Wednesday, June 23, 2010

Investor – Do You Know the Seven Basic Principles of Real Estate Valuation?

With knowledge and mastery of the seven principles listed below, you’ll be able to valuate properties with an objective eye and sort out the good deals from the ones that are “money pits.”

Before we get to the principles, be aware that all of them relate to a fundamental maxim of real estate – “the highest and best use” of a property. In a legal sense, “highest and best use” is the use of a property that makes it the most valuable to a buyer or the market.

In a business sense, it means one single use will result in maximum profitability through the best and most efficient use of the property.

Okay, here are the seven principles:

Principle 1: Demand

In plain old English, do buyers want or need to own or possess a property and do they have the money to satisfy that need?

If, for example, you have a home (or rental property) in an upward-trending neighborhood, then you can anticipate a good-to-great demand that will allow you to charge accordingly!

Principle 2: Utility

The term “utility” refers to a property’s intended use; e.g., single-family home, rental property, retail function, industrial use, etc.

The gist of this principle is that you want a property to fulfill its intended purpose. That way, it’s in high demand in the right market.

Here’s an example of unfilled purpose: an upscale boutique stuck in a working-class neighborhood. Since the residents aren’t likely to have the money for luxury goods, this retail store would likely not have a great or profitable future. Clearly, this is not the “highest and best use.”

Principle 3: Scarcity

Put plainly, “scarcity” refers to the fact that the value of a particular property is set by comparing it to similar properties.

In technical real estate language, the “theory of substitution” states the following: “The value of a property replaceable in the market tends to be set by the cost of acquiring an equally desirable "substitute" property.”

Principle 4: Transferability

Transferability” refers to the ease with which ownership rights are transferred from one owner to the next.

As you can imagine, investors love properties that are easily transferable (or relatively so). At the same time, they hate properties encumbered by liens, judgments, etc. because such legal issues eat up time and money and can ruin an otherwise good deal.

Principle 5: Regression

When a property’s value is negatively affected by surrounding properties, then you have a situation of “regression.”

The price of your property deteriorates when the nearby properties are of lower value, have inferior construction, or are just plain in lousy condition. Needless to say, you don’t want to buy the best property in a bad neighborhood. You’d simply be throwing your money away!

Principle 6: Progression

“Progression” is the opposite of regression. In this case, a property’s value rises upward because the surrounding properties have better quality, are in better condition, and possess a higher value.

Another way to spell progression is “opportunity!” In other words, you can purchase a sound but neglected/unmaintained property in a good neighborhood.

Then, by bringing the property up to neighborhood standards through repairs, maintenance and upgrades (“rehabbing”), you have the ability to gain great value at a very low cost.

Principle 7: Conformity

Conformity” refers to the fact that property values are maximized when a property conforms to (is similar to) the properties surrounding it. Of course, the opposite is also true. If a property doesn’t mesh well with surrounding ones, its value decreases.

So, for example, if you buy a neglected property, you should renovate it to conform to neighborhood standards, but not over-improve it. Over-improvement can push that property into a higher cost bracket and limit your opportunities for selling or renting it!

In summary be aware that there many variables that can affect the highest and best use of a property. Zoning, re-zoning, the path of progress, etc. – all these factors can change the value of a property. That means, as an investor, you need to stay on top of the market!

Want to learn more about the fundamentals of the real estate market? If so, contact me right now at to discuss this matter or any other real estate matter of interest to you! I look forward to talking with you!

Monday, June 21, 2010

First-Time Home Buyers: Tips to Make Your House a Home

RISMEDIA, June 21, 2010—After getting the keys to their new homes, many first-time home buyers are excited about finally having the opportunity to personalize and furnish their new house. From coffee tables to lamps to lawnmowers, many previous renters leap into homeownership quickly realizing they need to do a lot of shopping to truly make their house a home.

“Whether you’ve been living in an apartment with roommates or at your parents’ house, many first-time home buyers do not think about all the items they need – and want – when moving into a house,” said Janice Jones, national vice president of merchandising for Centex. “With a little advance planning and budgeting, you won’t break the bank to make your new home a reflection of your personal style and showcase your pride of homeownership.”

A typical home buyer spends $7,400 on average on their home, with more than half of that spent in the first year after purchase, according to the National Association of Home Builders.

While many first-time home buyers may not have accounted for this level of spending, Jones offers advice on what types of items to purchase to not only properly maintain and live in the home, but also more importantly, items that help new homeowners feel like their house is a place to call home.


Many first-time home buyers no longer want their parents’ hand-me downs or their childhood bedroom set. From sofas to dining room sets to mattresses, many first-time home buyers take the opportunity to upgrade their furniture when moving into their new home. According to an NAHB study, furnishings take the biggest chunk of the budget, with home buyers spending about $5,300 on furnishings during the first year after buying a home. The biggest ticket item for all households is bedroom furnishings, including mattresses, followed by sofas.

Window coverings and linens

The median square footage of homes bought by first-time buyers is 1,500. So, you can only imagine the number of windows that need to be covered to ensure privacy and security in a home. According to Jones, many home buyers don’t account for this in their budget. Additionally, with the ability to now paint and decorate each room, new homeowners find that they want to purchase new bedroom and bathroom linens.

Garden tools

Since a first-time home buyer is likely to move into their home from an apartment, unless you plan on hiring a gardener, you’ll need to purchase a few basic gardening tools, including a lawnmower, garden hose, sprinkler and a shovel (for winter weather).

Flat screen TV

Let’s face it: many home buyers shop for their new home while taking into a consideration how a new, large, flat-screen television set will be situated in their new living space. So, it’s not a surprise that a hot item on the list is purchasing an entertainment system.

However, you’ll also need the basic appliances in your new home: a refrigerator, stove, and a washer/dryer. While many existing homes usually come with appliances, a home buyer needs to take inventory as to whether or not they will need to purchase these big ticket items before they purchase their new bedroom set.

Basic tool kit

Every home needs a well-stocked tool box. Many home improvement stores have sets you can purchase, but make sure it includes a hammer, screw drivers, pliers, wrenches, a tape measure and a staple gun.
“My biggest piece of advice for new home buyers is to be creative and tackle this room by room,” said Jones. “For example, after outfitting your home with the necessary items—like appliances and window coverings—move on to the kitchen and family room spaces. This area is the heart of your home where everyone gathers.

“Look for great values on the items you need that will be utilized most. Take your time and get the feel of how you want to use each space for both function and enjoyment. This strategy allows homeowners to stage their purchases and add new furnishings as the budget allows. Decorating your new home should be fun and a reflection of your personal style.”

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Tuesday, June 15, 2010

Five Ways To Keep Your Kid Safe This Summer

Five Ways to Keep Your Kids Safe This Summer

By Kristen Gerencher

RISMEDIA, June 9, 2010–(MCT)–As summer approaches, so does the prime injury season for children. Parents have different ideas about how to keep their kids safe, but their assumptions don’t always match up with some of the biggest known threats.

“By far, the leading cause of death in children is injuries, and there’s a lot we can do to prevent those injuries,” said Garry Gardner, a pediatrician in Darien, Ill., and chairman of the American Academy of Pediatrics’ committee on injury, violence and poison prevention. “Injuries, in general, cause more deaths in kids over a year of age than the next seven leading causes of death combined.”

Parents shouldn’t underestimate their role in keeping their kids out of harm’s way, said Alfred Sacchetti, an emergency physician at Our Lady of Lourdes Medical Center in Camden, N.J. “You are the No. 1 safety feature that comes with your child.”

Here are some of the biggest safety risks for children during the summer and otherwise — and what you can do to minimize them.

1. Suffocation and strangulation.
This pair is the leading cause of unintentional-injury deaths in children under age 1, according to the Centers for Disease Control and Prevention.

How to reduce the risk:
Make sure your infant has a sleeping environment free of pillows and soft bedding, and put him or her to sleep on his back in a crib, rather than in a bed with adults. Also position the baby far away from loose or hanging cords.

Parents should use cribs with four fixed sides, rather than those with sides that drop down. With the latter, parts can more easily break, deform or detach, opening up spaces where youngsters can become entrapped and suffocate, according to the Consumer Product Safety Commission and Consumer Reports. Drop-side cribs have been responsible for 32 infant and toddler deaths in the past nine years, according to the Consumer Product Safety Commission, which has recalled 7 million such cribs since 2005.

Parents who use a drop-side crib should check the plastic slides regularly and tighten the hardware if necessary, said Don Mays, senior director for product safety at Consumer Reports. “If there’s any missing or broken hardware, get rid of the crib,” he said. “Don’t try to fix it yourself.”

2. Drowning.
Among children ages 1 to 4, drowning is nearly tied with motor-vehicle accidents as the leading cause of death. Incidents frequently revolve around swimming pools and bathtubs.

How to reduce the risk:
Never leave a child unattended in a bathtub or allow a kid to swim without supervision. Avoid making or answering phone calls; that’s the biggest distraction for parents when children are in a bath or pool, sometimes with fatal results, Sacchetti said.

Home swimming pools should have a fence that wraps around all four sides of the pool instead of having one side open to the house, he said. Having four-sided fencing plus a separate pool-entrance gate can greatly reduce the likelihood of a child falling in and drowning.

Swimming lessons for kids over six months old can be fun, but parents shouldn’t get a false sense of security because there’s no such thing as drown-proofing your child, Gardner said. “I would recommend touch supervision under the age of three or four,” he said, which means you’re supervising your child in the pool or lake and they’re only a hand reach away.

3. Motor-vehicle crashes.
Car accidents are the leading cause of death among children over one year old, according to the CDC. And they account for as many as two-thirds of deaths among teenagers and young adults age 15 to 24.

How to reduce the risk:
Using age-appropriate car seats is critical to boosting a small child’s chances of surviving a crash, according to the National Highway Traffic Safety Administration.

Infants from birth to at least age 1 and 20 pounds should ride facing backward in a car seat placed in the back seat. After that, children should ride in the back seat using forward-facing toddler seats and then booster seats until regular seat belts fit properly—usually not until age 8 or when they’re 4 feet 9 inches tall, the NHTSA said.

Parents can have their car-seat installation checked by a professional for free. The NHTSA’s website lists car-safety experts by area.
4. Other car-related accidents.

Nearly 42 percent of the nontraffic fatalities in children under age 15 between 2004 and 2008 happened because drivers backed over kids, who often were in the vehicles’ blind spots, according to Kids and Cars, a nonprofit that tracks such accidents. More than 18 percent of nontraffic deaths occurred because children got heatstroke after being left in cars. Other risks include power-window strangulation, trunk entrapment and vehicles that are accidentally set in motion.

How to reduce the risk:
Teach children not to play in or around cars and supervise them carefully around vehicles. Make sure kids aren’t around before pressing the gas pedal.

It doesn’t take long for a child left in a car to overheat and die. So drivers should put a stuffed animal in the front seat or a briefcase or purse in the back seat so they don’t forget about the child in the back seat. “It can get very hot, lethally hot, very quickly, and children should never be allowed to be alone in a car ever, even for a moment,” Gardner said.

5. Head injuries.
Brain injuries remain among the most devastating for patients.

How to reduce the risk:
Always use the proper car seat or seat belts. Make sure kids wear sport-specific helmets when they’re playing sports or riding bicycles or skateboards. A child’s aversion to helmets is no excuse for not wearing them, Sacchetti said. “Your responsibility is to be their parent, not their friend,” he said. “The one thing you can’t do is sacrifice their safety to make them like you.”

(c) 2010, Inc.Distributed by McClatchy-Tribune Information Services.

Tuesday, June 8, 2010

FHA203K Rehab Loans

An FHA loan can provide a great deal of help to many families, but not everyone knows exactly what is and who it helps. To start, “FHA” stands for Federal Housing Association. This is the organization that administers the loan, and it is also a part of the Department of Housing and Urban Development (HUD.) Since the FHA doesn’t provide the loan directly, the borrower must contact a financial lending institution to receive the loan.

What is Required?

The FHA does, however, investigate the applicant and insures the lending institution against loss of principal, just in case the borrow does meet all the guidelines of terms of the mortgage. The borrower, who pays an insurance premium of one half of one percent on declining balances for the lender's protection, receives two benefits:

1. A careful appraisal by an FHA inspector.

2. A lower interest rate on the mortgage than the lender might have offered without the protection.

This federal assistance mortgage loan, secured by real property through the use of a mortgage note, can only be issued by federally qualified lenders. Other deciding elements of the application process include getting the house appraised and approval of the buyer’s credit.

The main mission of this kind of loan is to provide lower-income families with the resources to buy a home that they would otherwise not be able to purchase. The program started around the time of the Great Depression when foreclosures and defaults were on the rise. Nowadays, it strives to provide the same kind of assistance.


You may be asking, “How does this program survive and where does it get its money?” Well, upon its entrance into the home-buying market, the loan was intended to provide lenders with enough insurance to make a profit. Today, it is fairly self-supporting thanks to the premiums that are paid to the lenders by borrowers.

While this loan program helps families in need maintain a home they would otherwise lose, it is more centrally focused on rehabilitation. The FHA 203(k) program could be categorized as a “home improvement” loan system. One of HUD’s main values is to open provide greater opportunity for homeowners to capitalize on their property, and this mission is carried out through the 203(k) program as well.

Lenders Won't Short You

Some lenders have been known to partner with nonprofit organization to assist with the revitalization of many homes, incorporating other housing assist services to give the borrower as many useful resources as possible.

Through their generous participation, lenders further their dedication to the Community Reinvestment Act (CRA), which was created in 1977 under the Housing and Community Development Act. The CRA is a federal law that encourages banks and other saving services to target and assist different segments of their respective communities with housing, especially lower income families.

What are All Its Uses?

The program isn’t always used directly by the lender. It can also provide money to rehabilitate property in three different ways:

- The loan can be used to purchase a dwelling on the land on which it resides, then restoring and reviving the property.

- The loan can be used to refinance current debt and refurbish a home (like most borrowers would use it for.)

- The loan can be used to buy a dwelling on a separate site and then move it to the land that has been mortgaged, then they can proceed to rehabilitate it in its new location.

No matter how you ended up with existing debt or a run-down home that you were unable to afford repairs for, the FHA 203(k) loan rehabilitation plan may be your light at the end of the tunnel. Lenders a generally rather generous and it can make an enormous impact in the life of you and your family.

For further comments of question, please feel free to contact me anytime by email, which is, or by phone at 402.598.3965.