Buying That Vacation Home This Summer

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Buying That Vacation Home This Summer

Whether it's the lakefront getaway, summer beach home, or mountain retreat, you'll want to take these things into consideration before making the offer.

1. Know the Area.

Don't even think about buying until you've visited the area and spent a good amount of time there. No amount of research online or talking to friends or family will prepare you for spending weeks, or years, living in a new area.

2. Match your lifestyle.

Many first-time home buyers today are opting for vacation homes before they purchase primary residences. What's most important about this strategy is matching your lifestyle to your house purchase. If you live in a city, but want lots of space, a home in the country might be just what you're looking for while you keep renting. Or, if playing golf every weekend is part of your routine, maybe it's time to find a home near the links.

3. Understanding Fixed and Variable Costs.

The purchase price is just the beginning of your budget. Your costs to use and maintain your home are also a significant expense to consider and may vary entirely from what you are used to. The expenses of a summer home versus a winter home can differ greatly when it comes to maintenance (snow removal, storm-proofing, flood insurance, fire, etc.), frequency of use (property management costs and security and alarm systems), and taxes.

A good rule of thumb is to set aside ~2% of the property's value for maintenance costs annually. Budgeting for taxes are a bit easier (though subject to change), but taxes can also weigh heavily and differ year to year, as well - and more than 2% at the State level alone

4. Ease of Access.

How easy will it be to get to your getaway? A beachfront home in Costa Rica may sound like a dream, but how willing are you to take that trip if it requires two flights, a rental car, and a three hour drive? It's also possible that the 30 miles of dirt back-roads that require a 4 x 4 takes the same amount of time as the 3 lane highway (with or without traffic).

You can use a site like Travel Math or Google Maps to estimate the time and cost of getting between two places to help compare apples to apples.

5. Generating Income.

So, you want to AirBnB? Better check your ROI and the local regulations. You should have a strong understanding of the local rules (and costs) that may turn a great investment idea into a legal nightmare.

In addition to knowing the estimated income, you should factor in occupancy rates during high and low season, and marketing costs. Just because a home is listed for $1,000/night online, doesn't mean it's renting...

Local laws can also put a damper on your investment use.  For example, under the NY State Multiple Dwelling Law, rentals of a duration of less than 30 days can cost you up to $7,500 per violation. Local town laws can be even more restrictive, like those in the Hamptons that require you to register all rentals, pay a registration fee, and ensure your dwelling is up to code - failure to comply can carry a hefty fine, or even jail time. Looking to purchase a co-op or condo? HOA or board rules may outright preclude you from renting altogether, unless certain requirements are met. 

Lastly, it's worth noting that any rental income on properties rented for more than 15 days/year require you to file taxes when April 15th rolls around, so you'll want to keep records.

It's always important that you make these decisions alongside a professional who can help answer all of your questions. Whether it has to do with the local area or the financial implications, a great agent will help guide you.

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Disclosure of Assets

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Disclosure of Assets

Do I have to disclose my assets to my real estate agent/broker?

QUESTION:

I am looking to hire a realtor to buy a home but I do not want to reveal to them how much cash I have and how much money I am looking to borrow. I only want to give them a dollar amount for what I'm ‘approved‘ for. Is it possible to work this way with a realtor?

Historically, realtors have tried to push me to reach out to certain lenders. I think who I am borrowing from is none of their business and how much cash I'm spending is none of their business.

If realtors continue to try to get me to 'up my spending threshold' by finding different 'sources' or things like that, I may just have to find a way to buy a home where I don't have to interact with a realtor, because I'm getting sick of it.

ANSWER:

Finances are a very private matter, but are also critical terms when it comes to the purchase of a home.

The purpose of disclosing a financial snapshot to your agent is so that agent can craft an offer that shows your qualification as a purchaser and gives the seller the confidence that you can close on the deal. Often times, an incomplete picture of assets will preclude a seller (or agent) from taking your offer seriously. 

Additionally, when financing, an offer MUST include the purchase price, amount financed, and down payment - there is just no way around that, if you want your offer to be taken seriously. In the event of a condo or coop purchase, a financial snapshot is also usually a board requirement, as is showing reserve funds in an account to cover monthly fees for a certain period of time.

We always suggest asking the agent why they are requesting certain information. If they can't give you a good answer, it's probably time to move on.

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The Home Stretch

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The Home Stretch

11 days before closing, what can go wrong?

QUESTION:

Aside from ensuring we have our down payment funds in order prior to close, what actually has to happen to receive a "clear to close" at this point?

FWIW - The seller picked the end of the month as she is closing on the purchase of her new home and moving in a week before we are scheduled to close.

ANSWER:

The good news is that you're around 95% of the way there. While it is still possible to hit a snag, it sounds like you're in a great position to close on your side (Assuming all is clear with your Commitment Letter, down payment, and any inspection / appraisal items have been settled).  The seller's side, on the other hand, may be in a position to delay closing if their purchase / move-in timeline gets pushed.

Outside of a force-majeure or a seller delay, the most likely barrier to close, at this point, is your final walkthrough. In the event that something happens to the house in the next week, you'll have to address it between close and the walkthrough. These items are often small, but can end up being contentious for various reasons (proximity to close, additional paperwork, and nature of negotiation). 

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Using a Real Estate Attorney instead of a Real Estate agent

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Using a Real Estate Attorney instead of a Real Estate agent

QUESTION:

I met a real estate agent at a an open house near me a couple of weeks ago, and mentioned to her that I was thinking of selling my place (I really want to move to the city that most of my family lives in), but was considering my options. She gave me her card, and arranged to have a developer look at my property last week. That developer made me an offer today, and this agent wants 3% for finding this deal.

That is all fine, but my question is: I don't really view this agent as my seller's agent (we don't have a contract). She has a prior relationship with that developer, and so I think she has a conflict of interest, and thus I should not use her to handle my side of this transaction, as one might in a normal listing.

I think my most prudent move here is to hire a Real Estate Attorney to handle my side of this transaction? ...which I've never done before (I've never sold property before). I'm curious what I should expect? Do such Attorney's charge a flat rate? Or is it a % of the sales price? And other than using the yellow pages or google, what is a good way to find a good one?

ANSWER:

The attorney v. agent questions is something that we've covered before, but not in this context.

We would recommend that in this instance you should ABSOLUTELY use an attorney for the deal.  Developers do this for a living every single day and it is always in their best interests to issue the most favorable terms to the buyer.

An attorney will usually charge a flat fee.  We tend to see anywhere from $750 to $5,000 per closing, depending on your location.

Unfortunately, there is no quick and easy place to turn, currently, to find a closing attorney (outside of your network, the Yellow Pages or maybe Avvo), but we're working on that... Stay tuned.

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Is it okay to use multiple realtors?

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Is it okay to use multiple realtors?

Is it okay to use multiple realtors? If not how best to decide?

QUESTION:

I've gotten a few recommendations for realtors and I found two that I like, but they're fairly different.

One works for a small group that seems very local to the few towns I'm looking at and they know those towns well having grown up and lived in the area for decades. The other works for one of largest firm in the area but doesn't know the areas as well.

Both said they can set me up with alerts for MLS, so does that mean they both have access to all the same houses and it's just a matter of which ones they bring to me?

ANSWER:

While you can certainly work with multiple agents on the buy-side, it is not recommended, unless you clearly define the types of properties they should present and limit the geographic scope so they don't overlap. The last thing you want is to have to clear the air after both send you the same listings (which is more likely than not). 

Because all agents have access to the same MLS listings, it is always recommended to work with the one who has a deeper knowledge of a local area and more experience with that type of property (type, $/SF, size, etc.), especially if you feel that both will service you just as well as the other.  When it comes to the offer and contract, you'll want the agent who understands the in's and out's of the local homes and pricing - after all, real estate is a hyper-localized industry.  

If you've found an agent who fits all of those criteria, you may want to consider starting with them to see how it goes before looking to the second. 

As an FYI, when selling a home, you won't encounter this problem as you will enter into an exclusive listing agreement with a selling broker/agent.

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Rental Property Investment Factors

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Rental Property Investment Factors

What factors should you consider when buying an investment property to rent out?

QUESTION:

We have been considering buying property for renting, despite all the horror stories. We like the idea of running our own business and having some investment diversity.

The price of a property we're considering is reasonable and it has stable tenants that are interested in staying. The property is in an up-and-coming area so appreciation looks good. It is also close to us, so we can easily check in.

One issue we are debating is cash flow. Because we have to use financing, we have a mortgage (+IPT) which at current rents, has low positive cash flow (really, considering all expenses, probably zero). The current landlord mentioned what was thought the rents should be, and these values are inline with local rents for the same sized units I researched. This increase in rents, would cover all expenses (so MIPT + estimates for repairs, CapEx, etc.) and the cash flow would be much better. However, first year ROI is only 3%.

How much cash flow buffer is enough? I read crazy stories about people only investing in things that have 20%+ ROI but I can't see that happening in such expensive areas.

ANSWER:

This is a great idea.

The factors that you should consider when buying an investment property depend entirely on your strategy and objectives.  If you want a passive investment with yield, the most important number to consider is your Cap Rate (NOI/Purchase Price). Understanding your Pro Forma figures (what you COULD rent for) is very important, as well as the potential appreciation, but these figures can not be guaranteed. A more active investment with a value-add component would require an entirely different analysis that takes into account your cost of improvement and forward-looking ROI.

Also, keep in mind that generally, the more expensive/prime the location, the less yield you will see - as these are the more stable locations with lower risk. If you want high yield, you'll likely be looking at a cheaper unit in a less desirable neighborhood. 

You'll want to keep at least a 6 month buffer on monthly carrying costs to account for a vacancy factor (time the unit sits without a tenant) and any repairs/CapEx/OpEx.

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Lock-In Profit or Let It Ride?

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Lock-In Profit or Let It Ride?

We often get questions - like the one below - regarding whether a client should sell after seeing neighborhood appreciation or stick around to see what happens.  

QUESTION: 

Should I Take All Profits From the Sale of Old House and Invest in a Better House?

I'm living in DC and purchased a brand new condo a year ago. This was my first home purchase. I bought early in the construction process and was able to get a very good price compared to what the other people in the condo community paid. The neighborhood is quickly changing for the better, so I expect property values to continue to increase. 

That being said, a neighbor in the condo just sold, and based on that selling price I'm comfortable estimating I could sell for $100k more than I paid a year ago. Assuming that is true, would it make sense to invest all of the profit in a new house ($100k more than my current home)? I feel like that is the safest investment, but I'm new this and wanted to hear what insight you have. Thanks in advance for your help. 
 

ANSWER:

Getting into a new condo during the construction process is a great way to turn a profit in a gentrifying area. I've seen this work out well for clients in many different cities, but I've also seen sellers miss the boat when it comes to taking profit off the table.

Your decision of whether to hold or sell should be based on a number of different factors, but is usually driven by 1) the amount of appreciation that you can capture, and 2) the new housing stock (comps) that will be introduced in the neighborhood in the future. If there are more new units like yours being built, chances are that a buyer will opt for the newer condo - with all else being equal - and your condo may sit on the market or sell for a lesser price.

If you can take the profit now and find another area with similar appreciation, you'll be able to trade-up into something even nicer.

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99 Havemeyer

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99 Havemeyer

Townhouse-like triplex in prime Williamsburg with a private parking garage under $1.3M from Alyssa Brody at Compass? Yes please.

99 Havemeyer offers you the terrific opportunity to own a truly unique 2-bedroom, 1.5-bathroom triplex complete with a spacious recreation room and private parking garage with direct access into the apartment. The first level offers a bright open living/dining room layout with 11-foot floor-to-ceiling windows. The eat-in kitchen features white quartz countertops, mosaic tile backsplashes, Italian crafted cabinetry by Miton, and stainless steel appliances from Bosch and LG. Both of the spa-like bathrooms are wrapped in Porcelanosa white porcelain tiles and the master bath features a Vita deep soaking tub with glass enclosure. Other notable highlights of the triplex are its custom California closets, white oak flooring, vented washer/dryer, central air and heat and a home security system. The spacious master bedroom boasts a sizeable secluded private balcony.

See more here.

About the Neighborhood:

Williamsburg is a vibrant, festive neighborhood that doesn't just follow trends but also creates them. From outdoors movie screenings, farm-to-table restaurants like Reynard, to the annual food and flea markets on the waterfront like Smorgasburg, Williamsburg has established itself as a leader and creator of the latest fads. Private rooftop parties, lively music concerts, and award-winning eats all within the neighborhood. There's no need to venture far for a great time.  Can't miss spots include: Peter Luger Steakhouse, Brooklyn Brewery, and the Roebling Tea Room.

Transportation: J | M | Z | G | L

99 Havemeyer #2A

Unit Details:

  • Price: $1.25M
  • Type: Condo
  • CC:  $465
  • Tax: $26
  • 421(a): Yes
  • Bed/Bath: 1/1.5
  • SF: 1,102 SF
  • Garage: 2 Car

Unit Features:

  • Private Balcony
  • 11' Ceilings
  • Private Garage
  • No pets
  • W/D in unit
  • Soaking tub 
  • California closets

Location:

 

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