home for sale

$452,541        average priced regular home for sale

$330,000        median priced regular home for sale

105                  average days on the market (and counting–from 5 DOM to 419 DOM)

$182                average price per square foot (asking price not sold price which will be lower)

 

DISTRESSED SALES (foreclosures and short sales–does not include back-up shortsales)

5                       number of foreclosures and short sales

$350,000         highest priced distressed home for sale at lake of the Pines

$135,900          lowest priced distressed home for sale at lake of the Pines

$238,780          average priced distress home for sale at lake of the Pines

$244,000          median priced distress home for sale at lake of the Pines

125                    average days on the market

$101                  average price per square foot

 

PENDING SALES

21                     number of pending sales at Lake of the Pines

78                     average days on the market when home went into contract

$272,966         average list price when home went into contract

$137                 average price per square foot  when home went into contract

 

BACKUP SHORT SALES

(Backup short sales are similar to pending sales, but the offered price has not yet been approved by the lender)

9                       number of current backup short sales

165                   average days on the market when home was submitted for short sale approval

$162,211          average list price when home was submitted for short sale approval

$110                average price per square foot when home was submitted for short sale approval

 

 

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