Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-1

Helping Clients &

Customers Make the

Right Choices

CHAPTER 4

Slide #-2Slide 4-2

Choosing a LocationWhat are the advantages of your market compared to others?

For investment For retirement For vacation

Slide 4-3

Selection Factors

Climate Outdoor Activities Cost of Living & Taxes Housing Options Entertainment Shopping Tourism Safety & Security Infrastructure and Services Local Attitudes

Slide 4-4

•

Is Every 2nd Home an Investment?

Most 2nd homes purchased as a combination1 in 4 plan to convert 2nd home to primary

home after retirementTwo reasons for investing

Income value appreciation

Align investor expectations with market ?

Slide 4-5

Provide information to help buyers evaluate and compare investment options

Do not offer investment advice

Help Investors Make Informed Decisions

Slide 4-6

Is It a Bull or a Bear Market?

Bull Rising stock prices pull

money into the market More cash available for

investment as investors seek to diversify

Bear Money flows out of

falling market May flow into real

estate for safety and value appreciation

Slide 4-7

APOD or CFA

Annual Property Operating Data

A snapshot viewEstimate of income, expense, and net profit on an annual basis

Cash Flow AnalysisA moving viewEstimate of income,

expense, and net profit on an annual basis

?

Slide 4-8

Investment Value

Return On Investment (ROI)Cap Rate = Net Income ÷ Price

?

Slide 4-9

NAR Code of Ethics“REALTORS® shall not…

provide specialized professional services concerning a type of property or service that is outside their field of competence”

Investment AdviceSEC

Unlawful to offer compensated investment advice about securities unless qualified and registered as an investment adviser

Slide 4-10

Significant percentage of cash buyers, particularly high-end properties

Mortgage interest deductible on combined debt of $1 million on primary and one other home

Same LTV and DTI ratios as primary home mortgages

High down payment requirements

Financing Facts

Slide 4-11

When the property is located in another area or state, it may be best to seek mortgage financing through local banks. Local loan officers will know the market. The buyer might look to a local branch of their home bank for financing.

Use Local Lenders for Financing

Page 72

Slide 4-12

Lenders use investment-property underwriting standards when rental income is needed to cover payments,

Higher interest rates and down payment compensate for risk of vacancies

If too many condo units in a development are rented, difficult to obtain financing

Help buyers align expectations with realities

Rental Income

Slide 4-13

Rent second home for income

At retirement sell primary home, pay off and

refurbish 2nd home

Or

Sell both properties and purchase a new home

Rental Home to Retirement Residence

Slide 4-14

Not available for financing second homes or investment properties

FHA & VA Financing

?

Slide 4-15

Contract Contingencies

Financing

Appraisal

Inspections

Slide 4-16

90-day time limit on home acquisition debt

Seller financing

Second mortgage on primary home

Balloon, interest only

Home equity

Private mortgage

Finance Strategies

Slide 4-17

Fee simple

Joint, severalty

Co-ownership

Corporation

Ownership

Partnership Trust

Privacy protection of assets estate planning easily transferrable

Slide 4-18

Co-Ownership

Usage Assignment: each co-owner has exclusive use of the property for a specific number of days

Pay-to-Use: each co-owner pays a pre-agreed usage fee for each day or week of use ?

Slide 4-19

Less expensive than ownership

No responsibility of upkeep

No real estate taxes, utilities, or maintenance expenses

Flexibility through exchange programs

Time Share Ownership

Buyer receives the right of property use for a specific period of time but not an actual ownership interest

No value appreciation Difficulty to sell or

exchange low-end or off-season time shares

Management and upkeep dependent on the sponsor

Limits on schedule and duration of occupancy

Slide 4-20

Less expensive than outright or co-ownership Extended usage periods Better usage-to-cost ratio than a time share Can guarantee prime time or high season

occupancy Onsite management

Fractional Ownership

Deeded interest and extended occupancy

Slide 4-21

Non Equity Model Similar to time share No value appreciation Partial refund if member

leaves May be difficult to

recover deposit if too many members want out

Non Equity Model

Affluent buyers, luxury propertiesHigh upfront deposit

Equity Model Ownership of a % of

portfolio of properties When member resigns,

refundable fee adjusted in line with portfolio’s value

Destination Club

Slide 4-22

Putting it All Together

Help buyers:Clarify objectivesChose the right propertyNavigate the processUnderstand localityAlign seasonal versus year-

round expectationsFit with future lifestyle and

income?

Slide 4-23

1. How far?2. How much?3. Why?4. Wants/needs?5. How often?

5 Questions to Ask

Slide 4-24

Investment Buyers

Help investors: Clarify goals Evaluate properties Align expectations for income,

ROI, appreciation, personal use Understand locality Understand insurance needs

Photo courtesy of Ted Jones, Senior Vice President-Chief Economist, Stewart Title

Slide 4-25

Attracting Renters

Help investors:Tune in to what attracts

rentersMake the property

attractiveUnderstand maintenance,

upkeep, refurbishment needs

Slide 4-26

If buying furnished, an estimate from a local furniture store helps indicate the portion of the purchase price for furnishings.

Budgeting for Furnishings

Slide 4-27

Provide a Rental History

Helps the investor budget for income and expense

Anticipate expenses for unique needs Provide a list of contacts for property

repairs and maintenance

Slide 4-28

Investor’s Usage Policies

No smoking?Pets?Occupancy limits?Co-owners’ requests for additional time?Reserve personal time to maximize rentals

Slide 4-29

Ask Questions

•To Get the Right Answers!•Case Study!