29
Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Embed Size (px)

Citation preview

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

Slide 4-1

Helping Clients &

Customers Make the

Right Choices

CHAPTER 4

Page 2: 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

Page 3: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-3

Selection Factors

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

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

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 ?

Page 5: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-5

Provide information to help buyers evaluate and compare investment options

Do not offer investment advice

Help Investors Make Informed Decisions

Page 6: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 7: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

?

Page 8: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-8

Investment Value

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

?

Page 9: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 10: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 11: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 12: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 13: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 14: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-14

Not available for financing second homes or investment properties

FHA & VA Financing

?

Page 15: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-15

Contract Contingencies

Financing

Appraisal

Inspections

Page 16: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 17: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-17

Fee simple

Joint, severalty

Co-ownership

Corporation

Ownership

Partnership Trust

Privacy protection of assets estate planning easily transferrable

Page 18: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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 ?

Page 19: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 20: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 21: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 22: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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?

Page 23: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-23

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

5 Questions to Ask

Page 24: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 25: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-25

Attracting Renters

Help investors:Tune in to what attracts

rentersMake the property

attractiveUnderstand maintenance,

upkeep, refurbishment needs

Page 26: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 27: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

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

Page 28: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-28

Investor’s Usage Policies

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

Page 29: Slide 4-1 Helping Clients & Customers Make the Right Choices CHAPTER 4

Slide 4-29

Ask Questions

•To Get the Right Answers!•Case Study!